Garment Graphics, Inc.

                                  Annual Report

                                      1996



<PAGE>
ABOUT YOUR COMPANY

     Throughout our 20 year history, a basic tenet of Garment Graphics' business
strategy  has  been to  service  customers  with  innovative,  quality  garments
delivered on time at  competitive  prices.  Our success is  attributable  to the
pride we take in our Company,  our work and our performance,  the confidence our
customers  have in us and the  respect  we have  for  each  individual  making a
valuable contribution to the Company.

     Garment  is  licensed  to  replicate  the  images  of  top  collegiate  and
professional  sports  teams  as well  as  well  known,  highly  visible  cartoon
characters  in a variety of sport,  action and lifestyle  themes.  The Company's
products, which include embellished tee shirts, sweatshirts, denim shirts, hats,
jean  jackets  and  shorts,  are  sold  to some of the  finest  retailers,  mass
merchandisers,  catalog  distributors  and  corporations  throughout  the United
States.

<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with the financial statements,
related notes and other financial information included herein.

INCOME STATEMENT DATA
(in thousands, except per share data)
                                                                Year Ended March 31,
                                           1996        1995       1994        1993       1992        1991
                                         ---------- ----------- ----------  ---------- ----------  ----------
<S>                                       <C>        <C>         <C>         <C>        <C>         <C>     
Net Sales                                 $ 28,719   $ 33,588    $ 30,807    $ 18,543   $ 21,847    $ 13,793
Cost of Sales                               23,788     26,824      22,666      14,968     17,249      10,101
Selling and Administrative Expenses          5,833      6,494       6,481       3,599      3,245       2,520
Net Income (Loss)                           (1,062)      (159)        806        (231)       670         593

Earnings (Loss) Per Common Share          $  (0.35)  $  (0.05)   $   0.27    $  (0.09)  $   0.26    $   0.24
Weighted Average Common and Common
     Equivalent Shares Outstanding           3,071      3,043       3,035       2,474      2,615       2,521

BALANCE SHEET DATA
(in thousands)
                                                                  As of March 31,B7
                                           1996        1995       1994        1993       1992        1991
                                         ---------- ----------- ----------  ---------- ----------  ----------

 Working Capital                          $   1,636  $  2,843    $  3,059    $  1,609   $  1,570    $  1,013
 Total Assets                                13,356    13,873       9,004       6,682      5,656       3,378

 Note Payable - Bank                      $   5,637  $  6,014    $  2,198    $  2,622   $  2,024    $    464
 Long Term Obligations                           62       154         230         293        310         235
 Shareholders' Equity                         2,768     3,819       3,761       2,149      2,055       1,385



</TABLE>

<PAGE>


TO OUR SHAREHOLDERS

     For Garment Graphics Fiscal 1996 was a period of transition and a basis for
some optimism  about Fiscal 1997.  First half results were buffeted by lingering
industry  weakness  caused by a soft  retail  apparel  market  coupled  with the
slowdown in licensed athletic apparel. Significant capacity was removed from the
market due to  competitors'  downsizing,  consolidating  or closing their doors.
Garment Graphics survived,  in spite of external  challenges and internal issues
which impacted the Company throughout the year.

     Although our strategy for  expanding  Garment  Graphics'  customer base and
improving  our internal  systems  began to take shape in Fiscal  1996,  it was a
difficult  and  disappointing  year.  Total  sales  dropped  15 percent to $28.7
million  against  the  backdrop  of the worst  pricing  environment  in industry
history.  Even  though  costs were  trimmed,  in part by reducing  overhead  and
lowering inventories significantly, we still reported a net loss of $1,062,418.

     That is totally  unacceptable.  Yet, as difficult as Fiscal 1996 was from a
financial  standpoint,  we believe  we laid the  groundwork  for making  Garment
Graphics a long-term winner. An important  accomplishment  was the completion of
the most  extensive  strategic  analysis and business  planning in the Company's
history. This analysis identified Garment Graphics' competitive strengths, which
will allow us to focus on those areas where we could bring to bear the  greatest
competitive  advantage.  We are  building  on  Garment  Graphics'  strengths  in
creative  art  utilizing  our  stable of  desirable  licenses,  capitalizing  on
production efficiencies and targeting new departments and new customers.

     The new computer system  installation was finally  completed,  allowing for
improved  information  flow,  inventory  control  and  efficient  management  of
day-to-day operations. This new system also provides more options to communicate
with constituents via EDI (electronic data interchange).  The art department has
also been upgraded with additional computer equipment and training. As a result,
we can be  increasingly  responsive  to our  customers  and  operate  more  cost
effectively.

     Seasonal employees have been engaged,  providing a stable yet flexible work
force rather than strictly utilizing  temporaries as we have in the past for the
peaks  throughout  the year.  This has had a dramatic  positive  impact on labor
costs and quality.

     Inventory levels were slashed,  negatively impacting margins; but this also
eliminated much of the carrying costs and allows for better inventory management
going  forward.  Our Quality  Assurance team has set high standards for incoming
and outgoing product and institutes regular testing to assure compliance.

     Meaningful  top-line  sales  growth  will  be the  key to  winning  for the
long-term.  That means broadening our customer base,  particularly in the retail
and  corporate  and premium  markets,  and  stepping up our sales and  marketing
efforts while selectively offering meaningful licenses to our customers.

     In 1996,  we entered into a licensing  agreement to represent  the National
Football League (NFL) in the women's market working with Cliff Engle,  Ltd. This
license provides Garment Graphics yet another opportunity to offer its customers
professional  sports and major cartoon characters (Looney Tunes,  Snoopy and the
Peanuts  Gang,  Garfield),  along  with  a full  complement  of  collegiate  and
non-royalty proprietary lines.

     Improving the bottom line and shareholder  value will require  attention to
detail  and  renewed  health in the retail  markets.  The  consolidation  of our
facilities under one roof by year end will eliminate duplication, lower overhead
and generally improve operating efficiencies.  The retail environment will be an
ongoing  concern,  although we have already seen some recovery,  as indicated by
our fourth quarter results. Our backlog is strong.

     We appreciate the support, concerns and patience of all our shareholders as
we pursue our strategy --- to serve our customers with innovative  first quality
products delivered on time, while improving our  competitiveness  and developing
our employees'  skills.  Most  importantly,  we have survived in the wake of the
toughest  times in the  retail  industry  and  utilized  this time to revamp our
internal controls and procedures.  In the midst of this recovery, a new two year
bank line was secured in April 1996, providing us with added liquidity to adjust
to our operating environment.  We are emerging a much stronger company,  leaner,
more flexible and ready to aggressively capitalize on market opportunities.




