SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(MARK ONE)
(  X  )  ANNUAL REPORT UNDER SECTION 13 OR 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

         For the Fiscal Year Ended December 31, 1998

         or

(     )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

         For the Transition Period From _______ to ________

Commission File No. 33-87392

                      HOSIERY CORPORATION OF AMERICA, INC.
      ------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

DELAWARE                                                         36-0782950
----------------------------------          ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

3369 Progress Drive
Bensalem, Pennsylvania                                                  19020
---------------------------------------------                      -------------
(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:  (215) 244-1777

Indicate by check mark whether the Registrant (1) has filed all reports required
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing  requirements  for
the past 90 days.

         Yes             X                                  No       
                  ---------------                               ------------  

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. (X)

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant is zero.  All of the voting stock is held by affiliates  and there is
no  established  public  trading  market  for any class of  common  stock of the
Registrant.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

Class                                              Outstanding at March 29, 1999
----------------------------                       -----------------------------
Voting                                                        1,331,574
Class A, non-voting                                              75,652


<PAGE>


                                     PART I

ITEM 1.  BUSINESS
-----------------

     Hosiery Corporation of America,  Inc. (the "Company"),  the Registrant is a
corporation organized in 1975 under the laws of the state of Delaware.

         The Company is engaged in the direct mail marketing,  manufacturing and
distribution of quality women's sheer hosiery  products to consumers  throughout
the United States.  The Company has recently begun to expand its operations into
the  United  Kingdom  and  Germany.  (See Note 3 to the  Consolidated  Financial
Statements of the Company in Item 8 hereof.) The Company  markets  women's sheer
hosiery  through a continuous  product  shipment or  "continuity"  program.  The
Company's  continuity  program  involves mailing to customers a specially priced
introductory  hosiery offer,  the  acceptance of which enrolls  customers in the
program and results in additional  shipments of hose on a regular and continuous
basis upon payment of a prior hose shipment.  The Company's  hosiery  production
was  approximately  66  million  pairs in 1998,  primarily  marketed  under  the
Silkies(R) brand name. The Company's  manufacturing  operations  supplied 80% of
all the hosiery required by the Company's continuity program during 1998.

         The Company markets its hosiery products exclusively through its direct
mail  marketing  continuity  program.  The  success of this  program  depends on
targeting  likely  customers and on retaining  customers by  delivering  quality
hosiery  products  directly  to the  home on a  regular  basis.  Drawing  on its
customer  list of over 75 million  individuals  and on certain  rented  customer
lists,  the  Company  has  developed  sophisticated   statistical,   regression,
segmentation and other financial analyses to accurately target, test and acquire
first-time (and previously  inactive) "front end" customers  through direct mail
solicitation. The Company has designed an initial direct mail solicitation offer
which has attracted front end customers and reactivated previous customers.

         In order to induce customers to participate in the Company's continuity
program,  the  introductory  hosiery  offer is  priced as a "loss  leader".  The
introductory  offer is priced at a nominal amount,  $1.00 per pair plus shipping
and  handling,  that is  substantially  less  than  the  cost of  manufacturing,
processing and shipping the related hosiery.

         Front end  customers  who  continue  to  participate  in the  Company's
continuity  program  become part of the Company's  repeat or "back end" customer
base.  After  responding to the front end solicitation and receiving their first
shipment,  customers can elect to continue in the program, receiving either four
or six pairs of hose with each  subsequent  shipment.  A customer who chooses to
participate  in the  continuity  program by making  regular  purchases  pursuant
thereto is an active back end customer. Such "active back end customers" exclude
customers  receiving  their first  shipment.  Upon  payment  for each  shipment,
customers are sent another  shipment of regularly  priced hose, on average every
four to six weeks. The Company has established a consistent and predictable back
end customer  base by providing  customers  with quality  hosiery  products on a
regular basis.  As of December 1998, the Company had  approximately  1.5 million
back end customers.

Marketing Strategy
------------------

         The Company has created a marketing strategy which combines direct mail
marketing  techniques  with its  continuity  program.  The  Company's  marketing
efforts  focus on  targeting  and  acquiring  front  end  customers,  as well as
maintaining a strong  relationship with continuity or back end customers through
efficient  fulfillment  of quality  products,  customer  service,  creative  new
product  introductions  and  unique  marketing  strategies.  These  direct  mail
marketing initiatives,  refined by advanced statistical and regression analyses,
have increased the size and quality of its customer base.

         The  Continuity  Program.  The Company's  current  initial  direct mail
solicitation  offers its customers the  opportunity  to receive one free pair of
hosiery  with the  purchase  of two  additional  pairs at $1.00  per  pair.  The
customer is able to choose the size, style and color of hosiery for this initial
shipment.
                                       2
<PAGE>


                                        
         Upon  receiving  the first  shipment,  the customer can (i) pay for the
product and order a second  shipment,  (ii) pay for the product and elect not to
order a second shipment,  or (iii) return the product and keep the free pair. In
1999, the company intends to change its front-end offer to most new customers so
that the offer will be one pair free without the customer having to purchase two
additional pairs at $1.00 each.

         By paying for the  product and  ordering a second  shipment of hosiery,
the customer joins the Company's continuity program and becomes a repeat or back
end customer.  Upon payment for each  shipment,  customers are sent a subsequent
shipment of regularly priced hose, on average every four to six weeks, with some
customers electing a bi-monthly shipment option.  With each shipment,  customers
may change the selection of styles, colors and sizes. Back end shipments contain
either four or six pairs of hosiery which vary in price according to style.  All
shipments are made on credit,  but the Company's exposure to any one customer is
limited to the cost of one  shipment.  Customers are not required to commit to a
minimum purchase amount and can cancel the program at any time, for any reason.

         Acquiring  Front End  Customers.  Direct mail  marketing has become the
Company's  primary means of attracting new front end customers and  reactivating
previous customers.  Four major solicitations  featuring the Company's specially
priced   introductory  offer  are  mailed  each  year  (January,   March,  June,
September). There is no significant seasonality in the mailings.

         The Company employs  advanced  statistical  and regression  analyses in
conjunction with each of its solicitation  promotions.  The Company utilizes its
proprietary  in-house  database of over 75 million  customers,  as well as lists
rented from other direct marketing firms,  and analyzes  information  concerning
customer buying habits and payment records in order to determine which potential
customers  are likely to  purchase  hosiery  from the  Company on a regular  and
long-term basis. During each major  solicitation,  all chosen customer lists are
ranked by potential  realizable  profit.  The mailing cut off is then matched to
budgeted  production.  This process ensures that anticipated profit is maximized
from each of the four mailings.

         Retention  of Back End  Customers.  The  Company  seeks to  retain  its
continuity or back end customers by providing high quality  hosiery on a regular
basis and at  competitive  prices.  In  addition,  as members of the  continuity
program, customers receive gift certificates with each shipment of hosiery which
can be  redeemed  for a wide array of  merchandise.  The  Company  also offers a
women's wear catalog  featuring  branded and private label lingerie and intimate
apparel products in conjunction with outside manufacturers.  Through these means
the Company  believes it has been able to establish a  predictable  base of back
end customers  without  significant  losses of customers  over time. The Company
continually is working on developing new means of better  retaining its back end
customers.  Customers exit the continuity  program for various reasons including
unavailability  of certain  styles and  colors,  preference  for retail  stores,
situational  changes,  too much  hosiery,  promotional  sales at retail  stores,
quality and garment fit.

         Through  its  data  processing  capabilities,   the  Company  tracks  a
customer's  order  history  from  the  initial  order  through  each  subsequent
purchase,  whether  the  purchase  is a hosiery  product,  merchandise  from the
women's wear merchandise  catalog,  or other consumer  products received through
gift redemptions.  Each of the Company's  customer service  representatives  has
on-line  capabilities  to retrieve  customer  specific  queries  and  purchasing
history.

                                       3
<PAGE>


                                       
         Customer  Testing.  All aspects of the Company's  direct mail marketing
program  result  from  specific  customer  testing  which the  Company  conducts
continuously.  Such testing enables the Company to (i) project the profitability
of certain in-house and outside customer lists;  (ii) maximize response rates to
front end  solicitations;  (iii) determine the  profitability of the product mix
offered to back end customers;  (iv) determine optimal pricing strategy; and (v)
increase  payment and  retention  rates.  Constant  refinement  of test programs
through creative design, offer upgrades,  new hosiery products and referrals are
conducted  throughout various mailings with the objective of increasing response
rates or reducing cost, without negatively impacting  continuation or retention.
The time from test to  application  can take  between  three and  twelve  months
depending on the testing  employed.  Historically,  the Company's actual results
have been similar to its test results.

         Customer  Profile.  Management  believes  that  the  Company's  average
customer is a working  woman between age 30 and 55. The Company  estimates  that
its average customer buys  approximately  60% of her sheer hosiery products from
the Company,  and many of such customers  purchase  hosiery for other  household
members.

Product and Development
-----------------------

         The Company  manufactures  moderately  priced,  quality  women's  sheer
hosiery under the Silkies(R) brand name. The Company's  product line is designed
to include the more popular  product  styles and colors for which most customers
have the greatest demand and,  effective  January 1998,  includes nine styles of
sheer hosiery,  in ten different  colors and six sizes, as well as knee-hi's and
two opaque styles in six different  colors.  The  Company's  elastomer  products
(compression  garments  containing  spandex)  include  Control  Top,  Total  Leg
Control, Sheer Charm, Opaque,  Shapely Perfection,  Trouser Socks, Ultra Control
Top and Ultra Total Leg Control.  The  Company's  elastomer  products  currently
represent  approximately  93% of its  total  production.  The  remainder  of the
Company's  production consists of its non-elastomer  products including Panty 'n
Hose, Sheer to Waist and Knee-Hi styles. As of January 1999, the styles range in
price from $2.45 to $5.66 per pair.  The  Company  performs  extensive  consumer
research and product  testing to: (i) ensure product  quality,  (ii) service all
significant  markets and (iii) convert  existing  compression  hose customers to
higher margin, sheer compression hosiery products such as Shapely Perfection.

Data Processing and Management Information Systems
--------------------------------------------------

         The Company has computer  and data  processing  capabilities  which are
adequate for its current level of operations. The Company has a full back up and
disaster recovery program for its data processing system which enables operation
at an outside facility within twelve hours of the onset of such need.

         The Company provides data processing  services,  including  proprietary
software  programs,  to its  marketing  operations  that  manage the flow of all
hosiery  products from  solicitation  to customer  fulfillment.  These  services
include direct mail solicitations, customer list management and customer service
operations, including order input, billing, collection, printing and tracking of
customers ordering history.  Through its database  capabilities,  the Company is
also able to store and manage a  proprietary  database  of  customer  purchasing
habits gathered from the Company's hosiery sales history in addition to customer
gift redemptions and women's wear merchandise catalogs. This historical database
of  customer  purchasing  habits  covers  current  and past  hosiery  shipments,
customers' credit statistics, buying patterns and purchasing records.

         See page 14 regarding year 2000 plans.


                                       4
<PAGE>


                                       

Manufacturing and Distribution
------------------------------

         The Company manages all phases of the  manufacturing and fulfillment of
hosiery products,  including  planning,  purchasing,  production,  packaging and
distribution.   The  Company's  direct  mail  marketing  program  is  vertically
integrated  into  its  manufacturing  and  production  operations,   the  latter
providing the  Company's  marketing  operations  with  approximately  80% of the
Company's  hosiery  needs.  By spreading  the volume of yearly  orders over four
major  solicitation  dates,  manufacturing  and  fulfillment  are  able to avoid
extreme  variations,  and thereby  ensure higher  efficiency  and better product
quality.  Additionally,  the  results of the  Company's  direct  mail  marketing
program  allow  the  Company   quickly  to  adjust  its   manufacturing   output
accordingly.

         Production  Process.  Once  front  end and back end  orders  have  been
received, the shipment information is communicated via computer to the Company's
facilities at Newland,  North  Carolina.  The Company's  ability to schedule its
annual output allows the Company to practice "Just In Time" inventory management
techniques.  The  primary  raw  materials  utilized by the Company are nylon and
spandex yarn, dye and chemicals,  and are readily available.  Such raw materials
are  purchased  directly from  suppliers who provide the Company with  technical
support.  Most  knitting and sewing  operations,  including  toe  closing,  line
seaming and gusset seaming,  are located at the Company's facilities in Newland,
North  Carolina.  Once the hosiery  products  have been  manufactured,  they are
transported  to the Company's  Lancaster,  South  Carolina,  facility  where the
products  are dyed,  packaged  and then to the Heath  Springs,  South  Carolina,
facility where they are prepared for delivery.

         Suppliers.   The  primary  raw  materials  utilized  in  the  Company's
manufacturing  operations  are nylon and spandex yarn,  dye and  chemicals.  The
Company  purchases a majority of its yarn under  6-month  fixed-price  contracts
from  various  domestic  and  international  suppliers.   Although  the  Company
generally  stocks only a two to three week supply of raw  materials  in order to
manage inventory efficiently,  the predictable nature of the Company's shipments
generally allows it to order raw materials up to a year in advance and secure an
adequate supply at prearranged costs.

         Packaging and Distribution.  The Company operates fully automated, high
speed packaging machines and distributes its products through the postal service
directly to the  customer's  home. The Company's use of  standardized  and fully
automated packaging allows the Company to achieve significant efficiencies.  The
Company uses the postal  service and has been able to control  delivery costs by
passing on to its customers any increases in postal rates. However, there can be
no  assurance  that in the future the Company  will be able to pass on increased
shipping costs to its customers. The Company also tries to minimize postal costs
through the use of  pre-sorting,  utilizing nine digit zip codes and co-mingling
of mail.

         Capital  Investment.  During the past nine years, the Company has spent
approximately  $31 million  replacing  the  majority of its  knitting and sewing
capacity with advanced robotics,  installing  automatic  packaging equipment for
more timely response through efficient fulfillment, building a new dye house and
distribution  facility  and  upgrading  its  computer  facilities.  The  Company
maintains relationships with its machinery producers in order to keep up-to-date
on  changing   manufacturing   methods.  The  Company's  current   manufacturing
operations have the capacity to produce approximately 66 million pairs annually.
Additional requirements are being outsourced in Mexico and Italy.

Growth Strategy
---------------

         Management  believes that the Company's ability to analyze and manage a
large customer base,  combined with its knowledge of customer  buying  profiles,
provides  strong  potential for future growth  through the direct mail marketing
channel.  The  Company's  strategy  for  additional  growth  primarily  involves
expanding its current operations in Germany,  France and the United Kingdom, and
to begin testing in Japan. The Company  believes,  based in part on management's
significant  experience with international  operations and test marketing during
1997 and 1998 in the United Kingdom, France and Germany, and the introduction of
new styles, that the international markets provide significant opportunities for
growth.

                                       5
<PAGE>


                                       

Competition and Industry
------------------------

         The Company operates exclusively in the women's sheer hosiery industry,
targeting  adult  females as  customers.  Management  believes  that the overall
women's sheer hosiery market is declining as a result of the high cost of repeat
purchases  of such  products  and  changes in women's  choices in  business  and
leisure wear. Despite this apparent overall market decline, the Company has been
able to  increase  its sales from  $162.8  million in 1996 to $198.7  million in
1998.

         Women's  sheer  hosiery  is sold  through  a  variety  of  distribution
channels,  including discount stores, grocery and drug stores, specialty stores,
national chains and direct marketing. The Company is the only organization which
focuses  solely on  distributing  women's  sheer  hosiery  through a direct mail
marketing  continuity  program.  Although  several  competitors  have sold their
hosiery  products  via  mail  order  for  many  years,   this  distribution  has
concentrated  on the  large  quantity  sale of  irregulars,  as  opposed  to the
Company's  direct mail marketing of high quality women's  hosiery  products in a
continuity program. Because the Company sells women's sheer hosiery, it competes
indirectly with major  manufacturers  and  distributors of women's sheer hosiery
who  primarily  sell through the retail  channel and some of whom are larger and
better capitalized than the Company, and may have greater brand recognition than
the Company.

         The major United States hosiery manufacturers include Sara Lee Hosiery,
a division of Sara Lee Corporation,  Kayser-Roth,  a subsidiary of Mexican-based
Grupo Synkro S.A., the Company and Americal, a privately held U.S. concern. Sara
Lee Hosiery  and  Kayser-Roth  account  for more than 70% of the  women's  sheer
hosiery market.  Over 60 other smaller  manufacturers also produce women's sheer
hosiery  primarily  for sale under  private  labels.  Sara Lee Hosiery is also a
significant competitor in the United Kingdom, France and Germany. Competition in
the  women's  sheer  hosiery  market is  generally  based on price,  quality and
customer service.

         In addition,  the Company  competes,  and faces potential  competition,
with other direct marketing companies. Such competitors include businesses which
engage in direct mail,  catalog sales,  telemarketing  and other methods of sale
which compete for the  attention and spending  dollars of consumers in the home.
There are  numerous  direct  marketing  companies  that are  larger  and  better
capitalized than the Company and that offer more varied product assortments. The
Company  believes,  however,  that it is the only  significant  direct marketing
company to focus exclusively on women's sheer hosiery.

Employees
---------

         As of December 31, 1998, the Company had 1,087  employees,  204 of whom
were  located  at  its   headquarters   and   operations   center  in  Bensalem,
Pennsylvania, 334 of whom were located at its manufacturing facility in Newland,
North  Carolina,  225 of whom were located at its  manufacturing,  and packaging
facility  in  Lancaster,  South  Carolina,  and 283 of whom were  located at its
sewing and  fulfillment  operations  facility in Heath Springs,  South Carolina.
Additionally,  41 employees are currently  employed in Canada and Europe. Of the
total number of employees,  146 are salaried. The remaining 941 are non-salaried
employees,  the  majority  of  whom  are  paid an  hourly  wage  plus  incentive
compensation based on productivity  measures.  The Company's hourly workforce is
not  affiliated  with any  unions.  The  Company  has not  experienced  any work
stoppages and believes its relations with its employees are good.

