SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------


                                    FORM 10-K


         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         FOR THE FISCAL YEAR ENDED NOVEMBER 6, 1999
         COMMISSION FILE NUMBER 1-11722

                               CHIC BY H.I.S, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                     13-3494627
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)

   1372 BROADWAY, NEW YORK, NEW YORK                          10018
(Address of principal executive offices)                    (Zip Code)

       Registrant's telephone number, including area code: (212) 302-6400

           Securities registered pursuant to Section 12(b) of the Act:

                                                   NAME OF EACH EXCHANGE
     TITLE OF EACH CLASS                            ON WHICH REGISTERED
     -------------------                            -------------------

        Common Stock                              New York Stock Exchange, Inc.
      $0.01 par value

        Securities registered pursuant to Section 12(g) of the Act: NONE

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed 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 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 [ ].

     As of January 14, 2000, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately  $5,118,371 based upon the
closing  market price of a share of Common Stock on the New York Stock  Exchange
as reported by the Wall Street Journal.

     As of January 14, 2000, the registrant had 9,870,793 shares of Common Stock
outstanding.


<PAGE>

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     The  Private  Securities  Litigation  Reform  Act of 1995  provides a "safe
harbor" for forward-looking  statements.  Except for the historical  information
contained or incorporated by reference in this filing,  the matters discussed or
incorporated  by  reference   herein  are   forward-looking   statements.   Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results, performance, or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance,   or   achievements   expressed   or   implied  by  such
forward-looking  statements. Such factors include, among others, those set forth
below  under  the  heading  "Additional  Cautionary  Statements"  as well as the
following: general economic and business conditions; industry capacity; fashion,
apparel and other industry trends; competition;  overseas expansion; the loss of
major  customers;  changes  in  demand  for the  Company's  products;  cost  and
availability  of raw  materials;  changes in business  strategy  or  development
plans; quality of management; and availability, terms and deployment of capital.
Special  attention should be paid to the  forward-looking  statements  contained
herein  including,  but not limited  to,  statements  relating to the  Company's
ability to obtain sufficient financial resources to meet its capital expenditure
and  working   capital  needs,   financial   risks   associated  with  customers
experiencing  financial  difficulties,  the benefits expected to be derived from
the   restructuring   and  Mexican  plant  opening  described  in  this  report,
international expansion and competition.

ADDITIONAL CAUTIONARY STATEMENTS

     LEVERAGE AND FINANCIAL  COVENANTS;  DEFAULT UNDER DOMESTIC CREDIT FACILITY.
The Company  continues  to have  indebtedness  that could  adversely  affect its
ability to respond to changing business and economic conditions.  At November 6,
1999,  the  Company  had  an  aggregate  of   approximately   $82.8  million  of
indebtedness   (including   capital   leases)   outstanding  and  the  Company's
stockholders' equity was approximately $43.5 million. In addition, the Company's
Loan Agreements  contain  covenants that impose certain  operating and financial
restrictions  on the Company.  Such  restrictions  affect,  and in many respects
limit or  prohibit,  among  other  things,  the  ability of the Company to incur
additional  indebtedness,  create  liens,  sell  assets,  engage in  mergers  or
acquisitions, make capital expenditures and pay dividends.

As of November 6, 1999, the Company was not in compliance with certain covenants
of its domestic  credit  agreement  for which  waivers  have not been  obtained.
Accordingly,  the Company  has  classified  the  outstanding  balance  under the
domestic  credit  agreement  as current  liabilities.  The  Company is  pursuing
negotiations  to amend  the  existing  credit  facility  or  obtain  alternative
financing.  In addition,  the Company has engaged an investment banker to assist
in structuring a transaction to sell selected  assets of the Company.  There can
be no assurance  that the Company will be successful in its efforts to modify or
replace its domestic  credit  facility.  These matters raise  substantial  doubt
about the Company's  ability to continue as a going  concern.  See Note 2 to the
Consolidated Financial Statements.

     DEPENDENCE ON MAJOR CUSTOMERS.  During fiscal 1999, 1998 and 1997, sales to
one  major  customer  (with  sales  in  excess  of 10% of  total  sales),  Kmart
Corporation  ("K-Mart"),  accounted for approximately  16.4%, 23.5% and 23.4% of
the Company's  consolidated  net sales,


<PAGE>


respectively.  The loss of such a major customer could have an adverse effect on
the results of the Company's operations.  In addition,  several of the Company's
licensees sell products  bearing the Company's  trademarks to the same retailer.
The Company has no long-term  commitments or long-term contracts with any of its
customers.

     RECENT APPAREL  INDUSTRY  TRENDS.  Competition in the apparel  industry has
been exacerbated by the recent consolidations and closings of major stores. Like
many of its  competitors,  the  Company  sells  to  certain  retailers  who have
recently  experienced  financial  difficulties  and some of whom  are  currently
operating  under the  protection of the federal  bankruptcy  laws.  Although the
Company  monitors the financial  condition of its customers,  the Company cannot
predict what effect, if any, the financial condition of such customers will have
on the Company.  The Company  believes  that  developments  to date within these
companies  have not had a material  adverse  effect on the  Company's  financial
position or results of operations.

     NATURE OF INDUSTRY;  DEPENDENCE  ON JEANS.  The apparel  industry is highly
competitive and characterized  generally by ease of entry. Many of the Company's
competitors are substantially  larger and have greater financial,  marketing and
other resources than the Company. The Company's revenues are derived principally
from sales of jean  products.  Although the Company's  products for the domestic
market  have  historically  been less  sensitive  to fashion  trends than higher
fashion  lines,  the apparel  industry is subject to rapidly  changing  consumer
preferences,  which may have an adverse  effect on the results of the  Company's
operations if the Company materially misjudges such preferences.

     RISKS OF DOING BUSINESS OVERSEAS. In general, the Company believes that the
demand for jeans in foreign  markets is more  susceptible  to changes in fashion
preferences  than in the domestic  market.  In  addition,  it is not possible to
predict  accurately the effect that the continued  elimination of trade barriers
among  members of the European  Union will have on the  Company's  operations in
Europe.  The Company is also expanding its activities in Eastern  Europe,  where
economic, political and financial conditions are changing rapidly, and commenced
manufacturing  operations in Mexico in fiscal 1997. In general,  there can be no
assurance  that  the  results  of  the  Company's  European  operations  or  the
operations  in  Mexico  will  not be  adversely  affected  by  factors  such  as
restrictions  on  transfer of funds,  political  instability,  competition,  the
relative strength of the U.S. dollar, changes in fashion preferences and general
economic conditions.

     ABSENCE OF  DIVIDENDS.  Except for the  shareholder  rights  redemption  in
fiscal  1998,  the  Company  has not,  in recent  years,  paid any cash or other
dividends on its Common Stock. As a holding company,  the ability of the Company
to pay  dividends is dependent  upon the receipt of dividends or other  payments
from its  subsidiaries.  The Company's  domestic  credit  agreements  (the "Loan
Agreements")  contain  certain  limitations  on  the  Company's  ability  to pay
dividends.

     Y2K.  The  Company  did  not   experience  any  Year  2000  (Y2K)  computer
programming  issues as a result of the turn of the  century  that  significantly
impaired the Company's operations. The Company continues to assess the potential
impact of the Y2K computer  processing  issue on its management and  information
systems. The Company believes that it has a prudent approach in place to address
these issues and monitor remedial action. The approach  includes:  an assessment

<PAGE>

of internal  programs and  equipment;  communication  with major  customers  and
vendors with respect to the status of their  systems;  an evaluation of facility
related  issues and the  development  of a  contingency  plan.  This approach is
designed to maintain an  uninterrupted  supply of goods and services to/from the
Company.

The Company has incorporated the Y2K programming  modifications  with an overall
upgrade in its  computer  programming  language.  All  programs  were  reviewed,
remediated  and  converted by the end of the third  quarter of fiscal 1999.  The
Company has expanded its program  testing to include an integrated  systems test
to provide an additional level of assurance on the system.  The Company has also
assessed all  hardware  components  and is not aware of any material  investment
required for its mainframe and critical hardware equipment to be Y2K compliant.

The Company is in a continuous process of communicating with its major customers
and suppliers.  This contact is designed to determine systems  compatibility and
compliance.  The Company has been assured by its major suppliers that there will
be no  disruption in the delivery of goods and  services.  The Company  believes
that  adequate  resources  are available for the supply of its raw materials and
facility related equipment will continue to be operational.

The  Company  has  relied  entirely  on  internal  programming  and  operational
resources for review and remediation of Y2K issues.  Accordingly, no incremental
costs have been expended for such activities.

The failure to correct a material Y2K problem could result in an interruption in
normal business activity. The Company's plan is expected to significantly reduce
the risk associated with the Y2K issue. However, due to the inherent uncertainty
of the Y2K issue and dependence on third-party  compliance,  no assurance can be
given that  potential  Y2K  failures  will not  adversely  effect the  Company's
operations, liquidity and financial position.



<PAGE>

                                     PART I
ITEM 1.  BUSINESS

GENERAL

     Chic by H.I.S,  Inc.  (the  "Company")  was  incorporated  in  Delaware  in
December 1988 under the name Henry I. Siegel  Holding Corp. and changed its name
to Chic by H.I.S,  Inc. on  December  15,  1992.  All  references  herein to the
"Company" include Chic by H.I.S, Inc. and its domestic and foreign  subsidiaries
unless otherwise indicated by the context.

     The Company designs,  manufactures  and markets  moderately  priced,  basic
style,  cotton denim jeans,  casual pants and shorts for women,  girls,  men and
boys,  which are sold  throughout  the United  States  principally  through mass
merchandisers.  The Company also markets similar apparel in Europe, primarily in
Germany.  In the United  States,  women's and girls'  jeans and casual pants are
generally  marketed  under the CHIC(R) brand name, and men's and boys' jeans and
casual pants are  generally  marketed  under the H.I.S(R)  brand name,  while in
Europe all of the Company's apparel is sold under the H.I.S brand name.

     The Company also  licenses  the use of its  trademark,  primarily  the CHIC
brand name, to  manufacturers of a variety of products that the Company does not
manufacture,   including   women's   sportswear,   intimate   apparel,   shirts,
accessories,  hosiery and footwear.  Many of these products are sold by the same
retailers  that sell the Company's  products and are  generally  promoted at the
retail level in a manner that complements the Company's products.  In the United
States,  the Company  sells its apparel  primarily  to mass  merchandisers.  The
Company's marketing and advertising strategy emphasizes the quality, comfortable
fit and competitive  pricing of its jeans and pants.  The Company  believes that
its ability to respond quickly to its domestic  customers' needs, as a result of
its experienced  manufacturing  capabilities and its state-of-the-art  ordering,
inventory and management information systems, gives it an advantage over many of
its competitors.  The Company's  excellence in servicing mass  merchandisers has
been recognized by industry-wide awards and, in the opinion of management, is an
important asset in maintaining and broadening its business.

     Information with respect to sales, operating income and identifiable assets
attributable  to each of the  Company's  geographic  areas appears in Note 11 of
Notes to Consolidated Financial Statements included herein.

RECENT DEVELOPMENTS

     As of November 6, 1999,  the Company  was not in  compliance  with  certain
covenants  of its  domestic  credit  agreement  for which  waivers have not been
obtained.  Accordingly, the Company has classified the outstanding balance under
the domestic credit  agreement as current  liabilities.  The Company is pursuing
negotiations  to amend the  existing  credit  agreement  or  obtain  alternative
financing.  There can be no assurance that the Company will be successful in its
efforts to modify or replace the domestic credit  facility.  These matters raise
substantial doubt about the Company's ability to continue as a going concern.

     The Company has engaged an  investment  banker to assist in  structuring  a
transaction  to sell  selected  assets of the  Company to enable the  Company to
focus  on  its  strategic  objective  -  utilizing  its  Mexican   manufacturing
facilities to maximize shareholder value and profitability.

                                       1
<PAGE>

UNITED STATES OPERATIONS

     United States sales  increased  during fiscal 1992 primarily as a result of
greater  sales to major mass  merchandiser  customers,  which  generally  gained
market share in the jeans market relative to other  retailers,  and an improving
United  States  economy.  During  fiscal  1993,  United  States  sales  remained
relatively constant. During fiscal 1994, United States sales increased primarily
due to increased  advertising and remained  relatively  constant  through fiscal
1995. During fiscal 1996, United States sales decreased primarily as a result of
a shrinking  market share and  substantial  price  competition.  This  condition
continued  through fiscal 1999,  while the Company  continued to compete against
private label merchandise at the mass merchant channel of distribution.

     During the first and fourth quarters of fiscal 1996,  management authorized
and committed the Company to undertake  significant  downsizing and  operational
changes which, during 1996, resulted in restructuring and special charges of $30
million.

     The  charge  in  the  first   quarter   included  the  closing  of  certain
manufacturing facilities in Tennessee and Kentucky. These first quarter closures
resulted in the  termination  of  approximately  940 employees and resulted in a
total charge against  earnings  aggregating $15 million.  In the fourth quarter,
the Company  identified  additional  manufacturing  facilities to be closed. The
Company has also started to move certain manufacturing operations to Mexico. The
additional  closures  resulted in the termination of approximately 700 employees
and a total charge against earnings aggregating $15 million.

     In fiscal 1997, the Company  proceeded to implement changes in advertising,
marketing  and  manufacturing  policies  adopted in the prior  year.  Additional
advertising  costs were  incurred  related to  special  cooperative  advertising
programs  designed  to  stimulate  over  the  counter  sales  and  manufacturing
operations were established in Mexico. By the end of fiscal 1997, over 1 million
pair of jeans  had been  produced  in  Mexico  and a second  facility  was under
construction.

     In the second  quarter of fiscal  1998,  as  production  capacity in Mexico
increased,  the Company  announced its intention to continue to close additional
manufacturing  facilities in the United  States.  In connection  therewith,  the
Company recorded  restructuring and special charges of $24.1 million  consisting
of a write-down in the value of related property and equipment, the write-off of
operating inefficiencies incurred during the shut-down period and the accrual of
estimated costs of disposition.  The plant closings  resulted in the termination
of approximately 1,300 employees.

APPAREL

WOMEN'S AND GIRLS' JEANS

     The Company's  principal  product line is women's and girls' jeans marketed
under the CHIC and CHIC KIDS brand  names,  respectively,  and other brand names
owned by the Company,  including ZNO(R) anD SUNSET BLUEs(R). The Company's jeans
are available in a variety of finishes,  such as prewashed and  stonewashed.  By
altering the laundry time and  ingredients  used in the finishing  process,  the
Company is able to produce various colors and shades in denim products.

     The Company was the  originator of  "proportioned  to fit" jeans for women,
which it introduced in 1975. The Company's women's and girls' jeans are designed
to provide a more  comfortable fit by tailoring their  measurements to a woman's
or girl's height in addition to her waist size. Each size is offered for sale in
a variety of inseam lengths. Women's and girls' jeans are available in a relaxed
fit, slim fit and classic fit.

     The  Company's  jeans are offered in four  general  size  categories:  CHIC
misses is offered in sizes 2 to


                                       2
<PAGE>

20 in petite,  average and tall lengths; ZNO juniors is offered in sizes 1 to 15
in petite,  average and tall lengths;  CHIC plus is offered in sizes 18 to 26 in
petite and average lengths;  and CHIC KIDS is offered in sizes 7 to 14 for young
girls.

     Currently,  the Company's  women's  jeans are  generally  priced to sell at
retail for  between  $14.99 and  $19.99,  with most  products  priced to sell at
retail for $17.99.  The Company's  girls' jeans are generally  priced to sell at
retail for between $12.99 and $15.99.

WOMEN'S AND GIRLS' CASUAL PANTS AND SHORTS

     The Company  markets  women's  casual pants and shorts under the CHIC brand
name and girls'  casual  pants and shorts  under the CHIC KIDS brand  name.  The
Company's casual pants are available in the same  "proportioned to fit" sizes as
CHIC jeans.  The Company  believes  that CHIC pants have the same  advantages as
CHIC jeans in terms of fit,  quality and value.  Casual pants are generally more
fashion-oriented  and are more susceptible than basic jeans to changing consumer
preferences.  The Company's two primary casual pant styles, the "CHIC Spectator"
which is made of 100% cotton wrinkle resistant,  and the "CHIC Schooners," which
is all-cotton, are both basic design casual pants.

     Currently,  the Company's women's casual pants are generally priced to sell
at retail  for  between  $15.99 and $19.99  and the  women's  casual  shorts are
generally priced to sell at retail for between $12.99 and $15.99.

WOMEN'S AND GIRLS' JEAN SHORTS

     The Company  markets women's and girls' jean shorts under the CHIC and CHIC
KIDS brand names,  respectively.  Traditional five-pocket jean shorts constitute
the  Company's  core product in this line.  The Company  complements  this basic
product with jean shorts that are slightly more fashion-oriented. Currently, the
Company's women's jean shorts are generally priced to sell at retail for between
$12.99 and $16.99. The Company's girls' jean shorts are generally priced to sell
at retail for between $9.99 and $12.99.

MEN'S AND BOYS' JEANS AND JEAN SHORTS AND MEN'S CASUAL PANTS AND SHORTS

     The Company  markets men's and boys' jeans and jean shorts and men's casual
pants and shorts under the H.I.S and HARDWARE(R) brand names. The Company offers
its men's and boys'  apparel  in a broad  range of sizes,  colors,  fabrics  and
finishes.  All of the men's  and boys'  five-pocket  jeans  manufactured  by the
Company are  available  in two  styles:  a relaxed  fit and a classic  fit.  The
Company  offers  men's jeans in 38 different  sizes by waist and inseam  length.
Boys' jeans are offered in sizes 8 to 18 in regular fit and slim fit.

     The  Company's  line of men's casual pants is marketed  under the H.I.S and
HARDWARE  label and is  available  in casual,  classic and basic styles that are
generally more fashion-oriented and are more susceptible than its men's or boys'
jeans to changing consumer preferences.

     Currently, the Company's men's jeans are generally priced to sell at retail
for between  $15.99 and  $19.99;  jean  shorts are  generally  priced to sell at
retail for between $12.99 and $16.99;  and casual pants are generally  priced to
sell at retail for between $19.99 and $21.99.  Boys' jeans are generally  priced
to sell at retail for between $12.99 and $15.99.

SALES AND DISTRIBUTION

     During  fiscal  1999,  the  Company  sold its  products  to more than 1,000
retailers,  which the Company believes,  operate over 7,000 stores in the United
States.  The Company also started to sell  merchandise  in the Canadian  market.
Most of the Company's sales in fiscal 1999 were made to mass  merchandisers  and
the remainder was made  primarily to department and specialty  stores.  Sales of
the CHIC and H.I.S product lines to the Company's two largest  accounts,  K-mart
Corporation and Target (a division of Dayton Hudson

                                       3
<PAGE>

Corporation),  accounted for approximately 38% of United States sales.

     Sales are made primarily  through the Company's  full-time  sales force and
also  through  showrooms  and trade  shows,  with an emphasis on selling to mass
merchandisers.  The Company has a direct sales force, which includes individuals
located in the Company's New York City showroom as well as showrooms in Chicago,
Dallas and other  locations.  The  Company  pays only sales  commissions  to its
salespeople.  Although  the  Company  pays a base salary to its  regional  sales
managers,  a portion of the income of such  managers is in the form of incentive
bonuses,   traditionally  based  on  increases  in  the  Company's  sales.  Each
salesperson  is equipped with a personal  computer  that has a direct  satellite
linkup with the mainframe  located in the  Company's  executive  offices,  which
allows each  salesperson to access readily various types of information  such as
product  availability.  The Company maintains its principal showroom in New York
and additional showrooms in Chicago and Dallas to service regional markets. Each
showroom is staffed by local sales representatives.

     The Company  operates  retail  outlet stores in Tennessee and Kentucky that
sell  seconds  and  closeouts  of CHIC and H.I.S  brand  merchandise,  including
licensed  products.  During  fiscal 1999,  the Company  closed five of the eight
retail outlet stores and two  subsequent to the end of fiscal 1999.  The Company
believes  there  are more  efficient  and  cost-effective  means  to  distribute
closeout merchandise.

     The Company's  warehouse  and  distribution  center  facility is located in
Bruceton,  Tennessee.  All goods are sewn either at the Company's  manufacturing
facilities or outside contractors.  As of November 6, 1999, the Company operated
one  domestic  assembly  plant,  as well as three  sewing  plants  and a laundry
located in  Mexico.  Goods  produced  by  contractors  are sewn,  laundered  and
finished by the  contractor.  Finished  products  are  shipped to  Bruceton  for
warehousing and  distribution to the Company's  customers  throughout the United
States and Canada.