/s/ R. Neil Hamlin                        /s/ Barbara S. Remley
R. Neil Hamlin                                     Barbara S. Remley
Chairman                                  President and Chief Operating Officer
Chief Executive Officer

June 6, 1996


<PAGE>


Management's  Discussion  And  Analysis Of  Financial  Condition  And Results Of
Operations

Results of Operations

     The following table sets forth, for the periods  indicated,  the percentage
relationship  to net  sales of  certain  items in the  Company's  statements  of
operations:

                                              Fiscal Year Ended March 31,
                                           1996            1995          1994
                                      ------------    ------------   -----------
Net Sales                                100.0 %        100.0 %         100.0 %
Cost of Sales                             82.8           79.9            73.6
                                      ------------    ------------   -----------
Gross Profit                              17.2           20.1            26.4
Selling and Administrative expenses       20.3           19.3            21.0
                                      ------------    ------------   -----------
Income (Loss) from Operations             (3.1 )          0.8             5.4
Interest Expense                           2.7            1.5             1.2
                                      ------------    ------------   -----------
Income (Loss) Before Income Taxes         (5.8 )         (0.7 )           4.2
Income Tax Expense (Benefit)              (2.1 )         (0.2 )           1.6
                                      ============    ============   ===========
Net Income (Loss)                         (3.7 )%        (0.5 )%          2.6 %
                                      ============    ============   ===========

Fiscal 1996 Compared To Fiscal 1995

Net Sales

     Net sales for the fiscal  year ended  March 31,  1996,  decreased  14.5% to
$28,719,367  from  $33,588,232  for the fiscal  year ended March 31,  1995.  The
decrease in sales was the result of a 24.5%  reduction in sales during the first
nine months of the year. Sales for the fourth quarter  actually  increased 39.2%
over the fourth  quarter of the prior  year.  The  decrease  resulted  from soft
retail,  a sales  mix  change  and the  elimination  of dual  royalty  sales for
characters in conjunction  with the `Major League Baseball  Association' and the
`National  Football  League'.  Soft retail and a transition to basic product has
resulted  in a  significant  decrease  in the per unit  sell  price  as  margins
tightened  and  customers  ordered more tee shirts and less  fleece.  During the
first nine months of the year,  while  sales  dollars  decreased  significantly,
units  shipped  decreased  only 1.5%.  The Company  has since  offset the dollar
decreases by the sales of generic character  product,  as demonstrated by fourth
quarter volume  increases.  The Company's  character  licensed product offerings
include `Looney Tunes', `Peanuts' and `Garfield'.

Gross Profit

     Gross profit decreased to $4,930,874, or 17.2% of net sales, in Fiscal 1996
compared to  $6,764,017,  or 20.1% of net sales,  for the  comparable  period in
Fiscal 1995. The decrease in gross profit resulted from tighter pricing due to a
highly competitive  marketplace and the need to accept tighter margins to reduce
excess  inventory  balances.  Inventory  balances  were  reduced  from a high of
approximately $9,500,000 as of June 1995 to $6,097,402 as of March 31, 1996. The
excess inventory in fiscal 1995 was due to three factors.  First,  during fiscal
1995,  the Company  anticipated  an increase in sales in fiscal 1996,  and thus,
increased inventory levels. However, rather than increasing,  sales decreased in
fiscal 1996 leaving higher than planned inventory levels.  Second, during fiscal
1995, the Company had certain computer  problems which resulted in making excess
inventory  purchases.  Although the excess purchases were in basic products such
as T-shirts and fleece,  the Company was not able to use such excess products as
had  been   anticipated   because  of  the  lower  than   expected   demand  for
back-to-school  fleece sales  resulting  from the unusually warm late summer and
early  fall.  Finally,  the Company  had an excess  inventory  level of baseball
shirts due primarily to the baseball  strike.  The sales mix shift to lower unit
sell prices reduced the Company's margins,  especially during the quarters ended
June 30th and September 30th,  which have  historically  been the Company's most
profitable.  Gross margins improved to 23.6% during the Company's fourth quarter
due to lower raw material costs as a percentage of net sales.

Selling and Administrative Expenses

     Selling and  administrative  costs  decreased in dollars to $5,833,148  for
Fiscal 1996 compared to  $6,494,123  for the  comparable  period in Fiscal 1995.
However,  selling and  administrative  costs as a percent of net sales increased
during this same  period to 20.3% from 19.3% of net sales the prior year.  Sales
decreased,  while related percentages increased,  primarily due to the Company's
lower sales volume.  During the year,  the Company cut overhead  expenses.  As a
result of these cuts, the  administrative  and fixed portion of selling expenses
decreased in dollars and as a percentage of net sales in comparison to the prior
year.

Interest Expense

     Interest expense  increased by $260,950 for the fiscal year ended March 31,
1996, to $760,718  from  $499,768 for fiscal 1995.  This increase was due to: i)
higher outstanding loan balances in fiscal 1996 (average outstanding  borrowings
of  $6,468,925)  compared  to fiscal 1995  (average  outstanding  borrowings  of
$4,897,538)  which were related to higher asset levels during  fiscal 1996,  ii)
higher  interest rates on  outstanding  loans (average rate of 10.56% for fiscal
1996  compared to an average  rate of 9.22% for fiscal  1995),  which high rates
were  triggered by the Company's  failure to comply with certain loan  covenants
regarding  Working  Capital,  Adjusted  Tangible  Net Worth,  and ratio of Total
Liabilities to Tangible Net Worth, and iii) the payment of approximately $33,000
in fees to the Company's  lenders as  consideration  for waivers of certain loan
covenants  as  described  above.  Increased  borrowings  were  used to fund  the
increase in inventories and operating losses.

Net (Loss) Income

     Net loss  increased  $903,494 to a net loss of $1,062,418  for Fiscal 1996,
from a net loss of $158,924 for Fiscal 1995. The increased loss is mainly due to
soft retail apparel markets  requiring reduced prices during the period when the
Company needed to reduce outstanding  inventory balances and unfavorable product
mix to lower priced product.

Fiscal 1995 Compared To Fiscal 1994

Net Sales

     Net sales for the fiscal year ended March 31, 1995, increased 9.0% to $33.6
million  from $30.8  million  for the  fiscal  year ended  March 31,  1994.  The
increase  resulted  primarily from new customer accounts and an expanded product
base,  including  new licensed  product  offerings.  New  customer  accounts are
largely with large national retailers.  The Company's licensed product offerings
now include `Looney Tunes',  `Peanuts',  `Garfield',  `Outdoor Life', collegiate
and cross license agreements (i.e., a character in conjunction with a collegiate
or professional  sports team) with the `Major League Baseball  Association,' the
`National Football League' and select colleges.