Recapitalization
----------------

         On October 17, 1994, the Company effected the  recapitalization  of its
capital  stock  (the  "Recapitalization").   As  a  result  of  the  substantial
indebtedness incurred in connection with the  Recapitalization,  the Company has
significant  debt service  obligations.  At December 31, 1998,  the  outstanding
amount of the  Company's  indebtedness  (other than trade  payables  and accrued
expenses) is $139.4 million,  including $65.1 million of senior secured debt and
$68.8 million of senior subordinated debt (the "Notes"). (See Items 7 and 13 and
Note 14 to Consolidated Financial Statements).

                                       6
<PAGE>


                                       
ITEM 2.  PROPERTIES
-------------------

         The Company owns or leases facilities at six principal  locations.  The
following  sets  forth the  general  location  of each,  its size,  whether  the
facility is owned or leased and the principal function of each.

                            Size in     Owned/
Location                   Square Feet  Leased     Function
---------                  -----------  ------     --------
                                                   Headquarters; Administration;
                                                   Marketing; Data Processing;
Bensalem, Pennsylvania        60,000    Leased     Customer Service

Newland, North Carolina      138,000    Owned      Knitting; Sewing

Lancaster, South Carolina    142,000    Owned      Dyeing; Packaging

Heath Springs, South
 Carolina                    143,000    Owned      Fulfillment Operations

Liverpool, United Kingdom     15,000    Leased     Headquarters; United Kingdom

Ettligen, Germany              3,000    Leased     Office

Markham, Ontario Canada        6,000    Leased     Office

The owned facilities are subject to mortgages and security  interests granted to
secure payment of the Company's debt. See Note 10 to the Consolidated  Financial
Statements of Hosiery Corporation of America, Inc. in Item 8 hereof.

ITEM 3.    LEGAL PROCEEDINGS
----------------------------

         The Company is involved in, or has been involved in, litigation arising
in the normal course of its business.  The Company  cannot predict the timing or
outcome of these claims and proceedings.  Currently,  except as discussed below,
the  Company is not  involved  in any  litigation  which is  expected  to have a
material  effect on the  financial  position  of the  business or the results of
operations and cash flows of the Company.

         In  1984,  as a  result  of a  lawsuit  brought  by the  Federal  Trade
Commission  ("FTC"),  the Federal  District  Court for the  Eastern  District of
Pennsylvania issued a consent  injunction,  which sets forth specific rules with
which the  Company  must  comply  in  conducting  its mail  order  business  and
permanently  enjoins the Company,  its  successors  and assigns,  its  officers,
agents,  representatives  and  employees,  and anyone acting in concert with the
Company from violating various FTC and Postal Service laws and regulations.  The
FTC  had  previously   made  inquiries  about  some  aspects  of  the  Company's
promotional  materials  prompting  the  Company  to  adopt  revised  promotional
materials which, the Company believes but cannot assure,  will meet the concerns
expressed by the FTC.

                                       7
<PAGE>


                                        
       In 1997,  the  Company  reached  an  agreement  with a  multistate  group
consisting   of  eleven  states  that  sought  to  impose   certain   disclosure
requirements  on the  Company's  promotional  materials.  The  agreement  became
effective  September 1, 1997.  During 1997 and 1998,  the Company's  promotional
materials included the majority of modifications and clarifications  required by
the  agreement.  The  modifications  the  Company  has made to its  solicitation
materials  has had a material  adverse  effect on its domestic  response  rates.
Consequently, the Company feels these modifications and clarifications will have
no additional negative impact on the Company's response rates. However, response
rates are only one of  several  factors  that  affect the  Company's  results of
operations.  Also, there may be some additional modifications which will need to
be made to the Company's promotional materials to fully satisfy the terms of the
Company's  agreement with the multistate  group,  and no assurances can be given
that such changes will not have a further effect on the Company's response rate.
In   accordance   with  the   agreement,   the  Company  paid  $0.3  million  in
administrative  expenses and fees during 1997.  The agreement also required that
refunds be made to customers under certain circumstances for a six-month period.
These refunds were not material to the Company's  financial condition or results
of operations.

         State regulators,  the Federal Trade Commission and trade  associations
from time to time contact the Company with  inquiries  regarding  the  Company's
promotional materials. The Company has recently received inquiries from 3 states
and a trade association  which were not part of the multistate group.  While the
Company believes that it will be able to resolve these  inquiries,  there can be
no assurance that these or other state regulators or trade associations will not
require  or seek to  impose  additional  changes  to the  Company's  promotional
materials,  and  no  assurance  can be  given  that  such  changes  will  not be
significant or will not have a material  adverse effect on the Company's  future
financial condition or results of operations.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------
         The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 1998.


                                     PART II


ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS
------------------------------------------------------------

         There is no  established  public trading market for any class of common
equity of the Company.

         As of March 29,  1999,  the  Company  had  approximately  32 holders of
record of its common stock.

Dividend Policy
---------------

         The Company has not paid cash  dividends on its common stock since 1992
and does not anticipate  paying such dividends in the  foreseeable  future.  The
Company intends to retain any future  earnings for  reinvestment in the Company.
In addition,  the Bank Credit Agreement and the indenture  pursuant to which the
Notes were issued place limitations on the Company's ability to pay dividends or
make certain other  distributions in respect of its common stock. The Company is
not permitted to declare or pay any dividend or make any distribution in respect
of the Company's or any of its Restricted  Subsidiaries'  Equity Interests other
than dividends or  distributions  payable solely in shares of its Capital Stock.
Any future  determination as to the payment of dividends will be subject to such
prohibitions and  limitations,  will be at the discretion of the Company's Board
of Directors and will depend on the Company's  results of operations,  financial
condition,  capital  requirements and other factors deemed relevant by the Board
of  Directors,  including the General  Corporation  Law of the State of Delaware
(the "DGCL") which provides that dividends are only payable out of the Company's
surplus or current net profits.

                                       8
<PAGE>


                                        
ITEM 6.    SELECTED FINANCIAL DATA
----------------------------------
<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                            1998          1997          1996          1995        1994(a)
                                            ----          ----          ----          ----        -------
                                                                   (In Thousands)
<S>                                       <C>           <C>           <C>           <C>           <C>

  Net Revenues                            $198,681      $178,682      $162,763       $136,299      118,560

  Operating Income Before
  Compensation Related to Stock
  Options and Expenses Related to
  Stock Offering and Acquisition (b)        38,080        35,854        36,968         31,427       21,613

  Income (Loss) From Continuing
  Operations Before Provision
  (Benefit) for Income Taxes and
  Cumulative Effect of Accounting
  Change                                    21,519        17,835        (5,696)        12,056       17,116

  Income From Continuing
  Operations Before Compensation
  Related to Stock Options,
  Expenses Related to Stock
  Offering and Acquisition,
  Provision (Benefit) for Income
  Taxes and Cumulative Effect of
  Accounting Change (b)                     21,519        17,835        18,829         12,056       17,116

  Working Capital                            4,555        12,455           589          5,794        3,152

  Total Assets                             130,039       100,600        92,600         82,860       74,860

  Long-Term Debt                           135,952       138,565       143,705        151,093      153,442

  Other Long-Term Obligations                   --            --            --             --           66

  Redeemable Equity Securities                 885           872           768            384           45

  Stockholders' Deficiency                 (60,162)      (72,083)      (83,822)      (102,920)    (110,266)

  Cash Dividends Declared                       --            --            --             --           --

----------------
<FN>
     (a)  On October 17, 1994, the Company effected the  recapitalization of its
          capital stock. For discussion of the  recapitalization, see Note 14 to
          the  Consolidated  Financial  Statements  of  Hosiery  Corporation  of
          America, Inc. in Item 8 hereof.

     (b)  During  1996,  the Company  granted  options to certain  employees  to
          purchase up to 215,369 shares of common stock. The Company  recognized
          $22,938 of compensation  expense related to the difference between the
          estimated  fair  value  of the  stock  at the  date of  grant  and the
          exercise  price  of such  options.  (See  Note 18 to the  Consolidated
          Financial Statements of Hosiery Corporation of America, Inc. in Item 8
          hereof for further discussion.)  Additionally during 1996, the Company
          incurred costs of $1.6 million,  associated  with a potential  initial
          public  offering of equity  securities  and a  potential  acquisition,
          neither of which were  consummated.  "Operating  income"  and  "income
          (loss) from  continuing  operations  before  provision  (benefit)  for
          income  taxes and  cumulative  effect of  accounting  change"  per the
          Consolidated  Financial  Statements of Hosiery Corporation of America,
          Inc. have been adjusted in the above table to exclude these charges in
          order  to  present  comparable  operating  information  with  that  of
          previous years. 
</FN>
</TABLE>


                                       9
<PAGE>
                                      
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997
           AND 1996
----------------------------------------------------------------------------

Results of Operations
---------------------

         The following  table sets forth certain  income  statement data for the
Company expressed as a percentage of net revenues.
<TABLE>
                                                                         Fiscal Years Ended December 31,
                                                                         -------------------------------
<CAPTION>
                                                                              1998    1997     1996
                                                                              ----    ----     ----
<S>                                                                          <C>     <C>      <C>      
Net revenues...........................................................      100.0%  100.0%   100.0%
      Cost of sales....................................................       46.0    45.9     46.2
      Administrative and general expenses..............................        6.9     6.8      7.0
      Provision for doubtful accounts..................................        5.8     6.0      6.2
      Marketing costs..................................................       18.4    17.1     13.6
      Coupon redemption costs..........................................        1.9     2.1      2.5
      Depreciation and amortization....................................        1.7     1.7      1.8
                                                                             -----   -----    -----

           Subtotal....................................................       80.7    79.6     77.3
                                                                             -----   -----    -----

Operating  income  before  interest,  compensation  related  to
      stock  options, expenses  related  to  stock  offering  and
      acquisition,  other  expenses (income) and provision
      (benefit) for income taxes.......................................       19.3%   20.4%    22.7%
                                                                              ====    ====     ====
</TABLE>

Fiscal 1998 Compared to Fiscal 1997
-----------------------------------

         Net revenues  increased by 11.2% to $198.7  million in fiscal 1998 from
$178.7  million in 1997. The increase in net revenue was  attributable  to North
America  $13.6  million  and Europe  $6.4  million.  The  increase in Europe was
primarily  attributable to increased  solicitations in Germany.  The increase in
North  America was the result of stronger  sales to existing  customers  and the
acquisition of Enchantress ($2.2 million).  Enchantress, a Canadian Company, was
acquired in 1998. (See Note 4 to the  Consolidated  Financial  Statements of the
Company in Item 8 hereof.)

         Cost of sales  increased  11.3% to $91.4  million  in fiscal  1998 from
$82.1 million for fiscal 1997.  As a percentage  of net revenues,  cost of sales
increased  to 46.0%  in 1998  versus  45.9%  for the same  period  in 1997.  The
absolute  increase  in cost of sales is related to  increased  shipments  in the
United States, Germany and Canada.

         Administrative and general expenses increased 13.0% to $13.7 million in
fiscal 1998 from $12.1 million for 1997.  Included in 1998 was severance of $0.5
million  compared  to none in 1997.  The balance of the  increase  was caused by
increased  personnel  and  higher  wages.  As  a  percentage  of  net  revenues,
administrative and general expenses were 6.9% in 1998 versus 6.8% in 1997.

         Provision for doubtful accounts increased $0.7 million or 6.9% to $11.5
million in fiscal  1998 from $10.8  million  for the same  period of 1997.  This
increase was caused by growing the business in Germany, the Canadian acquisition
and an increase in the United  States  offset by lower  experience in the United
Kingdom.  As a percentage of net  revenues,  bad debts were 5.8% for 1998 versus
6.0% for 1997.

                                       10
<PAGE>

                                       
         Marketing costs increased 19.8% to $36.6 million from $30.5 million for
the years ended  December  31, 1998 and 1997,  respectively.  This  increase was
partially attributable to higher amortization of prior years' deferred marketing
costs in 1998 compared to 1997,  related to the substantial  increase (43.6%) in
solicitations  in 1997 versus 1996.  In 1997,  75.6 million  solicitations  were
mailed as compared to 52.6 million in 1996.  These costs are  amortized  over 42
months with the greatest  amortization in the first 24 months.  Additionally,  a
substantial  portion  of this  increase  was  attributable  to higher  front end
solicitations,  in the current  year, as 16.6 million  additional  solicitations
were  mailed  in 1998  compared  to 1997  (up  22.0%).  As a  percentage  of net
revenues, marketing costs were 18.4% in 1998 versus 17.1% for 1997.

     Coupon redemption costs increased  slightly to $3.8 million for fiscal 1998
from $3.7 million for fiscal 1997. As a percentage  of net revenues,  redemption
costs were 1.9% in 1998 versus 2.1% for 1997.

         Interest expense  decreased to $16.6 million for fiscal 1998 from $18.1
million for 1997.  This  decrease in interest  expense was primarily due to less
debt and lower rates. As a percentage of net revenues, interest expense was 8.4%
in 1998 versus 10.1% for 1997.

         Operating  income increased to $38.1 million in 1998 from $35.9 million
in 1997, an increase of 6.2%. The increase in operating income was primarily the
result of increased  revenue and lower interest rates offset by higher marketing
costs.  As a percentage  of net  revenues,  operating  income was 19.2% for 1998
versus 20.1% for 1997.

     The  Company  had net income of $13.5  million in 1998 as compared to a net
income of $11.6 million in 1997. As a percentage of net revenues, net income was
6.8% in 1998 versus 6.5% for 1997.

Fiscal 1997 Compared to Fiscal 1996
-----------------------------------

         Net revenues  increased  by 9.8% to $178.7  million in fiscal 1997 from
$162.8  million in fiscal  1996.  The  increase in net revenue  attributable  to
Europe of $9.4  million  was due to more than  double the $8.8  million in sales
reported for 1996. This increase in Europe is attributable to increased mailings
in the United  Kingdom  and  testing in France and  Germany.  The balance of the
increase  ($6.5  million) was generated in the United States  primarily  through
increased solicitation for new customers.

         Cost of sales increased 9.2% to $82.1 million in fiscal 1997 from $75.2
million for fiscal 1996. As a percentage of net revenues, cost of sales declined
to 45.9% in 1997 versus 46.2% for the same period in 1996. The absolute increase
in cost of sales is related to increased shipments in the United States,  United
Kingdom and the test programs in Germany and France. Manufacturing efficiencies,
approximately $2 million,  helped offset the costs associated with the increased
shipments.

         Administrative  and general expenses increased 6.3% to $12.1 million in
fiscal 1997 from $11.4 million for the same period of 1996.  Increased personnel
and higher wages  account for the  increase.  As a percentage  of net  revenues,
administrative and general expenses were 6.8% in 1997 versus 7.0% in 1996.

         Provision for doubtful accounts increased $0.7 million or 7.3% to $10.8
million in fiscal  1997 from $10.1  million  for the same  period of 1996.  This
increase was caused by additional  front end, second and third shipments in 1997
as compared to 1996 (up 1.1 million  shipments which is 10.6% higher than 1996),
which have a higher  rate of  uncollectable  accounts.  As a  percentage  of net
revenues, bad debts were 6.0% for 1997 versus 6.2% for 1996.

                                       11
<PAGE>
                                       
         Marketing costs increased 38.5% to $30.5 million from $22.1 million for
the years ended  December  31, 1997 and 1996,  respectively.  This  increase was
partially attributable to higher amortization of prior years' deferred marketing
costs in 1997 compared to 1996,  related to the substantial  increase (21.6%) in
solicitations  in 1996 versus 1995.  In 1996,  52.6 million  solicitations  were
mailed as compared to 43.3 million in 1995.  These costs are  amortized  over 42
months with the greatest  amortization in the first 24 months.  Additionally,  a
substantial  portion  of this  increase  was  attributable  to higher  front end
solicitations,  in the current  year, as 22.9 million  additional  solicitations
were mailed in 1997  compared to 1996 (up 43.6%),  including the start up in the
United Kingdom.  Marketing expenditures were also incurred in France and Germany
for testing. As a percentage of net revenues, marketing costs were 17.1% in 1997
versus 13.6% for 1996.

         Coupon  redemption  costs declined to $3.7 million for fiscal 1997 from
$4.1 million for fiscal 1996. As a percentage of net revenues,  redemption costs
were 2.1% in 1997 versus 2.5% for 1996. This decrease relates to the issuance of
new gift  catalogs in both 1996 and 1995 that have a lower average cost per gift
to the Company,  and beginning in 1996, the charging of shipping and handling to
redemption customers, which has also lowered the cost of future redemptions and,
therefore, the reserve balance for these future redemptions.

         Compensation related to stock option expense was $22.9 million in 1996.
This expense represents a non-cash charge attributable to options granted by the
Board of  Directors  on June 28,  1996,  with an  exercise  price below the then
market price of the Company's  common stock, as part of a series of transactions
in  contemplation  of a potential  initial public  offering.  No such charge was
incurred in 1997.

         Expenses of $1.6 million  were  incurred in 1996 related to a potential
initial  public  offering  of equity  securities  and a  potential  acquisition,
neither of which were consummated. No such charges were incurred in 1997.

         Interest expense  decreased to $18.1 million for fiscal 1997 from $18.5
million for 1996.  This  decrease in interest  expense was primarily due to less
debt on the bank loan.  As a percentage of net  revenues,  interest  expense was
10.1% in 1997 versus 11.3% for 1996.

         Operating  income at $35.9  million for 1997 is slightly  less than the
adjusted  operating income of $37.0 million for 1996 (adjusted to add back stock
option  compensation  expense  of $22.9  million  and costs  associated  with an
initial  public  offering  and  acquisition  of $1.6  million).  The decrease in
operating  income  from  1996 to  1997  is  primarily  caused  by the  increased
marketing costs offset by higher revenue and the continued decrease in all other
costs  as a  percentage  of net  revenues.  As a  percentage  of  net  revenues,
operating income, adjusted to exclude stock option compensation expense of $22.9
million and a potential  public  offering  and  acquisition  of $1.6 million for
1996, was 20.1% for 1997 versus 22.7% for 1996.

