<PAGE>

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                       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 DECEMBER 31, 2000          COMMISSION FILE NO. 1-9502

                             STAGE II APPAREL CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              NEW YORK                                    13-3016967
   (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)

            1385 BROADWAY
         NEW YORK, NEW YORK                                  10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 840-0880

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

     TITLE OF EACH CLASS             NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value                  American Stock Exchange

           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 under the Securities Exchange Act of 1934 is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated in Part III of this Form
10-K or any amendments to this Form 10-K. [X]

As of March 15, 2001, there were 4,127,267 shares of Common Stock outstanding,
and the aggregate market value of shares held by unaffiliated shareholders was
approximately $900,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the Proxy Statement for the 2001 Annual Meeting of
    Shareholders are incorporated by reference into Part III of this Report.


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<PAGE>

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

      GENERAL. Stage II Apparel Corp. (the "Company" or "Stage II") designs and
distributes an extensive range of casual apparel, activewear and collection
sportswear for men and boys. The Company markets its apparel to specialty and
department store chains, sporting goods stores and wholesale membership clubs
under nationally recognized brand names as well as proprietary and private
labels. The Company's products are produced to its specifications by various
independent manufacturers in Asia, Africa and Europe.

      MARKET POSITION. The Company believes it is a recognized supplier in its
market segment, with an established reputation for quality and value. This
assessment is based on factors including merchandiser recognition of the
Company's licensed and proprietary brand names, its apparel sales penetration in
major chain stores and the fragmented nature of the industry. During 2000, Stage
II had over 500 customers.

      MARKET SECTOR. Stage II has specialized in casual apparel and activewear
primarily for men and boys since its inception in 1980. The Company's products
offer customers a wide selection of apparel styles, fabrics and colors for
leisure and sports activities and are sold at "popular" and "moderate to better"
prices. In addition to its proprietary CROSS COLOURS and TIMBER RUN brands
priced for mid-market retailing, the Company has targeted higher end markets
with new lines of men's activewear under an exclusive license acquired in 1999
for the STANLEY BLACKER brand.

      TURNAROUND STRATEGY. Stage II incurred substantial losses prior to its
change of control under a new management team in 1998 As part of a turnaround
strategy implemented during the last two years, the Company streamlined its
operations and added several new brands to bolster its product lines and
customer base. These initiatives included its 1999 acquisition of the CROSS
COLOURS trademark, a pioneer in the early development of young men's urban
fashion, and development of new CROSS Colours product lines targeted for
distribution at affordable prices to a broad range of the young men's market.
Although Stage II achieved modest profitability from its turnaround strategy in
1999 primarily through overhead reductions and operating efficiencies, overall
weakness in the Company's market sector and related inventory writedowns,
combined with expenses for the launch of its CROSS COLOURS campaign, contributed
to a net loss of $1.3 million in 2000. See "Management's Discussion and Analysis
of Financial Position and Results of Operations."

      LICENSING REDIRECTION. The Company plans to emphasize trademark licensing
in an effort to reduce the costs and inventory risks associated with its apparel
distribution business. While continuing to distribute its own apparel lines on
at least a transitional basis, Stage II will focus on opportunities to license a
wide variety of retail items under its CROSS COLOURS and TIMBER RUN brands in
both domestic and international markets. The Company may also seek to acquire
additional trademark assets to expand its licensing program.

      In January 2001, the Company completed its first international licensing
transaction with a Japanese apparel company for sales of men's and ladies'
apparel under the CROSS COLOURS brand throughout Japan and its territories and
possessions. In view of timing requirements for the introduction of licensed
products, Stage II does not expect its licensing program to reverse the
performance trends for its current operations in the near term.

      PRODUCTS

      GENERAL. The Company's product mix was historically based on the
perception that retail customers preferred quality brand name apparel over
comparable proprietary or private label products. Stage II implemented this
strategy by acquiring U.S. license rights to nationally recognized brand names,
expanding its product lines to accommodate numerous brand name licenses.

      During the last three years, the Company streamlined its operations to
focus on its most popular labels, relinquishing various license rights and
liquidating its interests in Canadian and Hong Kong subsidiaries. The
relinquished lines were replaced with exclusive licenses for the ADOLFO brand in
1998 and the STANLEY BLACKER brand



                                       1
<PAGE>

in August 1999. In addition, the Company increased emphasis on its own
proprietary labels, primarily TIMBER RUN, MAIN EVENT, PRO TOUR and, commencing
in 1999, the CROSS COLOURS trademark.

      LICENSED BRAND NAME APPAREL SALES. During 2000, 1999 and 1998, sales of
brand name apparel accounted for approximately 13%, 19% and 46%, respectively,
of the Company's net sales. The reduced role of licensed brand name apparel in
the Company's product mix reflects its increased reliance on proprietary labels
to accommodate demand for more moderately priced men's and boys' activewear.