Gross Profit

     Gross profit  decreased to $6.8  million,  or 20.1% of net sales for Fiscal
1995 compared to $8.1 million,  or 26.4% of net sales for the comparable  period
in Fiscal 1994. The decrease in gross profit  resulted from tighter  pricing due
to a highly  competitive  marketplace,  operating  inefficiencies and a $300,000
inventory adjustment.

     Increased  competition  precipitated  by  the  Major  League  Baseball  and
National  Hockey League strikes created  additional  margin  pressure.  This was
exasperated by a sluggish retail  environment and rising material costs due to a
cotton shortage.  Blank garment quality issues impacted the timely flow of goods
and created scheduling problems requiring overtime and the use of more temporary
employees  to meet  shipping  deadlines.  The  evolving  changes in product  mix
required the use of more  contract  printers and  embroiderers.  While we expect
adjusting to product mix changes and  competitive  challenges to continue in the
upcoming year,  significantly  improved  product  quality control systems should
result in better flow of goods and improved production scheduling.

     During the year,  the Company  outgrew its computer  system  before the new
system  was  fully  functional.  As a result,  hardware  and  software  problems
negatively impacted production efficiencies and inventory balances. A new highly
efficient  computer system is being installed,  with Phase I already  completed,
which is significantly increasing controls over inventory management.

Selling and Administrative Expenses

     Selling and administrative expenses remained consistent with the prior year
at $6.5 million.  Selling and administrative  expenses decreased as a percentage
of sales  to 19.3%  for the  year  ended  March  31,  1995  from  21.0%  for the
comparable  prior  year.  The lower  percentage  in selling  and  administrative
expenses  resulted from lower commission  expense from the sale of products to a
few large retail accounts through the Company's  internal sales force which were
historically  sold through an external  commissioned  sales force. This decrease
was offset by an increase in royalty and computer expenses.  More royalties were
paid due to increased  sales of licensed  product.  The higher level of computer
expenses  were  incurred  to help  support  the  existing  system as the Company
converted to a new computer system.

Interest Expense

     Interest expense increased by $136 thousand for the fiscal year ended March
31,  1995,  to $500  thousand  from  $364  thousand  for  Fiscal  1994.  Average
outstanding  borrowings  and the  accompanying  rates  increased  during 1995 as
compared to 1994.  The  increased  borrowings  were used to fund the increase in
accounts receivable and inventories.

Net (Loss) Income

     Net income  decreased  $965  thousand  to a net loss of $159  thousand  for
Fiscal 1995,  from $806 thousand for Fiscal 1994.  The decrease is due mainly to
operating  inefficiencies  and an unfavorable  shift in product and customer mix
which resulted in sales of lower margin products as discussed in gross profit.

Liquidity and Capital Resources

     Working capital at March 31, 1996 decreased $1,207,380 from the prior year.
Working capital was required in 1996 to fund the losses incurred by the Company.
Current assets  decreased  $582,756 to  $12,160,527  as of March 31, 1996,  from
$12,743,283 as of March 31, 1995. The decrease relates to a $2,556,872  decrease
in inventories which was offset by a $1,913,538 increase in receivables. Current
liabilities  increased by $624,624 to  $10,524,953  as of March 31,  1996,  from
$9,900,329 as of March 31, 1995. The increase relates to a $648,644  increase in
accounts payable.

     The Company  maintains  substantial  blank garment  inventory to be able to
deliver products promptly to its customers.  Historically  higher inventories at
this time of year were  attributable  to a planned  build-up in  anticipation of
increased  sales in the first and second  quarters;  however,  this year efforts
during the past year to reduce inventory balances resulted in a lower balance as
of March 31, 1996.  The increase in  receivables  relates to higher sales levels
for the months of  February  and March and  longer  dating  requirements  by new
customers.

     Net cash  provided  by  operating  activities  for the year ended March 31,
1996,  was  $623,023.  The net loss of $1,062,418  and a $1,913,538  increase in
trade  receivables  were the  primary  uses of funds in 1996.  These  items were
offset by a  $2,556,872  lower  inventory  level and a  $1,006,354  increase  in
accounts payable and accrued expenses.

     Net cash  used in  investing  activities  was  $234,000,  primarily  from a
purchase of an  intangible  asset.  Net cash used in  financing  activities  was
$539,846 and relates to payments  made on long-term  borrowings  and on the bank
note.

     The Company  satisfied its working capital needs with short term borrowings
and  internally  generated  funds.  At March  31,  1996  and  1995,  there  were
$5,637,020 and $6,014,000,  respectively, in notes payable-bank. Effective April
15, 1996,  the Company  refinanced  the  revolving  credit  facility.  The prior
facility and the new  facility  both  provide for a maximum  borrowing  limit of
$9,000,000.  This limit is based on eligible  accounts  receivable and inventory
levels, with a maximum level of $4,000,000 on inventory.  Under the new facility
the interest rate floats with changes in the bank's base rate,  plus one percent
in  excess  of  that  rate.  At  March  31,  1996,  the  Company  had  available
approximately  $488,000 based on its defined  borrowing base.  Certain financial
covenants   relating  to  current  ratio,   working  capital,   net  worth,  and
debt-to-equity  ratio are required.  The bank note is secured by receivables and
inventory.

     Capital  expenditures  for Fiscal 1996 were  $34,000  versus  $244,855  for
Fiscal 1995. The Fiscal 1996 and 1995 amounts consisted  primarily of production
and  computer  equipment.  The  Company  is  not  capital  intensive;   however,
appropriate  expenditures  for necessary  equipment and property to  efficiently
produce high quality product are made when necessary.

     On August 2, 1994,  the Company  issued  60,000  shares of common  stock in
exchange for all the outstanding  common stock of Signet. The Company has agreed
to pay the  difference in cash between the market price of the Company's  common
stock and $3.375 if the market  price should be less than $3.375 on December 31,
1996.  Under the agreement,  market price is defined as the average  between the
bid and ask prices of the Company's common stock.  Assuming the market price, as
defined,  is $0.75 per share on December 31, 1996, the Company would be required
to make a payment of  $157,500  by January 15,  1997.  The Company is  currently
exploring  alternatives to fund this payment or negotiate a payment plan.  There
is no assurance that such efforts will be successful.