         The  Company  had net income of $11.6  million in 1997 as compared to a
net  loss of $4.3  million  in 1996.  Net  income  excluding  the  stock  option
compensation  expense and a potential  public offering and acquisition  costs of
$15.9 million, net of tax in 1996, was $11.6 million in both 1997 and 1996. As a
percentage of net revenues, net income was 6.5% in 1997 versus 7.1% (adjusted as
previously detailed) for 1996.

Liquidity and Capital Resources
-------------------------------

         The Company's  cash  requirements  arise  principally  from the need to
finance new front end  solicitations  (customers),  capital  expenditures,  debt
repayment and other working  capital  requirements.  The Company  financed these
solicitations  and  expects  to finance  future  solicitations  from  internally
generated funds and/or its Credit Facility.

                                       12
<PAGE>

                                       
         In fiscal 1998, 1997 and 1996, capital  expenditures were $3.6 million,
$2.6 million and $4.9 million,  respectively.  The majority of the  expenditures
were for the  purchase of  knitting,  sewing and dyeing  equipment  and facility
acquisition and enhancements.  These  expenditures  were financed  substantially
through the assumption of capital  leases.  Also, the Company  expects to expend
approximately  $2.5  million in 1999 for  additional  equipment.  These  capital
expenditures  will be financed  through  internal  sources or the  assumption of
capital leases.

         Net cash provided by operating  activities  was $4.6 million in 1998 as
compared to $11.2  million in 1997 and $7.4 million in 1996.  The decrease  from
1997 to 1998 was caused by the increase in the  payments for deferred  marketing
offset by higher  amortization  of these costs and the increase in prepaid costs
for  future  marketing  (January  1999).  The  increase  from  1996 to 1997  was
primarily  from the  change in  inventory  offset by the  decrease  in  accounts
payable.

     Net cash  used in  investing  activities  was $5.1  million  in 1998,  $0.9
million in 1997 and $2.5 million in 1996.  In 1998, a Canadian  hosiery  company
was acquired.

         During 1998, 1997 and 1996, the Company used $3.8 million, $7.9 million
and $9.9  million,  respectively,  in financing  activities.  During 1997, a new
credit  agreement was reached with the Company's bank lenders which provided $65
million in term debt at a  substantially  lower interest rate (7.5% versus 8.8%)
an  increase  in its line of credit from $15 million to $20 million and a change
in the  covenants  relating to the credit  agreement.  Net  payments on bank and
other  financing,   including   capital  lease  obligations  and  excluding  the
termination of the prior term debt, totaled $5.3 million,  $7.3 million and $9.9
million in 1998, 1997 and 1996, respectively.

The Recapitalization and Line of Credit
---------------------------------------

         On October 17, 1994, the Company effected the  recapitalization  of its
capital  stock  (the  "Recapitalization").   As  a  result  of  the  substantial
indebtedness incurred in connection with the  Recapitalization,  the Company has
significant debt service obligations.  In November 1997, the Company amended and
restructured its credit agreement. This change resulted in lower interest rates,
an increase in the revolving credit facility from $15 million to $20 million,  a
substantial  change in the timing of principal  payments and changes to the debt
covenants.  At  December  31,  1998,  the  outstanding  amount of the  Company's
indebtedness (other than trade payables and accrued expenses) is $139.4 million,
including  $65.1  million  of senior  secured  debt and $68.8  million of senior
subordinated debt (the "Notes"). Since consummation of the Recapitalization, the
Company's ongoing cash requirements  through January 2002 will consist primarily
of  interest  payments  and  required  amortization  payments  under the  Credit
Agreement,   interest   payments  on  the  Notes,   payments  of  capital  lease
obligations,   front  end  marketing  expenditures,   working  capital,  capital
expenditures  and taxes.  The required  amortization  payments  under the Credit
Agreement will be: $7.5 million in 1999, $13.0 million in 2000, $20.0 million in
2001 and $19.0 million in 2002. Other than upon a change of control (as defined)
or as a result of certain asset sales,  the Company will not be required to make
any principal payments in respect of the Notes until maturity,  August 2002. The
Company's  primary  source of liquidity  will be cash flow from  operations  and
funds available to it under a revolving  credit  facility.  The revolving credit
facility  provides for maximum  borrowings  of $20.0  million,  $15.8 million of
which was available at December 31, 1998.

         In March 1999, the Company  amended its Credit  Agreement to include an
Incremental  Revolving Loan of $5.0 million.  This loan can be made from time to
time after the existing  revolving  credit  facility  equals $20.0 million.  The
Incremental  Revolving  Loan will be  terminated  when all principal and accrued
interest has been repaid, but no later than December 31, 1999.

                                       13
<PAGE>
                                       
Legal Proceedings
-----------------

         The Company is involved in, or has been involved in, litigation arising
in the normal course of its business.  The Company can not predict the timing or
outcome of these claims and proceedings.  Currently,  except as discussed below,
the  Company is not  involved  in any  litigation  which is  expected  to have a
material  effect on the  financial  position  of the  business or the results of
operations and cash flows of the Company.

         In  1984,  as a  result  of a  lawsuit  brought  by the  Federal  Trade
Commission  ("FTC"),  the Federal  District  Court for the  Eastern  District of
Pennsylvania issued a consent  injunction,  which sets forth specific rules with
which the  Company  must  comply  in  conducting  its mail  order  business  and
permanently  enjoins the Company,  its  successors  and assigns,  its  officers,
agents,  representatives  and  employees,  and anyone acting in concert with the
Company from violating various FTC and Postal Service laws and regulations.  The
FTC  had  previously   made  inquiries  about  some  aspects  of  the  Company's
promotional  materials  prompting  the  Company  to  adopt  revised  promotional
materials which, the Company believes but cannot assure,  will meet the concerns
expressed by the FTC.

       In 1997,  the  Company  reached  an  agreement  with a  multistate  group
consisting   of  eleven  states  that  sought  to  impose   certain   disclosure
requirements  on the  Company's  promotional  materials.  The  agreement  became
effective  September 1, 1997.  During 1997 and 1998,  the Company's  promotional
materials included the majority of modifications and clarifications  required by
the  agreement.  The  modifications  the  Company  has made to its  solicitation
materials  has had a material  adverse  effect on its domestic  response  rates.
Consequently, the Company feels these modifications and clarifications will have
no additional negative impact on the Company's response rates. However, response
rates are only one of  several  factors  that  affect the  Company's  results of
operations.  Also, there may be some additional modifications which will need to
be made to the Company's promotional materials to fully satisfy the terms of the
Company's  agreement with the multistate  group,  and no assurances can be given
that such changes will not have a further effect on the Company's response rate.
In   accordance   with  the   agreement,   the  Company  paid  $0.3  million  in
administrative  expenses and fees during 1997.  The agreement also required that
refunds be made to customers under certain circumstances for a six-month period.
These refunds were not material to the Company's  financial condition or results
of operations.

       State  regulators,  the Federal Trade  Commission and trade  associations
from time to time contact the Company with  inquiries  regarding  the  Company's
promotional materials. The Company has recently received inquiries from 3 states
and a trade association  which were not part of the multistate group.  While the
Company believes that it will be able to resolve these  inquiries,  there can be
no assurance that these or other state regulators or trade associations will not
require  or seek to  impose  additional  changes  to the  Company's  promotional
materials,  and  no  assurance  can be  given  that  such  changes  will  not be
significant or will not have a material  adverse effect on the Company's  future
financial condition or results of operations.

Year 2000
---------

       As in the case with most other businesses,  the Company is in the process
of  evaluating  and  addressing  Year 2000  compliance  of both its  information
technology  systems and its  non-information  technology  systems  (collectively
referred to as  "Systems").  Such Year 2000  compliance  efforts are designed to
identify, address, and resolve issues that may be created by programs written to
run on  microprocessors  which  reference  years as two digit fields rather than
four.  Any such programs may recognize a date using "00" as the year 1900 rather
than 2000. If this situation occurs,  the potential exists for system failure or
miscalculations by computer programs.

                                       14
<PAGE>
                                      

       The  Company  has  made  significant  progress  in  achieving  Year  2000
compliance.  It is estimated that it is  approximately  98% complete and will be
totally  in  compliance  by  the  end  of  May  1999.   The  company  has  spent
approximately  $0.4  million on  internal  manpower  costs  during 1997 and 1998
related to the Year 2000 issue, representing approximately 4% of the information
systems  budget.  The Company  expects to incur  approximately  $0.1  million of
future expense to complete the Year 2000 compliance project.

       The Company's use of its own information technology personnel to make the
business systems Year 2000 compliant may delay some other strategic  information
systems development and implementation  which would have otherwise benefited the
Company in various  ways and to varying  extents.  The Company  does not believe
that it will be at a competitive disadvantage as a result of these delays.

       The Company  continues to make  inquiries of its vendors  whose Year 2000
compliance  is  important  to  its  ongoing   business.   Based  on  preliminary
information  received by the  Company,  the only  significant  vendor that could
adversely  affect  operations is the United States  Postal  Service.  The postal
service  assumes that it will be compliant,  but should it not do so on a timely
basis,  the Company's  business and  operations  could be  materially  adversely
affected. The Company currently does not have any contingency plans. However, it
recognizes the need to develop contingency plans and expects to have these plans
secure where applicable by the end of fiscal 1999.

       While the Company does not believe  that the Year 2000 matters  discussed
above  will have a  material  impact on its  business,  financial  condition  or
results of operations, it is uncertain whether or to what extent the Company may
be affected by such matters.

Inflation
---------

       Over the past three years, which has been a period of low inflation,  the
Company has been able to increase  sales volume to  compensate  for increases in
operating  expenses.  The Company  has  historically  been able to increase  its
selling  prices  as the  cost of  sales  and  related  operating  expenses  have
increased  and,  therefore,  inflation  has  not  had a  significant  effect  on
operations.

                                       15
<PAGE>
                                       
Accounting Statements Not Yet Adopted
-------------------------------------

         Accounting for Derivative  Instruments and Hedging Activities.  In June
1998, the FASB issued SFAS No. 133,  Accounting for Derivative  Instruments  and
Hedging  Activities.   This  statement  establishes   accounting  and  reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts  (collectively referred to as derivatives),  and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities in the statement of financial  position and measure
those  instruments  at fair value.  This statement is effective for fiscal years
beginning  after June 15,  1999,  although  early  adoption is  encouraged.  The
Company has not yet assessed  what the impact of this  statement  will be on the
Company's future earnings or financial position.

         Accounting for the Costs of Computer Software Developed for or Obtained
for Internal Use. In March 1998, the AICPA issued  Statement of Position ("SOP")
98-1,  Accounting for the Costs of Computer  Software  Developed for or Obtained
for Internal Use. The SOP requires the  capitalization of certain costs incurred
after the date of adoption in connection with  developing or obtaining  software
for internal  use. The Company has early adopted SOP 98-1  effective  January 1,
1998. The impact of this statement was not material on the Company's earnings or
financial position as of December 31, 1998.



                                       16
<PAGE>
                                      
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

         The Company  uses its  revolving  credit  facility,  term loan,  senior
subordinated notes and bonds to finance a significant portion of its operations.
These  on-balance  sheet financial  instruments,  to the extent they provide for
variable  rates of interest,  expose the Company to interest rate risk resulting
from changes in the Eurodollar Rate, Federal Funds Rate or the prime rate.

         To the  extent  that the  Company's  financial  instruments  expose the
Company to interest  rate risk and market risk,  they are presented in the table
below.  The table presents  principal  cash flows and related  interest rates by
year of maturity for the Company's revolving credit facility,  term loan, senior
subordinated  notes and bonds in effect at  December  31,  1998.  Note 18 to the
consolidated  financial  statements should be read in conjunction with the table
below (dollar amount in thousands).

<TABLE>
<CAPTION>
                                                     Year of Maturity
                                                                                                   Total        Fair
                                                                                                   Due          Value
                                                                                                   at           at
                                 1999       2000       2001        2002       2003    Thereafter   Maturity     12/31/98
                                 ----       ----       ----        ----       ----    ----------   --------     --------
<S>                              <C>        <C>        <C>         <C>        <C>     <C>          <C>          <C>             
Interest rate sensitive
assets:
Noninterest bearing
checking and savings
accounts                         $1,887     $ --       $ --        $ --      $   --     $  --        $1,887       $1,887
     Average interest rate          --%                                                                 --%           --

Interest-bearing checking
accounts, savings accounts
and money market deposit
accounts                            905                                                                 905          905
     Average interest rate         4.50                                                                4.50           --
                                -------    -------    -------     -------    -------     -----     --------     --------


                                 $2,792                                                              $2,792       $2,792
                                 ======                                                              ======       ======
                                  1.46%                                                               1.46%           --
                                  =====                                                               =====

Interest rate sensitive
liabilities:
Noninterest bearing
checking and savings
accounts                         $4,189     $   --     $ --        $ --      $   --      $  --       $4,189       $4,189
     Average interest rate          --%                                                                 --%           --

Short-term and variable
rate borrowings                  11,017     13,117     20,117      19,117        117       173       63,658       63,658
     Average interest rate         7.39       7.00       7.00        7.00       7.05      7.10         7.00           --

Fixed-rate borrowings                                              68,792                            68,792       72,100
     Average interest rate                                          13.75                             13.75           --
                                -------    -------    -------     -------    -------     -----     --------     --------

                                $15,206    $13,117    $20,117     $87,909    $   117     $ 173     $136,639     $139,947
                                =======    =======    =======     =======    =======     =====     ========     ========
                                   5.35%      7.00%      7.00%      12.28%      7.05%     7.10%       10.18%          --
                                   ====       ====       ====       =====       ====      ====        =====
</TABLE>


                                       17
<PAGE>
                                       
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
<TABLE>
                      HOSIERY CORPORATION OF AMERICA, INC.

         Index to Financial Statements and Financial Statement Schedule
<CAPTION>
                                                                                            Page Number
                                                                                            -----------
<S>                                                                                         <C> 
Financial Statements and Independent Auditors' Report:
        Independent Auditors' Report....................................................        19
        Consolidated Balance Sheets--December 31, 1998 and 1997.........................        20
        Consolidated Statements of Operations--For the years ended December 31, 1998,
           1997 and 1996................................................................        21
        Consolidated Statements of Cash Flows--For the years ended December 31, 1998,
           1997 and 1996................................................................        22
        Consolidated Statements of Stockholders' Deficiency--For the years
           ended December 31, 1998, 1997 and 1996.......................................        24
        Notes to Consolidated Financial Statements......................................        26
Financial Statement Schedule and Independent Auditors' Report:
        Independent Auditors' Report....................................................        S-1
        Schedule I--Valuation and Qualifying Accounts--For the years ended
           December 31, 1998, 1997 and 1996.............................................        S-2
</TABLE>

        Schedules  other than those  listed  above are omitted  because they are
either not applicable or not required or the information required is included in
the consolidated financial statements or notes thereto.

                                       18
<PAGE>

                                      
INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
   Hosiery Corporation of America, Inc.
Bensalem, Pennsylvania

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Hosiery
Corporation of America, Inc. and subsidiaries (the "Company") as of December 31,
1998  and  1997,  and  the  related   consolidated   statements  of  operations,
stockholders'  deficiency  and cash  flows  for each of the  three  years in the
period  ended   December  31,  1998.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997,  and the results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  1998,  in  conformity  with
generally accepted accounting principles.