      CROSS COLOURS TRADEMARK. In May 1999, Stage II acquired the CROSS COLOURS
trademark from a group including one of the Company's outside directors in
exchange for 200,000 shares of Stage II common stock. To leverage the brand's
strong association with the early development of young men's urban streetwear,
the Company launched its own men's lines of CROSS COLOURS streetwear and
initiated a licensing arrangement for boys' categories, targeting retailers at
price points below fashion forward levels. The campaign's success has been
impaired to date by various factors, including production delays, retailer
constraints and license performance issues. See "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Position and Results of
Operations."

      PRODUCT MIX. During the last three years, Stage II increased emphasis on
its own TIMBER RUN AND CROSS COLOURS labels. These apparel lines accounted for
approximately 29%, 15% and 25% of the Company's net sales in 2000, 1999 and
1998, respectively.

MARKETING AND DISTRIBUTION

      MARKETING STRATEGY. The Company's marketing strategy focuses on multiple
product lines of quality casual apparel and activewear distinguished by design,
brand and label. Stage II sells its products through a sales force consisting of
two sales employees. The Company advertises its brand name products through its
catalogs distributed each season and magazines including DISCOUNT STORES NEWS, a
trade periodical, and the DAILY NEWS Record. The Company also displays its
merchandise in showrooms at its New York City headquarters. In addition, Stage
II exhibits its apparel at the semi-annual trade shows produced by the Men's
Apparel Guild (MAGIC), a major men's and boys' apparel show, and other trade
shows.

      CUSTOMERS. In each of the last two years, the Company's products were sold
to over 500 customers operating national and regional specialty and department
store chains, sporting goods stores and wholesale membership clubs throughout
the United States, Canada and Mexico. The Company's ten largest customers during
2000 (measured by sales) were Variety Wholesalers, Marshalls, Factory 2-U, Ross
Stores, Modells, Bradlees, Ames Department Stores, TJ Maxx, Alko Distributors
and Damani Dada. Approximately 54% of the Company's 2000 net sales were made to
these customers, of which Damani Dada accounted for approximately 10% of sales.
Approximately 32% of the Company's 1999 net sales were made to its ten largest
accounts, of which Ames Department Stores, Inc. accounted for approximately 10%
of sales.

      DISTRIBUTION. The Company's brand name and proprietary label products are
generally prepacked at the manufacturing site into cartons, shipped to an East
Coast warehouse and then shipped directly to the customer without repacking.
Products sold under retailers' own private labels are occasionally shipped
directly to the retailer.

MANUFACTURING

      MANUFACTURING SOURCES. Stage II does not own or operate any manufacturing
facilities. The Company's products are manufactured in accordance with its
designs, specifications and production schedules by approximately 50 independent
manufacturers located in over 16 countries in Asia, Africa and Europe. Stage II
determines its manufacturing requirements based on customer orders placed or
indicated approximately six months prior to shipment. Manufacturing is then
arranged on an order-by-order basis.

      While there are no long term contractual commitments between Stage II and
its manufacturers, management believes the Company can continue to meet its
manufacturing requirements from its current manufacturers and, if necessary,
from other foreign and domestic sources. The Company's management has extensive
experience in the apparel industry and has established long term relationships
with independent



                                       2
<PAGE>

manufacturers over the years. Management believes that these relationships
facilitate its sourcing of manufacturing requirements. The Company also believes
that the number and geographical diversity of its manufacturing sources minimize
the potential risks of quota limitations on imports from certain foreign
countries and adverse consequences that would result from termination of its
relationship with any of its manufacturers. See "Imports and Import
Restrictions" below.

      PRODUCTION ALLOCATIONS. Stage II allocates production among its suppliers
based on a number of criteria, including quota considerations for foreign
suppliers, availability of production capability, quality, pricing and
flexibility in meeting changing production requirements on relatively short
notice.

      QUALITY CONTROL. All finished products manufactured for the Company are
inspected by employees or agents of the Company prior to acceptance and payment
to ensure that they meet the Company's design, quality and other production
specifications. Employees or agents of the Company inspect initial product
samples provided by manufacturers for compliance with production specifications,
and production runs are not authorized until conforming samples have been
approved. Payment for each foreign manufacturing order is generally backed by an
irrevocable international letter of credit issued under the Company's credit
agreement approximately two to six months prior to shipment of the products. The
letters of credit may not be drawn until an authorized employee or agent of
Stage II issues an inspection certificate certifying that the products are in
compliance with the manufacturing order.

IMPORTS AND IMPORT RESTRICTIONS

      CURRENT IMPORT CONSIDERATIONS. The Company imports substantially all of
its products from various foreign countries located in Asia, Africa and Europe.
Imports of apparel products from these countries are subject to constraints
imposed by multilateral textile agreements with the United States applicable to
specific product categories. As products in a certain product category are
imported from a country into the United States, that country's quota for the
product category is utilized. When an annual quota limit is reached, no more
products in the category may enter into the United States during the year from
that country. Stage II monitors the amount of unutilized quota available for
import of the Company's products on a weekly basis and arranges its production
schedules accordingly. The Company further minimizes its potential exposure to
quota risks through, among other things, geographical diversification of its
manufacturing sources and shifts of production among countries and
manufacturers. Stage II bases its choice of manufacturer, in part, on quota
considerations.