     The Company believes that its borrowings  under existing credit  facilities
and  internally  generated  funds will be adequate for its liquidity and capital
needs at least through  Fiscal 1997 based on current  sales and margins.  Should
sales levels grow  significantly,  the Company will  require  additional  vendor
support  and/or  funds  generated  external of  operations.  Additional  debt or
capital  may be required to meet  increased  operational  levels and there is no
assurance that such capital will be available.

Inflation

     The Company believes the impact of inflation has had a negligible impact on
the Fiscal  1996  financial  performance  of  Garment.  It is  anticipated  that
inflation will have no material impact on Fiscal 1997 financial results.

Recent Accounting Pronouncements

     In October 1995, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  123,   Accounting  for  Stock-Based
Compensation,   which   establishes  new  standards  for  stock-based   employee
compensation  plans.  The  statement  establishes a  fair-value-based  method of
accounting  for  stock-based  compensation  plans and  encourages,  but does not
require,  entities  to  adopt  that  method  in  place of APB  Opinion  No.  25,
Accounting for Stock Issued to Employees.  Entities that elect to continue under
Opinion No. 25 must disclose pro forma net income and earnings per share for all
years presented as if Statement No. 123 had been adopted.

     The  Company  does not  intend  to adopt  Statement  No.  123 in  measuring
expense,  however it will present the proforma  disclosures  beginning in Fiscal
1997,  and those pro forma  amounts  will  likely  reflect  higher  compensation
expense than the amounts shown in future statements of operations.

     Statement of Financial  Accounting  Standards  No. 121  Accounting  for the
Impairment of Long-Lived  Assets and for Long-Lived  Assets to be Disposed of is
not expected to have a material effect on the financial position of the Company.

<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS

                                                                    March 31,            March 31,
                                                                      1996                  1995
                                                                    ---------            ---------
<S>                                                           <C>                      <C>         
ASSETS
Current Assets
    Cash                                                      $        20,301          $    171,124
    Receivables:
        Trade, less allowances, 1996-$365,024 and
           1995-$369,982  (Notes 2 and 4)                           4,682,398             2,768,860
        Income tax                                                    507,052               281,743
    Inventories (Note 2)                                            6,097,402             8,654,274
    Prepaid expenses                                                  338,374               402,282
    Deferred tax assets  (Note 5)                                     515,000               465,000
                                                                 ------------          ------------
                  Total current assets                             12,160,527            12,743,283
                                                                 ------------          ------------

Property and Equipment, at cost (Note 3)
    Equipment and furniture                                         1,813,171             1,703,832
    Leasehold improvements                                            143,451               142,753
                                                                 ------------          ------------
                                                                    1,956,622             1,846,585

    Accumulated depreciation                                       (1,159,079)             (938,074)
                                                                 ------------          ------------ 
                  Net property and equipment                          797,543               908,511
                                                                 ------------          ------------

NonCurrent Assets
    Intangibles                                                       377,187               197,437
    Other                                                              20,426                23,847
                                                                 ------------          ------------
                  Total noncurrent assets                             397,613               221,284
                                                                 ------------          -------------
                  Total assets                                   $ 13,355,683          $ 13,873,078
                                                                 ============          ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
    Note payable -- bank (Note 2)                               $   5,637,020          $  6,014,000
    Current portion -- long term debt (Note 3)                        188,580               181,837
    Accounts payable                                                3,449,472             2,800,828
    Accrued expenses
        Compensation                                                  169,577               241,455
        Royalties                                                     679,754               248,169
        Other                                                         400,550               414,040
                                                                 ------------          ------------
                   Total current liabilities                       10,524,953             9,900,329
                                                                 ------------          ------------
Long Term Debt, less current maturities (Note 3)                       62,267               153,525
                                                                 ------------          ------------

Commitments and Contingencies (Notes 2 and 3)

Shareholders' Equity (Notes 6 and 8)
    Preferred stock, par value $ .01  per share;
        authorized 1,000,000 shares; no shares issued                       -                     -
    Common stock, par value $ .001 per share;
        authorized 50,000,000 shares; issued 3,075,186 and 
        3,066,407 shares                                                3,075                 3,066
    Additional paid - in capital                                    1,700,155             1,688,507
    Retained earnings                                               1,065,233             2,127,651
                                                                 ------------          ------------
                   Total shareholders' equity                       2,768,463             3,819,224
                                                                 ------------          ------------
                   Total liabilities and shareholders' equity    $ 13,355,683          $ 13,873,078
                                                                 ============          ============

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS

 
                                                                      Years ended March 31,
                                                              1996              1995              1994
                                                              ----              ----              ----
<S>                                                       <C>              <C>               <C>         
Net Sales (Note 4)                                        $ 28,719,367     $ 33,588,232      $ 30,807,563

Cost of Sales                                               23,788,493       26,824,215        22,665,773
                                                          ------------     ------------      ------------

     Gross profit                                            4,930,874        6,764,017         8,141,790

Selling and Administrative Expenses                          5,833,148        6,494,173         6,480,600
                                                          ------------     ------------      ------------

     Income (loss) from operations                            (902,274)         269,844         1,661,190

Miscellaneous Expense                                            9,426                -             1,684
Interest Expense                                               760,718          499,768           363,952
                                                          ------------     ------------      ------------

     Income (loss) before income taxes                      (1,672,418)        (229,924)        1,295,554
                                                          ------------     ------------      ------------

Income Tax Expense (Benefit) (Note 5)                         (610,000)         (71,000)          490,000
                                                          ============     ============      ============

     Net income (loss)                                    $ (1,062,418)    $   (158,924)     $    805,554
                                                          ============     ============      ============

Earnings (Loss) Per Common Share                          $      (0.35)    $     (0.05)      $       0.27
                                                          ============     ============      ============
Weighted Average Common and Common
     Equivalent Shares Outstanding                           3,071,430        3,042,618         3,035,407
                                                          ============     ============      ============

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


Years ended March 31, 1996, 1995 and 1994
                                                                        
                                              Common Stock                Additional       
                                     --------------------------------     Paid - In        Retained
                                          Shares          Amount           Capital         Earnings          Total
                                          ------          ------           -------         --------          -----
<S>                                      <C>           <C>              <C>              <C>             <C>        
Balance, March 31, 1993                  2,385,024     $     2,385      $   665,644      $ 1,481,021     $ 2,149,050

     Issuance of common stock
        (Note 8)                           605,147             605          773,630                -         774,235