Deloitte & Touche LLP
Philadelphia, Pennsylvania

March 5, 1999, (except for Note 23, as to which the date is
   March 26, 1999)

                                       19
<PAGE>
                                       
<TABLE>

                                     HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                                                  CONSOLIDATED BALANCE SHEETS
                                                   DECEMBER 31, 1998 AND 1997
                                         (Dollars in thousands, except per share data)
<CAPTION>

                                                                                                1998         1997
                                                                                             ---------    ---------
ASSETS
CURRENT ASSETS:
<S> ......................................................................................         <C>          <C>
     Cash and cash equivalents ...........................................................   $      --    $   4,327
     Accounts receivable, less an allowance for doubtful accounts of
      $1,901 and $1,448 in 1998 and 1997, respectively ...................................      32,214       24,180
     Inventories .........................................................................      20,008       15,158
     Prepaid and other current assets ....................................................       3,748        2,398
                                                                                             ---------    ---------
          Total current assets ...........................................................      55,970       46,063
PROPERTY AND EQUIPMENT, net ..............................................................      17,906       17,261
DEFERRED CUSTOMER ACQUISITION COSTS ......................................................      46,933       30,795
DEFERRED DEBT ISSUANCE COSTS, less accumulated amortization of
     $6,774 and $5,316 in 1998 and 1997, respectively ....................................       4,790        6,084
GOODWILL, less accumulated amortization of $61 in 1998 ...................................       3,733           --
OTHER ASSETS .............................................................................         707          397
                                                                                             ---------    ---------
TOTAL ....................................................................................   $ 130,039    $ 100,600
                                                                                             =========    =========  
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
     Borrowings under line of credit .....................................................   $   3,400    $      --
     Current portion of long-term debt ...................................................       7,617        3,117
     Current portion of capital lease obligations ........................................       1,726        1,550
     Bank overdrafts .....................................................................       1,397           --
     Accounts payable ....................................................................      10,321        7,120
     Accrued expenses and other current liabilities ......................................       9,389        5,366
     Accrued interest ....................................................................       4,771        4,608
     Accrued coupon redemption costs .....................................................       4,679        4,568
     Deferred income taxes ...............................................................       8,115        7,279
                                                                                             ---------    ---------
          Total current liabilities ......................................................      51,415       33,608
LONG-TERM DEBT, Less current portion .....................................................     121,433      129,307
CAPITAL LEASE OBLIGATIONS, Less current portion ..........................................       5,176        4,591
ACCRUED COUPON REDEMPTION COSTS ..........................................................         408          429
DEFERRED INCOME TAXES ....................................................................      10,884        3,876
                                                                                             ---------    ---------
          Total liabilities ..............................................................     189,316      171,811
                                                                                             ---------    ---------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE EQUITY SECURITIES .............................................................         885          872
                                                                                             ---------    ---------  
STOCKHOLDERS' DEFICIENCY:
     Preferred stock, $.01 par value, 12,000,000 shares authorized:
       4,000,000 shares designated as pay-in-kind preferred stock, stated at liquidation
       value of $10 per share; 25% cumulative, (liquidation preference of $101,236 and
       $79,838 in 1998 and 1997, respectively), 3,748,497 and 3,739,782 shares issued
       in 1998 and 1997, respectively, 3,739,782 shares outstanding in 1998 and 1997 .....      37,485       37,398
     Common stock, voting, $.01 par value: 3,000,000 shares authorized, 1,340,122
       and 1,321,522 shares issued in 1998 and 1997, respectively,
       1,321,522 shares outstanding in 1998 and 1997 .....................................          13           13
     Common stock, Class A, non-voting, $.01 par value:
       500,000 shares authorized, 75,652 shares issued and outstanding ...................           1            1
     Additional paid-in capital ..........................................................      18,869       16,565
     Compensatory stock options outstanding ..............................................      20,943       22,938
     Accumulated deficit .................................................................    (134,950)    (148,301)
     Restricted stock ....................................................................        (447)        (697)
                                                                                             ---------    ---------  
                                                                                               (58,086)     (72,083)
     Treasury stock, at cost, 27,315 shares in 1998 (8,715 preferred shares
       and 18,600 common shares) .........................................................      (2,076)          --
                                                                                             ---------    ---------
          Net stockholders' deficiency ...................................................     (60,162)     (72,083)
                                                                                             ---------    ---------
TOTAL ....................................................................................   $ 130,039    $ 100,600
                                                                                             =========    =========
<FN>
                 See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                       20



<PAGE>

                                       
<TABLE>

                                  HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                      YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                                  (Dollars in thousands)
<CAPTION>


                                                                                             1998        1997        1996
                                                                                          ---------   ---------   ---------
<S>                                                                                       <C>         <C>         <C>    
NET REVENUES ..........................................................................   $ 198,681   $ 178,682   $ 162,763
                                                                                          ---------   ---------   ---------
COSTS AND EXPENSES:
     Cost of sales ....................................................................      91,352      82,119      75,184
     Administrative and general expenses ..............................................      13,694      12,121      11,404
     Provision for doubtful accounts ..................................................      11,536      10,791      10,057
     Marketing costs ..................................................................      36,585      30,538      22,055
     Coupon redemption costs ..........................................................       3,843       3,671       4,140
     Depreciation and amortization ....................................................       3,405       3,059       2,996
     Compensation related to stock options ............................................          --          --      22,938
     Expenses related to stock offering and acquisition ...............................          --          --       1,587
     Other expenses (income) ..........................................................         186         529         (41)
                                                                                          ---------   ---------   ---------
 OPERATING INCOME .....................................................................      38,080      35,854      12,443
     Interest income ..................................................................          71          90         327
     Interest expense .................................................................      16,632      18,109      18,466
                                                                                          ---------   ---------   ---------
 INCOME (LOSS) BEFORE PROVISION (BENEFIT)
     FOR INCOME TAXES .................................................................      21,519      17,835      (5,696)
 PROVISION (BENEFIT) FOR INCOME TAXES .................................................       8,055       6,242      (1,390)
                                                                                          ---------   ---------   ---------     
 NET INCOME (LOSS) ....................................................................   $  13,464   $  11,593   $  (4,306)
                                                                                          =========   =========   =========
<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>


                                       21
<PAGE>

                                       
<TABLE>
                                  HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                                 (Dollars in thousands)
<CAPTION>


                                                                                             1998        1997         1996
                                                                                           -------     -------      -------
OPERATING ACTIVITIES:
<S> ...................................................................................   <C>          <C>         <C>
   Net income (loss) ..................................................................    $13,464     $11,593      $(4,306)
   Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:
      Depreciation and amortization ...................................................      3,405       3,059        2,996
      Amortization of debt issue costs and discounts ..................................      1,701       1,844        1,852
      Compensation related to stock options ...........................................         --          --       22,938
      (Gain) loss on sale and abandonments of property and equipment ..................         (7)          4           (3)
      Amortization of restricted stock ................................................        250         250          552
      Amortization of deferred customer acquisition costs .............................     32,134      24,489       17,994
      (Increase) decrease in operating assets:
            Accounts receivable .......................................................     (7,596)     (1,241)      (3,231)
            Inventories ...............................................................     (4,513)        380       (5,724)
            Payments for deferred customer acquisition costs ..........................    (48,272)    (30,620)     (23,083)       
            Prepaid and other current assets ..........................................     (1,297)       (528)        (488)
            Other assets ..............................................................       (604)        (44)         298
      Increase (decrease) in operating liabilities:
            Accounts payable, accrued expenses and other liabilities ..................      8,394        (630)       3,842
            Income taxes payable ......................................................         --          --         (129)
            Deferred income taxes .....................................................      7,844       3,150       (5,043)
            Accrued coupon redemption costs ...........................................       (321)       (542)      (1,099)
                                                                                           -------     -------      -------
                  Net cash provided by operating activities ...........................      4,582      11,164        7,366
                                                                                           -------     -------      -------
INVESTING ACTIVITIES:
   Acquisitions of property and equipment .............................................     (1,191)       (919)      (2,522)
   Acquisition of business ............................................................     (3,914)         --           --
   Proceeds from sale of property and equipment .......................................         20           3           39
                                                                                           -------     -------      -------
                  Net cash used in investing activities ...............................     (5,085)       (916)      (2,483)
                                                                                           -------     -------      -------
FINANCING ACTIVITIES:
   Net borrowings under line of credit ................................................      3,400          --           --
   Proceeds from bank and other financing .............................................         --      65,000           --
   Payments on bank and other financing ...............................................     (3,617)    (70,566)      (8,391)
   Payments on capital leases .........................................................     (1,663)     (1,783)      (1,519)
   Debt issuance costs ................................................................       (164)       (532)          --
   Proceeds from exercise of options, net of tax ......................................        296          --           --
   Purchase of treasury stock .........................................................     (2,076)         --           --
                                                                                           -------     -------      -------
                  Net cash used in financing activities ...............................     (3,824)     (7,881)      (9,910)
                                                                                           -------     -------      -------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................     (4,327)      2,367       (5,027)
   Cash and cash equivalents at beginning of year .....................................      4,327       1,960        6,987
                                                                                           -------     -------      -------
   Cash and cash equivalents at end of year ...........................................    $    --     $ 4,327      $ 1,960
                                                                                           =======     =======      =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
      Interest ........................................................................    $14,768     $16,310      $16,719
                                                                                           =======     =======      =======
      Income taxes ....................................................................    $ 1,618     $ 3,303      $ 4,102
                                                                                           =======     =======      =======
                                       22
<PAGE>


                                       
<FN>
                    HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                        YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                   (Dollars in thousands)


(Continued)

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   Capital lease obligations of $2,424, $1,999 and $2,338 were entered into for new equipment during 1998, 1997 and
   1996, respectively.

   In 1996, two officers of the Company were granted approximately $300 of redeemable equity securities as additional
   compensation for 1996.


                       See notes to consolidated financial statements.
</FN>
</TABLE>

                                       23
<PAGE>



                                       
<TABLE>

                                  HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                                                     (Dollars in thousands)
<CAPTION>

                                        PREFERRED STOCK                  COMMON STOCK                           
                                       -------------------   --------------------------------------                  Retained
                                                                                       CLASS A,        Additional    Earnings  
                                               PIK                                    NON VOTING         Paid-In      (Accum.  
                                         Shares    Amount      Shares    Amount     Shares   Amount      Capital      Deficit)
                                       ---------  --------   ---------   ------   ---------  ------    ----------    ---------  
<S>                                    <C>        <C>        <C>         <C>      <C>        <C>         <C>          <C>
BALANCE January 1, 1996                3,739,782  $ 37,398   1,321,522     $ 13      75,652     $ 1     $ 16,753     $(155,588) 
Net loss                                                                                                                (4,306)
Compensation under restricted
   stock awards                                                                                                                     
Stock options granted                                                                                                               
Accretion of preference value over
   carrying value of redeemable
   preferred stock                                                                                           (84)                 
Foreign currency translation                                                                                     
                                       ---------   -------   ---------   ------   ---------   -----     ---------     ---------    
BALANCE December 31, 1996              3,739,782    37,398   1,321,522       13      75,652       1        16,669      (159,894)
Net income                                                                                                               11,593 
Compensation under restricted
   stock awards                                                                                                                   
Accretion of preference value over
   carrying value of redeemable
   preferred stock                                                                                           (104)
                                       ---------   -------   ---------   ------   ---------   -----     ---------     ---------  
BALANCE December 31, 1997              3,739,782    37,398   1,321,522       13      75,652       1        16,565      (148,301)
Net income                                                                                                               13,464 
Compensation under restricted
   stock awards                                                                                                                    
Accretion of preference value over
   carrying value of redeemable
   preferred stock                                                                                           (121)               
Purchase of shares for treasury                                                                                            (113)
Exercise of stock options, net of tax                           17,344                                      2,291                
Reclass of redeemable equity
   securities                              8,715        87       1,256                                        134                 
                                       ---------  --------   ---------  -------   ---------  ------     ---------    ----------   
BALANCE December 31, 1998              3,748,497  $ 37,485   1,340,122     $ 13      75,652     $ 1      $ 18,869     $(134,950)
                                       =========  ========   =========  =======   =========  ======     =========    ==========  

</TABLE>

                                       24
<PAGE>

<TABLE>
(Continued)

                                  HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
                                                       (Dollars in thousands)
<CAPTION>

                                                 TREASURY STOCK 
                                       ----------------------------------                 Compensatory
                                       Preferred      Common                                  Stock        Foreign
                                       Stock          Stock                   Restricted     Options       Currency
                                       Shares         Shares       Amount       Stock      Outstanding    Translation      Total
                                       ---------      ------       ------     ----------  ------------    -----------      -----
<S>                                    <C>            <C>          <C>        <C>         <C>              <C>             <C>
BALANCE January 1, 1996                      -            -          $ -       $ (1,499)           $ -         $ 2      $(102,920)
Net loss                                                                                                                   (4,306)
Compensation under restricted
   stock awards                                                                     552                                       552
Stock options granted                                                                           22,938                     22,938
Accretion of preference value over
   carrying value of redeemable
   preferred stock                                                                                                            (84)
Foreign currency translation                                                                                    (2)            (2)
                                       ---------      ------       ------      --------        -------      ------       -------- 
BALANCE December 31, 1996                    -            -            -           (947)        22,938           -        (83,822)
Net income                                                                                                                 11,593 
   stock awards                                                                     250                                       250
Accretion of preference value over
   carrying value of redeemable
   preferred stock                                                                                                           (104)
                                       ---------      ------       ------      --------        -------      ------      --------- 
BALANCE December 31, 1997                   -            -            -            (697)        22,938           -        (72,083)
Net income                                                                                                                 13,464
Compensation under restricted
   stock awards                                                                     250                                       250
Accretion of preference value over
   carrying value of redeemable
   preferred stock                                                                                                           (121)
Purchase of shares for treasury          (8,715)     (18,600)      (2,076)                                                 (2,189)
Exercise of stock options, net of tax                                                           (1,995)                       296
Reclass of redeemable equity
   securities                                                                                                                 221
                                       ---------     -------     --------      ---------       -------      ------      --------- 
BALANCE December 31, 1998                (8,715)     (18,600)    $ (2,076)       $ (447)       $20,943      $    -      $ (60,162)
                                       =========     =======     ========      =========       =======      ======      =========

<FN>
       See notes to consolidated financial statements.
</FN>
</TABLE>

                                       25
<PAGE>


                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


1.     ORGANIZATION

       Hosiery  Corporation  of  America,  Inc.  and  subsidiaries  is a company
       incorporated  in the State of Delaware  and is engaged in the direct mail
       marketing,  manufacturing  and  distribution  of  quality  women's  sheer
       hosiery products to consumers throughout the United States and the United
       Kingdom.  The Company  markets women's sheer hosiery through a continuous
       product  shipment  or  "continuity"  program.  The  Company's  continuity
       program  involves  mailing to customers a specially  priced  introductory
       hosiery offer,  the acceptance of which enrolls  customers in the program
       and results in additional  shipments of hose on a regular and  continuous
       basis upon payment of a prior hose shipment. The Company's  manufacturing
       operations  supply  approximately  80% of all the hosiery required by the
       Company's continuity program.


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles  of  Consolidation  - The  consolidated  financial  statements
       include  the  accounts  of Hosiery  Corporation  of  America,  Inc.  (the
       "Company") and its subsidiaries.  All significant  intercompany  accounts
       and transactions have been eliminated.

       Revenue  Recognition  - Revenue less  allowance for returns is recognized
       when merchandise is shipped. The Company provides for returns at the time
       of shipment based upon historical experience.

       Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
       other short-term  securities purchased with maturities of less than three
       months.

       Inventories  -  Inventories  are  stated at the lower of cost  (first-in,
       first-out) or market.

       Property and  Equipment - Property and  equipment are stated at cost less
       accumulated  depreciation.  Depreciation  is provided on a  straight-line
       basis using estimated lives of 31 years for buildings,  5 to 10 years for
       machinery and equipment, 5 to 7 years for furniture and fixtures and 3 to
       5 years for  automobiles.  Leasehold  improvements are amortized over the
       shorter  of the  estimated  useful  life or the lease  periods  which are
       generally 15 to 18 years.

       Deferred Customer Acquisition Costs - Deferred customer acquisition costs
       consist of marketing  costs  (postage,  printed  material,  customer list
       rentals,  etc.) of the initial  shipment to a customer and similar  costs
       associated  with the  resolicitation  of previously  canceled  customers.
       These costs are  aggregated by promo- tional program and are amortized on
       an  accelerated  basis based upon the  estimated  current year revenue in
       proportion to the expected future revenue  generated by these  customers.
       Approximately  58% of these costs are  amortized  in the first 12 months,
       70% within 18 months,  and 80% within 24  months.  The loss  incurred  on
       front end  shipments to customers is charged to operations at the time of
       the front end shipment.

       Software  Costs  -  Software  costs,  principally  internally  developed,
       consist of the expenses  associated with the development  (computer time,
       license, programming time) of material software projects with a long-term
       benefit  and are  included  in the  consolidated  balance  sheet as Other
       Assets. The Company amortizes these assets on a straight-line  basis over
       7 years.

       Goodwill - Goodwill (the excess of cost over fair value of the underlying
       assets at the date of  acquisition) is being amortized on a straight-line
       basis over 30 years.

                                       26
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

       Derivative Financial  Instruments - The Company enters into interest rate
       caps to manage exposure to fluctuations in interest rates.  Premiums paid
       on caps are  amortized to interest  expense over the term of the cap. The
       interest rate caps were fully amortized at December 31, 1997.

       Deferred  Debt  Issuance  Costs - Debt  issuance  costs  represent  costs
       associated  with bank  borrowings  and notes and are amortized  using the
       effective interest method over the terms of the related borrowings.

       Income Taxes - The Company uses the liability  method of  accounting  for
       income  taxes in  accordance  with SFAS No.  109,  Accounting  for Income
       Taxes.  Under the liability method,  deferred income taxes are determined
       based upon enacted tax laws and rates applied to the differences  between
       the financial statement and tax basis of assets and liabilities.

       Impairment  of  Long-Lived   Assets  -  Long-lived   assets  and  certain
       identifiable  intangibles are reviewed for impairment  whenever events or
       changes in  circumstances  indicate that the carrying  amount of an asset
       may not be  recoverable.  Recoverability  is assessed based on the future
       cash flows  expected to result from the use of the asset and its eventual
       disposition.  If the sum of the undiscounted  cash flows is less than the
       carrying  value of the  asset,  an  impairment  loss is  recognized.  Any
       impairment  loss,  if  indicated,  is measured as the amount by which the
       carrying  amount of the asset  exceeds  the  estimated  fair value of the
       asset.

       Accounting for  Stock-Based  Compensation - As permitted by SFAS No. 123,
       Accounting  for  Stock-Based  Compensation,  the  Company  has  chosen to
       measure  stock-based  compensation  expense in accordance with the method
       prescribed by Accounting  Principles Board Opinion No. 25, Accounting for
       Stock Issued to Employees.

       Foreign Currency Translation - Foreign entities translate monetary assets
       and liabilities at year-end exchange rates while  non-monetary  items are
       translated  at  historical   rates.   Income  and  expense  accounts  are
       translated  at the average  rates in effect  during the year,  except for
       depreciation  and certain  marketing  expenses  which are  translated  at
       historical  rates.  Gains or losses from  changes in  exchange  rates are
       recognized in income in the year of  occurrence.  The effect of recording
       translation  adjustments  in income  instead of equity for the  Company's
       Canadian operations is not material to the financial statements.

       Use  of  Estimates  -  The  preparation  of  the  Company's  consolidated
       financial  statements in conformity  with generally  accepted  accounting
       principles   necessarily   requires  management  to  make  estimates  and
       assumptions  that affect the reported  amounts of assets and  liabilities
       and  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.

       New Accounting Standards  - In June 1997,  the FASB  issued SFAS No. 130,
       Reporting  Comprehensive  Income. This statement establishes standards
       for  the  reporting  and  display  of  comprehensive  income  and  its
       components in a full set of financial statements.  The Company adapted
       SFAS No.  130  effective  January  1,  1998.  There  was no  effect of
       implementing this standard as comprehensive  income is the same as net
       income.
                                       27
 <PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

       In June 1998,  the FASB issued SFAS No. 133,  Accounting  for  Derivative
       Instruments and Hedging Activities. This statement establishes accounting
       and reporting  standards for derivative  instruments,  including  certain
       derivative instruments embedded in other contracts (collectively referred
       to as  derivatives),  and for hedging  activities.  It  requires  that an
       entity  recognize all  derivatives as either assets or liabilities in the
       statement of financial  position and measure  those  instruments  at fair
       value.  This statement is effective for fiscal years beginning after June
       15, 1999, although early adoption is encouraged.  The Company has not yet
       assessed  what the  impact  of this  statement  will be on the  Company's
       future earnings or financial position.