     Substantially  all of the  Company's  sales in the United States and Europe
are to  retailers.  For the year ended  November  6, 1999,  November 7, 1998 and
November 1, 1997,  sales to one major  customer  (with sales in excess of 10% of
total sales)  approximated  16.4%,  23.5% and 23.4% of  consolidated  net sales,
respectively.  The receivables  from the Company's major customer at November 6,
1999 represented  approximately  10.0% of the total accounts receivable balance.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations."  The Company reviews a customer's  credit history before  extending
credit.  An allowance  for  possible  losses is  established  based upon factors
surrounding the credit risk of specific  customers,  historical trends and other
information.

MARKETING, ADVERTISING AND PROMOTION

     The Company advertises its products nationwide through television and print
media. The Company's  advertising  strategy emphasizes the quality,  comfortable
fit and competitive  pricing of its jeans and pants. At the national level,  the
Company's advertising is image oriented. Television commercials promote the CHIC
name and are designed to create a personality for the brand. In fiscal 1998, the
Company signed a contract with a new advertising agency to coordinate its fiscal
1999 campaign to present a cohesive  marketing  presentation  and revitalize its
nationally recognized brands.

     Consumer  advertising  for the  Company's  CHIC  line of  products  is done
primarily  through  consumer  print and, to a lesser  extent,  network and cable
television.  Print advertising of the CHIC line consists primarily of spreads in
magazines  oriented  toward  women.   National  television   advertisements  are
generally  run during the fall  back-to-school,  spring  and  Christmas  selling
seasons.  The  Company's  advertising  of its H.I.S  line has been  accomplished
primarily through the use of print advertising. The Company targets women in the
18-49 age group for its CHIC brand  women's  products,  with and emphasis on the
18-34 age  group,  and  targets  men in the 18-49 age group for its H.I.S  brand
men's  products.  The  Company  believes  that  consumers  of its  products  are
generally in the moderate-income bracket.

                                       4
<PAGE>

     The Company supplements its national  advertising  campaign through the use
of cooperative  advertising in radio and newspaper media, in which the Company's
products are among those featured by various retailers in their  advertisements.
In addition, the Company advertises to retailers through print advertisements in
a variety of trade magazines and newspapers.

     The  Company  believes  that there are  opportunities  for  increasing  the
Company's  share of the mass  merchandise  market for men's  jeans in the United
States,  which the Company believes is substantially  larger than the market for
women's jeans. Based on its reputation as a reliable supplier of branded women's
jeans  and its  previous  history  as a  manufacturer  of men's  jeans and other
apparel  under the H.I.S brand name,  the Company  believes  that  opportunities
exist to expand the  distribution  of its men's jeans.  The Company  anticipates
that there will be a positive correlation between an increase in advertising and
an  increase  in sales,  but there can be no  assurance  that the  Company  will
realize  its  objective  of  increasing  its share of the men's and boys'  jeans
market,  which is highly competitive and in which the Company currently has only
a limited presence.

     The Company works with retailers to provide custom displays to stores.  The
Company  provides to its customers,  free of charge,  a variety of point of sale
display  materials  such as signs,  size markers,  graphics,  in-store  posters,
photographs and other visual supports.

PRODUCT DESIGN

     The Company's in-house  merchandising  department develops jeans and casual
pants product  lines,  including  the pricing and  packaging for each line.  The
merchandising   group  interprets   market  trends  by  visiting  retail  stores
throughout the United States, Canada and Europe,  attending trade shows, working
with textile mills and retailers and  conducting  market  research.  The Company
also  researches  and tests denim finishes in order to develop new wash finishes
and treatments to add to the Company's product mix.

     After the merchandising group has researched the retail market and domestic
fabric market, consulted with the various fashion and color forecasting services
to which the Company  subscribes  and decided on the details to be  incorporated
into the new lines,  prototype samples,  fit, colors and packaging are developed
in the  New  York  office.  The  prototypes  are  then  sent  to  the  Company's
manufacturing  facility in Bruceton,  Tennessee,  which  produces a manufactured
sample.

     In keeping  with the  Company's  emphasis on a quality fit, the garment has
several fit evaluations using a professional fit model from prototype stage to a
finished  manufactured  garment. The samples produced in Tennessee are evaluated
for fit,  color  and  finish  and then  sent to the sales  force to  display  to
prospective  customers.  When the garment has been sold and the first production
run of  garments  is  produced,  a full size range is sent to New York where the
garment is fitted on models of various sizes to allow the  merchandisers to make
any final  adjustments  that may be needed to improve the fit and  appearance of
the new lines for different body types.

MANUFACTURING AND RAW MATERIALS

     The Company performs all phases of the manufacturing  process in converting
raw  materials  into  finished  goods.  The  Company  purchases  all of its  raw
materials  domestically  and  manufactures all of its products in North America.
Consequently,  the Company enjoys a shorter  lead-time in filling orders than is
usually  associated with  competitors  that rely on imports of finished goods or
offshore manufacturing processes.

     The Company currently buys finished fabric in bulk from domestic  suppliers
and generally has no
                                      5


<PAGE>

supply contracts with terms longer than three months.  The Company believes that
through its domestic  suppliers it is able to obtain good quality materials in a
timely manner at competitive  prices.  During fiscal 1999, the Company purchased
approximately  58.0% of its raw materials from three  suppliers,  which were the
only  companies  supplying  more than 10% of the Company's raw materials  during
fiscal 1999. The Company maintains a portion of its inventories in commodity raw
materials,  which consist mainly of cotton fabrics,  including denim and twills.
These raw materials,  the Company believes,  are readily available from numerous
domestic and foreign  sources.  Although the Company  relies  heavily on certain
suppliers for its raw material needs,  the Company believes that the loss of any
one source of raw materials, though no such loss is presently anticipated, would
not have a material adverse effect on its business since many other alternative,
comparable sources are readily available.

     The Company operates  manufacturing  facilities in Tennessee and Mexico. In
the  second  quarter  of  fiscal  1997,  the  Company   established   its  first
manufacturing   facility  in  Durango,   Mexico.  A  second  facility  commenced
operations  in the second  quarter of fiscal 1998,  and a third  facility in the
first  quarter of fiscal 1999.  Concurrent  with the  increase in the  Company's
productive  capacity  in  Mexico,  the  Company  closed  certain  United  States
manufacturing  facilities.  In the fourth  quarter of fiscal  1999,  the Company
commenced operations of a laundry facility in Mexico.

     With  its   manufacturing   systems,   which  the  Company   believes   are
state-of-the-art, the Company is usually capable of converting raw material into
a finished  garment and  delivering  such garment to the  retailer  within eight
weeks from the date the Company  receives the  retailer's  order.  The Company's
facilities and systems,  together with substantially domestic sourcing of fabric
and other raw  materials,  enable it to adapt to changing  consumer  preferences
quickly and to respond swiftly to customer orders.

     The Company generally cuts fabric only after receiving  confirmed  purchase
contracts from customers.  Each contract is for a specified amount of product at
a  specified  price and usually  provides  for  several  preliminary,  staggered
delivery dates.  Customers then place specific orders for delivery  against such
contract.  By manufacturing in response only to a confirmed  purchase  contract,
the Company is able to determine its finished inventory needs in advance of such
delivery dates so as to be able to respond quickly to a customer's  order and at
the same time  minimize  its finished  inventory  risk.  Occasionally,  based on
agreements  with  customers,   preliminary  delivery  dates  are  extended.  The
postponement of a delivery date may cause the Company to lose sales it otherwise
might  have  made to the  customer  for the  period  during  which  delivery  is
eventually made. Should a delivery date be postponed,  the Company is often able
to arrange with its suppliers to delay delivery of raw materials the Company has
ordered.

     The  Company  uses  contract  carriers  to pick up raw  materials  from its
suppliers and transport  such raw  materials to the  Company's  central  cutting
facility in Bruceton,  Tennessee. In Bruceton, the fabric is cut and trimmed and
then shipped to the US/Mexico  border by the Company's own fleet of tractors and
trailers  and, from there to one of the  Company's  manufacturing  facilities in
Mexico, by contract carriers,  where the garments are sewn,  laundered,  pressed
and  finished.  Assembled  garments  are then  returned  to  Bruceton  for final
warehousing and distribution.

EUROPEAN OPERATIONS

In Europe,  where mass  merchandisers  have limited market share,  the Company's
H.I.S brand jeans are sold primarily  through  department  stores and mail order
catalogs.  Most of the Company's sales in Europe are made in Germany.  In recent
years, European sales have expanded beyond Germany, Austria and Switzerland into
surrounding countries,  including Poland, the Czech Republic, Slovakia, Belgium,
Luxembourg and the Netherlands.  The Company markets women's and men's jeans and
casual pants under the H.I.S brand name.

                                       6
<PAGE>

As in the  United  States,  the  Company's  core  business  in  Europe is basic,
five-pocket  denim jeans. The Company believes that its jeans continue to be the
best selling women's jeans in Germany during fiscal 1999.

     Prior to fiscal 1997,  the Company had been  licensing the H.I.S brands for
sale in the Czech Republic for the previous three years.  Commencing fiscal 1997
the Company ended the licensing  arrangement and marketed its products  directly
with its own contracting, sales force and distribution center.

     The Company believes that in many European  countries basic jeans,  such as
those manufactured by the Company, are perceived to be a fashion item as well as
a  basic,  functional  product  and are  therefore  worn in a  broader  range of
settings than in the United States,  which contributes to a high level of demand
for jeans in Europe. The Company believes that approximately 50 million pairs of
women's and men's jeans are sold in Germany  each year,  and that  approximately
one-half of such jeans sold do not bear a  recognized  brand name.  Due to their
fashion   versatility  and  the  absence  of  mass  merchandisers  and  discount
retailers,  jeans are priced much higher, in relative terms, at the retail level
in Europe than in the United States.

     The  Company's  European  headquarters  are  located in  Garching,  Germany
(outside  of  Munich),  where the  Company  has its own staff of  merchandising,
sales,  production,  management and finance personnel.  The Company does not own
any manufacturing  facilities in Europe, but currently has long-term  agreements
with  approximately  thirty-five  manufacturers in the Czech Republic,  Germany,
Greece, Italy, Malta,  Portugal,  Tunisia and Turkey, where the Company believes
quality  products can be  manufactured at competitive  prices.  Due to the large
number of  manufacturers,  the  Company  believes  that the  termination  of any
existing  manufacturing contract would not have a material adverse effect on its
operations.  All of the raw  materials  used to assemble the jeans and pants are
purchased  by the  Company in Europe and are  readily  available  from  numerous
suppliers.  Raw materials are shipped to subcontractors in foreign countries for
assembly.  Finished  goods are shipped by the  subcontractors  to the  Company's
distribution  centers for washing,  finishing,  warehousing and then shipment to
the Company's customers.

     Most European  customers are traditional  department stores such as Kaufhof
AG, Mac Fash  TextilHandels-GessellschaftmbH,  Hertie  Waren-und  Kaufhaus GmbH,
Horten AG and specialty  stores such as Leffers AG and Peek & Cloppenburg  KG in
Germany.  Other significant  customers include  German-based Otto Versand GmbH &
Co.,  the  world's  largest  mail-order  firm,  and  Quelle,   Europe's  largest
mail-order  firm,  as  well  as  Spar  Osterreichische  Warenhandels-AG  (Hervis
Modekaufhaus GmbH), one of the largest retail operations in Austria.

     The Company employs a  merchandising  staff that creates styles and selects
fabrics  designed to meet the demands of the  European  consumer.  Approximately
2,500  retail  accounts  and  mail-order  houses are  serviced  by fewer than 25
commissioned sales people.  The Company's  European  advertising is aimed at men
and women between the ages of 16 and 39 through television and print media.

     It is not  possible to predict  accurately  the effect  that the  continued
elimination  of trade  barriers among members of the European Union will have on
the Company's operations in Europe. The Company considers other Western European
countries,  such as the  United  Kingdom,  France  and  Italy,  to be  extremely
competitive  markets and does not  anticipate  that it will seek to expand sales
significantly in such countries.

     In the second  quarter of fiscal  1997,  the Company  completed  an initial
public  offering  of  its  previously  wholly-owned  German  subsidiary,  h.i.s.
Sportswear  AG,  resulting  in  the  sale  of  2,120,000  shares,   representing
approximately  47.5% of the  stock,  at an  offering  price  of DM 39 per  share
(approximately   $22.61).   The  net   proceeds   received  by  the  Company  of
approximately  $43.1  million  were used to repay  indebtedness  and for general
corporate purposes.

                                       7
<PAGE>

CENTRAL OFFICE AND COMPUTER SYSTEM

     The Company maintains its principal executive offices in New York City from
which it provides its  department  managers  with  integrated  information  with
respect to inventory,  production,  manufacturing and distribution operations as
well as financial  matters.  The Company believes that it has a state-of-the-art
computer  information  system,  substantially  all of the software for which was
developed internally. This sophisticated system allows the Company's salespeople
to enter sales orders  electronically.  Many large customers submit their orders
directly  to  the  Company  over  an  electronic  data  interchange  system  via
satellite.  Such linkups allow the Company to process  customer  orders quickly,
reducing the lead-time between orders and deliveries.

     Major customers  customarily place confirmed purchase contracts for a total
unit  quantity by price,  style and delivery  date.  Through  point of sale data
collection devices, many of these customers monitor their sales to consumers and
report directly to the Company their  over-the-counter level of sales as well as
the desired  inventory levels they wish to maintain at their individual  stores.
On a weekly basis the Company receives  information as well as detailed shipment
orders for each of the stores of such customers. These detailed store orders are
designed to replenish  the inventory  levels of the  individual  retail  stores,
which the Company is generally able to do in five to eight business days.

     The Company also receives on a daily basis orders taken by its sales force.
These  orders are  electronically  transmitted  to the Company by members of the
sales force  through  their own computer  terminals,  which are connected to the
Company's   main   computer   system  via   satellite.   Such  orders  are  then
electronically  reviewed for style, color, size,  creditworthiness and requested
delivery dates. If the results of such reviews are satisfactory,  the orders are
considered to be confirmed purchase contracts and are added to backlog.

     The computer system allows the Company to monitor  production in real time,
so that the  location  and  status  of every  cut and  production  plan in every
factory  is known at any  moment  in time.  In the  highly  competitive  apparel
industry,  the  Company  believes  that its  "just-in-time"  ability  to respond
quickly to customer  demand gives it a  significant  advantage  over many of its
competitors, especially with respect to mass merchandisers.

LICENSING

     Pursuant to  approximately  20 license  agreements  between the Company and
various  manufacturers  and/or  importers,  such licensees  produce and market a
variety of products under the CHIC name and/or H.I.S name including: sportswear,
intimate  apparel,  accessories,  hosiery and footwear.  Most of these  products
complement apparel products marketed by the Company.

     The Company  began  licensing  its  trademarks  in fiscal  1989.  Licensing
revenues have  increased  from  approximately  $0.8 million in fiscal 1990,  the
first full year of licensing operations, to approximately $6.4 million in fiscal
1996.  Licensing  revenues declined to approximately $2.8 million in fiscal 1999
due to poor retail business in the United States and the  discontinuation of the
licensing agreement in the Czech Republic.

     The current license  agreements  expire on various dates through 2002. Many
of the agreements,  however, permit the licensee to renew its agreement, subject
to  certain  conditions,  prior  to  expiration,  generally  for  an  additional
three-year  period.  The majority of the agreements require that licensees pay a
specified  guaranteed  minimum  royalty to the Company at the  beginning of each
quarter  during  the term of the  licensing  agreement  and  then pay a  certain
percentage  (generally  five  percent) of the  licensee's  net sales of products
bearing a trademark  licensed by the  Company.  Such  payments are due within 30
days after the end of each quarter, against which amount the guaranteed royalty
is deducted. Generally, each licensee is required

                                      8

<PAGE>

to spend  specified  amounts  for  advertising  and  promotion  of the  licensed
products and most licensees  offer a matching  cooperative  advertising  plan to
retailers for advertising in weekly circulars that are used by some retailers to
advertise sale items.  The Company has received no indication from its licensees
that they intend to terminate their  licensing  agreement with the Company prior
to its expiration.

     The Company's  strategy is to identify  market leaders in their  respective
fields who will  generate  increased  sales over an extended  period of time and
entrench the brand names in key categories.  The Company often consults with its
largest customers to identify and evaluate  potentially  suitable licensees.  In
evaluating a potential licensee, the Company considers the experience, financial
stability,  manufacturing  performance  and  marketing  ability of the potential
licensee.  It also evaluates the  marketability  of the products  proposed to be
licensed and the compatibility of such products with other products manufactured
or licensed by the Company. The Company believes that strong consumer acceptance
of the CHIC  and/or  H.I.S  brand  name and the care  that the  Company  uses in
selecting  suitable  licensees  have been major  contributors  to its  licensing
program.

     The Company  continues  to explore  opportunities  to expand its  licensing
program to other related  products and  geographic  regions to strengthen  brand
identity.

     By  increasing  consumer  awareness  of its brand  names  through  expanded
advertising of its products,  and  continuing to use care in selecting  suitable
licensees,  the  Company  anticipates  that it will  be able to  strengthen  its
licensing  business.  As the demand for licensed products  expands,  competition
will  increase  among  licensors  and no assurance can be given that the Company
will be able to expand or maintain its market  position  with respect to various
licensed goods in the future. In addition, no assurance can be given that demand
will expand.

     The Company  coordinates  the efforts of its licensees in a number of ways.
The Company  communicates  its color  schemes,  styling and market trends to its
licensees prior to each season,  presents a coordinated in-store presentation of
proprietary and licensed products, and coordinates the advertising of the family
of CHIC and/or H.I.S. products through planned promotions.

     As a general policy matter,  in the United States the Company  licenses its
brand names for use only on products it does not manufacture.

COMPETITION

     The apparel industry is highly  competitive and characterized  generally by
ease of entry.  Although the  Company's  products  have been  historically  less
sensitive to fashion trends than higher fashion lines,  the apparel  industry is
subject  to rapidly  changing  consumer  preferences,  which may have an adverse
effect on the  results  of the  Company's  operations  if the  Company  does not
accurately judge such preferences.  Among the factors that shape the competitive
environment are quality of garment  construction and design,  price,  fit, brand
name, style and color selection,  advertising and the manufacturer's  ability to
respond  quickly to the  retailer on a national  basis.  Customer  and  consumer
acceptance  and  support  are also  important  aspects  of  competition  in this
industry.  The Company  believes that its ability to market its products  though
its broad distribution network,  which consists primarily of mass merchandisers,
is  important  to its ability to compete.  The Company  also  believes  that its
continued  success will depend upon its ability to remain  competitive  in these
areas.

     The Company competes with numerous domestic and foreign manufacturers, many
of which are larger or are associated with companies with substantially  greater
resources than the Company.  The Company faces  competition in sales on both the
retail and consumer level. In general,  mass  merchandisers  limit their product
selection to moderately priced products.  Accordingly, the Company believes that
the  domestic  jeans  market  with  respect  to sales to mass  merchandisers  is
stratified  by a more narrow price range than sales to  consumers,

                                      9
<PAGE>

who might be willing to buy  products in a broader  price range.  Since  certain
retailers  generally carry only moderately  priced products,  particularly  mass
merchandisers,  the  Company  competes  for  sales to such  retailers  only with
companies that market similarly priced products.

     The Company considers its significant competitive advantages to be the high
consumer  recognition  and  acceptance of the CHIC brand name and its ability to
respond quickly to its customers' needs as a result of the Company's experienced
manufacturing  capabilities and advanced computer  information system.  Although
brand  recognition  is an  important  element  of  competition  in  the  apparel
business,  in the mass merchandising retail industry,  brand recognition is less
significant  in the  marketing of casual  pants than in the  marketing of jeans.
Most mass merchandisers  carry only casual pants bearing their own private label
and a limited  number,  if any, of other brands of casual  pants.  Consequently,
with respect to its mass  merchandising  customers,  the Company's  casual pants
compete with fewer brands than its jeans.

     In Germany,  Austria  and  Switzerland,  the  Company  competes in a higher
priced market against various European and  multinational  companies,  including
Mustang Bekleidungswerke, manufacturer of MUSTANG brand jeans, and Levi Strauss,
manufacturer  of LEVI'S  brand  jeans.  The  Company  believes  that its pricing
strategy in Europe,  which is to position  its products in the price range below
the range for Levi  Strauss,  along with its  reputation in Europe for marketing
jeans in a variety of sizes especially  suited for women,  distinguishes it from
its competitors in Europe.  Certain jeans suppliers,  such as Levi Strauss, have
traditionally  spent more than the Company on advertising in Europe. The Company
believes that increased advertising in Europe has increased the Company's market
share by attracting consumers who traditionally have bought unbranded products.