     Issuance of common stock
        upon exercise of Class B
        Warrants (Note 8)                   10,748              11           32,233                -          32,244

     Net income                                  -               -                -          805,554         805,554
                                       -----------     -----------      -----------      -----------     -----------
Balance, March 31, 1994                  3,000,919     $     3,001      $ 1,471,507      $ 2,286,575     $ 3,761,083

     Issuance of common stock for 
        acquisition of Signet, Inc.
        (Note 8)                            60,000              60          202,440                -         202,500

     Issuance of common stock for
        employee stock purchase
        plan (Note 7)                        5,488               5           14,560                -          14,565

     Net loss                                    -               -                -         (158,924)       (158,924)
                                       -----------    ------------      -----------         --------        -------- 
Balance, March 31, 1995                  3,066,407     $     3,066      $ 1,688,507      $ 2,127,651     $ 3,819,224

     Issuance of common stock for
        employee stock purchase
        plan (Note 7)                        8,779               9           11,648                -          11,657

     Net loss                                    -               -                -       (1,062,418)     (1,062,418)
                                       -----------     -----------      -----------       ----------      ---------- 
Balance, March 31, 1996                $ 3,075,186     $     3,075      $ 1,700,155      $ 1,065,233     $ 2,768,463
                                       ===========     ===========      ===========      ===========     ===========

See Notes to Consolidated Financial Statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW


Years ended March 31,                                                      1996           1995           1994
---------------------                                                      ----           ----           ----
<S>                                                                    <C>             <C>           <C>        
Cash Flows From Operating Activities
     Net income (loss)                                                 $ (1,062,418)   $  (158,924)  $   805,554
     Adjustments to reconcile net income (loss) to cash
         provided by (used in) operating activities:
         Depreciation and amortization                                      241,255        266,174       208,870
         Loss on sale of property and equipment                               9,501              -         1,684
         Deferred income taxes                                              (50,000)      (137,000)     (103,000)
     Changes in certain assets and liabilities:
         Trade receivables                                               (1,913,538)      (228,418)   (1,292,129)
         Inventories                                                      2,556,872     (3,691,323)     (901,396)
         Prepaid expenses and other assets                                   60,306       (266,913)      (17,013)
         Accounts payable and accrued expenses                            1,006,354      1,217,820     1,026,965
         Income taxes receivable/payable                                   (225,309)      (406,308)      237,751
                                                                       ------------    -----------   -----------
             Net cash provided by (used in) operating activities            623,023     (3,404,892)      (32,714)
                                                                       ------------    -----------   ----------- 

Cash Flows From Investing Activities
     Acquisition of property and equipment                                  (34,000)      (244,855)     (317,356)
     Proceeds on sale of property and equipment                                   -              -         8,553
     Purchase of intangible asset                                          (200,000)             -             -
                                                                       ------------    -----------   -----------
             Net cash used in investing activities                         (234,000)      (244,855)     (308,803)
                                                                       ------------    -----------   ----------- 
Cash Flows From Financing Activities
     Issuance of common stock                                                     -              -       806,479
     Principal payments on long-term borrowings                            (162,866)      (214,373)     (143,868)
     Proceeds from long-term borrowings                                           -        110,000       126,000
     Net borrowings (payments) on bank note                                (376,980)     3,816,000      (423,762)
                                                                       ------------    -----------   ----------- 
         Net cash provided by (used in) financing activities               (539,846)     3,711,627       364,849
                                                                       ------------    -----------   -----------
                    Increase (decrease) in cash                            (150,823)        61,880        23,332

Cash
     Beginning                                                              171,124        109,244        85,912
                                                                       ------------    -----------   -----------
     Ending                                                            $     20,301    $   171,124   $   109,244
                                                                       ============    ===========   ===========

Supplemental disclosures of cash flow information
   Cash paid (refunded) during the year for:
         Interest                                                      $    748,374    $   469,809   $   356,268
         Income taxes                                                      (334,694)       472,308       355,249
Supplemental schedule of noncash investing and
   financing activities
         Capital lease obligations                                           78,351         20,585             -
         Issuance of shares for acquisition of Signet                             -        202,500             -
         Issuance of shares for employee stock purchase plan                 11,656         14,565             -

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Garment  Graphics,  Inc.  is a supplier  of  decorated  sportswear  serving
individual, corporate, retail and catalog customers on a national basis.

Credit Policy. The Company grants trade credit based on credit terms established
by the Company's management and consistent with industry standards.

Revenue Recognition Policy. Sales of the Company's product are recognized at the
point of shipment.

Inventories.  Inventories are valued at the lower of cost  (first-in,  first-out
method) or market. Inventory consists almost entirely of raw materials.

Consolidation Policy. The consolidated financial statements include the accounts
of  the  Company  and  its  wholly-owned  subsidiary  Signet,  Inc.  Significant
intercompany transactions are eliminated in consolidation.

Fair value of financial instruments.  At March 31, 1996, the Company adopted the
FASB Statement No. 107,  Disclosures about Fair Value of Financial  Instruments.
The  fair  value of the  Company's  notes  payable-bank  and  long-term  debt is
estimated  based on interest  rates for the same or similar  debt offered to the
Company having the same or similar terms with similar  collateral  requirements.
The cost recorded approximates fair market value at March 31, 1996.

Depreciation  and  Amortization.  Property  and  equipment  are  stated at cost.
Depreciation and amortization are provided using the straight-line  method based
on the estimated useful lives of individual assets over the following periods:

                   Equipment and furniture          3-7 years
                   Leasehold improvements           7 years
                   Intangibles                      10 years

     Accumulated  amortization  resulting from intangible  assets is $25,313 and
$5,063 at March  31,  1996 and  1995,  respectively.  The  Company  reviews  its
intangibles  quarterly  to  determine  potential  impairment  by  comparing  the
carrying value of the  intangibles  with expected future net cash flows provided
by operating  activities of the business.  Should the sum of the expected future
net cash flows be less than the  carrying  value,  the Company  would  determine
whether an impairment  loss should be  recognized.  An impairment  loss would be
measured by comparing  the amount by which the carrying  value  exceeds the fair
value of the business.  Fair value will be determined  based on appraised market
value.  To date,  management  has  determined  that no impairment of intangibles
exists. 

     Depreciation  expense  includes  amortization of assets recorded as capital
leases.

Intangibles.  Intangible  assets  include the excess of cost over net book value
relating  to the  Signet,  Inc.  acquisition  in fiscal  1995 and cash  payments
relating to an operating  agreement for certain product  licenses  through March
31, 2000.