       In March 1998,  the AICPA  issued  Statement  of Position  ("SOP")  98-1,
       Accounting for the Costs of Computer  Software  Developed for or Obtained
       for Internal  Use. The SOP requires the  capitalization  of certain costs
       incurred  after the date of adoption in  connection  with  developing  or
       obtaining  software for internal  use. The Company has early  adopted SOP
       98-1  effective  January 1, 1998.  The impact of this  statement  was not
       material on the Company's  earnings or financial  position as of December
       31, 1998.

       Reclassifications  -  Certain  reclassifications  were  made to the prior
       year's  consolidated  financial  statements to conform to classifications
       used in the current period.


3.     OPERATING SEGMENTS

       The Company  organizes its business units into two  geographic  segments:
       North America and International.  The President of Hosiery Corporation of
       America,  Inc., is responsible  for North  America,  and the President of
       Hosiery  Corporation  International is responsible for all  International
       locations.  The business is basically  the same in both  segments in that
       the bulk of the pantyhose is  self-manufactured  and sold directly to the
       end user via mail order. The business is a continuity  business,  and the
       goal of the program is to  maintain  customers  in the program  receiving
       full-priced  shipments.  Since North America is the established  business
       (23 years) as compared to  International  (3 years),  this  explains  the
       difference in profitability.

                                       28
<PAGE>


              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)

3.     OPERATING SEGMENTS (continued)

       The segment's  accounting policies are the same as those described in the
       summary of significant accounting policies.
<TABLE>
<CAPTION>
                                                                             1998
                                                       North America      International         Total
                                                       -------------      -------------        -------
       <S>                                             <C>                <C>                  <C>
       Revenues from External Customers                   173,580             25,101           198,681
       Interest Revenue                                        56                 15                71
       Interest Expense                                    16,632                 --            16,632
       Depreciation and Amortization                        3,326                 79             3,405
       Segment Profit (EBITDA) (1)                         40,561                995            41,556
       Segment Assets                                     111,924             18,115           130,039
       Income Tax Expense (Benefit)                         7,707                348             8,055
       Long-Lived Assets                                   26,824                312            27,136

                                                                             1997
                                                       North America      International         Total
                                                       -------------      -------------        -------
       Revenues from External Customers                   159,988             18,694           178,682
       Interest Revenue                                        80                 10                90
       Interest Expense                                    18,109                 --            18,109
       Depreciation and Amortization                        2,980                 79             3,059
       Segment Profit (EBITDA) (1)                         41,845             (2,842)           39,003
       Segment Assets                                      91,297              9,303           100,600
       Income Tax Expense (Benefit)                         7,352             (1,110)            6,242
       Long-Lived Assets                                   23,344                398            23,742

                                                                             1996
                                                       North America      International         Total
                                                       -------------      -------------        -------
       Revenues from External Customers                   153,797              8,966           162,763
       Interest Revenue                                       322                  5               327
       Interest Expense                                    18,466                 --            18,466
       Depreciation and Amortization                        2,967                 29             2,996
       Segment Profit (EBITDA) (1)                         40,459               (168)           40,291
       Segment Assets                                      85,875              6,725            92,600
       Income Tax Expense (Benefit)                        (1,315)               (75)           (1,390)
       Long-Lived Assets                                   24,807                447            25,254
<FN>
(1)           Earnings Before  Interest,  Taxes,  Depreciation  and Amortization
              (EBITDA)  represents Income (Loss) Before Provision  (Benefit) For
              Income Taxes of $21,519,  $17,835 and ($5,696) for 1998,  1997 and
              1996, respectively, excluding Interest Expense of $16,632, $18,109
              and $18,466 for 1998,  1997 and 1996,  respectively,  Depreciation
              and  Amortization of $3,405,  $3,059 and $2,996 for 1998, 1997 and
              1996,  respectively,  Compensation  related  to Stock  Options  of
              $22,938  in 1996  and  Expenses  related  to  Stock  Offering  and
              Acquisition  of  $1,587  in  1996.  EBITDA  does  not  purport  to
              represent net income or net cash provided by operating activities,
              as those terms are defined  under  generally  accepted  accounting
              principles.  Further,  the Company's  measure of EBITDA may not be
              comparable to similarly titled measures of other companies.
</FN>
</TABLE>
                                       29
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


4.     ACQUISITION

       On June 10, 1998, the Company  acquired  substantially  all of the assets
       and assumed  certain  liabilities of Enchantress  Hosiery  Corporation of
       Canada Ltd. ("EHC") for  approximately  $3,900 which was funded through a
       borrowing under the Company's  revolving credit facility.  EHC is engaged
       in the direct mail  marketing and  distribution  of quality sheer hosiery
       products to consumers  throughout  Canada.  The acquisition was accounted
       for using the purchase  method of accounting.  Accordingly,  a portion of
       the  purchase  price was  allocated to the net assets  acquired  based on
       estimated  fair values at date of  acquisition.  The fair value of assets
       acquired and liabilities  assumed was  approximately  $100. The excess of
       the  purchase  price  over the  estimated  fair  value of the net  assets
       acquired of  approximately  $3,800 is amortized over a period of 30 years
       using the straight-line method.

5.     PROVISION FOR COUPON REDEMPTION

       As part of the marketing  program,  the Company issues coupons to program
       participants  based upon the  products  purchased  or the referral of new
       customers to the  Company.  Customers  may redeem  coupons for free gifts
       from a program  catalog once they have  collected the required  number of
       coupons.  During 1998,  customers with an average of 33 coupons  redeemed
       for a free gift after a collection  period of  approximately  four years.
       The estimated future costs for this program have been determined based on
       historical customer redemption patterns applicable to outstanding coupons
       and average gift costs.

6.     INVENTORIES
                                                      1998           1997
                                                      ----           ----

          Raw materials.......................      $   909        $   546
          Work-in-process.....................        3,023          2,748
          Finished goods......................       13,500          9,820
          Promotional and packing material....        2,576          2,044
                                                    -------        -------    
                                                    $20,008        $15,158
                                                    =======        =======

7.     PROPERTY AND EQUIPMENT

                                                      1998           1997
                                                      ----           ----

          Land and buildings....................    $ 7,015        $ 7,015
          Machinery and equipment...............     22,658         20,683
          Furniture and fixtures................      2,322          2,213
          Leasehold improvements................      3,781          3,735
          Automobiles...........................        642            635
                                                    -------        -------
                                                     36,528         34,281
          Less accumulated depreciation 
               and amortization.................     18,621         17,020
                                                    -------        -------
                                                    $17,907        $17,261
                                                    =======        =======

       Property and equipment  includes  assets  acquired under capital  leases,
       principally   machinery  and  equipment   having  a  net  book  value  of
       approximately  $7,252  and  $6,556  as of  December  31,  1998 and  1997,
       respectively.  Related  accumulated  depreciation  and  amortization  was
       $7,801 and $6,063,  respectively.  Depreciation and amortization  expense
       for capital lease assets for 1998, 1997 and 1996 was $1,738,  $1,542, and
       $1,529, respectively.

                                       30
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


8.     OTHER ASSETS
                                                               1998      1997
                                                               ----      ----
          Software, net of accumulated amortization of
            approximately $6,190 and $5,881, respectively....  $444      $312
          Deposits...........................................   176        14
          Miscellaneous other................................    87        71
                                                               ----      ----
                                                               $707      $397
                                                               ====      ====

9.     OTHER EXPENSES (INCOME)
<TABLE>
<CAPTION>

       Included in other expenses (income) are the following:
                                                                                   1998        1997         1996
                                                                                   ----        ----         ----
          <S>                                                                      <C>         <C>          <C>
          Loss (gain) on foreign exchange.................................         $194        $225         $(39)
          Multistate group administrative expenses........................           --         300           --
          Miscellaneous expenses (income).................................           (8)          4           (2)
                                                                                   ----        ----         ----
                                                                                   $186        $529         $(41)
                                                                                   ====        ====         ====
</TABLE>

10.    LINE OF CREDIT AND LONG-TERM DEBT
<TABLE>
<CAPTION>

                                                                                               1998          1997
                                                                                               ----          ----
            <S>                                                                              <C>           <C>    
            Amounts due under term loan agreement....................................        $ 59,500      $ 63,000
            13.75% Senior Subordinated Notes due August 2002.........................          68,792        68,549
            Serial bonds issued by the South Carolina Jobs-Economic  Development
                Authority  with interest rates ranging from 5.8% to 7.1% payable
                Beginning  July  1993  in  quarterly   principal   payments  and
                semi-annual  Payments  to the  trustee of the  Bonds.  Bonds are
                collateralized by a Letter of credit and a building addition in 
                South Carolina.......................................................             758           875
                                                                                             --------      --------
            
            Total long-term debt.....................................................         129,050       132,424
            Less current portion.....................................................           7,617         3,117
                                                                                             --------      --------
            TOTAL LONG-TERM PORTION..................................................        $121,433      $129,307
                                                                                             ========      ========
</TABLE>
                                       31
<PAGE>
                                      

              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)

10.    LONG-TERM DEBT (continued)

       On October 17, 1994, the Company entered into a revolving credit and term
       loan  agreement  (the  "Agreement")  with a  group  of  banks  which  was
       restructured  on  November  20,  1997  and  amended  on March  26,  1999.
       Outstanding  borrowings  at  December  31,  1998 and 1997 are $59,500 and
       $63,000,  respectively.  The facility is secured by substantially  all of
       the  assets of Hosiery  Corporation  of  America.  The  facility  is also
       subject  to the  continuing  guarantees  of the  subsidiaries  of Hosiery
       Corporation  of America.  The revolving  credit and term loan portions of
       the   facility   have   maximum   borrowings   of  $20,000  and  $65,000,
       respectively.  The revolving credit facility expires on February 1, 2002.
       The Company can borrow based on a formula which  comprises the sum of 80%
       of accounts receivable and 50% of inventory. Interest under the revolving
       credit  facility is payable at the banks'  prime  lending  rate plus 0.5%
       (8.25% at December 31, 1998). There were borrowings outstanding under the
       revolving  credit facility at December 31, 1998 of $3,400 and $0 in 1997.
       The amount  available under the revolving  credit facility at December 31
       was $15,800 and $17,700 in 1998 and 1997, respectively.  The term loan is
       payable in quarterly  installments  ranging  from $750 to $5,000,  with a
       final  payment  due  February  1, 2002.  Interest  under the term loan is
       generally  payable quarterly and is charged at a premium of 0.5% over the
       Base Rate or 1.5% over the  Eurodollar  Rate as defined in the Agreement.
       The rate in effect at  December  31,  1998  ranged  from  6.44% to 7.25%.
       Additionally,  fees are  charged on the  average  daily  amount of unused
       commitment and are payable  quarterly.  Under the terms of the Agreement,
       certain restrictions are placed on additional borrowings, the purchase of
       property and equipment, the payment of cash dividends and the disposition
       of assets.  The Company has also  agreed to  maintain  certain  financial
       ratios as defined in the Agreement.

       During 1994, the Company sold the 13.75% Senior  Subordinated Notes, with
       a principal  amount of $70,000,  at a discount,  which  discount is being
       amortized  using  the  interest  method  over the life of the notes at an
       effective interest rate of 14.38%. Interest is payable semi-annually. The
       Notes were sold in denominations of one thousand  dollars,  each of which
       contained one share  (collectively the "Shares") of the Company's Class A
       Non Voting  Common  Stock,  par value  $.01 per share.  The Notes and the
       Shares were immediately detachable. Beginning October 1, 1997, the Notes,
       or a portion  thereof,  are  subject to  redemption  at the option of the
       Company at specified  redemption  prices ranging from 100% to 112% of the
       aggregate principal amounts of Notes so redeemed.  Upon the occurrence of
       a Change of Control, as defined,  each holder of the Notes shall have the
       right to require  the  Company to  repurchase  such  holder's  Notes at a
       purchase price equal to 101% of the aggregate  principal  amount thereof.
       Under the terms of the  agreement,  certain  restrictions  are  placed on
       additional  borrowings,  the  purchase of  property  and  equipment,  the
       payment of cash dividends and the disposition of assets.

       In accordance with the Agreement and Notes,  the Company is not permitted
       to declare or pay any dividend or make any distribution in respect of the
       Company's or any of its Restricted  Subsidiaries'  Equity Interests other
       than dividends or  distributions  payable solely in shares of its Capital
       Stock.  The Company was in compliance with all debt covenants noted above
       as of December 31, 1998 except  minimum  EBITDA and leverage  ratios.  On
       March 26, 1999,  the group of banks amended the  Agreement  (see Note 23)
       which included  revisions of certain  financial  covenants as of December
       31, 1998. Under the amended Agreement,  the Company is in compliance with
       all debt covenants as of December 31, 1998.

       The Company was contingently  liable for outstanding letters of credit in
       the amount of approximately $839 as of December 31, 1998.

       Maturities  of long-term  debt  consisted of the following as of December
       31, 1998:

                  1999................................   $   7,617
                  2000 ...............................      13,117
                  2001 ...............................      20,117
                  2002 ...............................      87,909
                  2003 ...............................         117
                  Thereafter .........................         173
                                                          --------
                                                          $129,050
                                                          ========  
                                       32
<PAGE>

                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


11.    INCOME TAXES

       The provision for income taxes (benefit) consists of the following:

                                              1998       1997        1996
                                              ----       ----        ----
          Federal:
          Current.......................... $   468     $2,640     $ 3,474
          Deferred.........................   6,701      3,297      (5,215)
                                             ------    -------     -------
                                              7,169      5,937      (1,741)
                                             ------    -------     -------
          States:
          Current..........................     (31)       451         179
          Deferred.........................     728       (146)        172
                                             ------     ------     -------
                                                697        305         351
                                             ------     ------     -------
          Foreign:
          Current..........................      --         --          --   
          Deferred.........................     189         --          --
                                             ------     ------     -------
                                                189         --          --     
                                             ------     ------     -------
                                             $8,055     $6,242     $(1,390)
                                             ======     ======     =======

       The  components  of  net  deferred  tax  liabilities   consisted  of  the
       following:

                                                             1998        1997
          Deferred tax liabilities:                        --------    --------
               Deferred customer acquisition costs......    $12,129    $  9,810
               Accounts receivable......................      7,309       6,422
               Prepaid assets...........................      3,642       2,107
               Property and equipment...................        508         635
               Other assets.............................        802       1,209
               Other current assets.....................        161         227
               Accrued coupon redemption costs..........        368         289
               State deferred taxes                           1,885       1,019
               Other....................................        199          --
                                                           --------    --------
                                                             27,003      21,718
                                                           --------    --------
          Deferred tax assets:
               Accrued expenses.........................       (868)       (727)
               Stock option.............................     (7,121)     (9,821)
               Other....................................        (15)        (15)
                                                           --------    --------
                                                             (8,004)    (10,563)
                                                           --------    -------- 
                                                            $18,999     $11,155
                                                           ========    ========
<TABLE>
<CAPTION>
 
       The following is a reconciliation  of the federal  statutory rate and the
       Company's effective tax rate:

                                                            1998                    1997                    1996
                                                            ----                    ----                    ----
       <S>                                           <C>         <C>         <C>          <C>         <C>         <C>     
        Tax provision (benefit) at
            statutory rate........................   $7,317      34.0%       $6,064       34.0%       $(1,937)    (34.0)%
        State taxes, net of federal benefit.......      460       2.1           202        1.1            232       4.1
        Foreign incremental tax...................       43       0.2            --         --             --        --     
        Other.....................................      235       1.1           (24)      (0.1)           315       5.5
                                                     ------      ----        ------       ----        -------     -----
        Provision (benefit) for income taxes......   $8,055      37.4%       $6,242       35.0%       $(1,390)    (24.4)%
                                                     ======      ====        ======       ====        =======     =====
</TABLE>
                                       33
<PAGE>

                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)

12.    REDEEMABLE EQUITY SECURITIES

       In connection with the Recapitalization,  the Company issued 2,826 shares
       of voting common stock,  $.01 par value, to management  stockholders  for
       cash. The Company is obligated to redeem these shares from the management
       stockholders  upon the death,  disability or termination of employment of
       the holder. The redeemable common stock was recorded at fair value on the
       date of issuance,  less issuance  costs,  totaling $45.  During 1995, the
       Company  issued an additional  4,048 shares of voting common stock,  $.01
       par value,  for cash under the same basic terms.  The  redeemable  common
       stock was recorded at fair value on the date of issuance,  less  issuance
       costs, totaling $63. In connection with the issuance of redeemable common
       shares in 1995,  certain  agreements  were  amended and executed in order
       that 14,643 shares of preferred  stock issued for cash in 1995 and 10,218
       shares of  preferred  stock  issued  for cash in  October  1994  would be
       redeemable  under the same basic terms of the  redeemable  common  stock.
       Each preferred  share has a $.01 par value, a stated value at liquidation
       of $10  and  cumulative  dividends  of 25% of  additional  shares  of PIK
       preferred stock or fractions thereof.  The redeemable preferred stock was
       recorded at fair value on the date of issuance or amendment providing for
       their redemption,  less issuance costs,  totaling $224. The excess of the
       preference  value over the carrying  value is being  accreted by periodic
       charges to  Additional  Paid-In  Capital over the life of the issue.  The
       redemption  provisions expire the earlier of the fifth anniversary of the
       October 17,  1994  Recapitalization  or the closing of an initial  public
       offering for the Company's common stock.