BACKLOG

     The Company's backlog consists of confirmed purchase contracts. At November
6, 1999, the Company had unfilled customer orders of approximately $88.2 million
of merchandise,  of which  approximately  $54.8 million were for domestic orders
and  approximately  $33.4  million  (based on the exchange rate for the deutsche
mark on November 6, 1999) were for European  orders,  compared to  approximately
$115.2  million at November 7, 1998, of which  approximately  $69.8 million were
for domestic orders and approximately  $45.4 million (based on the exchange rate
for the deutsche mark on November 7, 1998) were for European orders. The Company
believes that the change in backlog in the United States is attributable largely
to the weak  retail  climate  for basic  five-pocket  jeans  which  leads to the
placement of future orders. Substantially all of the unfilled orders at November
6, 1999 are expected to be shipped  before the end of the Company's  fiscal year
ending November 4, 2000. The Company believes that in the past it has shipped at
least 95% of its  confirmed  purchase  contracts.  The Company has not generally
experienced difficulty in filling orders on a timely basis.

SEASONALITY

     Demand for the Company's  apparel products and its level of sales fluctuate
moderately during the course of the calendar year as a result of seasonal buying
trends.  A moderate  surge in sales of denim  jeans and casual  pants  generally
occurs during the fall back-to-school and Christmas holiday selling seasons (the
Company's third and fourth quarter, respectively).  See "Management's Discussion
and Analysis of Financial  Condition and Results of Operations - Seasonality  of
Business-Quarterly  Results."  To balance  these  fluctuations  in  demand,  the
Company has developed  competitively  priced  packages of jean shorts and casual
shorts, which are sold primarily during the Company's first and second quarters.
This enables the Company to market to the year-round apparel needs of consumers,
thereby stabilizing production levels at the Company's manufacturing  facilities
during traditionally slower periods.

TRADEMARKS

     Several of the Company's  trademarks,  including CHIC, H.I.S,  HARDWARE and
ZNO, are registered in the

                                      10

<PAGE>

United States Patent and Trademark Office. These registrations expire on various
dates through 2005, subject to renewal. From time to time the Company adopts new
trademarks  in  connection  with the  marketing  of its  products.  The  Company
considers  its  trademarks to be  significant  assets of the Company and to have
significant value in the marketing of its products.

     The Company has registered and filed  applications for various  trademarks,
including  H.I.S,  which is the primary  trademark used by the Company to market
its products in Europe,  in  approximately  20 countries  throughout  the world,
primarily  Germany,  Austria and  Switzerland.  The Company  believes that these
foreign  trademarks  constitute  significant  assets  and  are  material  to its
European marketing operations.

     The Company has recently  registered a new  trademark,  SLAX(R) , to market
women's casual pants in Europe.  This marketing effort  represents a significant
diversification  in the  Company's  product  line in  Europe.  Depending  on the
European  success of this line,  the  Company  may  introduce  this label in the
United States.

EMPLOYEES

     As of November 6, 1999, the Company employed  approximately 1,000 full-time
people in the United  States,  2,800  people in Mexico and 150 people in Europe.
Most of the Company's  domestic  work force is employed in Tennessee,  where the
Company believes that it is one of the largest private employers.

     None of the Company's  employees are  represented  by a union.  The Company
believes that its relationship with its employees is good.

     The  Company  believes  that  all of its  manufacturing  facilities  are in
material compliance with applicable occupational health and safety laws.


BUSINESS ACQUISITIONS


     In January 1999, the Company purchased certain assets, including inventory,
tradenames  and sales  orders,  of Stuffed  Shirt,  Inc. for $4.3  million.  The
purchase  price was  payable $1 million at  closing,  with the  balance  payable
within 90 days of the closing date.

     In August 1999, the Company purchased certain assets,  including inventory,
tradenames, sales orders and equipment, of Sierra Pacific Apparel Company, Inc.,
for $5.1  million.  The purchase  price of the inventory of  approximately  $4.1
million  is  payable  out  of  the  proceeds  of the  sale  of the  merchandise.
Approximately  $.5  million was  payable at  closing,  with the balance  payable
through capitalized lease financing.

                                       11

<PAGE>

ITEM 2.  PROPERTIES

     The Company owns its principal  manufacturing and distribution  facilities,
which are  located in  Tennessee  and  Mexico.  The  Company  leases  additional
facilities, including its corporate headquarters and showrooms in New York City,
and other  offices,  factories,  warehouses,  showrooms and retail stores in the
United States,  Germany,  Austria and Switzerland  from unrelated third parties.
The Company's  principal owned and leased  properties are described in the chart
below.

                      PRINCIPAL OWNED AND LEASED PROPERTIES

                                                          SQUARE
                                        LOCATION          FOOTAGE   OWNED/LEASED
                                        --------          -------   ------------

North America
 Manufacturing and Assembly Facilities..Bruceton, TN      200,094      Owned
                                        Bruceton, TN      150,000      Owned
                                        Durango, Mexico   108,000      Owned
                                        Durango, Mexico   220,000      Owned
                                        Gleason,TN         53,103      Owned(1)
                                        Hickman, KY       280,000      Leased(1)
                                        Saltillo, TN       48,028      Owned(1)
                                        South Fulton, TN   70,269      Owned(1)
                                        Trezevant, TN      42,008      Owned(1)
 Warehouse and Distribution.............Bruceton, TN      422,087      Owned
 Showrooms..............................Chicago, IL         1,242      Leased
                                        Dallas, TX          1,325      Leased
                                        New York, NY        8,721      Leased
 Retail Stores..........................Bruceton, TN        5,500      Leased
 Machine Shop and Equipment Warehouse...Bruceton, TN       41,000      Owned
                                        Bruceton, TN       12,000      Owned
 Corporate Offices......................New York, NY       34,034      Leased

Europe
 Office and Warehouse...................Prague, Czech
                                          Republic          1,534      Leased
                                        Garching, Germany  90,000      Leased
                                        Warsaw, Poland      8,216      Leased

  Showrooms........................     Bergheim, Austria   2,000      Leased
                                        Prague, Czech
                                          Republic            347      Leased
                                        Berlin, Germany       600      Leased
                                        Munich, Germany     1,500      Leased
                                        Neuss, Germany      1,100      Leased
                                        Warsaw, Poland        137      Leased
                                        Zurich, Switzerland   700      Leased

 (1) Facility not in operation. Asset held for sale.

     The Company believes that its existing  facilities are well maintained,  in
good  operating  condition  and are adequate for its present level of operations
and sufficient to accommodate any increased  output for the  foreseeable  future
after consideration of the operational changes anticipated to be made.

                                       12

<PAGE>




ITEM 3.  LEGAL PROCEEDINGS

         After a period of  negotiation  regarding the  separation of Mr. Robert
Luehrs from the  Company,  the Company  commenced a lawsuit  against Mr.  Robert
Luehrs  seeking a declaration  that he had retired from the Company in May 1998,
or, in the  alternative,  that he had been properly  terminated  for cause.  Mr.
Luehrs  counterclaimed  against  the  Company,  alleging  that the  Company  had
breached his employment  contract and discriminated  against him on the basis of
his age and disability. Mr. Luehrs contends that he was terminated without cause
and so is entitled to $511,875 for breach of contract, in addition to the amount
he  alleges  he is due under a  disability  benefits  clause  in his  employment
agreement,  and  unspecified  damages  stemming  from  his  allegations  of  age
discrimination.

         From  time  to  time,  the  Company  is  also  involved  in  litigation
incidental  to the  conduct  of its  business.  The  Company  believes  that  no
currently pending litigation to which it is a party will have a material adverse
effect on its consolidated financial condition or results of operations.

         ENVIRONMENTAL MATTERS

         The Company  believes it is in material  compliance with all applicable
environmental laws to which it is subject,  including, among others, the Federal
Water  Pollution  Control  Act,  and the  Tennessee  Solid Waste  Disposal  Act.
Although the Company is unable to predict what legislation or regulations may be
adopted in the future with respect to  environmental  protection  and what their
impact  on  the  Company  may  be,  compliance  with  existing  legislation  and
regulations has not had a material  adverse effect on its capital  expenditures,
results of operations or competitive position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

                                       13

<PAGE>

                                     PART II

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

     Except for the shareholder rights redemption,  the Company has not paid any
cash or other  dividends on its common stock in the last two years. As a holding
company,  the  ability of the Company to pay  dividends  is  dependent  upon the
receipt of dividends or other  payments  from its  subsidiaries.  The Company is
restricted from paying any dividends  according to the Company's domestic credit
facility  which  generally  limits the  payment of  dividends  (aggregated  with
certain other  restricted  payments and restricted  investments) by the Company,
and by the domestic bank subsidiaries to the Company.

     Price Range Of Common Stock:

                              1998                    1999
-----------------------------------------------------------------------
                         High         Low        High          Low
-----------------------------------------------------------------------
First Quarter            $8        $6 3/8      $4 9/16         $3
Second Quarter           9 3/8      7 1/8      3 1/2        2 3/8
Third Quarter            9 1/4      5 7/8      3 1/4            2
Fourth Quarter           6          2 5/8      2 7/16         3/4

The Company's  Common Stock is traded on the New York Stock  Exchange  under the
symbol "JNS."

As of December 31, 1999, there were 117 stockholders of record.

                                       14

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
CHIC BY H.I.S, INC. AND SUBSIDIARIES

The following financial  information is qualified by reference to, and should be
read in conjunction with, the Consolidated  Financial  Statements of the Company
and  related  notes  thereto,  and  "Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results of  Operations."  The  selected  consolidated
financial  information  for each of the five  fiscal  years in the period  ended
November 6, 1999 is derived from the  Consolidated  Financial  Statements of the
Company which have been audited by BDO Seidman, LLP.

<TABLE>
<CAPTION>

INCOME STATEMENT DATA:                                                        FISCAL YEAR ENDED

(In Thousands, except share and per share amounts)     Nov. 4,      Nov. 2,       Nov. 1,       Nov. 7,       Nov. 6,
                                                        1995         1996          1997          1998          1999

<S>                                                   <C>          <C>           <C>           <C>           <C>
Net sales:
  United States                                       $277,896      $212,121      $162,170      $149,486      $143,417
  Europe                                                98,172       106,669       112,618       104,356        94,566

                                                      $376,068      $318,790      $274,788      $253,842      $237,983

Gross profit:
  United States                                       $ 32,598      $ 26,325      $ 12,234      $ 16,900      $ 14,248
  Europe                                                39,554        43,737        47,125        44,178        39,375

                                                      $ 72,152      $ 70,062      $ 59,359      $ 61,078      $ 53,623

Licensing revenues                                    $  5,773      $  6,359      $  2,842      $  2,706      $  2,810

Operating expenses:
  Selling, general and administrative expenses        $ 69,415      $ 61,295      $ 69,434      $ 62,236      $ 57,928
  Restructuring and special charges                          -        30,000             -        24,125             -

Operating income (loss):
  United States                                           $(16)     $(25,256)     $(19,227)     $(31,913)     $ (8,161)
  Europe                                                 8,526        10,382        11,994         9,336         6,666

                                                      $  8,510      $(14,874)     $ (7,233)     $(22,577)     $ (1,495)

Gain on sale of subsidiary stock                             -             -        34,079             -             -
Other expense, net                                           -             -             -        (1,104)            -
Interest and finance costs                              (6,129)       (6,544)       (4,576)       (4,816)       (6,908)
Income (loss) before benefit (provision) for
  income taxes, minority interest and
  extraordinary items                                    2,381       (21,418)       22,270       (28,497)       (8,403)
Benefit (provision) for income taxes                    (1,369)       (4,146)      (10,394)        2,762        (3,143)
Income (loss) before minority interest and
  extraordinary items                                 $  1,012      $(25,564)     $ 11,876      $(25,735)     $(11,546)
Minority interest                                            -             -        (1,081)       (2,116)       (1,497)
Extraordinary items                                          -             -          (330)            -             -
Net income (loss)                                     $  1,012      $(25,564)     $ 10,465      $(27,851)     $(13,043)
Earnings (loss) per common share:
  Basic:
    Before extraordinary items                            $.10        $(2.62)        $1.10        $(2.82)       $(1.32)
    Net income (loss)                                     $.10        $(2.62)        $1.07        $(2.82)       $(1.32)
  Diluted:
    Before extraordinary items                            $.10        $(2.62)        $1.11        $(2.82)       $(1.32)
    Net income (loss)                                     $.10        $(2.62)        $1.07        $(2.82)       $(1.32)
Weighted average number of common shares and share
  equivalents outstanding
  Basic                                               9,753,868    9,753,868     9,755,684     9,867,437     9,870,793
  Diluted                                             9,753,868    9,753,868     9,804,658     9,867,437     9,870,793
</TABLE>


                                       15
<PAGE>


<TABLE>
<CAPTION>
BALANCE SHEET DATA:                                                        FISCAL YEAR ENDED
(In Thousands, except share and per share amounts)     Nov. 4,      Nov. 2,       Nov. 1,       Nov. 7,       Nov. 6,
                                                        1995         1996          1997          1998          1999

<S>                                                   <C>           <C>           <C>          <C>           <C>

Working capital                                       $123,394      $ 98,762      $ 67,514     $ 61,133      $ 15,903
Total assets                                           239,525       191,553       188,703      177,075       172,267
Short-term debt, including current portion
 of capital lease obligations                            7,202         1,614        17,698       24,389        60,471
Long-term debt, including capital lease
 obligations                                            86,261        72,806        26,649       46,036        22,356
Stockholders' equity                                  $113,427      $ 80,878      $ 89,068     $ 59,471      $ 43,507
</TABLE>


Cash dividends have not been paid in any of the years presented.


                                       16
<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

The following  discussion  should be read in conjunction  with the  Consolidated
Financial Statements and Notes contained therein.

Results of Operations. The following table sets forth selected operating data as
a percentage of net sales for the periods indicated.

Fiscal Year                                    1997      1998      1999
-----------                                    ----      ----      ----

Net sales
  United States                                 59.0%     58.9%     60.3%
  Europe                                        41.0      41.1      39.7

  Consolidated                                 100.0     100.0     100.0

Gross margin
  United States                                  7.5      11.3       9.9
  Europe                                        41.8      42.3      41.6

  Consolidated                                  21.6      24.0      22.5

Licensing revenues                               1.0       1.1       1.2

Selling, general and administrative expenses    25.3      24.5      24.3

Restructuring and special charges                  -       9.5         -

Operating loss                                  (2.6)     (8.9)      (.6)

Gain on sale of subsidiary stock                12.4         -         -

Other expense, net                                 -       (.4)        -

Interest and finance costs                      (1.7)     (1.9)     (2.9)

Income (loss) before benefit (provision) for
 income taxes, minority interest and
 extraordinary item                              8.1     (11.2)     (3.5)

Benefit (provision) for income taxes            (3.8)      1.1      (1.3)

Minority interest                                (.4)      (.8)      (.6)

Extraordinary item                               (.1)        -         -

Net income (loss)                                3.8%    (10.9)%    (5.4%)


FISCAL YEAR ENDED NOVEMBER 6, 1999 ("FISCAL 1999") COMPARED TO FISCAL YEAR ENDED
NOVEMBER 7, 1998 ("FISCAL 1998")

NET SALES.  Net sales for fiscal 1999 decreased by $15.8 million,  or 6.3%, from
$253.8 million for fiscal 1998 to $238.0 million.  United States sales decreased
by $6.1  million,  or 4.1%,  to $143.4  million  primarily  due to a decrease in
branded sales which was partially  offset by an increase in private label sales.
As of November 6, 1999,  the Company had a total  backlog of confirmed  domestic
purchase orders of $54.8 million,  a decrease of 21.5% compared to $69.8 million
as of November 7, 1998. In fiscal 1999, European sales decreased by 14.6 million
deutsche  marks, or 7.9%, to 170.2 million  deutsche marks.  When converted into
U.S.  currency using the prevailing  currency  exchange rate, the European sales
translated into a decrease of $9.8 million, or 9.4%, to $94.6 million for fiscal
1999.  As of November 6, 1999,  the  Company  had a total  backlog of  confirmed

                                       17
<PAGE>

European  purchase  orders of 62.9 million  deutsche  marks, a decrease of 15.4%
compared to 74.4 million  deutsche  marks as of November 7, 1998.  The confirmed
European  backlog,  when  converted  into U.S.  currency at the then  prevailing
currency exchange rate, was $33.3 million, a decrease of 26.4% compared to $45.4
million on November 7, 1998.

     The   Company's   backlog   consists  of  confirmed   purchase   contracts.
Substantially  all of the unfilled  orders are expected to be shipped  within 12
months. The Company believes that in the past it has shipped at least 95% of its
confirmed  purchase  contracts.   The  Company  has  not  generally  experienced
difficulty in filling orders on a timely basis.

GROSS PROFIT.  Gross profit for fiscal 1999  decreased  $7.5 million,  or 12.0%,
from $61.1 million in fiscal 1998 to $53.6 million, while gross margin decreased
from 24.1% to 22.5%.  United  States  gross profit  decreased  $2.7 million from
$16.9 million for fiscal 1998 to $14.2 million. The decrease in gross profit and
as a  percentage  of net sales in the  United  States was  primarily  due to the
decrease in branded  sales,  the  increase  in private  label  business  and the
off-price sale of merchandise in an effort to improve cash flow.  European gross
profit  decreased  $4.8  million  from $44.2  million  for fiscal  1998 to $39.4
million,  while  gross  margin  decreased  from  42.3% in  fiscal  1998 to 41.6%
primarily due to a decrease in the average unit selling price.

LICENSING REVENUES. Licensing revenues increased $.1 million in fiscal 1999 from
$2.7 million in fiscal 1998 to $2.8 million primarily due to an increase of $1.0
million in European licensing revenues.

SG&A  EXPENSES.  Selling,  general and  administrative  expenses  decreased $4.3
million,  or 6.9%, to $57.9 million for fiscal 1999  primarily due to a decrease
in domestic  payroll and payroll  fringe  costs of $2.5  million,  a decrease in
costs related to the operation of the Company's outlet stores of $.6 million,  a
decrease  in  aviation  expenses  of $.4  million,  the  receipt  of a  workers'
compensation  refund of  approximately  $1.1  million,  a decrease  in  European
operating  expenses of $1.1 million,  and a credit of approximately $1.4 million
relating to excess accrued restructuring changes from the prior year, which were
partially  offset  by an  increase  in  domestic  advertising  expenses  of $2.8
million.

RESTRUCTURING  AND SPECIAL  CHARGES.  In fiscal 1998, the Company  announced its
intention to continue to close additional manufacturing facilities in the United
States. In connection therewith,  the Company recorded restructuring and special
charges of $24.1  million  consisting  of a  write-down  in the value of related
property and  equipment,  the  write-off of  operating  inefficiencies  incurred
during the shut-down  period and the accrual of estimated  costs of disposition.
The plant closings resulted in the termination of approximately 1,300 employees.

OPERATING  INCOME (LOSS).  The operating  loss for fiscal 1999  decreased  $21.1
million from $22.6 million in fiscal 1998 to $1.5 million,  primarily due to the
decrease in operating  expenses,  which was partially  offset by the decrease in
gross profit and the  restructuring  and special  charges  recorded in the prior
year.

INTEREST AND FINANCE COSTS. Interest and finance costs increased $2.1 million or
43.4%,  from $4.8 million for fiscal 1998 to $6.9  million for fiscal 1999.  The
increase in interest  cost was due to higher  outstanding  borrowings  at higher
effective interest rates for the period.

INCOME TAXES. The provision for income taxes for fiscal 1999 was $3.1 million as
compared to a benefit of $2.8 million for fiscal  1998.  The change is primarily
due to the  reduction in the deferred tax benefit  attributable  to the domestic
loss in fiscal  1999 by  approximately  $5.0  million  to the  extent its future
realization is uncertain.  The deferred tax benefit attributable to the domestic
loss in fiscal 1998 was reduced by approximately $6.0 million due to an increase
in valuation allowance.

FISCAL YEAR ENDED NOVEMBER 7, 1998 ("FISCAL 1998") COMPARED TO FISCAL YEAR ENDED
NOVEMBER 1, 1997 ("FISCAL 1997")

NET SALES.  Net sales for fiscal 1998 decreased by $21.0 million,  or 7.6%, from
$274.8 million for fiscal 1997
                                       18

<PAGE>

to $253.8 million.  United States sales decreased by $12.7 million,  or 7.8%, to
$149.5  million  primarily due to a decrease in unit sales volume and a decrease
in average  selling  price.  As of  November  7, 1998,  the  Company had a total
backlog of confirmed  domestic  purchase orders of $69.8 million,  a decrease of
26.1% compared to $94.4 million as of November 1, 1997. In fiscal 1998, European
sales  decreased  by 6.3  million  deutsche  marks,  or 3.3%,  to 184.8  million
deutsche marks. When converted into U.S. currency using the prevailing  currency
exchange rate, the European sales translated into a decrease of $8.3 million, or
7.3%, to $104.4 million for fiscal 1998. As of November 7, 1998, the Company had
a total backlog of confirmed  European  purchase orders of 74.4 million deutsche
marks,  an  increase  of 5.7%  compared  to 70.4  million  deutsche  marks as of
November 1, 1997.  The confirmed  European  backlog,  when  converted  into U.S.
currency at the then prevailing  currency  exchange rate, was $45.4 million,  an
increase of 11.3% compared to $40.8 million on November 1, 1997.