Royalties. Royalties are accrued when the related licensed garments are shipped.
Additionally,  the Company  periodically  reviews its royalty  agreements  which
contain  guaranteed  minimum  payments and accrues the amount of the  guaranteed
minimum royalties not expected to be met by sales of the licensed product.

Income Taxes.  Deferred income tax assets and liabilities are computed  annually
for  differences  between the  financial  statement  and tax basis of assets and
liabilities  that will  result in  taxable or  deductible  amounts in the future
based on  enacted  tax laws and rates  applicable  to the  periods  in which the
differences  are expected to affect  taxable  income.  Valuation  allowances are
established  when necessary to reduce deferred tax assets to the amount expected
to be  realized.  Income tax  expense is the tax payable or  refundable  for the
period  plus or minus the change  during the period in  deferred  tax assets and
liabilities.

Estimates.  The preparation of financial statements in conformity with generally
accepted  accounting  principles  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.

Earnings Per Share.  Earnings per share of common stock are computed by dividing
net income (loss) by the weighted  average  number of shares of common stock and
common stock equivalents (stock options/warrants) outstanding during each period
in which they have a dilutive effect.

Recently Issued Accounting  Standard.  In October 1995, the Financial Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 123,
Accounting for  Stock-Based  Compensation,  which  establishes new standards for
stock-based   employee   compensation   plans.   The  statement   establishes  a
fair-value-based  method of accounting for  stock-based  compensation  plans and
encourages,  but does not require, entities to adopt that method in place of APB
Opinion No. 25, Accounting for Stock Issued to Employees. Entities that elect to
continue  under  Opinion No. 25 must  disclose pro forma net income and earnings
per share for all years presented as if Statement No. 123 had been adopted.

     The  Company  does not  intend  to adopt  Statement  No.  123 in  measuring
expense,  however it will present the proforma  disclosures  beginning in Fiscal
1997,  and those pro forma  amounts  will  likely  reflect  higher  compensation
expense than the amounts shown in future statements of operations.

NOTE 2 - NOTE PAYABLE - BANK

     Note Payable - Bank, in the amount of $5,637,020 and $6,014,000  represents
the balance owed at March 31, 1996 and 1995, respectively, on a revolving credit
facility with the maximum principal amount of $9,000,000.  The maximum borrowing
base is computed on eligible  accounts  receivable and inventory levels with the
inventory  level limited to  $4,000,000.  The principal is due on demand and the
interest rate floats at one percent in excess of the bank's base rate (9.25 % at
March 31,  1996).  The note was paid in full in  connection  with the  agreement
described below.

     Effective  April 12, 1996,  the Company  entered into a two-year  agreement
with Heller  Financial,  Inc.  (Heller) for the purpose of refinancing  existing
bank debt and to  provide  additional  working  capital  and  credit  protection
against  customer  bankruptcies  in the  retail  industry  through a credit  and
receivable factoring program.

     Under the terms of the  agreement,  Heller will provide the Company with up
to  $9,000,000  via a Credit  Facility.  The  facility  provides for advances on
receivables  of up to 85%,  loans  against  eligible  inventory  of up to 55%, a
letter of credit facility of up to $1,000,000 and a 120 day $500,000 overadvance
facility through August 1, 1996, secured by income taxes receivable.  Within the
Credit  Facility,  the  loans  against  inventory  will  have a  limit  of up to
$4,000,000.  The interest  rate on the Credit  Facility  will be at the National
Bank Reference  Rate or "Prime Rate" plus one percent per annum.  The prime rate
at April 12, 1996, was 8.25%. The Company must meet certain financial  covenants
relating to current ratio,  working capital, net worth and debt to equity ratio.
In addition, the Company is restricted on paying dividends and would be required
to pay a termination  fee if the Company were to cancel the  agreement  prior to
the expiration of the agreement.

     As  part of the  Credit  Facility,  Heller  will  provide  its  credit  and
collection administration services for a fee and agree to purchase substantially
all of the Company's trade accounts receivable.  Heller will assume the bad debt
credit risk on approved accounts.

NOTE 3 - LONG TERM DEBT AND LEASES

     Long term debt at March 31 consisted of the following:

                                                     1996            1995
                                                   ---------       ----------
Note payable due in monthly installments of
     $6,000 through August 1997, secured by
     equipment.  Interest rate floats at 3/4%
     above the prime rate.                      $   107,000     $    179,000


Capitalized leases payable in 36-60 monthly
     installments to 1997, including interest.
     Secured by property and equipment.             143,454          151,436
Other                                                   393            4,926
                                                   ---------       ----------
                                                    250,847          335,362
Less current maturities                             188,580          181,837
                                                   ---------       ----------
                                                $    62,267     $    153,525
                                                   =========       ==========

     Scheduled maturities of long term debt at March 31, 1996, including capital
lease obligations, are as follows:  1997-$188,580;  1998-$26,992;  1999-$20,679;
and 2000-$14,596.

     The Company is the lessee of certain  property and equipment  under capital
leases  expiring  in  various  years  through  2000.  The  Company  also  leases
facilities  and  equipment  under  operating  leases.  The  facility  leases are
non-cancelable  leases  expiring in January 1997, with an option to renew at the
end of the lease term.

     Future minimum lease payments and non-cancelable lease payments for capital
and operating leases at March 31, 1996, are as follows:


                                          Capital              Operating
                                        ------------         -------------
Years ending March 31:
      1997                              $    89,728          $    364,819
      1998                                   30,294                    -
      1999                                   22,462                    -
      2000                                   14,974                   -
                                        -----------           ------------
                                        $   157,458          $     364,819
                                                              ============
Less amount representing interest            14,004
                                        -----------
Present value of minimum capital
     lease payments                     $   143,454
                                        ===========

      The total gross value of assets recorded under capital leases was $749,091
and $677,763 at March 31, 1996 and 1995, respectively,  with related accumulated
amortization of $518,639 and $418,222, respectively.

     Rent  expense  for the  years  ended  March  31,  1996,  1995  and 1994 was
$457,711, $475,983, and $375,340, respectively.

NOTE 4 - MAJOR CUSTOMER INFORMATION

     The Company's  operations are conducted  within one business  segment.  The
following table sets forth,  for the period  indicated,  the net recurring sales
and  accounts   receivable  with  each  customer  of  the  Company  whose  sales
represented in excess of 10% of the Company's revenues.