       In 1996,  two officers of the Company were granted 4,434 shares of voting
       common stock, $.01 par value, as additional compensation.  The Company is
       obligated to redeem these shares under the same basic terms as previously
       issued redeemable stock. The redeemable common stock was recorded at fair
       value on the date of issuance. This resulted in an increase in redeemable
       equity securities of approximately $300.

13.    TREASURY STOCK

       Pursuant to the  Recapitalization  Agreement  (see Note 14), the  Company
       repurchased from the Stockholder for approximately $199.0 million,  which
       includes approximately $0.9 million in post-closing  adjustments,  all of
       its then outstanding  shares of Preferred Stock (5,460 Class A shares and
       9,425 Class B shares) and 17,337  shares of its then  outstanding  Common
       Stock.  These  shares  along  with  all  previously  acquired  shares  of
       Preferred  and Common Stock were then  retired.  During 1995,  additional
       post closing  adjustments  totaling  $88 were made to the purchase  price
       relating  to the  retired  treasury  shares.  During  1998,  the  Company
       repurchased  from two officers of the Company a total of 18,600 shares of
       common  stock and 8,715  shares of  preferred  stock for a total value of
       $1,556.

14.    RECAPITALIZATION

       On July 19, 1994, an affiliate of Kelso & Company, Inc. ("Kelso"),  the
       Company and Joseph A. Murphy,  the sole  stockholder  of the Company (the
       "Stockholder"),  entered  into  a  Recapitalization  and  Stock  Purchase
       Agreement   (the   "Recapitalization   Agreement").   Pursuant   to   the
       Recapitalization  Agreement, the Company repurchased from the Stockholder
       (the   "Repurchase")   for   approximately   $191,200,   which   includes
       approximately  $900 in post-closing  adjustments  (net of $7,800 received
       from the Stockholder for the purchase of certain assets (see below)), all
       of its then  outstanding  shares of  preferred  stock  and a  substantial
       portion of its then  outstanding  shares of common stock.  On October 17,
       1994, the Company effected the recapitalization of its capital stock (the
       "Recapitalization"),  pursuant to which certain  affiliates and designees
       of Kelso and  certain  members of  operating  management  of the  Company
       (collectively,  the "Investor  Group"),  purchased a  controlling  equity
       interest in the Company.  The Company  effected the  Repurchase  with the
       proceeds of the Financing (as defined below).  Following the consummation
       of the  Repurchase  (and after  giving  effect to the  purchase of common
       stock by the  Investor  Group  pursuant to the  Financing),  the Investor
       Group owned  approximately  74% of the Company's  common stock,  with the
       Stockholder retaining approximately 21% of the Company's common stock.

                                       34
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


14.    RECAPITALIZATION (continued)

       The Company obtained the funds necessary to effect the Repurchase,  repay
       certain  existing  indebtedness  of the  Company  and  pay the  fees  and
       expenses incurred in connection with the Recapitalization  primarily from
       the  proceeds  of  a  financing  (the  "Financing")  which  included  (i)
       borrowings of $80,000 under a credit agreement,  consisting of $80,000 of
       term loan facilities (the "Term Loan Facilities") and a $15,000 revolving
       credit facility,  entered into among the Company,  Bankers Trust Company,
       and the banks  signatory  thereto,  (ii) gross proceeds of  approximately
       $69,100 from the issuance and sale of the Units (each unit  consisting of
       one  Senior  Subordinated  Note and one  share of Class A Common  Stock),
       (iii) gross proceeds of approximately  $36.5 million from the sale to the
       Investor Group of shares of a new class of pay-in-kind preferred stock of
       the Company for cash,  and (iv) gross proceeds of  approximately  $17,100
       from the sale to the  Investor  Group of shares of Common Stock for cash.
       The Company also utilized working capital of approximately  $2,000 to pay
       fees and expenses  incurred in connection with the  Recapitalization.  In
       addition,  certain  members  of the  Company's  management  were  granted
       restricted  pay-in-kind  preferred  stock and restricted  common stock of
       $1,022 and $478, respectively (see Note 20).

       The  Recapitalization  and Stock Purchase Agreement  contained  customary
       representations,  warranties and  conditions.  The  Recapitalization  and
       Stock  Purchase  Agreement  also  provided  that,  at  or  prior  to  the
       consummation  of the  Acquisition,  the Stockholder and the Company enter
       into an Escrow agreement pursuant to which,  among other things,  $10,000
       of the aggregate  purchase  price paid by the Company to the  Stockholder
       pursuant  to the  Repurchase  be held in  escrow  to  provide a source of
       payment to satisfy the  Stockholder's  indemnification  obligations under
       the Recapitalization and Stock Purchase Agreement.

       Prior to the  Recapitalization,  the  Company had  authorized  classes of
       voting and  non-voting  common stock,  with shares of voting stock issued
       and outstanding.  As part of the Recapitalization,  such non-voting stock
       was retired and such voting stock was changed and reclassified from Class
       A Common  Stock,  par  value  $1.00 per  share,  into one share of Common
       Stock,  par value $.01 per share.  In addition,  in  connection  with the
       Recapitalization,  the Company issued and sold shares of non-voting Class
       A  Common  Stock,  a small  number  of which  was  purchased  by  certain
       designees  of Kelso,  and the  remainder of which was sold in the form of
       Shares as part of the Units.  Upon the occurrence of any Conversion Event
       (as defined,  e.g., any transfer of shares of Class A Common Stock to any
       persons who are not affiliates of the transferor),  each share of Class A
       Common Stock shall be convertible  into one share of the Company's Common
       Stock.  Subsequent to the Recapitalization,  the Company effected a stock
       split of its Common Stock on approximately a 62.22-to-1 basis.

       On November 20, 1997,  the Company  amended and  restructured  its credit
       agreement.  This change  resulted in lower interest rates, an increase in
       the  revolving  credit  facility  from $15,000 to $20,000,  a substantial
       change in the  timing  of  principal  payments  and  changes  to the debt
       covenants.


                                       35
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)

15.    LEASE COMMITMENTS

       The Company leases premises under cancelable and noncancelable  operating
       leases with lease terms expiring through 2007. Future minimum payments by
       year and in the aggregate under all  noncancelable  capital and operating
       leases having initial or remaining terms of one year or more consisted of
       the following at December 31, 1998:

         Year ending                                   Capital       Operating
         December 31,                                  Leases          Leases
         ------------                                  -------       ---------
         1999........................................   $1,992         $1,929
         2000........................................    1,587          1,120
         2001........................................    1,465          1,046
         2002........................................    1,140            991
         2003........................................      643            973
         Thereafter..................................      722          3,329
                                                        ------         ------
                                                         7,549         $9,388
                                                                       ======
         Amount representing imputed                                          
            interest.................................      647
                                                        ------
         Present value of net minimum 
            lease payments...........................    6,902
         Less current portion........................    1,726
                                                        ------
                                                        $5,176
                                                        ======
       Rental  expense under all operating  leases for the years ended  December
       31, 1998,  1997 and 1996,  was  approximately  $2,094, $1,887 and $1,593,
       respectively.

16.    COMMITMENTS AND CONTINGENCIES

       The Company has entered into  employment  agreements with certain members
       of management.

       The  Company  has agreed to pay Kelso an annual fee of $263 each year for
       financial  advisory  services  and to reimburse  Kelso for  out-of-pocket
       expenses incurred. Non-officer directors of the Company, other than those
       directors who are affiliated with Kelso,  will be paid an annual retainer
       of $20. In addition, all out-of-pocket expenses of non-officer directors,
       including  those  directors  who are  affiliated  with Kelso,  related to
       meetings  attended,  will  be  reimbursed  by  the  Company.  Non-officer
       directors,  including those directors affiliated with Kelso, will receive
       no additional compensation for their services as directors of the Company
       except as described above.

       The Company is involved in, or has been involved in,  litigation  arising
       in the normal  course of its  business.  The  Company can not predict the
       timing or outcome of these claims and proceedings. Currently, the Company
       is not  involved in any  litigation  which is expected to have a material
       effect on the  financial  position  of the  business  or the  results  of
       operations and cash flows of the Company except as discussed below.

       In 1984, as a result of a lawsuit brought by the Federal Trade Commission
       ("FTC"),   the  Federal  District  Court  for  the  Eastern  District  of
       Pennsylvania issued a consent injunction, which sets forth specific rules
       with which the Company must comply in conducting  its mail order business
       and  permanently  enjoins the Company,  its successors  and assigns,  its
       officers,  agents,  representatives  and employees,  and anyone acting in
       concert with the Company from  violating  various FTC and Postal  Service
       laws and  regulations.  The FTC had previously  made inquiries about some
       aspects of the Company's  promotional  materials prompting the Company to
       adopt  revised  promotional  materials  which,  the Company  believes but
       cannot assure, will meet the concerns expressed by the FTC.

                                       36
<PAGE>

                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


16.    COMMITMENTS AND CONTINGENCIES (continued)

       In 1997,  the  Company  reached  an  agreement  with a  multistate  group
       consisting  of eleven  states  that sought to impose  certain  disclosure
       requirements on the Company's promotional materials. The agreement became
       effective  September  1,  1997.  During  1997  and  1998,  the  Company's
       promotional   materials   included  the  majority  of  modifications  and
       clarifications  required by the agreement.  The modifications the Company
       has made to its solicitation  materials has had a material adverse effect
       on its domestic  response  rates.  Consequently,  the Company feels these
       modifications and clarifications  will have no additional negative impact
       on the Company's response rates. However,  response rates are only one of
       several  factors that affect the Company's  results of operations.  Also,
       there may be some additional  modifications which will need to be made to
       the  Company's  promotional  materials to fully  satisfy the terms of the
       Company's  agreement with the multistate  group, and no assurances can be
       given that such changes will not have a further  effect on the  Company's
       response rate. In accordance with the agreement, the Company paid $300 in
       administrative expenses and fees during 1997. The agreement also required
       that  refunds be made to  customers  under  certain  circumstances  for a
       six-month  period.  These  refunds  were not  material  to the  Company's
       financial condition or results of operations.

       State  regulators,  the Federal Trade  Commission and trade  associations
       from time to time  contact  the  Company  with  inquiries  regarding  the
       Company's  promotional  materials.  The  Company  has  recently  received
       inquiries  from 3 states and a trade  association  which were not part of
       the multistate group.  While the Company believes that it will be able to
       resolve these  inquiries,  there can be no assurance  that these or other
       state regulators or trade associations will not require or seek to impose
       additional  changes  to  the  Company's  promotional  materials,  and  no
       assurance can be given that such changes will not be  significant or will
       not have a material  adverse  effect on the  Company's  future  financial
       condition or results of operations.

17.    PROFIT SHARING PLAN

       The Company has a profit sharing plan covering all employees and those of
       its subsidiaries.  Eligible employees can participate as of January 1 and
       July 1 after twelve months of service. Employee contributions are made on
       a pretax basis under Section  401(k) of the Internal  Revenue  Code.  The
       Company's  contribution  is at the  discretion of the Board of Directors.
       The expense  associated with the employer  contribution was approximately
       $550, $514 and $480 in 1998, 1997 and 1996. respectively.

       All  contributions and investments are held in a trust for the benefit of
       plan  participants.  All  employees  are  100%  vested  in  their  pretax
       contributions  and  earnings  thereon,  but become  vested in the Company
       contributions and earnings at a rate based on years of service, with full
       vesting after five years.

18.    FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company values the financial instruments as required by SFAS No. 107,
       Disclosures  about Fair Value of  Financial  Instruments.  The  following
       methods  and  assumptions  were used to  estimate  the fair value of each
       class of financial instrument:

       Cash and Cash  Equivalents,  Accounts  Receivable,  Accounts  Payable and
       Accrued  Expenses.  The  carrying  amount of these items are a reasonable
       estimate  of their fair  values  because of the short  maturity  of these
       instruments.

       Long-term  Debt  including  Current  Maturities.  The  fair  value of the
       Company's  long-term  debt is based  on the  quoted  market  price on the
       subordinated  notes and on current  interest  rates that are available to
       the Company for debt not quoted on an exchange.  At December 31, 1998 and
       1997, the Company had a carrying amount of long-term debt of $129,050 and
       $132,424,  respectively  and an  estimated  fair  value of  $132,358  and
       $139,475, respectively.

                                       37
<PAGE>
                                     
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)

19.    STOCK OPTION PLAN

       On June 28,  1996,  the Board of  Directors  approved and adopted a stock
       option  plan (the  "Option  Plan"),  providing  for the grant to  certain
       employees of the Company and its  subsidiaries  of options to purchase up
       to  215,369  shares  of  Common  Stock.  On June 28,  1996,  the Board of
       Directors  granted  options to purchase an aggregate of 215,369 shares of
       Common Stock. The exercise price with respect to 199,458 shares is $30.00
       per share.  The exercise  price with respect to 15,911 shares will be the
       price per share  obtained  in an initial  public  offering.  All  options
       vested on the date of such grant and are only exercisable upon an initial
       public  offering of the Common Stock or certain change of control events.
       Options  expire  10  years  from the  date of the  grant of such  option,
       subject to earlier  termination  by the Board of Directors.  Compensation
       expense of $22,938 was recorded in the Company's financial statements for
       the year ending  December 31, 1996. On July 29, the Company  entered into
       an agreement with an executive who  terminated  his  employment  with the
       Company  (the  "Agreement").   In  connection  with  the  Agreement,  the
       executive  was granted  the right to  exercise  his options at the option
       price of $30 per share, and simultaneously,  the Company reacquired these
       shares at a fair value of $107 per share.

       A summary of the status of the Company's stock option plan as of December
       31, 1998 and changes during the year ending on that date is presented 
       below:
<TABLE>
<CAPTION>
                                                      Options with Exercise         Options with Exercise
                                                          Price Equal to             Price Less Than the
                                                         Market Price of               Market Price of
                                                       Stock on Grant Date         Stock at Date of Grant
                                                      -------------------------   --------------------------
                                                                       Weighted                     Weighted
                                                                        Average                      Average
                                                                       Exercise                     Exercise
                                                           Shares         Price        Shares          Price
                                                          -------     ---------       --------     ---------
       <S>                                                <C>         <C>              <C>          <C>  
       Outstanding at January 1, 1996                         -0-                          -0-

       Granted                                             15,911       $145.00        199,458        $30.00

       Exercised                                               --                           --

       Cancelled                                               --            --             --            --
                                                          -------       -------     ----------        ------

       Outstanding at December 31, 1996                    15,911       $145.00        199,458        $30.00
                                                                        =======                       ======

       Granted                                                 --                           --

       Exercised                                               --                           --

       Cancelled                                               --            --             --            --
                                                          -------       -------     ----------        ------

       Outstanding at December 31, 1997                    15,911        $96.09        199,458        $30.00
                                                                         ======                       ======

       Granted                                                 --                           --

       Exercised                                               --                       17,344

       Cancelled                                               --            --             --            --
                                                          -------       -------        -------        ------
       Outstanding at December 31, 1998                    15,911       $106.94        182,114        $30.00
                                                          =======       =======        =======        ======
       Options exercisable at December 31,
       1996, 1997 and 1998                                    -0-                       17,344
                                                              ===                       ======
       Weighted average fair value of options
          Granted during 1996                             $145.00                      $145.00
                                                          =======                      =======
</TABLE>
       At December 31, 1998,  there were no options  available for future grants
       under the Option Plan.

                                       38
<PAGE>

                                      
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


19.    STOCK OPTION PLAN (continued)

       The  following   table   summarizes   information   about  stock  options
       outstanding at December 31, 1998:

                                     Options Outstanding
                        --------------------------------------------
                                          Weighted
                                           Average          Weighted
                           Number         Remaining          Average
             Exercise   Outstanding      Contractual        Exercise
              Prices    at 12/31/98         Life              Price
             --------   -----------      -----------        ---------
             $ 30.00       182,114        7.5 years           $ 30.00
              106.94        15,911        7.5 years            106.94
                           -------
                           198,025
                           =======

       The  Company  applies   Accounting   Principles  Board  Opinion  No.  25,
       "Accounting  for Stock Issued to  Employees," in accounting for its plan.
       Accordingly,  the difference  between the fair market value of the Common
       Stock, which for financial  reporting purposes was based on the estimated
       fair value at the date of grant,  and the exercise price of such options,
       has  been  recorded  as  compensation  expense  totaling  $22,938  in the
       Company's financial statements for the year ending December 31, 1996. Had
       compensation  cost for the  Company's  stock option plan been  determined
       based on the fair value at the grant dates, consistent with the method of
       SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  the Company's
       net loss for the year ending December 31, 1996, would have been increased
       to the pro forma amounts indicated below:

       Net loss:

                           As reported                        ($4,306)
                                                               ======
   
                           Pro forma                          ($5,321)
                                                               ======
   
       The fair value of each option  granted  during 1996 is  estimated  on the
       date of grant  using  the  Black-Scholes  option-pricing  model  with the
       following assumptions: (i) no dividend yield, (ii) no expected volatility
       as the Company's stock is not publicly traded,  (iii) risk-free  interest
       rate of 6.46%, and (iv) expected life of 5.5 years.


                                       39
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


20.    RELATED PARTIES TRANSACTIONS

       In connection with the Recapitalization, certain members of the Company's
       management  were  granted  restricted  pay-in-kind  preferred  stock  and
       restricted  common stock of $1,022 and $478,  respectively.  Compensation
       associated  with the grant of these shares was measured by the difference
       between the aggregate  price of the  restricted  shares and the aggregate
       fair value of the shares on the measurement  date.  Such  compensation is
       being recognized ratably over the six-year period for which services must
       be performed in order for these individuals to receive the shares without
       restriction.  The Company is  recognizing  compensation  expense over six
       years commencing October 17, 1994, which is the date the Company effected
       the  Recapitalization  and granted the  restricted  shares.  Compensation
       expense  related to these shares for the period  ended  December 31, 1998
       and 1997 totaled $250 in each year.

       In connection  with the  Recapitalization,  on October 17, 1994,  certain
       designees of Kelso  acquired  shares of the Company's  Common Stock.  The
       proceeds  from the sale of  these  shares  were  received  subsequent  to
       December 31, 1994.