     The   Company's   backlog   consists  of  confirmed   purchase   contracts.
Substantially  all of the unfilled  orders are expected to be shipped  within 12
months. The Company believes that in the past it has shipped at least 95% of its
confirmed  purchase  contracts.   The  Company  has  not  generally  experienced
difficulty in filling orders on a timely basis.

GROSS PROFIT. Gross profit for fiscal 1998 increased $1.7 million, or 2.9%, from
$59.4 million in fiscal 1997 to $61.1 million, while gross margin increased from
21.6% to 24.1%.  United  States gross profit  increased  $4.7 million from $12.2
million for fiscal 1997 to $16.9 million.  The increase in gross profit and as a
percentage  of net sales in the United  States was primarily due to the increase
in production at the Company's lower cost Mexican production facility.  European
gross profit  decreased $2.9 million from $47.1 million for fiscal 1997 to $44.3
million,  while  gross  margin  increased  from  41.8% in  fiscal  1997 to 42.3%
primarily due to product mix.

LICENSING REVENUES.  Licensing revenues remained relatively flat for fiscal 1998
from $2.8 million in fiscal 1997 to $2.7 million.

SG&A  EXPENSES.  Selling,  general and  administrative  expenses  decreased $7.2
million, or 10.4%, to $62.2 million for fiscal 1998 primarily due to the special
advertising charge recorded in the prior year period.

RESTRUCTURING  AND SPECIAL  CHARGES.  In fiscal 1998, the Company  announced its
intention to continue to close additional manufacturing facilities in the United
States. In connection therewith,  the Company recorded restructuring and special
charges of $24.1  million  consisting  of a  write-down  in the value of related
property   and   equipment   ($15.1   million),   the   write-off  of  operating
inefficiencies  incurred  during the  shut-down  period  ($5.4  million) and the
accrual  of  estimated  costs of  disposition  ($3.6  million).  Fair  value for
property was determined primarily by appraisals.  The plant closings resulted in
the termination of approximately  1,300 employees.  In addition,  the downsizing
associated  with such plant closings may affect the  accounting,  disclosure and
funding of the Company's pension benefit obligation.

OPERATING  INCOME (LOSS).  The operating  loss for fiscal 1998  increased  $15.3
million from an $7.2 million in fiscal 1997 to $22.5  million,  primarily due to
the  restructuring  and  special  charges,  which were  partially  offset by the
increase in gross profit and the decrease in operating expenses.

GAIN ON SALE OF SUBSIDIARY STOCK. In fiscal 1997, the Company recorded a gain on
the sale of  approximately  47.5% of its wholly  owned  European  subsidiary  of
approximately $34.1 million. Proceeds of the sale were used in May 1997 to repay
domestic borrowings.

INTEREST AND FINANCE COSTS.  Interest and finance costs increased $.2 million or
5.3%,  from $4.6 million for fiscal 1997 to $4.8  million for fiscal  1998.  The
increase  in  interest  cost was due to higher  outstanding  borrowings  for the
period.

INCOME  TAXES.  The benefit for income taxes for fiscal 1998 was $2.8 million as
compared  to a  provision  of $10.4  million  for  fiscal  1997.  The  change is
primarily  due to the  Company's  fiscal  1998 loss.  The  deferred  tax

                                       19
<PAGE>


benefit  attributable  to the  domestic  loss in  fiscal  1998  was  reduced  by
approximately $6.0 million to the extent its future realization is uncertain.

EXTRAORDINARY ITEM. In fiscal 1997, the Company recorded an extraordinary charge
of $.3 million attributable to the early extinguishment of $43 million of senior
notes payable.


SEASONALITY OF  BUSINESS--QUARTERLY  RESULTS.  The Company experiences  seasonal
increases  and  decreases  in its working  capital  requirements.  This  pattern
results  primarily  from the demand for the Company's  apparel  products and the
level of sales,  which  fluctuate  moderately  during the course of the calendar
year as a result of seasonal  buying trends.

The following table summarizes the unaudited net sales, gross profit,  operating
income  (loss)  and net income  (loss) of the  Company  for each of the  interim
financial reporting periods in the last two fiscal years.

<TABLE>
<CAPTION>

(In Thousands)                                     First     Second    Third     Fourth
                                                  Quarter    Quarter   Quarter   Quarter
--------------                                    -------    -------   -------   -------

<S>                                               <C>        <C>       <C>       <C>
Fiscal Year Ended November 7, 1998
  Net sales                                       $ 64,245   $68,828   $59,896   $60,873
  Gross profit                                      16,565    14,779    14,141    15,593
  Operating income (loss)                            5,255   (25,922)      148    (2,058)
  Net income (loss)                                  1,516   (23,203)   (1,371)   (4,793)
  Per common share:
   Net income (loss)                                  $.15    $(2.34)    $(.14)    $(.49)

Fiscal Year Ended November 9, 1999
  Net sales                                       $ 51,228   $70,011   $52,298   $64,446
  Gross profit                                      14,371    14,601    11,615    13,036
  Operating income (loss)                            1,467    (1,889)      993    (2,065)
  Net income (loss)                                 (1,887)   (4,313)   (1,867)   (4,975)
  Per common share:
   Net income (loss)                                 $(.19)    $(.44)    $(.19)    $(.50)
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES.  The Company's  principal capital  requirements
have been to fund working  capital needs and capital  expenditures.  The Company
has historically  relied primarily on internally  generated funds, trade credit,
bank borrowings and other debt offerings to finance these needs.

In fiscal 1999, net cash of $.7 million was used in  operations,  as compared to
$20.8  million in fiscal 1998.  The net cash used in  operations  was  primarily
attributable to the net loss for the period, the increase in accounts receivable
and the  decrease  in accrued  liabilities,  which was  partially  offset by the
decrease in inventories and the increase in accounts payable.

Net cash of $7.3 million was used in  investing  activities  in fiscal 1999,  as
compared to $6.7 million in fiscal 1998.  Cash used in investing  activities was
primarily  attributable  to the  acquisition  of  manufacturing  facilities  and
equipment in Mexico and by the purchase of property  and  equipment  from Sierra
Pacific. The Company continued to expand its manufacturing  facilities in Mexico
by developing a laundry operation which commenced  operations in August 1999. In
the second quarter of fiscal 1998, the Company  announced its intention to close

                                       20
<PAGE>

additional  domestic  manufacturing  facilities.  In connection  therewith,  the
Company recorded  restructuring and special charges in fiscal 1998 which include
a valuation  adjustment of the related property and equipment,  the write-off of
manufacturing  inefficiencies  and accrued  estimated costs of  disposition.  In
addition,  the  downsizing  associated  with such plant  closings may affect the
accounting, disclosure and funding of the Company's pension benefit obligation.

Net cash  provided by financing  activities  was $9.4 million in fiscal 1999, as
compared  to $22.7  million  in fiscal  1998.  The cash  provided  by  financing
activities  in  fiscal  1999  was  primarily  attributable  to the  increase  in
borrowings against the Company's credit facilities.  In fiscal 1998, the Company
used approximately $1.0 million to repurchase 160,000 shares of its common stock
on the open market. This repurchase  partially offsets the potentially  dilutive
effect of the stock options exercised. The cash provided by financing activities
in fiscal 1998 was primarily  attributable to the increase in borrowings against
the  Company's  credit  facilities  and  proceeds  from the sale of common stock
issued pursuant to the exercise of outstanding stock options.

As of November 6, 1999, the Company had a $60 million domestic credit agreements
providing a $40 million revolving line of credit and $20 million term loan, with
seasonal  increases in the revolving line of credit to $43,000,000 from February
through June and to $48,000,000 from July through  September of each year. As of
November 6, 1999,  $51.1  million was  outstanding  against the domestic  credit
agreement.  In addition,  the Company had $23.6 million of IRBs  outstanding  at
November 6, 1999.  The Company also has foreign  financing  agreements  with two
banks providing term loans aggregating 2.1 million deutsche marks (approximately
$1.1 million,  based on the November 6, 1999 foreign currency exchange rate) and
lines of credit  aggregating  42 million  deutsche  marks  (approximately  $22.3
million, based on the November 6, 1999 foreign currency exchange rate).

As of November 6, 1999,  approximately  $5.3 million was outstanding  borrowings
against the foreign lines of credit. As of November 6, 1999, the Company was not
in compliance with certain  covenants of its domestic credit agreement for which
waivers have not been  obtained.  Accordingly,  the Company has  classified  the
outstanding balance under the domestic credit agreement as current  liabilities.
The Company is pursuing  negotiations  to amend the existing  credit facility or
obtain alternative financing. In addition, the Company has engaged an investment
banker to assist in  structuring  a transaction  to sell selected  assets of the
Company.  There can be no assurance  that the Company will be  successful in its
efforts to modify or replace its domestic credit facility or sell certain of its
assets.  These matters raise  substantial  doubt about the Company's  ability to
continue as a going concern. The independent accountants' report on the audit of
the  Company's  1999  financial  statements  includes an  explanatory  paragraph
regarding  substantial  doubt about the Company's ability to continue as a going
concern.  The accompanying  financial  statements do not include any adjustments
relating to the  recoverability  and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

The Company is a holding company, and is dependent upon the receipt of dividends
or other payments from its subsidiaries. The Company expects that cash generated
from operations and the credit  agreements will provide the financial  resources
sufficient  to meet its  foreseeable  working  capital and  capital  expenditure
requirements,  assuming a waiver under the credit domestic  credit  agreement or
the  modification or replacement of the domestic  credit  agreement is obtained.
There can be no assurance  that the Company will be successful in its efforts to
modify or replace its domestic credit  facility.  There can also be no assurance
that the  Company  will not need to borrow  from  other  sources  during  future
periods. In addition,  the sale of certain assets could provide cash for working
capital and capital expenditure requirements. However, there can be no assurance
that the Company will sell any such assets.

In recent years, certain retail customers have experienced significant financial
difficulties.  The Company  attempts to minimize its credit risk associated with
these customers by closely monitoring its accounts receivable balances and their
ongoing financial performance and credit status.  Historically,  the Company has
not experienced material adverse effects from transactions with these customers.
However,  considering the customer concentration of the Company's net sales, any
material financial  difficulty  experienced by a

                                       21
<PAGE>

significant  customer  could have an adverse  effect on the Company's  financial
position or results of operations.

Y2K. The Company did not  experience  any Year 2000 (Y2K)  computer  programming
issues as a result of the turn of the century  that  significantly  impaired the
Company's  operations.  The Company  continues to assess the potential impact of
the Y2K computer processing issue on its management and information systems. The
Company believes that it has a prudent approach in place to address these issues
and monitor remedial action.  The approach  includes:  an assessment of internal
programs and  equipment;  communication  with major  customers  and vendors with
respect to the status of their systems; an evaluation of facility related issues
and the development of a contingency plan. This approach is designed to maintain
an uninterrupted supply of goods and services to/from the Company.

The Company has incorporated the Y2K programming  modifications  with an overall
upgrade in its  computer  programming  language.  All  programs  were  reviewed,
remediated  and  converted by the end of the third  quarter of fiscal 1999.  The
Company has expanded its program  testing to include an integrated  systems test
to provide an  additional  level of  assurance  on the  system.  The Company has
assessed all  hardware  components  and is not aware of any material  investment
required for its mainframe and critical hardware equipment to be Y2K compliant.

The Company is in a continuous process of communicating with its major customers
and suppliers.  This contact is designed to determine systems  compatibility and
compliance.  The Company has been assured by its major suppliers that there will
be no  disruption in the delivery of goods and  services.  The Company  believes
that  adequate  resources  are available for the supply of its raw materials and
facility related equipment will continue to be operational.

The  Company  has  relied  entirely  on  internal  programming  and  operational
resources for review and remediation of Y2K issues.  Accordingly, no incremental
costs have been expended for such activities.

The failure to correct a material Y2K problem could result in an interruption in
normal business activity. The Company's plan is expected to significantly reduce
the risk associated with the Y2K issue. However, due to the inherent uncertainty
of the Y2K issue and dependence on third-party  compliance,  no assurance can be
given that  potential  Y2K  failures  will not  adversely  effect the  Company's
operations, liquidity and financial position.

RECENT  ACCOUNTING  STANDARDS.  In February  1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement  Benefits" (SFAS
132),   which   revises   employers'   disclosures   about   pension  and  other
postretirement benefit plans. SFAS 132 is effective for financial statements for
periods beginning after December 15, 1997, and requires comparative  information
for earlier  years to be  restated.  The adoption of SFAS No. 132 in fiscal 1999
did not have a material impact on the Company's financial statement disclosures.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  companies to recognize all derivative  contracts at their fair values,
as either assets or liabilities on the balance sheet. If certain  conditions are
met, a derivative may be  specifically  designated as a hedge,  the objective of
which  is to  match  the  timing  of  gain or loss  recognition  on the  hedging
derivative  with the  recognition  of (1) the  changes  in the fair value of the
hedged asset or liability that are  attributable  to the hedged risk, or (2) the
earnings  effect of the hedged  forecasted  transaction.  For a  derivative  not
designated as a hedging instrument,  the gain or loss is recognized in income in
the  period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  of
fiscal years beginning after June 15, 2000.

Historically,  the Company has not entered into derivative  contracts  either to
hedge existing risks or for speculative purposes.  Accordingly, the Company does
not expect adoption of the new standard to affect its

                                       22
<PAGE>

financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's  primary market risks include  fluctuations in interest rates, and
exchange rate variability.  A significant  portion of the Company's debt relates
to a revolver and term loan. As of November 6, 1999 the  outstanding  balance of
the revolver was $32 million.  Interest on the outstanding balance is charged at
either  the prime  rate,  plus .75% or the  Eurodollar  rate,  plus 3.25% at the
Company's  option.  As of November 6, 1999 the  outstanding  balance of the term
loan was $19  million.  Interest  on the  outstanding  balance  is  charged  the
Eurodollar  rate, plus 3.5%.  Thus, the Company is subject to market risk in the
form of fluctuations in interest rates. The company does not trade in derivative
financial instruments.

The Company also conducts  operations in various  foreign  countries,  including
Mexico,  Canada,  Germany,  Austria,  Switzerland,  Czech Republic,  Poland, and
Slovakia.  For  the  year  ended  November  6,  1999,  approximately  40% of the
Company's  revenues  were  earned  outside of the U.S.  and  collected  in local
currency.  In addition,  operating expenses are paid in the corresponding  local
currency and is subject to increased risk for exchange rate fluctuations between
such local  currencies and the dollar.  The Company does not conduct any hedging
activities.


                                       23
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           Report of Independent Certified Public Accountants

            Consolidated Balance Sheets at November 7, 1998 and November 6, 1999

            Consolidated  Statements of Operations For the Years Ended
            November 1, 1997, November 7, 1998, and November 6, 1999

            Consolidated Statement of Stockholders' Equity For the Years Ended
            November 1, 1997, November 7, 1998, and November 6, 1999

            Consolidated  Statement  of Cash Flows for the Years Ended
            November 1, 1997, November 7, 1998, and November 6, 1999

            Notes to Consolidated Financial Statements

                                       24
<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CHIC BY H.I.S, INC.

We have audited the accompanying  consolidated  balance sheets of Chic by H.I.S,
Inc.  and  subsidiaries  as of  November 7, 1998 and  November 6, 1999,  and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the three years in the period  ended  November 6, 1999.  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 financial position of Chic by H.I.S, Inc.
and subsidiaries as of November 7, 1998 and November 6, 1999, and the results of
their  operations and their cash flows for each of the three years in the period
ended  November  6, 1999,  in  conformity  with  generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company continues to experience losses from operations
and  is in  default  of  its  domestic  credit  facility.  These  matters  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's plans in regards to these matters are also described in Note 2. The
accompanying financial statements do not include any adjustments relating to the
recoverability  and  classification of recorded asset amounts or the amounts and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going concern.

/s/ BDO Seidman, LLP

BDO Seidman, LLP
New York, New York
January 12, 2000


                                       25
<PAGE>

CONSOLIDATED BALANCE SHEETS
CHIC BY H.I.S, INC. AND SUBSIDIARIES

(IN THOUSANDS, EXCEPT SHARE DATA)           Nov. 7, 1998          Nov. 6, 1999
Assets (Note 5)
 Current:
  Cash and cash equivalents                       $ 3,623              $ 2,079
  Accounts receivable - net of allowance of
     $237 and $216 for doubtful accounts (Notell)  27,242               35,115
  Inventories (Note 3)                             74,167               58,488
  Deferred income taxes (Note 8)                    3,549                3,592
  Prepaid expenses and other current assets         2,974                3,199
        Total Current Assets                      111,555              102,473
  Property, Plant and Equipment,
          net (Notes 4, 5, 6 and 13)               58,680               62,694
  Deferred Income Taxes (Note 8)                    4,557                4,557
  Other Assets                                      2,283                2,543
                                                 $177,075             $172,267
Liabilities and Stockholders' Equity
 Current:
  Revolving bank loan (Note 5)                   $ 21,381             $ 31,982
  Foreign bank debt (Note 5)                            -                5,337
  Current maturities of long-term debt (Note 5)     2,395               22,488
  Obligations under capital leases (Note 6)           613                  664
  Accounts payable                                 12,466               18,066
  Accrued liabilities:
       Payroll, payroll taxes and commissions       5,759                4,418
       Income taxes                                 1,874                  668
       Restructuring and special charges (Note 13)  2,383                    -
       Other                                        3,551                2,947
             Total current liabilities             50,422               86,570
 Non-current:
  Long-term debt (Note 5)                          44,850               21,310
  Pension liability (Note 7)                       11,982               13,298
  Obligations under capital leases (Note 6)         1,186                1,046
             Total non-current liabilities         58,018               35,654
Minority interest                                   9,164                6,536
Commitments (Notes 5, 6, 7, 9, 12 and 13)
Stockholders' Equity (Notes 7 and 10):
  Preferred stock, $.01 par value - shares
    authorized 10,000,000; none issued                -                    -
  Common stock, $.01 par value -
     25,000,000 shares authorized; 9,870,793
     issued and outstanding                            98                   98
  Paid-in capital                                 106,275              106,304
  Retained deficit                                (34,249)             (47,292)
  Cumulative foreign currency
     translation adjustment                          (671)              (2,305)
  Excess of additional pension liability
     over intangible pension asset                (11,982)             (13,298)

                                                    59,471               43,507
                                                  $177,075             $172,267

See accompanying notes to consolidated financial statements.

                                       26

<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
CHIC BY H.I.S, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                   YEAR ENDED

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)                Nov. 1, 1997      Nov. 7, 1998      Nov. 6, 1999
<S>                                                                 <C>               <C>               <C>
Net sales (Note 11)                                                 $ 274,788         $ 253,842         $ 237,983
Cost of goods sold                                                    215,429           192,764           184,360
     Gross profit                                                      59,359            61,078            53,623
Licensing revenues (Note 12)                                            2,842             2,706             2,810
                                                                       62,201            63,784            56,433
Selling, general and administrative expenses                           69,434            62,236            57,928
Restructuring and special charges (Note 13)                                -             24,125                 -

     Operating loss                                                    (7,233)          (22,597)           (1,495)
Gain on sale of subsidiary stock (Note 14)                             34,079                 -                 -
Other expense, net                                                         -            (1,104)                 -
Interest and finance costs                                            (4,576)           (4,816)            (6,908)

     Income (loss) before benefit (provision) for income
       taxes, minority interest and extraordinary item                22,270            (28,497)           (8,408)
Benefit (provision) for income taxes (Note 8)                        (10,394)             2,762            (3,143)

     Income (loss) before minority interest and
       extraordinary item                                             11,876           (25,735)           (11,546)
Minority interest                                                     (1,081)           (2,116)            (1,497)

     Income (loss) before extraordinary item                          10,795           (27,851)           (13,043)
Extraordinary loss from extinguishment of debt                          (330)                -                  -

     Net income (loss)                                              $ 10,465          $(27,851)          $(13,043)

Earnings (loss) per common share:
     Basic:
        Income (loss) before extraordinary item                        $ 1.11          $ (2.82)           $ (1.32)
        Net income (loss)                                              $ 1.07          $ (2.82)           $ (1.32)

     Diluted:
        Income (loss) before extraordinary item                        $ 1.10          $ (2.82)           $ (1.32)
        Net income (loss)                                              $ 1.07          $ (2.82)           $ (1.32)


Weighted average number of common shares and share equivalents
 outstanding
     Basic                                                          9,755,684         9,867,437          9,870,793
     Diluted                                                        9,804,658         9,867,437          9,870,793

</TABLE>

See accompanying notes to consolidated financial statements.