                                                            Total percentage
                                  Percentage of gross      of gross sales for
                                sales for each customer    the three customers
                                -----------------------    -------------------
For the year ended December 31,
             1996                  17%, 10%, and 6%                33%
             1995                  14%, 13%, and 15%               43%
             1994                  21%, 22%, and 0%                43%


      Accounts  receivable  related to these  customers  is 32% and 30% of total
accounts receivable as of March 31, 1996 and 1995, respectively.

NOTE 5 - INCOME TAXES

     Net deferred tax assets consist of the following components as of March 31,
1996 and 1995:

   Deferred tax assets                             1996           1995
                                                 ---------      ---------
     Receivable allowances                     $  140,000     $  142,000
     Inventory allowances                         245,000        291,000
     Nondeductible accruals for compensation       25,000         53,000
     Loss carryforwards                           137,000              -
                                                ---------      ---------
           Deferred tax asset                  $  547,000     $  486,000
                                                ---------      ---------

   Deferred tax liabilities
     Prepaid royalties                          $  10,000     $        -
     Property and equipment                        22,000         21,000
                                                 --------      ---------
        Deferred tax liability                  $  32,000     $   21,000
                                                 --------      ---------
   Net deferred tax asset                       $ 515,000     $  465,000
                                                 ========      =========

     No valuation  allowance  for the net  deferred  tax asset was  necessary at
March 31, 1996 or 1995. At March 31, 1996,  the Company had net  operating  loss
carryforwards  totaling  $240,000  and  $924,000  for federal  and state  taxes,
respectively, which will expire in 2011.

      The  following  summarizes  the  components  of the income  tax  (benefit)
expense:

                                               1996         1995         1994
                                               ----         ----         ----
   Currently payable (receivable) 
          - Federal                        $ (565,000)   $  50,000   $  518,154
          - State                               5,000       16,000       74,846

   Deferred income taxes                      (50,000)    (137,000)    (103,000)
                                           ----------    ---------    --------- 
   Provision (benefit) for income taxes    $ (610,000)   $ (71,000)   $ 490,000
                                           ----------    ---------    ---------
 

     A  reconciliation  of  the  statutory  income  tax  (benefit)  rate  to the
effective tax rate appears below:

                                               1996         1995         1994
                                               ----         ----         ----

   Statutory U.S. rate                         (34.0)%      (34.0)%      34.0%
   State income taxes, net of federal benefit   (3.5)%          -         3.2
   Other                                         1.0%         3.1         0.6
                                               -----         ----        ----
    Effective tax rate                          (36.5)%       (30.9)%     37.8%
                                               -----         -----       ---- 
 
NOTE 6 - SHAREHOLDERS' EQUITY

     In November 1992, the Board of Directors adopted the Garment Graphics, Inc.
1992 Stock  Option Plan (the "1992  Plan")  which  provides  for the granting of
options for 350,000 shares of the Company's common stock. In May 1994, the Board
of Directors  increased the options  available  under the Plan to 450,000 shares
which was approved by the  shareholders  at the Annual Meeting in August,  1994.
Under the 1992 Plan,  options are granted at prices  determined  by the Board of
Directors  but not less than 100 percent of the fair market value at the date of
the grant.  The options may be either  incentive  stock options or non qualified
options. The stock options are exercisable over a period determined by the Board
of Directors,  but no longer than ten years after the date they are granted.  At
March 31, 1996,  20,000  options were  available  for the granting of additional
options.  In June 1995, the Company  granted  263,000 options to employees which
are  exercisable  at $1.50 - $1.65,  and  canceled  65,000  options  which  were
exercisable at $3.063 - $3.13 per share.

     The Company previously reserved 350,000 shares of common stock for issuance
under an incentive stock option plan established in 1990 (the "1990 Plan").  All
options available under the 1990 Plan have been granted.

     Common stock shares  issued upon  exercise of any of the stock  options are
classified as restricted securities unless registered pursuant to the Securities
Act of 1933 as amended.

     Information with respect to the stock options are summarized as follows:

                               Incentive Stock Options     Non-Qualified Options
                               --------------------------  ---------------------
                                  Shares     Price Range     Shares  Price Range
                               -----------  -------------  --------- -----------
Outstanding at March 31, 1993     103,400   $1.625 - $4.00        -         -
     Granted                      129,000        3.75        36,000     $3.06
     Canceled                    (10,000)        2.38             -         -
                                 --------                   ------- 
Outstanding at March 31, 1994     222,400    1.625 - 4.00    36,000      3.06
     Granted                       51,000   2.875 - 3.125         -         -
     Canceled                     (9,000)        3.75             -         -
                                 --------                   ------- 
Outstanding at March 31, 1995     264,400    1.625 - 4.00    36,000      3.06
     Granted                      263,000    1.50 - 1.65          -         -
     Canceled                    (65,000)   3.063 - 3.13          -         -
                                 --------                   ------- 
Outstanding at March 31, 1996     462,400   $1.50 - $4.00    36,000     $3.06
                                 ========                   ======= 

     Options to purchase 220,400,  139,400 and 63,400 shares were exercisable at
March 31, 1996, 1995, and 1994, respectively.


NOTE 7 - EMPLOYEE BENEFIT PLANS

401(k) Plan
     The Company has a plan pursuant to Section  401(k) of the Internal  Revenue
Code, whereby participants may contribute a percentage of compensation,  but not
in excess  of the  maximum  allowed  under the  Code.  The plan  provides  for a
matching  contribution by the Company which amounted to  approximately  $20,000,
$15,000, and $13,000 in Fiscal 1996, 1995, and 1994, respectively.

Profit Sharing Plan
     The Company also has a profit sharing plan that distributes  earnings based
on  the  Company  meeting  certain   financial   objectives  which  amounted  to
approximately  $0,  $13,000,  and  $148,000  in  Fiscal  1996,  1995,  and 1994,
respectively. The Plan is approved by the Board on an annual basis.

Stock Purchase Plan
     The Company has a stock purchase plan that allows  participating  employees
to purchase, through payroll deductions, shares of the Company's common stock at
85% of the fair market value at specified dates. The stock purchase plan expires
on October 1, 1998. The Company  reserved 150,000 shares of common stock for the
stock purchase plan. At March 31, 1996,  there were 135,733 shares available for
purchase under the plan.

NOTE 8 - ISSUANCE OF STOCK

     In  May  1993,   the  Company  merged  with  National   Acquisition   Corp.
("National").  National  was a  company  formed  for use as a  vehicle  to raise
capital to invest in a business  determined to have long-term  growth and profit
potential.  The Company  accounted  for the merger as an issuance of stock since
National did not have any previous operations.