       In 1996,  two officers of the Company were granted shares of common stock
       as additional compensation totalling approximately $300. These shares are
       included  in  the  accompanying   balance  sheets  as  redeemable  equity
       securities.

       Kelso provides  financial  advisory services to the Company for an annual
       fee. Payment for these services and  reimbursement  of expenses  totalled
       $294 in 1998, $270 in 1997 and $268 in 1996.

21.    PREFERRED STOCK

       The PIK  Preferred  Stock is entitled to  cumulative  dividends,  payable
       solely in additional  shares of PIK Preferred Stock, at an estimated rate
       of 25% per annum when,  as and if declared by the Board of  Directors  of
       the Company.  Cumulative dividends on preferred shares that have not been
       declared  since the  Recapitalization  total  approximately  6.4  million
       shares of  preferred  stock.  The PIK  Preferred  Stock has an  aggregate
       liquidation   preference   of   approximately   $37.4  million  plus  the
       liquidation preference of additional shares of PIK Preferred Stock issued
       in payment of dividends on the PIK  Preferred  Stock and the  liquidation
       preference in respect of accumulated and unpaid dividends, whether or not
       declared.  The PIK  Preferred  Stock is  redeemable  at the option of the
       Company in whole or in part at any time for a  redemption  price equal to
       the  liquidation  preference  thereof  plus all  accumulated  and  unpaid
       dividends,  whether  or not  declared,  to the  date  of  redemption.  In
       addition,  the PIK Preferred Stock has no voting rights,  except that the
       PIK  Preferred  Stock is entitled to vote,  as a separate  class,  in the
       event of any merger,  consolidation,  or sale of all or substantially all
       of  the  Company's  assets,  any  amendment  to  the  Company's  Restated
       Certificate  of  Incorporation  or any  authorization  or issuance by the
       Company of  capital  stock  ranking  senior to or pari passu with the PIK
       Preferred  Stock with respect to dividends or  liquidation  preference or
       securities  convertible  into or  exchangeable  or  exercisable  for such
       capital stock.


                                       40
<PAGE>
                                       
              HOSIERY CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Dollars in thousands, except per share data)


22.    QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

       Summarized quarterly financial data for 1998 and 1997 are set forth below:


                                        March         June        September       December      Total
                                       -------      --------      ---------       --------      -----
1998
<S>                                    <C>           <C>           <C>            <C>         <C>
Net Revenues.........................  $43,678       $50,516       $48,042        $56,445     $198,681
Gross Profit.........................   21,942        26,309        27,506         31,572      107,329
Operating Income.....................    5,162         8,080        11,609         13,229       38,080
Net Income...........................      697         2,446         4,614          5,707       13,464

1997

Net Revenues.........................  $45,274       $49,589       $39,414        $44,405     $178,682
Gross Profit.........................   22,234        25,532        22,285         26,512       96,563
Operating Income.....................    5,276         9,509         8,866         12,203       35,854
Net Income...........................      464         3,025         2,686          5,418       11,593
</TABLE>


23.    SUBSEQUENT EVENTS

       On March 26, 1999, the Company amended its Credit Agreement to include an
       Incremental  Revolving Loan of $5,000. This loan can be made from time to
       time after the existing  revolving  credit facility  equals $20,000.  The
       Incremental  Revolving  Loan will be  terminated  when all  principal and
       accrued interest has been repaid but no later than December 31, 1999.

       In addition  to the  Incremental  Revolving  Loan,  the  Company  amended
       certain  financial ratios as defined in the Agreement.  These ratios were
       effective for the December 31, 1998 quarter. (See Note 10.)

                                       41
<PAGE>
                                      
ITEM 9.    CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE

           None.

                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Company's  executive officers and directors,  as well as additional
information with respect to those persons, are set forth in the table below.

Name                   Age     Position
----                   ---     --------
John F. Biagini         55     Chairman and Chief Executive Officer
Darrell Edwards         40     Vice President and Director of Marketing
Arthur Hughes           57     Vice President and Chief Financial Officer
William J. Kelly        49     Senior Vice President, International Operations
Hans Lengers            53     President, U.S. Textile Corporation and Director
Philip G. Whalen        53     President and Chief Operations Officer
Frank K. Bynum, Jr.     36     Director
Michael B. Goldberg     52     Director
Joseph A. Murphy        55     Director


         Directors  shall be elected by a plurality  of the votes cast at annual
meetings  of  stockholders  (except  in the case of  vacancies  on the  Board of
Directors).  All  directors of the Company serve for the term for which they are
elected or until their successors are duly elected and qualified or until death,
retirement,  resignation,  or removal. All executive officers hold office at the
pleasure  of  the  Board  of  Directors.  See  "--Stockholders   Agreement"  and
"--Employment Agreements."

         Non-officer  directors of the Company,  other than those  directors who
are  affiliated  with Kelso,  will be paid on annual  retainer  of  $20,000.  In
addition, all out-of-pocket  expenses of non-officer directors,  including those
directors who are affiliated  with Kelso,  related to meetings  attended will be
reimbursed by the Company.  Non-officer  directors,  including  those  directors
affiliated  with  Kelso,  will  receive  no  additional  compensation  for their
services as directors of the Company except as described above.  Officers of the
Company who serve as directors do not receive compensation for their services as
directors other than the compensation they receive as officers of the Company.

         There  are  no  family  relationships  among  directors  and  executive
officers of the Company.  For certain information  regarding the stock ownership
of the  Company,  see  "Security  Ownership  of  Certain  Beneficial  Owners and
Management."

         The business experience for at least the last five years of each of the
directors and executive officers is as follows:

         Mr.  Biagini has been the Chairman and Chief  Executive  Officer of the
Company since consummation of the Recapitalization. Mr. Biagini served as
President and Chief  Executive  Officer from June 1992 through March 1998.

         Mr. Edwards has been the Vice  President and Director of Marketing of 
the Company since  consummation of the Recapitalization.  Mr. Edwards served as
Vice President and Director of Marketing since he joined the company in October
1992.

         Mr. Hughes has been the Vice  President  and Chief  Financial  Officer
of the Company since August 1995.  Mr. Hughes served as Vice President and
Controller of the Company from 1990 to August 1995.

                                       42
<PAGE>
                                      

         Mr. Kelly has been Senior Vice President, International Operations, of
the Company since July 1996.  From December 1993 until June 1996, Mr. Kelly was
Vice President, Systems and Operations.  From November 1988 until December 1993,
Mr. Kelly was Vice President, Systems and Programming.

         Mr. Lengers has been the President of U.S. Textile Corporation (the
Company's  wholly-owned  manufacturing  subsidiary) and a Director of the 
Company since 1978, and is one of the founders of U.S. Textile Corporation.

         Mr.  Whalen has been  President of the Company  since April 1998.  From
1985 to March  1998 he served as  President  of  Enchantress  Hosiery  of Canada
which, in June 1998, became a wholly-owned  subsidiary of Hosiery Corporation of
America.

         Mr.  Bynum has been a Director  of the Company  since the  consummation
of the  Recapitalization.  Mr.  Bynum has been a Vice President  of Kelso  from
July  1991 to April  1998  when he was  named a  Managing  Director  of  Kelso.
He is a director of Cygnus Publishing, Inc., IXL Enterprises, Inc., 21st Century
Newspapers, Inc. and MJD Communications, Inc.

         Mr.  Goldberg  has been a Director of the Company since consummation of
the Recapitalization.  Mr. Goldberg has been a Managing  Director of Kelso since
October 1991. Mr. Goldberg served as a Managing Director and jointly managed the
merger and acquisitions department at The First Boston Corporation from  1989 to
May  1991.  Mr. Goldberg was a partner  at the law firm of Skadden, Arps, Slate,
Meagher & Flom from 1980 to 1989.  Mr. Goldberg is a director of Consolidated
Vision Group, Inc., Endo Pharmaceuticals, Inc. and Netspeak Corporation.

         Mr. Murphy has been a Director of the Company since consummation of the
Recapitalization.  Mr. Murphy joined the Company in September 1980 as Chief
Operating  Officer.  In December 1983,  Mr. Murphy was promoted to President and
Chief Executive Officer and was simultaneously elected to the Board of
Directors.  In June 1992, Mr. Murphy ceased serving as President of the Company
but continued to serve as Chairman and Chief Executive Officer, a position from
which he resigned prior to consummation of the Recapitalization.

         In connection with the  transactions  effected by the  Recapitalization
Agreement, the Company paid Kelso a fee of $2.625 million for financial advisory
services and  reimbursed it for  out-of-pocket  expenses  incurred in connection
with rendering such services.  In addition,  the Company has agreed to pay Kelso
an annual fee of  $262,500  each year for  financial  advisory  services  and to
reimburse it for out-of-pocket expense incurred.  The Company has also agreed to
indemnify  Kelso  against  certain  claims,  losses,  damages,  liabilities  and
expenses which may arise, in connection  with rendering such financial  advisory
services.

         The  Company has a Compensation Committee, which currently consists of
three directors:  John Biagini, Frank Bynum and Michael Goldberg.  Messrs. Bynum
and Goldberg are neither officers nor employees of the Company or any of its 
affiliates.

                                       43
<PAGE>
                                       
Stockholders Agreement
----------------------

         The Stockholders Agreement provides, among other things, that, (subject
to changes that may be made from and after such time with respect to the members
and size of the Board of Directors in  accordance  with the  Company's  Restated
Certificate of Incorporation and By-Laws), the Company's Board of Directors will
consist of five members, including (i) two officers of the Company designated by
Kelso  from  certain  management  stockholders  of the  Company,  (ii) two other
individuals  designated  by Kelso (who may be affiliates of Kelso) and (iii) the
Stockholder.  In  addition,  Kelso and the  Stockholder  agreed  pursuant to the
Stockholders  Agreement that (i) so long as the  Stockholder  and certain of his
transferees  collectively  own 10% or more of the outstanding  Common Stock, the
Stockholder shall be a director of the Company and (ii) so long as Kelso and its
affiliates  collectively  are  the  largest  stockholders  of  the  Company  and
collectively  own at least 35% of the  outstanding  stock of the Company,  Kelso
shall be entitled to elect a majority of the Board of  Directors of the Company.
Under the Company's Restated Certificate of Incorporation and By-Laws, the Board
of  Directors  shall  consist of not less than three (3) nor more than eight (8)
members, and following  consummation of the Recapitalization shall be fixed from
time to time by resolution of the Board of Directors  (the "Board  Resolution"),
or by resolution  adopted by the vote of a majority of the  stockholders  of the
Common  Stock  or by  consent  executed  on  behalf  of such  stockholders  (the
"Stockholder Resolution"); provided, that in the event of a conflict between the
Board  Resolution and the Stockholder  Resolution,  the  Stockholder  Resolution
shall govern.  The Stockholders  Agreement also limits transfers of Common Stock
and Class A Common Stock by certain  parties  thereto,  and provides for certain
tag-along,  drag-along and registration  rights. (The Stockholders  Agreement is
dated as of October 17, 1994. The original  signatories thereto are the Company;
the Stockholder, Joseph A. Murphy; Kelso Investment Associates V, L.P. ("KIAV");
Kelso Equity Partners V, L.P. ("KEPV");  as well as John F. Biagini,  CEO of the
Company and Hans Lengers, President of U.S. Textile Corporation.)

                                       44
<PAGE>

                                       
ITEM 11.  EXECUTIVE COMPENSATION

         The  following  table sets forth the total  compensation  earned by the
Chief Executive Officer and the four most highly compensated  executive officers
of the Company for the fiscal year ended December 31, 1997, as well as the total
compensation earned by such individuals for the two previous fiscal years.

SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>

                                                                            Long-Term
                                                 Annual Compensation      Compensation
                                                ---------------------     ------------
                                                                           Securities           All           Other
                                                                           Underlying          Other          Annual
Name                                Year        Salary      Bonus (b)      Options (c)     Compensation    Compensation
----                                ----        ------      ---------      -----------     ------------    ------------
<S>                                 <C>        <C>          <C>           <C>             <C>              <C>
John F. Biagini                     1998       $367,474      $350,000              --       $ 7,038(a)
   Chairman of the Board &          1997        372,745       500,000              --         7,119(a)
   Chief Executive Officer          1996        352,794       400,000          94,676         7,164(a)

Hans Lengers                        1998        431,919                            --         7,038(a)
   President, U.S. Textile          1997        423,754            --              --         2,230(a)
   Corporation                      1996        419,439            --          47,339         1,789(a)

Robert M. Henry                     1998        288,939        35,000              --         7,038(a)     $1,334,447(d)
   Senior Vice President,           1997        261,146        53,700              --               --
   Systems and Operations           1996        253,869        16,500          17,344               --

Arthur Hughes                       1998        233,451        40,000              --         7,038(a)
   Vice President and               1997        220,615        50,000              --         7,119(a)
   Chief Financial Officer          1996        159,587        50,000          21,322         7,164(a)

William J. Kelly                    1998        231,043        24,000              --         7,038(a)
   Senior Vice President,           1997        232,551        40,000              --         7,119(a)
   International Operations         1996        222,842        30,000          17,344         7,164(a)

Philip G. Whalen                    1998        187,896            --              --               --
   President and
   Chief Operating Officer
<FN>
----------------
(a)  Amounts represent Company contributions to the 401(k) Plan, which is a defined contribution plan.
(b)  Represents amounts awarded as cash/stock bonuses.
(c)  Represents options granted to certain officers under the Company's Stock Option Plan.
(d)  Includes $1,334,447 of stock option compensation, 17,344 options awarded in 1996.  
     Mr. Henry resigned July 15, 1998 and was granted the rights to exercise  his options at the option price
     of $30 per share and,  simultaneously,  the Company  reaquired  these shares at a fair
     value of $107 per share. Salary includes severance paid since that date.
</FN>
</TABLE>

Long-Term Compensation
----------------------

Management Stock Purchase and Restricted Stock Award Agreements

         Prior to the  closing  of the  Recapitalization,  Mr.  Biagini  and Mr.
Lengers  entered  into  Management  Stock  Purchase and  Restricted  Stock Award
Agreements with the Company (the  "Management  Stock  Agreements"),  pursuant to
which Mr.  Biagini  was granted  18,841  restricted  shares of Common  Stock and
68,120  restricted  shares of PIK Preferred  Stock,  and Mr. Lengers was granted
9,421  restricted  shares of Common  Stock and 34,060  restricted  shares of PIK
Preferred  Stock in  addition  to the shares of Common  Stock and PIK  Preferred

                                       45

                                      
<PAGE>

Stock granted to Mr.  Biagini and Mr.  Lengers is $1,000,000  and $500,000,
respectively.  The  Common  Stock  was  sold at  $16.92  per  share  and the PIK
Preferred Stock at $10.00 per share to the original investor group. Compensation
with respect to the grant of shares will be recognized ratably over the six-year
period for which  services  must be performed  in order for Messrs.  Biagini and
Lengers to receive the shares without restriction.  No dividends will be paid on
any restricted  stock.  Additionally,  in 1995 the management  group was offered
limited opportunities to purchase stock at the same price as Messrs. Biagini and
Lengers which resulted in net proceeds to the Company of $190,000.

                          FISCAL YEAR-END OPTION VALUES

                       Number of Securities
                      Underlying Unexercised            Value of Unexercised
                            Options at                  In-the-Money Options
                       December 31, 1998 (#)          at December 31, 1998 ($)
                       ---------------------          ------------------------

Name                 Exercisable/Unexercisable       Exercisable/Unexercisable
----                 -------------------------       -------------------------

John F. Biagini               0/94,676                      0/6,672,314
Hans Lengers                  0/47,339                      0/3,336,195
Arthur Hughes                 0/21,322                      0/1,334,447
William J. Kelly              0/17,344                      0/1,334,447

         There is no public  market for the  common  stock of the  Company.  The
value utilized for the In-the-Money Options as of December 31, 1998 was based on
a valuation completed by an independent appraiser and reviewed by management for
reasonableness.

No options were granted during 1998.

Employment Agreements
---------------------
         In August 1980, Hans Lengers entered into an Employment  Agreement with
the  Company's  manufacturing   subsidiary,   U.S.  Textile  Corporation  ("U.S.
Textile"),  pursuant to which he is employed as  President  and Chief  Executive
Officer of U.S.  Textile and to manage and operate its  business and affairs for
his lifetime,  such  agreement  having been amended on September  12, 1994.  Mr.
Lengers is not entitled to receive  compensation upon the voluntary  termination
of his employment with U.S. Textile.  In addition,  the Company may abrogate the
terms and  conditions of the  Employment  Agreement for good cause as defined by
the law of North  Carolina,  and in any event,  the  Employment  Agreement  will
terminate  upon Mr.  Lengers'  death,  adjudicated  incompetency,  bankruptcy or
physical or mental  inability to perform his duties  thereunder.  The  agreement
provides for a base salary of $5,000 per month and  additional  compensation  in
the  amount  that  25.0%  of the U.S.  Textile  net  profits  exceed  such  base
compensation,  such that the sum of the base  compensation  and this  additional
compensation does not exceed $250,000 per annum,  adjusted each year for cost of
living  increases.  The Consumer Price Index for Urban Wage Earners and clerical
workers is used as the index to compute  cost of living  increases.  The ceiling
for Mr.  Lengers'  salary in 1998 was  $439,000.  In addition,  Mr.  Lengers has
agreed  during  the time of his  employment  not to  devote  any of his time and
efforts to the  affairs of any other  business in direct  competition  with U.S.
Textile.

         The  aforementioned  employment  agreements  require a successor to the
employer thereunder to assume the respective  obligations of such employer under
the applicable agreement.

Compensation Committee Interlocks and Insider Participations in Compensation
Decisions
----------------------------------------------------------------------------
         Mr. Biagini was the Chairman and Chief Executive Officer of the Company
during the last fiscal year.  Messrs. Goldberg and Bynum are both general
partners of the general partner of KIAV, general partners of KEPV and are
Managing Directors of Kelso.