                                       27
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 7, 1998 AND NOVEMBER 6, 1999
CHIC BY H.I.S, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>


                                                                                                Excess of
                                                                                                additional
                                                                                                   pension
                                                                                                  liability
                                                                                      Foreign       over
                                                                      Retained        currency    intangible
                                                 Common     Paid-in   earnings       translation   pension
(In Thousands)                         Total     stock     capital   (deficit)      adjustment     asset
-------------------------------------------------------------------------------------------------------

<S>                                    <C>         <C>      <C>       <C>              <C>        <C>
Balance, November 2, 1996               $80,878     $98     $105,526  $(16,764)        $1,645     $(9,627)

Comprehensive income (loss):
  Net income                             10,465       -            -    10,465              -           -
  Foreign currency translation
    adjustment                           (1,313)      -            -         -         (1,313)          -
  Adjustment of excess of additonal
    pension liability over intangible
    pension asset (Note 7)               (1,027)      -            -         -              -      (1,027)

Total comprehensive income (loss)         8,125       0            0    10,465         (1,313)     (1,027)
Stock options exercised (Note 10)            65       1           64         -              -           -
Balance, November 1, 1997                89,068      99      105,590    (6,299)           322     (10,654)
Comprehensive income (loss):
  Net loss                              (27,851)      -            -   (27,851)             -           -
  Foreign currency translation
    adjustment                           (1,003)      -            -         -         (1,003)          -
  Adjustment of excess of additional
    pension liability over intangible
    pension asset (Note 7)               (1,328)      -            -         -              -      (1,328)
Total comprehensive loss                (30,182)      0            0   (27,851)        (1,003)     (1,328)
Stock repurchase                           (987)     (2)        (985)        -              -           -
Stock options exercised (Note 10)         1,553       1        1,552
Short-swing Section 16(b) profits           118       -          118         -              -           -
Dividends paid (Note 10)                    (99)      -            -       (99)             -           -
Balance, November 7, 1998                59,471      98      106,275   (34,249)          (671)    (11,982)
Comprehensive income (loss):
  Net loss                              (13,043)      -            -   (13,043)             -           -
  Foreign currency translation
    adjustment                           (1,634)      -            -         -         (1,634)          -
  Adjustment of excess of additional
    pension liability over intangible
    pension asset (Note 7)               (1,316)      -            -         -              -      (1,316)
Total comprehensive loss                (15,993)      0            0   (13,043)        (1,634)     (1,316)
Short-swing Section 16(b) profits            29       -           29         -              -           -
Balance, November 6, 1999               $43,507     $98     $106,304  $(47,292)       $(2,305)   $(13,298)
</TABLE>

See accompanying notes to consolidated financial statements.

                                       28
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
CHIC BY H.I.S, INC. AND SUBSIDIARIES
<TABLE>

                                                                                YEAR ENDED

(IN THOUSANDS)                                                    Nov. 1, 1997     Nov. 7, 1998    Nov. 6, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
          <S>                                                         <C>           <C>              <C>
Net income (loss)                                                     $ 10,465      $ (27,851)       $ (13,043)
Adjustments to reconcile net income (loss) to net cash used in
  operating activities:
     Gain on sale of subsidiary stock                                  (34,079)             -                -
     Gain on sale of property and equipment                                 -          (1,912)               -
     Minority interest                                                  1,081           2,116            1,497
     Non-cash restructuring and special charges                             -          13,680                -
     Depreciation and amortization                                      4,533           4,340            3,546
     Provision for doubtful accounts                                       65              47               21
     Deferred income taxes                                              4,703          (7,799)             (43)
Decrease (increase) in:
     Accounts receivable                                                  318           5,637           (7,894)
     Inventories                                                      (13,008)         (2,799)          15,679
     Prepaid expenses and other current assets                         (2,095)            586             (225)
     Other assets                                                      (1,324)            153             (260)
Increase (decrease) in:
     Accounts payable                                                   5,407          (4,566)           5,600
     Accrued liabilities                                                2,061          (2,457)          (5,533)
          Total adjustments                                           (32,338)          7,026           12,388
          Net cash used in operating activities                       (21,873)        (20,825)            (655)
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property, plant and equipment                             (8,608)         (9,871)          (7,251)
 Proceeds from the sale of fixed assets                                     -           3,188                -
           Net cash used in investing activities                       (8,608)         (6,683)          (7,251)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of subsidiary stock                                 43,054               -                -
Increase (decrease) in loans under revolving line of credit            15,000           6,381           10,601
Increase in foreign bank debt                                               -              -             5,337
Repayment of long-term debt                                           (43,838)             -            (3,206)
Increase (decrease) in long-term debt                                       -          19,161                -
Proceeds from the issuance of common stock                                 65           1,553                -
Stock repurchase                                                            -            (987)               -
Purchase of subsidiary stock                                                -             (89)          (1,349)
Dividends paid to minority shareholders                                     -          (2,310)          (1,955)
Dividends paid - shareholder rights redemption                              -             (99)               -
Short-swing profits                                                         -             118               29
Principal payments under capitalized lease obligations                   (865)           (871)             (90)
Retirement under capitalized lease obligations                              -            (175)               -
          Net cash provided by financing activities                    13,416          22,682            9,367
          Increase (decrease) in cash and cash equivalents            (17,065)         (4,826)           1,461
Effect of exchange rates on cash                                       (2,718)           1054           (3,004)
CASH AND CASH EQUIVALENTS, beginning of period                         27,178           7,395            3,623
CASH AND CASH EQUIVALENTS, end of period                               $7,395          $3,623           $2,080
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the year for:
          Interest                                                    $ 4,549         $ 4,826          $ 6,774
          Taxes                                                         3,239           7,688            4,175
NON-CASH INVESTING AND FINANCING ACTIVITIES:
     Capital leases entered into during the year                            -           1,483                -

</TABLE>

See accompanying notes to consolidated financial statements.

                                       29
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHIC BY H.I.S, INC. AND SUBSIDIARIES

1. SUMMARY OF ACOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION.  The consolidated  financial statements include
the  accounts  of  Chic by  H.I.S,  Inc.  and  its  wholly  and  majority  owned
subsidiaries  (the "Company").  All intercompany  accounts and transactions have
been eliminated in consolidation.

As described in Note 14, the Company  sold  approximately  47.5% of the stock of
its   previously   wholly-owned   German   subsidiary,   h.i.s.   sportswear  AG
("Sportswear")   in  April   1997.   Minority   interest   represents   minority
shareholders' proportionate share of the income and equity of Sportswear.

(B) BUSINESS.  The Company  designs,  manufactures  and  distributes  moderately
priced jeans,  casual pants and shorts. The Company is headquartered in New York
City,   with   manufacturing   facilities   located  in  Tennessee  and  Mexico.
Domestically,  the Company  markets its jeans and casual pants primarily to mass
merchandisers and to department stores and specialty stores under the "Chic" and
"H.I.S" brand names. Its foreign  operations are conducted by Sportswear,  which
markets the  Company's  branded  products in Europe.  In  addition,  the Company
derives  licensing  income from the use  primarily  of its "Chic"  trademark  by
manufacturers of various products that the Company does not produce.

(C) REPORTING PERIODS. For financial reporting purposes,  the Company reports on
a 52- to 53-week year ending on the first Saturday subsequent to October 31. The
fiscal  years ended  November 1, 1997 and  November  6, 1999 each  contained  52
weeks. The fiscal year ended November 7, 1998 contained 53 weeks.

(D) FOREIGN  CURRENCY  TRANSLATION.  The  financial  statements of the Company's
foreign  subsidiaries  are  translated  into U.S.  dollars  in  accordance  with
Statement of Financial  Accounting  Standards  (SFAS) No. 52, "Foreign  Currency
Translation." Balance sheet accounts are translated at the current exchange rate
and income  statement items are translated at the average  exchange rate for the
period.  Gains and losses  resulting from the  translation  are accumulated in a
separate component of stockholders' equity.

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

(F) DEPRECIATION.  Depreciation of property,  plant and equipment is computed by
the  straight-line  method  over the  estimated  useful  life of the  respective
assets.

(G) LEASED  PROPERTY  UNDER CAPITAL  LEASES.  Property  under capital  leases is
amortized  over the lives of the  respective  leases or the useful  lives of the
assets.

(H) ADVERTISING COSTS.  Direct costs incurred in producing media advertising are
expensed the first time the  advertising  takes place or services are  rendered.
Promotional or advertising  costs  associated with customer support programs are
accrued when the related revenues are recognized.

(I)  INCOME  TAXES.  Income  taxes are  calculated  using the  liability  method
specified  by SFAS No. 109  "Accounting  for Income  Taxes." SFAS 109 requires a
company to recognize deferred tax liabilities and assets for the expected future
tax  consequences of events that have been  recognized in a company's  financial
statements  or tax returns.  Under this method,  deferred  tax  liabilities  and
assets are determined  based on the difference  between the financial  statement
carrying amounts and tax basis of assets and liabilities using enacted tax rates
in effect  in the  years in which  the  differences  are  expected  to  reverse.
Deferred  tax  assets  are  reduced  by a  valuation  allowance  to  the  extent
realization is uncertain.

                                       30

<PAGE>

(J) EARNINGS  (LOSS) PER COMMON SHARE.  Basic earnings (loss) per share includes
no dilution and is computed by dividing income available to common  shareholders
by the weighted  average  number of common  shares  outstanding  for the period.
Diluted  earnings per share  reflects the  potential  dilution  from the assumed
exercise of stock options. Diluted earnings per share has not been presented for
1998  and  1999  as  the  effects  of  stock  options  would  be   antidilutive.
Accordingly,  basic and dilutive  earnings per share did not differ for 1998 and
1999.

(K) REVENUE  RECOGNITION.  Sales are recognized upon shipment of products or, in
the case of licensing revenues, when products using the Company's brand name are
sold by licensees or minimum guaranteed royalties are due.

(L) STATEMENTS OF CASH FLOWS.  For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments  purchased with an original
maturity of three months or less to be cash equivalents.

(M) STOCK  OPTIONS.  The Company  accounts for stock options in accordance  with
SFAS No. 123 "Accounting for Stock Based Compensation," which allows a choice of
either the  intrinsic  value method or the fair value method of  accounting  for
employee  stock  options.  The Company has elected to use the current  intrinsic
value method.

(N)  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.

(O)  LONG-LIVED  ASSETS.  The  Company  reviews  certain  long-lived  assets and
identifiable   intangibles   for  impairment   whenever  events  or  changes  in
circumstances indicate that the carrying amount may not be recoverable.  In that
regard,  the Company  assesses  the  recoverability  of such  assets  based upon
estimated non-discounted cash flow forecasts. (See Note 13).

(P) SEGMENT  INFORMATION.  The Company adopted SFAS No. 131,  "Disclosures about
Segments  of an  Enterprise  and  Related  Information"  for  fiscal  1999.  The
statement  requires  disclosure  of  certain  financial  information  related to
operating  segments.  The  Company  has  determined  that  it  operates  in  one
reportable segment.

(Q) FAIR  VALUE OF  FINANCIAL  INSTRUMENTS.  The  carrying  values of  financial
instruments  including  cash  and  cash  equivalents,  accounts  receivable  and
accounts  payable  approximate fair value due to the relatively short maturities
of these instruments. The carrying value of long-term debt approximates the fair
value for similar debt issues  based on quoted  market  prices or current  rates
offered to the Company for debt of the same maturities.

(R) PRESENTATION OF PRIOR YEAR DATA. Certain reclassifications have been made to
prior-year data to conform with the current-year presentation.

(S) RECENT ACCOUNTING STANDARDS. In February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement  Benefits" (SFAS
132),   which   revises   employers'   disclosures   about   pension  and  other
postretirement benefit plans. SFAS 132 is effective for financial statements for
periods beginning after December 15, 1997, and requires comparative  information
for earlier  years to be  restated.  The adoption of SFAS No. 132 in fiscal 1999
did not have a material impact on the

                                       31

<PAGE>


Company's financial statement disclosures.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  companies to recognize all derivative  contracts at their fair values,
as either assets or liabilities on the balance sheet. If certain  conditions are
met, a derivative may be  specifically  designated as a hedge,  the objective of
which  is to  match  the  timing  of  gain or loss  recognition  on the  hedging
derivative  with the  recognition  of (1) the  changes  in the fair value of the
hedged asset or liability that are  attributable  to the hedged risk, or (2) the
earnings  effect of the hedged  forecasted  transaction.  For a  derivative  not
designated as a hedging instrument,  the gain or loss is recognized in income in
the  period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  of
fiscal years beginning after June 15, 2000.

Historically,  the Company has not entered into derivative  contracts  either to
hedge existing risks or for speculative purposes.  Accordingly, the Company does
not expect adoption of the new standard to affect its financial statements.

2. FINANCIAL RESULTS AND LIQUIDITY

The  accompanying  financial  statements  have been  prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities  in the normal course of business.  The Company has incurred  losses
from operations for the last four years through  November 6, 1999  substantially
all related to the U.S.  operations.  Revenues have been  insufficient  to cover
costs of operations for the year ended  November 6, 1999,  primarily as a result
of  the  Company's  decrease  in  sales,  investment  in  Mexican  manufacturing
facilities and acquisitions.

As of November 6, 1999, the Company was not in compliance with certain covenants
of its domestic  credit  agreement  for which  waivers  have not been  obtained.
Accordingly,  the Company  has  classified  the  outstanding  balance  under the
domestic  credit  agreement  as current  liabilities.  The  Company is  pursuing
negotiations  to amend  the  existing  credit  facility  or  obtain  alternative
financing.  There can be no assurance that the Company will be successful in its
efforts to modify or replace its domestic credit facility.

The  Company is  planning  to take  steps  necessary  to enable  the  Company to
continue as a  going-concern.  This includes the Company's  restructuring  plan,
which  has  resulted  in the  move of the  majority  of the  U.S.  manufacturing
operations to Mexico. The Company now has three  manufacturing  facilities,  and
has  commenced  operations  of a laundry  facility  in Mexico  during the fourth
quarter of 1999.  The Company  believes the  manufacturing  cost savings  during
fiscal 2000 will be greatly increased due to the increase in goods  manufactured
in Mexico,  the decrease in the goods  manufactured  by  contractors  during the
transition to Mexico and the ability for Mexican plants to manufacture specialty
type goods which have been  manufactured  in the U.S.  in the past.  The Company
also expects to improve its market share in fiscal 2000 due to the  acquisitions
made during  fiscal 1999 (Note 15). The Company  expects to close its  remaining
outlet  stores in fiscal  2000 and to sell the  closeout  merchandise  in a more
efficient and cost-effective manner. There can be no assurances that the Company
will be successful in these efforts.

The  Company's  continuation  as a going  concern is dependent on its ability to
amend  or  replace  its  domestic  credit  agreement  and to  ultimately  attain
profitable operations and positive cash flows from operations.  The accompanying
financial  statements  do not include any  adjustments  that may result from the
Company's inability to continue as a going concern.

                                       32
<PAGE>


3. INVENTORIES

Inventories consist of the following:

      (IN THOUSANDS)                             NOV. 7, 1998      NOV. 6, 1999
    Raw materials                                    $9,159             $6,535
    Work-in-process                                  12,966             17,922
    Finished goods                                   52,042             34,031
                                                     -------          ---------
                                                     $74,167           $58,488
                                                     =======           =======


4. PROPERTY PLANT AND EQUIPMENT

Major classes of property, plant and equipment consist of the following:

                                                                 ESTIMATE USEFUL
      (IN THOUSANDS)                Nov. 7, 1998   Nov. 6, 1999      LIVES

   Land                                 $  567       $   514
   Buildings and improvements           36,285        43,507          30 years
   Machinery and equipment
     (including data processing
     and transportation
     equipment)                         27,755        26,309      3 - 12 years
   Construction in progress              2,432             -
                                        67,039        70,330
   Less: Accumulated depreciation       19,657        17,347
                                        47,382        52,983
   Equipment under capital leases       10,327        10,324           7 years
   Less: Accumulated amortization        6,917         7,352
                                         3,410         2,972
   Assets held for sale                  7,888         6,739
                                       $58,680       $62,694


5. LONG-TERM DEBT AND FOREIGN FINANCING AGREEMENTS

Long-term debt consists of the following:



(IN THOUSANDS)                                Nov. 7, 1998     Nov. 6, 1999
--------------                                ------------     ------------
Term Loan (a)                                     $ 20,000         $ 19,100
Industrial Development Revenue Bonds (b)(i)          3,000            2,650
Industrial Development Revenue Bonds (b)(ii)         7,200            6,450
Industrial Development Revenue Bonds (b)(iii)        5,000            5,000
Industrial Development Revenue Bonds (b)(iv)         9,455            9,455
Term loan - foreign (c)                              2,590            1,143
                                                  --------         --------
                                                    47,245           43,798
Less: Current portion                                2,395           22,488
                                                  --------         --------
                                                  $ 44,850         $ 21,310
                                                  ========         ========

                                       33

<PAGE>

(a) In October 1998, the Company  replaced its existing credit  agreement with a
$60 million facility.  The new credit agreement provides a $40 million revolving
credit  facility and a $20 million  term loan,  with  seasonal  increases in the
revolving  line of credit  to  $43,000,000  from  February  through  June and to
$48,000,000  from July  through  September of each year.  The credit  agreement,
which  expires in October  2001,  is secured  by among  other  things,  accounts
receivable,  finished  goods  inventory,  certain real  property and  intangible
assets and the stock of  Sportswear.  As of  November 6, 1999,  the  outstanding
balance of the revolver was $32.0  million,  which bears  interest at either the
prime rate,  plus .75%, or the  Eurodollar  rate,  plus 3.25%,  at the Company's
option (8.25% and 9.00% ,  respectively,  as of November 6, 1999). The term loan
bears interest at the Eurodollar rate, plus 3.5% (9.25% as of November 6, 1999).
The agreement contains various covenants including,  among others,  requirements
relating to the  maintenance  of certain  financial  ratios and  limitations  on
dividends and other restricted payments. As of November 6, 1999, the Company was
not in compliance with certain  covenants of its domestic  credit  agreement for
which waivers have not been  obtained.  Accordingly,  the Company has classified
the  outstanding   balance  under  the  domestic  credit  agreement  as  current
liabilities.  The Company is pursuing  negotiations to amend the existing credit
facility or obtain  alternative  financing.  There can be no assurance  that the
Company  will be  successful  in its efforts to modify or replace  its  domestic
credit facility.

(b)(i) In April 1995, the Company  refinanced an aggregate  principal balance of
$3 million through the issuance of Industrial  Development  Revenue Bonds by the
County of  Carroll,  Tennessee.  The funds were  initially  used to  construct a
manufacturing  facility. The bonds, which are guaranteed by the Company,  mature
April 1, 2005 and bear an average interest rate of 7.0%.

  (ii) In September  1993, the Company  borrowed $8.7 million in connection with
the issuance of Industrial  Development  Revenue Bonds by the County of Carroll,
Tennessee to construct an addition to the distribution  center. The bonds mature
on  September 1, 2003,  and bear  interest at 8% per annum.  Principal  payments
commenced on September 1, 1997. The bonds are collateralized by the related real
estate and are guaranteed by the Company.