      In  connection  with the  merger  and  through  subsequent  action  by the
Company,  the Company issued 182,213 class A common stock purchase  warrants and
302,579 class B common stock purchase  warrants  exercisable at $6.00 and $3.00,
respectively,  expiring May 1998 and May 1997, respectively. During 1994, 10,748
class B common stock purchase warrants were exercised.

      On August 2, 1994,  the Company  issued  60,000  shares of common stock in
exchange for all the outstanding  common stock of Signet. The Company has agreed
to pay the  difference in cash between the market price of the Company's  common
stock and $3.375 if the market  price should be less than $3.375 on December 31,
1996.  Under the agreement,  market price is defined as the average  between the
bid and ask prices of the Company's common stock.  Assuming the market price, as
defined,  is $0.75 per share on December 31, 1996, the Company would be required
to make a payment of  $157,500  by January 15,  1997.  The Company is  currently
exploring  alternatives to fund this payment or negotiate a payment plan.  There
is no assurance that such efforts will be successful.

<PAGE>









INDEPENDENT AUDITOR'S REPORT


To the Shareholders and Board of Directors
Garment Graphics, Inc.


We  have  audited  the  accompanying  consolidated  balance  sheets  of  Garment
Graphics,  Inc.  and  subsidiary  as of March 31,  1996 and 1995 and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period  ended  March 31,  1996.  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, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Garment
Graphics,  Inc. and  subsidiary as of March 31, 1996 and 1995 and the results of
their  operations and their cash flows for each of the three years in the period
ended  March  31,  1996  in  conformity  with  generally   accepted   accounting
principles.



McGladrey & Pullen, LLP


Minneapolis, Minnesota
May 30, 1996


<PAGE>
     Garment  Graphics,  Inc.'s Common Stock is currently traded on the national
over-the-counter  market and quoted on the National  Association  of  Securities
Dealers, Inc. (NASDAQ),  SmallCap Market, under the symbol "GRMN". Following are
the high and low bid  prices per share for  Garment  Graphics'  Common  Stock as
quoted by NASDAQ. The NASDAQ quotes represent interdealer prices, without retail
markup,  markdown  or  commission,  and may  not  necessarily  represent  actual
transactions.

                             1996                         1995
                   --------------------------  ---------------------------
                       High         Low            High          Low
                   --------------------------  ---------------------------

First Quarter         $ 1 7/8      $ 1 1/4        $ 3 3/8       $ 2 3/4
Second Quarter          1 7/8        1              3 1/4         3
Third Quarter           1 3/8        11/16          3             1 7/8
Fourth Quarter            3/4        11/16          2             1 1/2


     As of June 12, 1996,  the Company had  approximately  190  shareholders  of
record and the bid and ask prices  for its common  stock were  $1.375 and $1.50,
respectively.  The Company has never paid a cash  dividend on its common  stock.
Payment of common stock dividends is at the discretion of the Board of Directors
subject to the Company's lending  arrangements.  The Board of Directors plans to
retain earnings,  if any, for operations and does not intend to pay common stock
dividends in the near future.

QUARTERLY NET SALES - SEASONALITY

     The Company's net sales  fluctuate  from quarter to quarter.  Quarterly net
sales for 1996, 1995 and 1994 are set forth below.

                                          Net Sales
                                (dollar amounts in thousands)

                     Fiscal 1996           Fiscal 1995            Fiscal 1994
                --------------------  --------------------- --------------------
                  Amount    Percent     Amount     Percent     Amount    Percent
                  ------    -------     ------     -------     ------    -------
First Quarter   $  7,321      25.5    $  8,383      25.0    $  6,007      19.5
Second Quarter     5,726      19.9      10,844      32.3      10,594      34.4
Third Quarter      8,309      28.9       9,072      27.0       9,735      31.6
Fourth Quarter     7,363      25.7       5,289      15.7       4,471      14.5
                 -------   -------    --------   -------     -------   -------
Total           $ 28,719     100.0%   $ 33,588     100.0%   $ 30,807     100.0%
                 =======   =======    ========   =======     =======   =======

     The Company's business is seasonal,  with its highest sales level generally
occurring in the second fiscal quarter as a result of back-to-school  sales. The
third fiscal quarter benefits from the sale of  back-to-school  garments and the
holiday  season.  The second  quarter of Fiscal 1996 was not  indicative of this
trend due to a weak retail apparel  market  compounded by an unusually warm late
summer and early fall.

<PAGE>


INFORMATION FOR INVESTORS

DIRECTORS                                     CORPORATE COUNSEL

 R. Neil Hamlin +                              Fredrikson & Byron, P.A.
 Chairman of the Board of the Company
 Chief Executive Officer                      AUDITORS

 Barbara Sima Remley                           McGladrey & Pullen, LLP
 President, Chief Operating Officer
 Chief Financial Officer                      TRANSFER AGENT/REGISTRAR

 John M. Gunnarson +                           Norwest Stock Transfer
 Vice Chairman - Secretary
 Vice President - Manufacturing               CORPORATE OFFICES

 Richard W. Perkins, C.F.A. *                  Garment Graphics, Inc.
 President, Perkins Capital Management, Inc.   2260 Woodale Drive
 an investment management company.             Mounds View, MN  55112-4978

 Edwin N. Peterson ^                           (612) 786-6220
 Retired General Manager of the Company        (612) 786-5775 Facsimile

 Donald M. Roux *                             SECURITIES LISTING
 President, Roux Marketing Services, 
 a marketing consulting firm.                  Garment Graphics, Inc. is traded
                                               on the NASDAQ SmallCap Market
 William H. Spell                              under the symbol: "GRMN".
 President, Eagle Pacific Industries, Inc., 
 a pipe and tubing manufacturer.              FORM 10-K

 ^ Member of Audit Committee                   The Company has filed an annual
 * Member of Compensation Committee            report with the Securities and
 + Member of Options Committee                 Exchange Commission on Form 10-K.
                                               Shareholders may obtain a copy of
OFFICERS                                       this report, without charge, by
                                               writing the Company at the above
 R. Neil Hamlin                                address, attention of: Investor
 Chief Executive Officer                       Relations.

 Barbara Sima Remley                          ANNUAL MEETING
 President, Chief Operating Officer
 Chief Financial Officer                       The annual meeting of share-
                                               holders will be held on July 25,
 John M. Gunnarson                             1996 at 3:15 p.m. at:
 Vice President - Manufacturing
                                                  Minneapolis Athletic Club
 Robert A. Lucas                                  615 Second Avenue South
 Vice President - Sales and Marketing             Minneapolis, Minnesota