                                       46
<PAGE>

                                       
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT
----------------------------------------------------------------
         The following  table sets forth  information  as of March 29, 1999 with
respect  to  the  beneficial   ownership  of  shares  of  Common  Stock  of  all
stockholders  of the Company who are known by the  Company to  beneficially  own
more than 5% of any such class, by each director,  by each executive  officer of
the Company  named in the summary  compensation  table and by all  directors and
executive  officers of the Company as a group,  as determined in accordance with
Rule 13d-3(i) under the Securities Exchange Act of 1934, as amended.  The Common
Stock  set  forth in the  following  table  includes  voting  Common  Stock  and
non-voting Class A Common Stock. Except as indicated in the footnotes below, all
shares of Common Stock are voting Common Stock. Prior to the consummation of the
Recapitalization,  all of the issued and outstanding  shares of Common Stock and
Old Preferred Stock were owned by the Stockholder.
<TABLE>
<CAPTION>
                                                                                         Percentage of Shares
         Name and Address                                     Number of Shares             of Common Stock
         of Beneficial Owner                                  of Common Stock                Outstanding
         -------------------                                  ----------------           --------------------
         <S>                                                  <C>                     <C>    
         Kelso Investment Associates V, L.P. (a)(b).......           995,932                    70.77%
         Kelso Equity Partners V, L.P. (a)(b).............           995,932                    70.77%
         Joseph S. Schuchert(b)...........................             (d)                       (d)
         Frank T. Nickell(b)(c)...........................             (d)                       (d)
         Thomas R. Wall, IV(b)(c).........................             (d)                       (d)
         George E. Matelich(b)............................             (d)                       (d)
         Michael B. Goldberg(b)(c)(e).....................             (d)                       (d)
         David I. Wahrhaftig (b)(c).......................             (d)                       (d)
         Frank K. Bynum, Jr.(b)(c)(e).....................             (d)                       (d)
         Joseph A. Murphy(f)..............................           292,600                    20.79%
         John F. Biagini(f)(g)(h).........................            23,681                     1.68%
         Hans Lengers(f)(g)(h)............................            11,841                      .84%
         William J. Kelly(f)(g)...........................               188                      .01%
         Arthur C. Hughes(f)(g)...........................               471                      .03%
         All directors and executive officers of the
             Company as a group(f)(g).....................           330,914                    23.52%
---------------
<FN>
(a)   As part of the 1994 Recapitalization,  KIAV and KEPV acquired respectively
      960,634 and 40,026  shares of Common Stock,  representing  68.6% and 0.9%,
      respectively, of the shares of Common Stock outstanding. Subsequent to the
      1994  Recapitalization,  KEPV transferred  4,728 shares of Common Stock to
      certain  family trusts of Messrs.  Wall and Goldberg for which Mr. Nickell
      serves as trustee.  The Kelso  Affiliates,  due to their  common  control,
      could be  deemed  to  beneficially  own each of the  other's  shares,  but
      disclaim such beneficial ownership.
(b)   The business  address for such  person(s)  is c/o Kelso & Company,  320 Park
      Avenue,  24th Floor,  New York,  New York 10022.  
(c)   Excludes 4,728 shares of Common Stock owned by certain family trusts of Messrs.
      Wall and Goldberg, which may be deemed to be beneficially owned by each of
      Messrs. Wall and Goldberg, but each disclaims such beneficial ownership.  
      Mr. Nickell serves as trustee for these family trusts of Messrs. Wall and
      Goldberg, and as such these shares may be deemed to be beneficially owned by
      Mr. Nickell, but Mr. Nickell disclaims such beneficial ownership.
(d)   Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig and Bynum
      may be deemed to share beneficial  ownership of shares of Common Stock and
      PIK  Preferred  Stock owned of record by KIAV and KEPV, by virtue of their
      status as general  partners  of the  general  partner of KIAV and  general
      partners of KEPV. Messrs.  Schuchert,  Nickell, Wall, Matelich , Goldberg,
      Wahrhaftig  and Bynum share  investment  and voting  power with respect to
      securities owned by the KIAV and KEPV. Messrs.  Schuchert,  Nickell, Wall,
      Matelich, Goldberg,  Wahrhaftig and Bynum disclaim beneficial ownership of
      shares of Common Stock and PIK Preferred Stock owned of record by KIAV and
      KEPV.
(e)   Mr. Goldberg and Mr. Bynum are directors of the Company.
(f)   The business address of such person(s) is Hosiery Corporation of America, Inc.,
      3369 Progress Drive, Bensalem, Pennsylvania  19020.
(g)   Each of such  persons  may hold  options  granted  under the option  plan.
      Shares of Common Stock  subject to such  options are not  reflected in the
      table.
(h)   In addition, prior to the closing of the Recapitalization, Messrs. Biagini
      and Lengers acquired in the aggregate  approximately 3.0% of the shares of
      PIK Preferred Stock issued in the Recapitalization.  The amounts of Common
      Stock  beneficially  owned by Messrs.  Biagini and Lengers as reflected in
      the above table and PIK Preferred  Stock  acquired by Messrs.  Biagini and
      Lengers as described in the preceding  sentence include grants made by the
      Company  prior to the  consummation  of the  Recapitalization  to  Messrs.
      Biagini and Lengers of an aggregate  of 28,262  shares of Common Stock and
      approximately  2.7% of the  shares of PIK  Preferred  Stock,  in each case
      subject to certain restrictions.
</FN>
</TABLE>
                                       47
<PAGE>
                                       
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
         Set forth  below is a summary of certain  agreements  and  arrangements
entered  into  by the  Company  and  related  parties  in  connection  with  the
Recapitalization.

Investor Relationships
----------------------
         Kelso affiliates  beneficially own 70.8% of the shares of common equity
of the Company as described  under  "Security  Ownership  of Certain  Beneficial
Owners  and  Management".  The  Company  has agreed to  indemnify  Kelso and its
affiliates  against certain claims,  losses,  damages,  liabilities and expenses
which  may  arise  in  connection  with  the  transactions  contemplated  by the
Recapitalization  Agreement.  The Company has also agreed to pay Kelso an annual
fee of $262,500  each year for financial  advisory  services and to reimburse it
for out-of-pocket expenses incurred, and to indemnify it against certain claims,
losses,  damages,  liabilities  and expenses which may arise, in connection with
rendering such services.  Kelso's out-of-pocket  expenses in connection with its
services  rendered during 1998 and 1997 were  approximately  $32,000 and $8,000,
respectively.

         Certain Kelso  affiliates are parties to a stockholders  agreement.  In
addition,  certain affiliates of Kelso, the Company and certain investors in the
Company's  stock who are  designees  of Kelso  entered  into  Letter  Agreements
(collectively,  the "Letter  Agreements"),  each of which,  among other  things,
provides for certain  restrictions  on the transfer of stock by such  investors.
The Company has a stockholders agreement which provides, among other things, for
certain restrictions on the transfer of the Company's stock.

The Recapitalization and Related Transactions
---------------------------------------------
         The  Recapitalization  Agreement  contains  customary  representations,
warranties,  indemnities  and  conditions.  In  addition,  the  Recapitalization
Agreement  provides that the Stockholder,  on the one hand, and Company,  on the
other,  will, subject to certain  limitations set forth therein,  indemnify each
other and their respective stockholders,  subsidiaries, affiliates, officers and
directors and their  respective  successors  and assigns,  from,  against and in
respect of any damages, losses, deficiencies,  liabilities,  costs and expenses,
incurred as a result of any (i) misrepresentations or breaches of warranties set
forth in the Recapitalization Agreement or in any certificate delivered pursuant
thereto and (ii) non-fulfillment of certain agreements or covenants set forth in
the Recapitalization Agreement. The representations and warranties and covenants
and  agreements to which such  indemnification  relates are standard and include
representations   and   warranties   with   respect  to   ownership   of  stock,
capitalization,  financial statements,  absence of defaults under agreements and
violations  of law  and  similar  matters.  In  addition,  the  Recapitalization
Agreement  provides for similar  indemnification by the Stockholder with respect
to certain other matters, including, among other things, claims by third parties
resulting  from or arising  out of certain  activities  in  connection  with the
Stockholder's  auction and sale of the Company and certain liabilities  incurred
as a result of the operations (or relating to the assets) which were transferred
to the Stockholder prior to the Recapitalization (as described below) or arising
out of such transfer. Under the Recapitalization Agreement, such indemnification
is subject to certain baskets and deductibles and, in general,  has an aggregate
limit of $15 million.

         The  Recapitalization  Agreement also provided for the  Stockholder and
the Company to enter into an Escrow  Agreement  pursuant  to which,  among other
things,  $10 million of the aggregate  purchase price paid by the Company to the
Stockholder  pursuant to the Repurchase is held in escrow to provide a source of
payment to  satisfy  the  Stockholder's  indemnification  obligations  under the
Recapitalization  Agreement.  In addition,  the  Stockholder  has pledged to the
Company  the shares of Common  Stock  which were not  purchased  by the  Company
pursuant to the Repurchase and which the Stockholder  continues to own following
the consummation of the  Recapitalization  (such shares represent  approximately
21% of the Company's Common Stock outstanding  following the consummation of the
Recapitalization).

                                       48
<PAGE>
                                       

         In connection with the Recapitalization, the Company transferred to the
Stockholder  certain  assets  consisting  primarily  of the  stock of all of its
non-hosiery related subsidiaries, some of which are inactive businesses, certain
receivables,  equipment leased to one of the non-hosiery  subsidiaries,  certain
life insurance  policies,  four owned or leased  automobiles  and three owned or
leased personal  computers.  None of the assets  transferred to the Stockholder,
except the life insurance policies and loans thereon, automobiles and computers,
were used in the Company's hosiery business.

                                       49
<PAGE>
                                       
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
A.   The following documents are filed as a part of this Report:

     (1) and (2)  Financial  Statements  and Financial  Statement  Schedule--see
     Index to Financial Statements and Financial Statement Schedule appearing 
     on Page 15.

     (3) Exhibits, including those incorporated by reference.  The following is
         a list of exhibits filed as part of this  Annual Report  on Form  10-K.
         Where so indicated by footnote, exhibits which were previously filed 
         are incorporated by reference. For exhibits incorporated by reference,
         the location of the exhibit in the previous filing is indicated.
<TABLE>
<CAPTION>
                   EXHIBITS                                 INCORPORATION BY REFERENCE
                   --------                                 --------------------------
         <S>       <C>                                      <C>

         3.1       Restated Certificate of Incorporation    Exhibit 3.1 to Registration Statement No.
                   of the Company                           33-87392 on Form S-1 dated May 15, 1995

         3.2       Certificate of Designation, Powers,      Exhibit 3.2 to Registration Statement
                   Preferences and Rights of Pay-in-Kind    No. 33-87392 on Form S-1 Dated May 15,
                   Preferred Stock                          1995

         3.3       Amendment to the Restated                Exhibit 3.3 to Registration Statement
                   Certificate of Incorporation of          No. 33-87392 on Form S-1 dated May 15,
                   the Company                              1995

         3.4       Amendment to the Restated                Exhibit 3.1 to Report 10-Q for the quarter
                   Certificate of Incorporation of          ended September 30, 1995
                   the Company

         3.5       By Laws of the Company                   Exhibit 3.4 to Registration Statement No.
                                                            33-87392 on Form S-1 dated May 15, 1995

         4.1       Indenture dated as of October 17,        Exhibit 4.1 to Registration Statement No.
                   1994  between the Company and            33-87392 on Form S-1 dated May 15, 1995
                   United  States  Trust  Company of        
                   New York, as Trustee

         4.2       Credit Agreement dated as of October     Exhibit 4.1 to Registration Statement No.
                   17, 1994, among the Company;             33-87392 on Form S-1 dated May 15, 1995
                   National Westminster Bank PLC, as
                   Co-Agent; Nations Bank of North
                   Carolina, N.A., as Co-Agent; Bankers
                   Trust Company, as Agent; and the
                   financial institutions listed on the
                   signature pages thereto

         4.3       Amended and  Restated  Credit            Exhibit 4.3 to Form 10-K dated
                   Agreement  dated as of November 20,      March 30, 1998 
                   1997 among the Company; various
                   lending institutions and Bankers
                   Trust Company, as Agent

         *4.4      Amended and Restated Credit Agreement
                   dated as of March 26, 1999 among the
                   Company; various lending institutions
                   and Bankers Trust Company, as Agent
</TABLE>
                                       50
<PAGE>
                                       
<TABLE>
<CAPTION>

                   EXHIBITS                                 INCORPORATION BY REFERENCE
                   --------                                 --------------------------
       <S>         <C>                                      <C>
       10.1        Executive Employment Agreement           Exhibit 10.2 to Registration Statement No.
                   between Hosiery Corporation of           33-87392 on Form S-1 dated May 15, 1995
                   America, Inc. and Arthur C. Hughes,
                   dated as of August 3, 1992

       10.2        Employment Agreement between U.S.        Exhibit 10.3 to Registration Statement No.
                   Textile Corporation and Hans             33-87392 on Form S-1 dated May 15, 1995
                   Lengers, dated as of August 29, 1980,
                   and an Amendment thereto among
                   U.S. Textile Corporation., the
                   Company and Hans Lengers, dated as
                   of September 12, 1994

       10.3        Executive Employment Agreement           Exhibit 10.4 to Registration Statement No.
                   between the Company and Robert           33-87392 on Form S-1 dated May 15, 1995
                   J. Mooney, dated as of September 16,
                   1993

       10.4        Executive Employment Agreement           Exhibit 10.4 to Form 10-K dated
                   between the Company and Robert           March 26, 1996
                   M. Henry, dated as of August 7, 1995

       10.5        Management Stock Subscription            Exhibit 10.5 to Form 10-K dated
                   Agreement dated August 14, 1995          March 26, 1996

       10.6        Stock Option Plan                        Exhibit 10.3 to Form 10-Q dated
                                                            August 12, 1996

       10.7        Executive Employment Agreement           Exhibit 10.1 to Form 10-Q dated
                   between the Company and Suzanne M.       November 12, 1996
                   Roper, dated as of July 30, 1996

       10.8        Executive  Employment  Agreement         Exhibit 10.1 to Form 10-Q dated
                   between the Company and Philip G.        August 10, 1998
                   Whalen, dated as of March 16, 1998

       10.9        Executive  Employment  Agreement         Exhibit 10.1 to Form 10-Q dated
                   between the Company and Martin J.        November 5, 1998
                   Pearson, dated as of June 30, 1998

       *21.1       Subsidiaries of the Registrant

       *27.0       Financial Data Schedule
</TABLE>

         *  Filed herewith.

B.       Reports on Form 8-K filed during the quarter ended December 31, 1998:

         None.

                                       51
<PAGE>
                                       
SIGNATURES
----------

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 29th day of
March, 1999.

                             HOSIERY CORPORATION OF AMERICA, INC.
                                  /s/ ARTHUR C. HUGHES
                             BY: ___________________________
                                  Arthur C. Hughes
                                  Vice President and Chief
                                  Financial Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 29th day of March, 1999.

Signatures                        Title
----------                        -----

/s/ JOHN F. BIAGINI
______________________________    Chairman of the Board, Chief Executive Officer
John F. Biagini                   and President (Principal Executive Officer)



______________________________    President, U.S. Textile Corporation and 
Hans Lengers                      Director


/s/ ARTHUR C. HUGHES
______________________________    Vice President and Chief Financial Officer
Arthur C. Hughes                  (Principal Financial and Accounting Officer)


/s/ FRANK K. BYNUM, JR.
______________________________    Director
Frank K. Bynum, Jr.


/s/ MICHAEL B. GOLDBERG
______________________________    Director
Michael B. Goldberg



______________________________    Director
Joseph A. Murphy



By:  __________________________
        (Name)
         Attorney-in-Fact for each of the
         persons indicated

                                       52
<PAGE>

 
INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
   Hosiery Corporation of America, Inc.
Bensalem, Pennsylvania

We have audited the consolidated  financial statements of Hosiery Corporation of
America,  Inc., and its subsidiaries (the "Company") as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998, and
have issued our report  thereon dated March 5, 1999,  (except for Note 23, as to
which the date is March 26,  1999);  such report is included  elsewhere  in this
Form  10-K.  Our audits  also  included  the  consolidated  financial  statement
schedule  of the  Company  referred  to in Item 8. This  consolidated  financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion  based on our audits.  In our  opinion,
such consolidated  financial statement schedule,  when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.





Deloitte & Touche LLP
Philadelphia, Pennsylvania

March 5, 1999, (except for Note 23, as to which the date is
   March 26, 1999)


                                      S-1
<PAGE>
                                       
SCHEDULE I
<TABLE>
<CAPTION>
                      HOSIERY CORPORATION OF AMERICA, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in thousands)



                                                          Balance at      Charged to                    Balance at
                                                         Beginning of     Costs and        Amounts        End of
                                                            Period         Expenses      Written Off      Period
                                                         ------------     ----------     -----------    ----------
<S>                                                      <C>              <C>            <C>            <C>
YEAR ENDED DECEMBER 31, 1998
     Allowance for Uncollectible Accounts.........          $1,448         $11,536         $11,083        $1,901
                                                            ======         =======         =======        ======

YEAR ENDED DECEMBER 31, 1997
     Allowance for Uncollectible Accounts.........          $1,540         $10,791         $10,883        $1,448
                                                            ======         =======         =======        ======

YEAR ENDED DECEMBER 31, 1996
     Allowance for Uncollectible Accounts.........          $1,263         $10,057          $9,780        $1,540
                                                            ======         =======         =======        ======
</TABLE>



                                      S-2
<PAGE>




                                  EXHIBIT INDEX


             EXHIBITS
             --------

        4.4  Amended and Restated  Credit
             Agreement dated as of March 26,
             1999 among the Company; various
             lending institutions and
             Bankers Trust Company, as Agent

       21.1  Subsidiaries of the Registrant


       27.0  Financial Data Schedule