 (iii) In September  1994, the Company  borrowed $5.0 million in connection with
the  issuance  of  Industrial  Building  Revenue  Bonds by the City of  Hickman,
Kentucky to (1)  acquire  land and  building  and (2)  renovate  and expand such
manufacturing  facility. The bonds are payable in annual installments commencing
on August 1, 2000.  The bonds, which are not collateralized, mature as follows:

                                  (IN THOUSANDS)    INTEREST RATE
                                  --------------    -------------

     August 1, 2000                    $  375            6.10%

     August 1, 2001                       395            6.20%

     August 1, 2002                       420            6.30%

     August 1, 2003                       445            6.40%

     August 1, 2004                       475            6.50%

     August 1, 2009                     2,890            6.95%



  (iv) On February 23, 1995, the Company borrowed approximately $9.45 million in
connection with the issuance of Industrial  Development  Revenue Bonds by Fulton
County,  Kentucky.  The proceeds were used to (i) acquire and improve a tract of
land in Fulton County, (ii) construct and equip a laundry facility on such land,
(iii) finance  capitalized  interest on the bonds during the construction period
and (iv) cover a portion of the costs of the  issuance  of the bonds.  Principal
payments  on the  bonds  are to be  made in  annual  installments  beginning  on
February  1, 2001 and  ending on  February  1, 2010.  The bonds on average  bear
interest at the rate of approximately 7.5% per annum and mature as follows:

                                       34
<PAGE>


                                             (IN THOUSANDS)    INTEREST RATE

        February 1, 2001                          $670             7.20%
        February 1, 2002                           720             7.20%
        February 1, 2003                           770             7.20%
        February 1, 2004                           830             7.60%
        February 1, 2005                           890             7.60%
        February 1, 2006                           960             7.60%
        February 1, 2007                         1,030             7.60%
        February 1, 2008                         1,110             7.50%
        February 1, 2009                         1,195             7.50%
        February 1, 2010                         1,280             7.50%


(c)      FOREIGN FINANCING AGREEMENTS

  (i) In fiscal 1996,  Sportswear  entered into financing  agreements with three
banks to provide term loans aggregating  4,600,000 deutsche marks (approximately
$2.8 million).  As of November 6, 1999, the remaining outstanding balance of the
term loans was 2,150,000  deutsche marks  (approximately  $1.1  million),  which
bears interest at an average rate of 6.0% and matures in fiscal 2000.

  (ii) Sportswear  has lines of credit with three banks to provide up to 42
million  deutsche marks  (approximately  $22.3  million) at prevailing  interest
rates.  The lines of credit  generally have no termination date but are reviewed
periodically  for  renewal at the option of the banks.  As of  November 6, 1999,
approximately $5.3 million was outstanding against the foreign lines of credit.

  (d) Long-term debt maturities are as follows:


        FISCAL YEAR ENDING                 (IN THOUSANDS)
        ------------------                 --------------

        2000                                   $ 22,488
        2001                                      2,960
        2002                                      3,290
        2003                                      2,940
        2004                                      1,305
        Thereafter                               10,815
                                               --------
                                               $ 43,798
                                               ========




6. CAPITALIZED LEASE OBLIGATIONS

The Company has entered into lease/purchase agreements for certain machinery and
equipment.  Future minimum lease payments under capital leases,  and the present
value of the net minimum lease payments as of November 6, 1999 are as follows:

                                       35

<PAGE>


   FISCAL YEAR ENDING                                  (IN THOUSANDS)
   ------------------                                  --------------

        2000                                                 815
        2001                                                 605
        2002                                                 418
        2003                                                 110
                                                           -----
                                                           1,948

       Less: Amount representing interest                    238

       Present value of net minimum lease
       payments
             Total                                         1,710
             Due within one year                             664
                                                          ------
             Due after one year                           $1,046
                                                          ======


7. PENSION PLAN

The Company has a non-contributory defined benefit pension plan for the eligible
employees of its domestic  subsidiary,  Henry I. Siegel Co., Inc. ("Siegel") who
have met certain  service  requirements.  The normal  retirement age is 65, with
early   retirement   optional  at  age  62,   provided  the  length  of  service
requirements, as defined in the plan, have been met.

Benefits  are based upon  length of service  and a  percentage  of  compensation
subject to limitation.  The Company's  funding  policy is to contribute  amounts
determined  annually on an  actuarial  basis that provide for current and future
benefits in accordance with funding requirements of Federal law and regulations.

The  following  table sets forth the change in the  benefit  obligation  and the
change in the Plan assets  during the years ended  November 7, 1998 and November
6, 1999 and the Plan's  estimated  funded  status and amounts  recognized in the
Company's balance sheet as of November 7, 1998 and November 6, 1999:


     (IN THOUSANDS)                                   NOV. 7, 1998  NOV. 6, 1999
        CHANGE IN BENEFIT OBLIGATION:
        Benefit obligation at beginning of year         $ (24,882)    $ (26,247)
        Interest cost                                      (2,053)       (2,099)
        Actuarial gain (loss)                                (451)          902
        Benefits paid                                       1,139         1,272
                                                        ---------     ---------
                                                          (26,247)      (26,172)



        CHANGE IN PLAN ASSETS:
     Fair value of plan assets at beginning of year        14,967        17,022
     Employer contribution                                  3,130         1,466
     Actual return on plan assets                              63        (1,272)
     Benefits paid                                         (1,138)       (1,274)

                                                           17,022        15,942

     Funded status                                         (9,225)      (10,230)
     Unrecognized net actuarial loss                       11,982        13,298
     Prepaid benefit cost                                   2,757         3,068
                                                           ======       =======

                                       36

<PAGE>

The components of the net periodic benefit cost are as follows:

<TABLE>
<CAPTION>

                                                                       Year ended
                                                                       ----------
        (IN THOUSANDS)                               NOV. 1, 1997      NOV. 7, 1998       NOV. 6, 1999
                                                     ------------      ------------       ------------
        <S>                                            <C>                <C>                <C>
        Interest on projected benefit
        obligation                                       1,905              2,052             2,100
        Expected return on plan assets                  (1,114)            (1,294)           (1,370)
        Amortization of prior service cost                  83                  -                 -
        Amortization of net obligation                     312                  -                 -
        Recognized actuarial loss                          317                355               425

        Net periodic benefit cost                       $1,503             $1,113            $1,155
                                                        ======             ======            ======
</TABLE>


Assumptions used in accounting for pension costs are as follows:

<TABLE>
<CAPTION>
                                                                     Year ended

                                                   NOV. 1, 1997      NOV.7, 1998       NOV.6, 1999
<S>                                                    <C>                <C>               <C>
        Discount rate                                  8.25%              8.00%             8.00%
        Expected long-term rate of return on
        on plan assets                                 8.25%              8.00%             8.00%

</TABLE>


As of October 31, 1996,  the mortality  assumption was changed from the 1951 GAM
table to the 1983 GAM table.  Since the life expectancy rates under the 1983 GAM
table are longer, the effect of the change was to increase the projected benefit
obligation.

Effective  January 1, 1997, the Company adopted a resolution to suspend the plan
whereby no individual  who was not a participant as of May 20, 1997 would become
a  participant  and no  additional  benefits  would accrue after such date.  The
curtailment resulted in the accelerated  amortization of the deferred transition
obligation and prior service costs of approximately $264,000,  which is included
in the net periodic pension expense for fiscal 1997.

Effective September 1, 1997, the Company adopted a tax-qualified 401(k) plan for
the eligible  employees of Siegel.  Participants  may contribute up to the legal
limitations,  with the Company  matching 10% of the  participant's  first $1,000
contribution.  The  expense  related  to the  401(k)  plan for the  years  ended
November  1,  1997,  November  7, 1998 and  November  6, 1999 was  approximately
$30,000, $89,000 and $45,000, respectively.

8. INCOME TAXES

The components of earnings (loss) before income taxes and the related  provision
for income taxes are presented below:

<TABLE>

                                                                             Year ended
                                                                             ----------

        (IN THOUSANDS)                                   NOV. 1, 1997      NOV. 7, 1998     NOV. 6, 1999
        --------------                                   ------------      ------------     ------------
<S>                                                      <C>             <C>              <C>
        Earnings (loss) before income taxes:
             United States                               $ 10,859        $ (37,458)       $ (14,563)
             Europe                                        11,411            8,961            6,160
                                                           22,270          (28,497)          (8,403)
</TABLE>

                                       37
<PAGE>

    Provision for income taxes:
       Current:
            U.S. Federal                   -                 -                -
            State and local              360               395              312
            Europe                     5,135             4,580            2,831
                                       -----             -----            -----
                                       5,495             4,975            3,143

       Deferred:
            U.S. Federal               4,899           (7,737)                -
                                       =====           ======             ======
                                     $10,394          $(2,762)           $3,143

The provision for income taxes differs from the provision that would be recorded
using the statutory U.S. Federal income tax rate due to the following: Year ened
November 6, 1999,  state and local income  taxes,  net of Federal tax benefit of
$.2 million,  foreign income taxes of $.7 million, change in valuation allowance
of $5.3 million and permanent differences and other items of $(.2) million; Year
ended  November  7, 1998,  state and local  income  taxes,  net of  federal  tax
benefit,  of $.2 million,  foreign  income taxes of $1.4 million,  change in the
valuation allowance of $6.0 million and permanent differences and other items of
$(.4) million; Year ended November 1, 1997, state and local income taxes, net of
federal tax benefit, of $.2 million, foreign income taxes of $1.1 million, taxes
on foreign dividend of $1.8 million and permanent differences and other items of
$(.5) million.  As of November 6, 1999, the Company had a net deferred tax asset
of approximately $8.1 million,  consisting primarily of tax credit carryforwards
of $2.2 million and net operating loss  carryforwards and restructuring  charges
of $5.9 million.  The Company  believes that its tax  strategies,  including the
sale of selected assets of the Company,  would result in gains that are expected
to be  sufficient  to enable  the  Company  to  realize  the  balance of the net
deferred tax asset.  As of November 7, 1998,  the Company had a net deferred tax
asset of $8.1 million,  consisting primarily of tax credit carryforwards of $2.2
million and net operating loss  carryforwards and restructuring  charges of $4.1
million,  and  property,  plant  and  equipment  of $1.8  million.  A  valuation
allowance of  approximately  $16.8 and $11.5 million has been recorded in fiscal
1999 and fiscal  1998,  respectively,  to reduce the  deferred  tax asset to the
extent its ultimate  utilization is uncertain.  The Company's net operating loss
carryforwards totaling $59.1 million at November 6, 1999 expire on various dates
from 2009 to 2014.

In addition,  the Company had a deferred tax asset attributable to an additional
pension  liability  charged to  stockholders'  equity of $4.6  million  and $4.6
million as of November 7, 1998 and November 6, 1999,  respectively,  for which a
full valuation  reserve has been provided due to the uncertainty of its ultimate
realization.

9. COMMITMENTS

(a)    LEASES

The minimum annual rental commitments under non-cancelable leases as of November
6, 1999 are as follows (In Thousands):

                                                               MACHINERY,
                                            REAL ESTATE        AUTOMOTIVE
FISCAL YEAR ENDING             TOTAL        AND BUILDINGS      EQUIPMENT, ETC.
------------------             -----        -------------      ---------------
2000                         $ 3,960            3,058                902
2001                           2,818            2,333                485
2002                           2,478            2,234                244
2003                           1,351            1,294                 57
2004                           1,199            1,194                  5
Thereafter                     6,298            6,297                  1
                            $ 18,104         $ 16,410            $ 1,694

                                       38

<PAGE>


     Rent  expense  for the years ended  November 1, 1997,  November 7, 1998 and
November 6, 1999 totaled $3,528,000, $4,414,000 and $4,580,000, respectively.

(b) CONSULTING AND EMPLOYMENT AGREEMENTS

The Company has an  employment  agreement  with one officer which has an initial
term that  expires  in 2001  which  provides  for annual  base  compensation  of
$332,800.  As disclosed in Note 15, in fiscal 1998,  the Company  negotiated the
settlement  of a  consulting  agreement  with a former  owner of the business of
Siegel,  which had an annual  commitment  of $500,000  and was  renewable at the
option of the former owner, for $500,000.

10. STOCKHOLDERS' EQUITY

(a) STOCK OPTIONS.

 In February  1993,  the  Company's  stock option plan (the "Plan") was adopted.
Under the Plan, options to purchase an aggregate of not more than 600,000 shares
of common  stock may be granted  from time to time to key  employees,  officers,
directors, and consultants of the Company or its affiliates.  Stock appreciation
rights related to options  ("related  SARs") and stock  appreciation  rights not
related to options  ("unrelated SARs") may also be granted to the aforementioned
groups.

The Plan is administered by the Stock Option Committee (the  "Committee")  under
the Plan.  The per share  exercise  price for stock options may not be less than
100% of the fair market  value of common stock on the date the option is granted
(110% of the fair market value on the date of grant for incentive  stock options
if the optionee is more than a 10%-owner of the Company). The exercise price for
unrelated SARs cannot be less than 100% of the common stock price on the date of
grant. For related SARs, the exercise price cannot be less than 100% of the fair
market value of common  stock on the date of grant of the  options.  Options and
SARs are immediately  exercisable and may be granted for a term to be determined
by the Committee of not more than ten years from the date of grant.

In January  1995,  the Board of Directors  adopted the Chic by H.I.S,  Inc. 1995
Stock Option Plan for Non-Employee Directors (the "Formula Plan"), which permits
the award of options to purchase an aggregate  of up to 80,000  shares of common
stock of the Company to certain non-employee directors. Awards under the Formula
Plan are made  pursuant to a formula that is set forth in the plan.  The Formula
Plan was approved by the  shareholders  in February 1995 and options to purchase
60,000 shares of common stock,  at an exercise  price of $9.875 per share,  have
been awarded to certain non-employee  directors.  The outstanding options became
fully exercisable July 1995--six months after the date they were granted.

On December 9, 1995,  the Stock Option  Committee  approved the  replacement  of
outstanding  options  under the Stock  Option  Plan  with new  options.  The new
options have substantially the same terms as the replaced options except for the
following:

  (i) The new options have an exercise price of $5.875 per share, reflecting the
fair market value of a share of Company common stock on December 9, 1995; and

  (ii) the new options expire five years from the date of grant, i.e.,  December
8, 2000.

In May 1998, the Company granted  300,000  options to two directors,  subject to
availability, with the remainder to be issued subject to shareholder approval of
an increase in the number of options  authorized  under the Stock  Option  Plan.
Such approval was granted in February  1999.  The options have an exercise

                                       39
<PAGE>

price of $9.0625 and vest in equal annual  installments over a three-year period
commencing November 1, 1999.

A summary of activity for the Company's stock option plans is presented below:


<TABLE>
<CAPTION>

                                                                  EXERCISE PRICE     WEIGHTED
                                                                    RANGE PER         AVERAGE
                                                  OPTION SHARES       SHARE            PRICE

<S>                                                     <C>        <C>                 <C>
Balance, November 2, 1996                                565,534        $4-5.875       $ 5.862
                                                         -------        --------       -------
Granted                                                   21,100           5.875         5.875
Exercised                                               (11,100)           5.875         5.875
Cancelled                                               (10,000)           5.875         5.875

Balance, November 1, 1997                                565,534        $4-5.875       $ 5.862
                                                         -------        --------       -------

Granted                                                  114,466           9.063         9.063
Exercised                                               (265,825)          5.875         5.875
Cancelled                                                 (6,150)          5.875         5.875
                                                         -------        --------       -------

Balance, November 7, 1998                                408,025       $4-9.063        $ 6.751
Granted                                                  205,534    2.625-9.063          8.437
Exercised                                                     --             --             --
Cancelled                                              (108,850)    2.625-5.875          5.726
                                                         -------        -------         -------

Balance, November 6, 1999                                504,709   $2.625-9.063        $ 7.659
                                                         =======    ===========        =======
</TABLE>



                                                   Year ended
                                  Nov. 1, 1997    Nov. 7, 1998      Nov. 6, 1999
                                  ------------    ------------      ------------

Exercisable                          565,534          293,559           304,709
Available for future grants          114,466            --              303,316

SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information  regarding net income and earnings per share as if
compensation  cost for the Company's  stock option plans had been  determined in
accordance  with the fair  value-based  method  prescribed  in SFAS No. 123. The
Company  estimates  the fair  value of each  option at the grant  date using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used for grants in the years ending  November 1, 1997,  November 7,
1998 and  November 6, 1999,  respectively:  no  dividends  paid,  for all years;
expected  volatility of 20%, 20% and 45.8%;  risk-free  interest rates of 5.56%,
6.14% and 5.43%;  and expected lives of five years.  The  weighted-average  fair
value of options  granted  in fiscal  1997,  1998 and 1999 was $1.87,  $2.14 and
$0.22 per option. As of November 6, 1999, the weighted-average  contractual life
of the options was 2.7 years.

Under the  accounting  provisions  of SFAS No. 123, the Company's net income and
earnings per share would have been reduced on a pro forma basis as follows:


                                                   Year ended
                                                   ----------

(IN THOUSANDS)                    Nov. 1, 1997   Nov. 7, 1998   Nov. 6, 1999
--------------                    ------------   ------------   ------------

Net income (loss):
     As reported                      $ 10,465     $ (27,851)    $ (13,043)
     Pro forma                          10,440       (27,902)      (13,087)
Earnings (loss) per share:
     As reported                         $1.07       $ (2.82)      $ (1.32)
     Pro forma                            1.07         (2.83)      $ (1.33)



                                       40

<PAGE>

(B)   STOCKHOLDER RIGHTS PLAN.

On February 28, 1997, the Board of Directors  adopted a Stockholder  Rights Plan
("Plan").  Under the Plan,  the Board  declared a dividend of one Right for each
outstanding  share of Common Stock of the Company to  stockholders  of record at
the close of  business  on March 17,  1997.  Each Right  entitled  the holder to
purchase  from the  Company one  one-hundredth  of a share of Series A Preferred
Stock, par value $1.00 per share, at a price of $30, subject to adjustment, with
a value of twice the exercise price. The Rights would become exercisable only in
the event that any person or group of affiliated or associated persons acquired,
or obtained  the right to acquire,  beneficial  ownership  of 20% or more of the
Company's outstanding shares, or commenced a tender or exchange offer, which, if
consummated,  would result in that person or group of affiliated  persons owning
at least 20% of the Company's outstanding shares.

The Rights were redeemed at a price of $.01 per Right for stockholders of record
at the close of business on April 9, 1998.

11. GEOGRAPHIC INFORMATION

The Company operates primarily in two reportable geographical areas.

Geographic information was:

<TABLE>

<CAPTION>
                                                   Year ended
                                                   ----------
(In Thousands)                          Nov. 1, 1997      Nov. 7, 1998    Nov. 6, 1999
--------------                          ------------      ------------    ------------

<S>                                     <C>              <C>              <C>
Net sales:
     United States                      $ 162,170        $ 149,486        $ 143,417
     Europe (primarily Germany)           112,618          104,356           94,566
                                        ---------        ---------        ---------
                                        $ 274,788        $ 253,842        $ 237,983

Income (loss) from operations:
     United States                      $ (19,227)       $ (31,913)       $  (8,161)
     Europe (primarily Germany)            11,994            9,336            6,666
                                        ---------        ---------        ---------
                                        $  (7,233)       $ (22,577)       $  (1,495)

Long-lived assets:
     United States                      $  66,336        $  53,117        $  50,233
     Mexico                                 4,098            7,846           14,984
                                        ---------        ---------        ---------
                                        $  70,434        $  60,963        $  65,237
                                        =========        =========        =========
</TABLE>


     Substantially  all of the Company's  sales are to retailers  throughout the
United States and Europe. Sales to one major customer  approximated 23.4%, 23.5%
and 16.4% of total sales for the years ended November 1, 1997,  November 7, 1998
and November 6, 1999,  respectively.  The  receivables  from the Company's major
customers at November 7, 1998 and November 6, 1999 represent approximately 13.0%
and 10.0%,  respectively,  of the total accounts receivable balance. The Company
reviews a customer's  credit history before  extending credit and obtains credit
insurance  on certain  account  balances.  An allowance  for possible  losses is
established  based  upon  factors   surrounding  the  credit  risk  of  specific
customers, historical trends and other information.

12. LICENSING REVENUES

The Company has entered into licensing  agreements  providing for the use of its
trademark,  "CHIC" for three- or five-year terms. The Company generally receives
royalty payments of 5% of net sales made by licensees,  with guaranteed  minimum
payments payable in quarterly installments. Remaining annual minimum amounts


                                       41

<PAGE>

are as follows:

        FISCAL YEAR ENDING               (IN THOUSANDS)
        ------------------               --------------

        2000                                  $ 920
        2001                                    723
        2002                                     91
                                             ------
                                             $1,734
                                             ======


13. RESTRUCTURING AND SPECIAL CHARGES

In second  quarter of fiscal  1998,  the  Company  announced  its  intention  to
continue to close additional  manufacturing  facilities in the United States. In
connection therewith,  the Company recorded restructuring and special charges of
$24.1 million  consisting  of a write-down in the value of related  property and
equipment,  the  write-off  of  operating  inefficiencies  incurred  during  the
shut-down   period  and  the  accrual  of   estimated   costs  of   disposition.
Substantially all costs associated with the  restructurings  were incurred prior
to November 6, 1999. In fiscal 1999, the Company reversed $1.4 million of excess
accrued   restructuring  costs  through  selling,   general  and  administrative
expenses.  The plant closings resulted in the termination of approximately 1,300
employees.  In addition,  the downsizing associated with such plant closings may
affect the accounting,  disclosure and funding of the Company's  pension benefit
obligation.

14. GAIN ON SALE OF SUBSIDIARY STOCK

On January 27,  1997,  the  Company  announced  that it had  retained a managing
underwriter for a proposed initial public offering that would result in the sale
by the Company of a significant  minority  interest in the Company's  previously
wholly-owned   German   subsidiary,   h.i.s.   sportswear   AG   ("Sportswear"),
headquartered  in Munich.  In the second  quarter of fiscal  1997,  the  Company
announced that the initial public  offering had been  consummated,  resulting in
the sale of 2,120,000 shares of Sportswear,  representing approximately 47.5% of
the stock, at an offering price of DM 39 per share (approximately $22.61).

A gain of  approximately  $34.1  million was  recognized on the  transaction  in
accordance with Staff Accounting  Bulletin 51. The net proceeds  received by the
Company of approximately  $43.1 million were used to repay  indebtedness and for
general corporate purposes.

15. BUSINESS ACQUISITIONS

In January 1999, the Company  purchased  certain  assets,  including  inventory,
tradenames  and sales  orders,  of Stuffed  Shirt,  Inc. for $4.3  million.  The
purchase  price was  payable $1 million at  closing,  with the  balance  payable
within 90 days of the closing date.

In August 1999,  the Company  purchased  certain  assets,  including  inventory,
tradenames, sales orders and equipment, of Sierra Pacific Apparel Company, Inc.,
for $5.1  million.  The purchase  price of the inventory of  approximately  $4.1
million  is  payable  out  of  the  proceeds  of the  sale  of the  merchandise.
Approximately  $.5  million was  payable at  closing,  with the balance  payable
through capitalized lease financing.

The acquisitions were accounted for as purchases and,  accordingly,  the results
of their operations have been included in the Company's financial statements for
the fiscal  year 1999.  The  results  of their  operations  would not have had a
material impact on the Company's results of operations for fiscal 1998, and were
not material in 1999, thus pro-formas have not been provided.


                                       42

<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         Not Applicable.


                                       43
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  following  table  sets forth  certain  information  regarding  the
executive officers of the Company:
<TABLE>


         NAME                             OFFICE OR POSITIONS HELD
         <S>                              <C>

         Daniel Rubin.....................Co-Chairman of the Board and Chief Executive Officer
         Milan Danek......................Managing Director, European Operations
         Christine A. Hadjigeorge.........Treasurer; Chief Financial Officer and Secretary
         Roland L. Kimberlin..............President -- Manufacturing Operations

</TABLE>

         Daniel Rubin is the Chief Executive  Officer,  Co-Chairman of the Board
and has been a director since March 1998. Mr. Rubin has been a Managing  Partner
of LDR Equities,  LLC, which engages in the  management of real estate,  textile
and clothing businesses since 1996. He has also been a principal  stockholder of
Trimtex Company, a textile manufacturer and Gorden & Ferguson, a manufacturer of
men's and  children  outerwear,  since  1987.  Mr.  Rubin is also a director  of
Community State Bank.

         Milan  Danek  is the  Managing  Director,  European  Operations  of the
Company and was a director of the Company  from 1993 until the  Effective  Date.
Mr.  Danek has worked  over 26 years at the  Company  (during  which time he has
served  as  Managing  Director  of the  Company's  German  subsidiary)  and  has
approximately 32 years of industry experience.  His previous industry experience
includes  three  years at Levi  Strauss in Germany,  where he was the  Marketing
Director  at the time of his  departure,  and  seven  years  with the  exclusive
distributor of Levi Strauss for southern Germany and Austria.

         Christine A. Hadjigeorge,  age 37, has been the Chief Financial Officer
and Treasurer of the Company since February 1997.  Prior to joining the Company,
Ms.  Hadjigeorge was a partner at BDO Seidman,  LLP, a public  accounting  firm,
where she worked for over twelve  years.  Ms.  Hadjigeorge  is a graduate of the
College of William & Mary and a certified public  accountant in the state of New
York.

         Roland L.  Kimberlin has been a director of the Company since 1993. Mr.
Kimberlin was a director of the Company from 1993 until the  Effective  Date and
was elected again in June 1998. Mr. Kimberlin has served as an executive officer
of the Company for more than nine years,  most  recently as Vice  President  and
President -Manufacturing  Operations.  Prior to joining the Company in 1966, Mr.
Kimberlin  was  employed by Ashland Oil and  Refining  Company,  where he held a
number of positions, including regional bulk plant manager.

         Officers are chosen by the Board of Directors annually or at such other
time or times as the Board determines.

                                       44


<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth the  compensation  awarded to, earned by
or paid  to the  Chief  Executive  Officer,  and the  three  other  most  highly
compensated  executive  officers during the fiscal years ended November 6, 1999,
November 7, 1998 and November 1, 1997 for services rendered in all capacities to
the Company and its subsidiaries.


                         SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
                                                                                                         LONG-TERM
                                                                                                       COMPENSATION
                                                                                                       ------------
                                                                                                          NUMBER OF
                                                                                                         SECURITIES
                                                                       ANNUALCOMPENSATION                UNDERLYING
                                                FISCAL YEAR                            OTHER ANNUAL        OPTIONS
NAME AND PRINCIPAL POSITION                          ENDED   SALARY ($)    BONUS ($)   COMPENSATION     GRANTED (#)
---------------------------                          -----   ----------    ---------   ------------     -----------

<S>                                                <C>         <C>          <C>                   <C>       <C>
Daniel Rubin.......................................11/6/99     $307,500            0              0               0
         Co-Chairman of the Board and Chief        11/7/98      115,385            0              0         150,000
         Executive Officer(1)

Milan Danek........................................11/6/99     $516,532     $122,199              0               0
         Managing Director, European Operations    11/7/98     $434,866       89,222              0               0
                                                   11/1/97      418,007       40,000              0               0

Christine A. Hadjigeorge...........................11/6/99     $137,500      $15,000              0           2,000
         Chief Financial Officer                   11/7/98      137,020       15,000              0               0
         Treasurer, Secretary(2)                   11/1/97       86,539       16,000              0           8,000

Roland L. Kimberlin................................11/6/99     $369,402            0              0               0
         President -- Manufacturing Operations     11/7/98      360,965       15,000              0               0
                                                   11/1/97      360,965       40,000              0               0

</TABLE>

(1)      Mr. Rubin was elected  Co-Chairman  of the Board of Directors and Chief
         Executive  Officer on May 14, 1998.  Annual base compensation in fiscal
         1998, $240,000.

(2)      Ms.  Hadjigeorge's  employment  as Chief  Financial  Officer  commenced
         February  24,  1997 at an annual base  compensation  for fiscal 1997 of
         $125,000.


OPTION EXERCISES/VALUE OF UNEXERCISED OPTIONS

         The  following   table  sets  forth  certain   information   concerning
unexercised  options to purchase  Common Stock of the Company held at the end of
fiscal year 1998 by the named  executive  officers and options  exercised by the
named executive officers during fiscal year 1999. No named executive officer has
been awarded stock appreciation rights.

                       AGGREGATED OPTION EXERCISES IN LAST
                  FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES


<TABLE>
<CAPTION>
                                                                      NUMBER OF
                                                                SECURITIES UNDERLYING            VALUE OF UNEXERCISED
                            SHARES ACQUIRED    VALUE             UNEXERCISED STOCK                IN-THE-MONEY STOCK
NAME                        ON EXERCISE (#)    REALIZED($)      OPTIONS AT FY-END (#)           OPTIONS AT FY-END ($)(1)
----                        ---------------    -----------      ---------------------           ------------------------
                                                               EXERCISABLE   UNEXERCISABLE     EXERCISABLE   UNEXERCISABLE
                                                             --------------  -------------     -----------   -------------


                                       45
<PAGE>

<S>                                               <C>            <C>             <C>              <C>               <C>
Daniel Rubin...................0                  0              50,000          100,000          (1)               (1)
Milan Danek....................0                  0                   0                0          --                --
Christine A. Hadjigeorge.......0                  0              10,000                0          (2)               --
Roland L. Kimberlin............0                  0              30,000                0          (3)               --
--------
</TABLE>


(1)      Based upon the  closing  sale price of the Common  Stock on January 31,
         2000  ($.50) on the New York Stock  Exchange  and the  option  exercise
         price ($9.0625) such options were out of the money on January 31, 2000.

(2)      Based upon the  closing  price of the Common  Stock on January 31, 2000
         ($.50) on the New York Stock  Exchange  and the option  exercise  price
         (8,000 options at $5.875 and 2,000 at $2.625). Such options were out of
         the money on January 31, 2000.

(3)      Based upon the  closing  sale price of the Common  Stock on January 31,
         2000  ($.50) on the New York Stock  Exchange  and the  option  exercise
         price ($5.875) such options were out of the money on January 31, 2000.


OPTION/SAR GRANTS IN LAST FISCAL YEAR

         The following table sets forth  information  regarding  grants of stock
options by the Company during fiscal year 1999 to the named executive officers.

<TABLE>
<CAPTION>

                                                    % OF TOTAL
                                                   OPTIONS/SARS
                                   NUMBER OF         GRANTED TO                            POTENTIAL REALIZABLE VALUE
                                  SECURITIES          EMPLOYEES                              AT ASSUMED ANNUAL RATES
                                  UNDERLYING      IN YEAR ENDED        EXERCISE OR BASE   OF STOCK PRICE APPRECIATION
NAME                            OPTIONS/SARS   NOVEMBER 6, 1999        PRICE ($/SH)            FOR OPTION TERM(1)
----                            ------------   ----------------        ------------            ------------------
                                                                                               5%            10%
                                                                                               --            ---
<S>                                   <C>                  <C>            <C>              <C>           <C>
Daniel Rubin..............................--                --                --               --            --
Milan Danek...............................--                --                --               --            --
Christine A. Hadjigeorge...............2,000               10%            $2.625           $1,450        $3,205
Roland Kimberlin..........................--                --                --               --            --
</TABLE>

(1)      These amounts represent  hypothetical  gains that could be achieved for
         the options if they are executed at the end of their terms. The assumed
         5% and 10% rates of stock price  appreciation are mandated by the rules
         of the  Securities and Exchange  Commission.  They do not represent the
         Company's estimate or projection of future prices of the Common Stock.

PENSION PLAN

         The following table sets forth the approximate  annual benefits payable
upon  retirement  at age 65 (and upon at least five years of service)  under the
Pension Plan for Eligible  Employees of Henry I. Siegel Co. (the "Pension Plan")
as a life  annuity,  based on the average  annual  salaries and years of service
indicated.



                               PENSION PLAN TABLE
                                YEARS OF SERVICE
                                ----------------
<TABLE>
<CAPTION>

                  AVERAGE ANNUAL
                  COMPENSATION                     15            20           25           30           35
                  --------------                   --            --           --           --           --

                  <S>                          <C>           <C>           <C>           <C>         <C>
                  $ 10,000.....................$1,407        $1,678        $1,770        $1,864      $1,956
                    50,000......................1,647         1,917         2,010         2,103       2,196
                   100,000......................1,647         1,917         2,010         2,103       2,196
                   200,000......................1,647         1,917         2,010         2,103       2,196
                   300,000......................1,647         1,917         2,010         2,103       2,196
</TABLE>

                                       46

<PAGE>

         Compensation   used  to  determine   benefits   generally   includes  a
participant's  total earned income,  wages,  salaries and other amounts received
for  services  rendered  to  the  Company  or an  affiliate,  excluding  certain
specified items such as Company  contributions to a deferred  compensation  plan
and amounts  realized in  connection  with stock  options or  restricted  stock.
Annual  compensation  taken into  account  under the Pension  Plan is limited to
$14,000.  Benefits  are  computed  on a single  life  annuity  basis and are not
subject  to any  offset  for social  security.  With  respect  to the  following
individuals named in the Summary  Compensation Table, the annual current covered
compensation  under the plan is $14,000,  which is  substantially  less than the
amount set forth  under  "Salary"  in the Summary  Compensation  Table,  and the
estimated current credited years of service are as follows:

           Mr. Danek..................................23 years
           Mr. Kimberlin..............................30 years

         Effective  January 1, 1997, the Company adopted a resolution to suspend
the Pension Plan whereby no individual  who was not a participant  as of May 20,
1997 would become a participant  and no additional  benefits  would accrue after
such date.

CERTAIN DEATH BENEFITS

         Upon recommendation of the Compensation Committee, in the first quarter
of fiscal 1994 the Board of Directors  authorized  the Company to pay $2 million
to the estate of Roland  Kimberlin,  and $1 million to the estate of Milan Danek
upon  the  death  of Mr.  Kimberlin  or Mr.  Danek,  respectively,  if (i)  such
executive is an employee of the Company at the time of his death or (ii) retires
in good  standing  from the  Company  no  earlier  than  the date on which  such
executive  reaches  the age of 65 and  (iii) if the  Company  at the time of the
death of such executive is the owner and beneficiary of insurance on his life in
the principal  amount to be paid. In March,  1997, the death benefit  payable to
the  estate  of  Milan  Danek  was  increased  to $2  million.  The  Company  is
authorized,  but not required,  to maintain life insurance policies on the lives
of  these  executives   naming  the  Company  as  beneficiary  to  support  this
obligation,  substantially  all of which  policies the Company  currently has in
effect and the proceeds of which policies the Company would intend to pay to the
appropriate executive's estate upon his death.

                                       47

<PAGE>

EMPLOYMENT AGREEMENTS

         The  Company  entered  into an  employment  agreement  with  Roland  L.
Kimberlin,  effective  as of March 15,  1996,  as amended on March 17,  1997 and
February 20, 1998. In March 1998, Mr.  Kimberlin  agreed to rescind the February
20, 1998 amendment to his employment agreement and enter into a new amendment to
his employment agreements (the "Executive Employment Agreement").  The following
is a summary of the material  terms of the Executive  Employment  Agreement,  as
amended.  The Executive  Employment  Agreement has an initial term of five years
and provides that upon the expiration of the initial term, the initial term will
be extended  automatically  for successive  one-year periods unless either party
gives at least 90 days'  written  notice of his or its  intent not to allow such
extension to become effective.  The Executive  Employment Agreement provides for
an annual  salary to  Kimberlin  of  $341,276,  which may be  increased  on each
February  1  during  the  term of the  Executive  Employment  Agreement,  at the
discretion of the Board of Directors of the Company.  The  Executive  Employment
Agreement  permits the Company to terminate the employee's  employment for cause
(as defined  therein)  or if the  employee  becomes  permanently  and  seriously
disabled.  If the employee is terminated  without cause,  such employee would be
entitled  to  receive  a lump sum  payment  equal to 18  months  base  salary as
severance.  In the  event  that  during  the  term of the  Executive  Employment
Agreement  the employee  becomes  permanently  disabled,  either  physically  or
mentally,  resulting in an absence from the office for periods  aggregating  120
business days during any 12 month period,  the Company shall pay such employee a
monthly benefit (the "Disability Benefit") following the employee's  termination
of employment on account of such  disability.  The  Disability  Benefit  payable
shall be 100% of the  employee's  monthly  salary for the first 24 months of the
employee's  disability and 50% of the employee's  monthly salary  thereafter for
the remainder,  of the  employee's  lifetime.  The  Disability  Benefit shall be
reduced (but not below zero),  however, by an amount equal to the sum of (a) any
other  disability  payments  received  by the  employee  from the  Company,  its
subsidiary,  Henry I. Siegel Company, or any insurance policy of these entities,
(b) two thirds of any earned  income  received  by the  employee  for  full-time
executive  employment  with  any  entity  commencing  after  the  payment  of  a
Disability Benefit begins, and (c) any amount for which the employee is eligible
because of his disability  under Federal  social  security laws or, prior to age
65, under any Company or Henry I. Siegel Company sponsored  retirement plan. The
Executive Employment Agreement also contains a covenant not to compete,  whereby
the  employee  agrees that during the term of the  agreement,  and for up to one
year following the employee's termination of employment,  the employee will not,
under certain  circumstances,  among other things,  engage in a business that is
materially competitive with any material business operated by the Company on the
effective date of the agreement.


MANAGEMENT AGREEMENT

         The Company's German subsidiary has entered into a management agreement
with Milan Danek  effective as of January 13, 1997, as amended (the  "Management
Agreement").  The  Management  Agreement,  which is  subject  to the laws of the
Federal Republic of Germany, has an initial term of five years and provides that
upon the  expiration  of the initial  term,  the  initial  term will be extended
automatically for successive one-year periods unless either party gives at least
six months'  written  notice of his or its intent not to allow such extension to
become effective.  The Management Agreement provides for an annual salary to Mr.
Danek in the amount of DM 696,000 (approximately  $370,000 based on the exchange
rate for the deutsche  mark on November 6, 1999),  which may be  increased  from
time to time at the discretion of the Supervisory  Board of the Company's German
subsidiary (the "Supervisory Board"). Mr. Danek is also entitled to a Disability
Benefit  under  the same  circumstances  and on the  same  terms as those of Mr.
Kimberlin.  In addition,  Mr. Danek may receive an additional  bonus at the sole
discretion of the Supervisory  Board.  The Management  Agreement also contains a
covenant  not to compete,  whereby Mr.  Danek agrees that during the term of the
Management  Agreement,  and for up to one year  following the  expiration of the
term, he will not compete with the Company.


                                       48
<PAGE>


COMPENSATION OF DIRECTORS

         Directors who are not officers of the Company  receive an annual fee of
$12,000  for  serving  on the Board of  Directors.  No annual fee is paid to any
officer serving on the Board of Directors. In addition, all directors (including
officers  serving as  Directors)  receive a fee of $500 for each  meeting of the
Board of Directors or committee meeting attended.


                                       49

<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information  regarding each person known
by the Company to own  beneficially (as such term is defined in Rule 13d-3 under
the Exchange Act) more than 5% of the outstanding Common Stock as of January 31,
2000. In accordance  with the rules  promulgated  by the Securities and Exchange
Commission,  such ownership  includes  shares  currently owned as well as shares
which the named person has the right to acquire within 60 days,  including,  but
not limited to,  shares which the named person has the right to acquire  through
the exercise of any option,  warrant or right,  or through the  conversion  of a
security.

<TABLE>
<CAPTION>

                                                                             NUMBER OF SHARES
                                                                              OF COMMON STOCK
         NAME AND ADDRESS                                                      BENEFICIALLY          PERCENTAGE
         OF BENEFICIAL OWNER                                                       OWNED           OF COMMON STOCK
         -------------------                                                 ----------------      ---------------

  <S>                                                                             <C>                    <C>
  Arnold M. Amster(1).............................................................963,700                9.8%
         767 Fifth Avenue
         New York, NY 10153
  Cumberland Associates LLC(2)....................................................729,600                7.4
         1114 Avenue of the Americas
         New York, NY 10036
  Dimensional Fund Advisors Inc.(3)...............................................580,600                5.9
         1299 Ocean Avenue
         Santa Monica, California 90401
  Franklin Resources, Inc.(4) ....................................................964,100                9.8
         777 Mariners Island Blvd.
         San Mateo, California 94404

</TABLE>

(1)      Includes  42,500 shares of Common Stock held by Mr. Amster's spouse and
         87,500  shares of Common  Stock  held by Mr.  Amster's  daughter.  Also
         includes 25,000 shares of Common Stock held by the Amster Foundation, a
         private  family  foundation,  controlled by Mr.  Amster.  Also includes
         148,900  shares of Common  Stock  held by Amster & Co.,  an  investment
         limited partnership of which Mr. Amster is the Senior Managing Partner.
         Also  includes  465,300  shares of Common  Stock  held by Flex  Holding
         Corp., a private investment company of which Mr. Amster is the Chairman
         of  the  Board.  Mr.  Amster  disclaims  beneficial  ownership  to  the
         foregoing  shares of Common Stock.  Excludes  558,000  shares of Common
         Stock held by the Amster Family  Trust,  an  irrevocable  trust for the
         benefit of Mr. Amster's daughter, over which Mr.
         Amster disclaims beneficial ownership.

(2)      Based  solely on  information  obtained  from a report on Schedule  13G
         filed with the Securities and Exchange Commission on February 12, 1999.
         Cumberland  Associates LLC is engaged in the business of managing, on a
         discretionary basis, twelve securities accounts.

(3)      Based  solely on  information  obtained  from a report on Schedule  13G
         filed with the  Securities  Exchange  Commission  on February 11, 1999.
         Cumberland  Associates LLC is engaged in the business of managing, on a
         discretionary basis, twelve securities accounts.

(4)      Based  solely on  information  obtained  from a report on Schedule  13G
         filed with the Securities and Exchange  Commission on January 19, 2000.
         Includes  securities   beneficially  owned  by  one  or  more  open  or
         closed-end  investment  companies or other managed  accounts  which are
         advised  by direct or  indirect  investment  advisory  subsidiaries  of
         Franklin  Resources,  Inc.,  of which  Charles  B.  Johnson,  Rupert H.
         Johnson,  Jr. and  Franklin  Advisory  Services LLC may be deemed to be
         beneficial owners.

                                  ------------

              To the  knowledge  of the Company,  except as set forth above,  no
person beneficially owns more than 5% of the Common Stock.


                                       50

<PAGE>

         The following table sets forth  beneficial and record  ownership of the
Company's  Common  Stock as of January 31, 2000 with respect to (i) each nominee
for Director;  (ii) each  executive  officer  named in the Summary  Compensation
Table under "Executive  Compensation";  and (iii) all nominees for Directors and
executive officers as a group.

<TABLE>
<CAPTION>
                                                                   NUMBER OF SHARES                 PERCENTAGE OF
                                                                    OF COMMON STOCK                  COMMON STOCK
         NAME OF BENEFICIAL OWNER                                 BENEFICIALLY OWNED              BENEFICIALLY OWNED
         ------------------------                                 ------------------              ------------------
  <S>                                                                 <C>                                <C>

  Arnold M. Amster....................................................963,700(a)                          9.8%
  Walter Berman.......................................................175,500(b)                          1.8
  Michael Conroy........................................................5,000                             *
  Herbert A. Denton...................................................244,900(c)                          2.5
  Christine A. Hadjigeorge............................................ 12,000(d)                          *
  Roland L. Kimberlin.................................................112,385(e)                          1.1
  Mark Metzger........................................................205,299                             2.1
  Daniel Rubin........................................................340,000(f)                          3.4
  All Directors, Nominees and executive officers as
     a group (8 persons)...............................................2,058,784                         20.5
</TABLE>


 (a)     See footnote (1) in the table above.

 (b)     Includes 45,000 shares of Common Stock owned by Mr. Berman's spouse.

 (c)     Includes  80,000 shares owned by Providence  Investors,  LLC over which
         Mr. Denton exercises shared voting and investment powers.

 (d)     Includes  10,000  shares of Common Stock that Ms.  Hadjigeorge  has the
         right to acquire pursuant to outstanding stock options.

 (e)     Includes 30,000 shares of Common Stock that Mr. Kimberlin has the right
         to acquire pursuant to outstanding stock options.

 (f)     Includes  80,000  shares  owned by  Mr.  Rubin's  father over which Mr.
         Rubin has shared voting power.

  *      Represents less than one percent  of the issued and outstanding  shares
         of Common Stock.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONSULTING ARRANGEMENTS

         In May 1998, the Company entered into a consulting agreement with South
Beach  Consulting  Co., which is owned by Mr. Peter Brown, a former  director of
the Company.  Pursuant to the  consulting  agreement,  the Company agreed to pay
South Beach Co. an annual fee of $120,000.  This  agreement  was  terminated  in
January 2000.

                                       51


<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  The schedule and report of independent  certified  public  accountants
          thereon, listed on the Index to Financial Statement Schedules attached
          hereto.

     (b)  No reports on Form 8-K were  filed by the  registrant  during the last
          quarter of the period covered by this report.

     (c)  Exhibits


     EXHIBIT NO.    DESCRIPTION OF EXHIBIT
     -----------    ----------------------

          3.1       Restated   Certificate  of  Incorporation  of  the  Company.
                    (Incorporated  herein by  reference  to  Exhibit  3.2 to the
                    Company's Registration Statement on Form S-1 No. 33-56270).

          3.2       By-laws of the Company. (Incorporated herein by reference to
                    Exhibit 3.4 to the Company's  Registration Statement on Form
                    S-1 No. 33-56270).

          4.1       Loan  Agreement,  dated  as of  May  1,  1990,  between  the
                    Industrial  Development  Board of the County of Carroll (the
                    "ID Board") and Henry I. Siegel  Company,  Inc.  ("Siegel").
                    (Incorporated  herein by  reference  to Exhibit  4.12 to the
                    Company's RegistrationStatement on Form S-1 No. 33-56270).

          4.2       Financing  Agreement  dated as of  October  30,  1998 by and
                    among the Company,  the Financial  Institutions from Time to
                    Time Party thereto, as Lenders, and the CIT Group/Commercial
                    Services, Inc., as agent.

          4.3       Lease,  dated as of September 1, 1993,  between the ID Board
                    and Siegel.  (Incorporated  herein by  reference  to Exhibit
                    10.30 to the  Company's  Annual  Report on Form 10-K for the
                    fiscal year ended November 6, 1993)

          4.4       Lease,  dated as of  August  1,  1994,  between  the City of
                    Hickman,  Kentucky, and H.I.S. Kentucky,  Inc. (Incorporated
                    herein by reference to Exhibit 4.5 to the  Company's  Annual
                    Report on Form 10-K for the fiscal  year ended  November  5,
                    1994).

          4.5       Note  Agreement,  dated as of June 30, 1995,  by the Company
                    and each of the Purchasers listed on Schedule 1 thereto (the
                    "Note  Agreement").  (Incorporated  herein by  reference  to
                    Exhibit 10.1 of the Company's  Quarterly Report on Form 10-Q
                    for quarter ended August 5, 1995).

                                       52
<PAGE>

          4.6       Waiver and  Amendment  Agreement,  dated as of February  14,
                    1996, among the Company and each of the Purchasers listed on
                    Schedule I  attached  to the Note  Agreement.  (Incorporated
                    herein by reference to Exhibit 4.8 to the  Company's  Annual
                    Report on Form 10-K for the fiscal  year ended  November  4,
                    1995).

          4.7       Lease,  dated as of February 1, 1995, between Fulton County,
                    Kentucky and H.I.S.  Kentucky,  Inc. (Incorporated herein by
                    reference to Exhibit 10.1 to the Company's  Quarterly Report
                    on Form 10-Q for quarter ended May 6, 1995).

          4.8       Loan  Agreement,  dated as of April 1, 1995,  between the ID
                    Board  and  Siegel.  (Incorporated  herein by  reference  to
                    Exhibit 10.2 of the Company's  Quarterly Report on Form 10-Q
                    for the quarter ended May 6, 1995).

          10.1      Registration  Rights  Agreement,  dated as of  November  20,
                    1992,  among  the  Company,  Chrysler  Capital  Corporation,
                    Whirlpool Financial  Corporation,  NatWest, B.T. Expedition,
                    Inc., and Jesse S. Siegel. (Incorporated herein by reference
                    to Exhibit 4.14 to the Company's  Registration  Statement on
                    Form S-1 No. 33-56270).

          10.2      Registration Rights Agreement, dated January 22, 1993, among
                    the   Company  and  its   stockholders   as  of  such  date.
                    (Incorporated  herein by  reference  to  Exhibit  4.4 to the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended November 6, 1993).

          10.3      Representatives' Warrant Agreement, dated as of February 18,
                    1993, among the Company,  Nomura  Securities  International,
                    Inc., Josephthal Lyon & Ross Incorporated and Tucker Anthony
                    Incorporated,  including  Form of  Representatives'  Warrant
                    Certificate.  (Incorporated  herein by  reference to Exhibit
                    4.5 to the  Company's  Annual  Report  on Form  10-K for the
                    fiscal year ended November 6, 1993).

          10.4      Agreement  and General  Release,  dated as of March 14, 1998
                    among the Company and Burton M. Rosenberg.

          10.5      Employment  Agreement,  dated as March 15,  1996,  among the
                    Company,  Siegel  and  Roland  L.  Kimberlin.  (Incorporated
                    herein by reference to Exhibit 10.6 to the Company's  Annual
                    Report on Form 10-K for the fiscal  year ended  November  4,
                    1996).

          10.6      Employment Agreement,  dated as of March 15, 1996, among the
                    Company,  Siegel and Robert F. Luehrs.  (Incorporated herein
                    by reference to Exhibit 10.7 to the Company's  Annual Report
                    on Form 10-K for the fiscal year ended November 4, 1996).

          10.7      Employment Agreement,  dated as of March 15, 1996, among the
                    Company, Siegel and Stephen Weiner.  (Incorporated herein by
                    reference


                                       53
<PAGE>

                    to Exhibit 10.8 to the Company's  Annual Report on Form 10-K
                    for the fiscal year ended November 4, 1996).

          10.8      Lease,  dated  November  1989,  between  Tishomingo  County,
                    Mississippi,  and Siegel.  (Incorporated herein by reference
                    to Exhibit 10.14 to the Company's  Registration Statement on
                    Form S-1 No. 33-56270).

          10.9      Lease,  dated December 1, 1989,  between  Tishomingo County,
                    Mississippi,  and Siegel.  (Incorporated herein by reference
                    to Exhibit 10.15 to the Company's  Registration Statement on
                    Form S-1 No. 33-56270).

          10.10     Agreement  of  Lease,  dated  as of May  10,  1985,  between
                    Nineteen New York Properties Limited Partnership and Siegel.
                    (Incorporated  herein by reference  to Exhibit  10.16 to the
                    Company's Registration Statement on Form S-1 No. 33-56270).

          10.11     Lease, dated November 1, 1968,  between Keystone  Associates
                    and Siegel, as amended. (Incorporated herein by reference to
                    Exhibit  10.17 to the  Company's  Registration  Statement on
                    Form S-1 No. 33-56270).

          10.12     Lease, dated September 11, 1979, between the Mayor and Board
                    of  Aldermen  of  the  Town  of  Tiptonville,  Lake  County,
                    Tennessee, and Siegel.  (Incorporated herein by reference to
                    Exhibit  10.18 to the  Company's  Registration  Statement on
                    Form S-1 No. 33-56270).

          10.13     Chic by  H.I.S,  Inc.  1993  Stock  Option  Plan  and  First
                    Amendment  thereto.  (Incorporated  herein by  reference  to
                    Exhibit  10.19 to the  Company's  Registration  Statement on
                    Form S-1 No. 33-56270).

          10.14     Chic by H.I.S,  Inc 1995 Stock Option Plan for  Non-Employee
                    Directors.  (Incorporated  herein by  reference  to  Exhibit
                    10.16 to the  Company's  Annual  Report on Form 10-K for the
                    fiscal year ended November 5, 1994).

          10.15     Phoenix  Home  Life   Insurance  Plan   (Disability   Plan).
                    (Incorporated  herein by reference  to Exhibit  10.20 to the
                    Company's Registration Statement on Form S-1 No. 33-56270).

          10.16     Pension Plan for Eligible Employees,  including amendments I
                    through IV thereto.  (Such Plan and Amendments I through III
                    thereof incorporated herein by reference to Exhibit 10.21 to
                    the  Company's   Registration  Statement  on  Form  S-1  No.
                    33-56270).

          10.17     Security Agreement,  dated as of May 1, 1990, between the ID
                    Board  and  Siegel.  (Incorporated  herein by  reference  to
                    Exhibit  10.22 to the  Company's  Registration  Statement on
                    Form S-1 No. 33-56270).

          10.18     Guaranty Agreement,  dated as of May 1, 1990, by the Company
                    in favor of Trust company Bank, as trustee. (Incorporated
                    herein by reference to


                                       54

<PAGE>


                    Exhibit  10.23 to the  Company's  Registration  Statement on
                    Form S-1 No. 33- 56270).

          10.19     Letter,  dated May 11, 1990,  from the Company and Siegel to
                    Bayerische  Hypotheken-Und  Weschsel-Bank AG.  (Incorporated
                    herein  by  reference  to  Exhibit  10.24  to the  Company's
                    Registration Statement on Form S-1 No. 33- 56270).

          10.20     Lease,  dated  October  27,  1986,  between  Sportswear  and
                    Erbengemeinschaft Kellerer,  including an amendment thereto.
                    (Translated).  (Incorporated  herein by reference to Exhibit
                    10.28 to the  Company's  Registration  Statement on Form S-1
                    No. 33-56270).

          10.21     Agreement,  dated December 28, 1992, between Commerzbank and
                    Sportswear. (Translated).  (Incorporated herein by reference
                    to Exhibit 10.29 to the Company's  Registration Statement on
                    Form S-1 No. 33-56270).

          10.22     Agreement,  dated  December 18, 1992,  among  Deutsche Bank,
                    Sportswear,   Siegel   and   the   Company.    (Translated).
                    (Incorporated  herein by reference  to Exhibit  10.30 to the
                    Company's Registration Statement on Form S-1 No. 33- 56270).

          10.23     Agreement,  dated  June  26,  1991,  between  Hypo  Bank and
                    Sportswear. (Translated).  (Incorporated herein by reference
                    to Exhibit 10.31 to the Company's  Registration Statement on
                    Form S-1 No. 33-56270).

          10.24     Licensing and Cooperation Agreement, dated November 2, 1990,
                    between  Sportswear  and  Odevni  Prumysl,   Statni  Podnik.
                    (Incorporated  herein by reference  to Exhibit  10.32 to the
                    Company's Registration Statement on Form S-1 No. 33-56270).

          10.25     Licensing Agreement,  dated May 29, 1992, between Sportswear
                    and CONSINVEST Ltd.  (Translated).  (Incorporated  herein by
                    reference  to Exhibit  10.33 to the  Company's  Registration
                    Statement on Form S-1 No. 33- 56270).

          10.26     Guaranty  Agreement,  dated as of September 1, 1993,  by the
                    Company  in  favor  of  First  American  National  Bank,  as
                    Trustee.  (Incorporated herein by reference to Exhibit 10.31
                    to the  Company's  Annual Report on Form 10-K for the fiscal
                    year ended November 6, 1993).

          10.27     Guaranty  Agreement,  dated as of  August  1, 1994,  by  the
                    company   in  favor  of  First   American   National   Bank.
                    (Incorporated  herein by reference  to Exhibit  10.29 to the
                    Company's  Annual  Report on Form 10-K for the  fiscal  year
                    ended November 5, 1994).

          10.28     Guaranty  Agreement,  dated as of February  1, 1995,  by the
                    Company  in  favor  of  First  American  National  Bank,  as
                    trustee. (Incorporated herein

                                       55

<PAGE>

                    by  reference  to Exhibit  10.3 of the  Company's  Quarterly
                    Report on Form 10-Q for the quarter ended May 6, 1995).

          10.29     Guaranty  Agreement,  dated  as of  April  1,  1995,  by the
                    Company  in  favor  of  First  American  National  Bank,  as
                    trustee.  (Incorporated  herein by reference to Exhibit 10.4
                    of the  Company's  Quarterly  Report  on Form  10-Q  for the
                    quarter ended May 6, 1995).

          10.30     Guaranty Agreement,  dated as of June 30, 1995, by Siegel in
                    favor  of  the   Purchasers   listed  on  Annex  1  thereto.
                    (Incorporated  herein by  reference  to Exhibit  10.2 of the
                    Company's  Quarterly  Report  on Form  10-Q for the  quarter
                    ended August 5, 1995).

          10.31     Guaranty  Agreement,  dated  as of June  30,  1995,  by Chic
                    Holdings Corp. in favor of the Purchasers  listed on Annex 1
                    thereto.  (Incorporated  herein by reference to Exhibit 10.3
                    of the  Company's  Quarterly  Report  on Form  10-Q  for the
                    quarter ended August 5, 1995).

          10.32     Guaranty  Agreement,  dated as of June 30, 1995,  by Chic by
                    H.I.S.  Licensing  Corporation  in favor  of the  Purchasers
                    listed on Annex 1 thereto. (Incorporated herein by reference
                    to Exhibit 10.4 of the  Company's  Quarterly  Report on Form
                    10-Q for the quarter ended August 5, 1995).

          10.33     Guaranty  Agreement,  dated as of June 30,  1995,  by H.I.S.
                    Kentucky,  Inc. in favor of the Purchasers listed on Annex 1
                    thereto.  (Incorporated  herein by reference to Exhibit 10.5
                    of the  Company's  Quarterly  Report  on Form  10-Q  for the
                    quarter ended August 5, 1995).

          10.34     Guaranty  Agreement,  dated as of June 30,  1995,  by h.i.s.
                    Limited  in  favor  of the  Purchasers  listed  on  Annex  1
                    thereto.  (Incorporated  herein by reference to Exhibit 10.6
                    of the  Company's  Quarterly  Report  on Form  10-Q  for the
                    quarter ended August 5, 1995).

          13.1      Annual Report to  Stockholders of the Company for the fiscal
                    year ended November 6, 1999 (including attachment thereto).

          21.1      Subsidiaries  of  the  Company.   (Incorporated   herein  by
                    reference to Exhibit 21.1 to the Company's  Annual Report on
                    Form 10-K for the fiscal year ended November 5, 1994).

          27        Financial Data Schedule.


                                       56
<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,  in the City of New
York, State of New York, on February 2, 2000.

                                          CHIC BY H.I.S, INC.

                                          By /s/ Daniel Rubin
                                             ------------------------
                                               (Daniel Rubin)
                                         Co-Chairman of the Board and
                                            Chief Executive 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 and on the dates indicated.



SIGNATURE                      CAPACITY                         DATE
---------                      --------                         ----

/s/ Daniel Rubin               Co-Chairman of the Board,        February 2, 2000
------------------------       Chief Executive Officer
(Daniel Rubin)                    and Director
                               (Principal Executive Officer)

/s/ Arnold Amster              Co-Chairman of the Board,        February 2, 2000
------------------------       Director
(Arnold Amster)

/s/ Christine A. Hadjigeorge   Chief Financial Officer          February 2, 2000
----------------------------   Secretary and Treasurer
(Christine A. Hadjigeorge)     (Principal Financial Officer)

/s/ Walter Berman              Director                         February 2, 2000
------------------------
( Walter Berman)

/s/ Michael Conroy             Director                         February 2, 2000
------------------------
(Michael Conroy)

/s/ Herbert Denton             Director                         February 2, 2000
------------------------
(Herbert Denton)

/s/ Roland L. Kimberlin        Director                         February 2, 2000
------------------------
(Roland L. Kimberlin)

/s/ Mark Metzger               Director                         February 2, 2000
------------------------
(Mark Metzger)




<PAGE>




                          FINANCIAL STATEMENT SCHEDULE

Report of Independent Certified Public Accountants on
     Financial Statement Schedule                                       S - 1

Schedule II- Valuation and Qualifying Accounts                          S - 2



All other  schedules are not submitted  because they are not required or because
the  required  information  is included  in the  financial  statements  or notes
thereto.


<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders of
Chic by H.I.S., Inc. and Subsidiaries


The audits  referred to in our report dated  January 12,  2000,  relating to the
consolidated financial statements of Chic by H.I.S., Inc. and Subsidiaries which
contains a going concern explanatory  paragraph,  which is referred to in Item 8
of this Form 10-K,  included the audit of the accompanying  financial  statement
schedule.  This  financial  statement  schedule  is  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial statement schedule based on our audits.

In our opinion,  such  financial  statement  schedule  presents  fairly,  in all
material respects, the information set forth therein.


/s/ BDO Seidman, LLP

BDO Seidman, LLP

New York, New York
January 12, 2000






                                       S-1


<PAGE>


                               CHIC BY H.I.S, INC.
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 1, 1997
COLUMN A                            COLUMN B            COLUMN C            COLUMN D           COLUMN E
--------                            --------            --------            --------           --------

                                   BALANCE AT                                                 BALANCE
                                   BEGINNING OF                                               AT END OF
DESCRIPTION                         PERIOD             ADDITIONS          DEDUCTIONS          PERIOD
-----------                         ------             ---------          ----------          ------

<S>                                    <C>                  <C>                 <C>             <C>
RESERVE FOR
  UNCOLLECTIBLE ACCOUNTS
  AND RETURNS AND
  ALLOWANCES                           $125                 $65                 $0              $190
                                 ============        ===========        =============        ===========



YEAR ENDED
NOVEMBER 7, 1998
COLUMN A                            COLUMN B            COLUMN C           COLUMN D            COLUMN E
--------                            --------            --------           --------            --------

                                   BALANCE AT                                                 BALANCE
                                   BEGINNING OF                                             AT END OF
DESCRIPTION                        PERIOD              ADDITIONS          DEDUCTIONS          PERIOD
-----------                        ------              ---------          ----------          ------
-

RESERVE FOR
  UNCOLLECTIBLE ACCOUNTS
  AND RETURNS AND
  ALLOWANCES                          $190                 $47                  $0             $237
                                =============        ===========        =============        ===========

YEAR ENDED
NOVEMBER 6, 1999
COLUMN A                            COLUMN B            COLUMN C           COLUMN D            COLUMN E
--------                            --------            --------           --------            --------

                                   BALANCE AT                                                 BALANCE
                                   BEGINNING OF                                             AT END OF
DESCRIPTION                        PERIOD              ADDITIONS          DEDUCTIONS          PERIOD
-----------                        ------              ---------          ----------          ------
-

RESERVE FOR
  UNCOLLECTIBLE ACCOUNTS
  AND RETURNS AND
  ALLOWANCES                          $237                  $0                 $21             $216
                                =============        ===========        =============      ===========
</TABLE>


                                       S-2
<PAGE>