      POTENTIAL FUTURE RESTRICTIONS. The Company's ability to obtain necessary
product requirements may be affected by additional bilateral agreements,
unilateral trade restrictions, substantial decreases in textile import quotas, a
significant drop in the value of the dollar against foreign currency, political
instability resulting in the disruption of trade from exporting countries or the
imposition of additional duties, taxes or other charges on imports. From time to
time, legislation has been introduced in both houses of Congress seeking to
limit the import of foreign goods, including cloth, clothes and shoes, to the
United States. The Company's management has substantial experience in developing
and maintaining sources of supply, foreign and domestic, and therefore believes
that Stage II will be able to adjust to any future import restrictions by
obtaining required quota rights or, when necessary, moving production to
countries in which applicable quotas remain unfilled or to countries in which no
quotas are imposed.

BACKLOG

      The Company's backlog of apparel orders at March 23, 2001 totaled
approximately $760,000, including 2001 sales through that date, compared to
backlog of approximately $2.5 million at March 15, 2000, including sales through
that date. All of the orders at March 23, 2001 are scheduled for delivery by the
end of the year. Backlog represents orders placed by customers that are not yet
due for shipment. The amount of unfilled orders at a particular time is affected
by a number of factors including the scheduling of the manufacture and shipment
of the product, which in some instances is dependent on the desires of the
customer. Cancellations, rejections and returns can reduce the amount of net
sales resulting from the backlog of orders. Accordingly, a comparison of
unfilled orders from period to period is not necessarily meaningful or
indicative of subsequent actual shipments.


                                       3
<PAGE>



COMPETITION

      The apparel business is highly competitive and consists of many importers,
distributors and manufacturers, none of which accounts for a significant
percentage of total industry sales, but some of which are larger and have
substantially greater resources than the Company. Stage II competes with
distributors that import apparel from abroad, with domestic retailers having
established foreign manufacturing relationships and with companies that produce
apparel domestically. The Company's sector of the apparel industry is highly
fragmented, and management believes that Stage II is a leading supplier of
casual apparel and activewear marketed under a number of nationally recognized
brand names and proprietary labels.

EMPLOYEES

      As of December 31, 2000, the Company had ten employees. None of the
Company's employees are represented by a union. Stage II considers its working
relationships with employees to be good and has never experienced an
interruption of its operations due to any kind of labor dispute.


ITEM 2.  PROPERTIES

NEW YORK OFFICE HEADQUARTERS

      The Stage II has its administrative and sales office at 1385 Broadway, New
York, NY. The Company has a lease arrangement with an affiliated company, for
3000 square feet through 2003 at an annual cost of approximately $78,000 per
year.

DISTRIBUTION FACILITIES

      During the last two years, the Company distributed substantially all of
its finished garments in the United States from a distribution facility located
in the New York metropolitan area. In 2000 and 1999, the Company's aggregate
warehouse and distribution costs were approximately $48,000 and $117,000,
respectively. During each of the last two years, the Company shared an
affiliate's warehouse space at no charge.


ITEM 3.  LEGAL PROCEEDINGS

      In February 2001, the Company brought an action in New York County Supreme
Court against Wear Me Apparel Corp. for unpaid royalties aggregating in excess
of $1.5 million under a license agreement entered with Stage II in October 1999.
The agreement provided an exclusive license to the Kid's Headquarters division
of Wear Me Apparel for manufacturing and distribution of boys' sportswear lines
under the CROSS COLOURS trademark, with a scheduled launch for the Fall 2000
season. The licensee has filed counterclaims seeking the return of an initial
$100,000 payment under the agreement. The Company believes the counterclaims are
without merit and plans to vigorously pursue its claims.

      The Company is a party to several other legal proceedings incidental to
its business, none of which is considered to be material to its financial
position, results of operations or liquidity.


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

Not Applicable.



                                       4
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

TRADING MARKET

      The Company's common stock is listed for trading on the American Stock
Exchange ("AMEX") under the symbol SA. The following table sets forth, for the
periods indicated, its high and low sales prices as reported on the AMEX.


                                                     MARKET PRICES
                                                   ----------------
                                                   HIGH        LOW
                                                   ----        ---
            1999:
            ----

            First quarter..........................$3.81      $.88
            Second quarter......................... 2.38      1.25
            Third quarter.......................... 2.00      1.38
            Fourth quarter......................... 1.69      1.13

            2000:
            ----

            First quarter.......................... 1.56      1.00
            Second quarter......................... 1.50       .88
            Third quarter.......................... 1.19       .88
            Fourth quarter......................... 1.06       .38

            2001:
            ----

            First quarter (through March 2, 2001)..  .50       .38


SECURITY HOLDERS

      As of February 28, 2001, there were approximately 100 holders of record
and an estimated 750 beneficial owners of the Company's common stock.

DIVIDENDS

       The Company has not paid any dividends on its common stock since 1994 and
does not expect to consider reinstituting dividend payments in the foreseeable
future.

ITEM 6.  SELECTED FINANCIAL DATA

      The following table presents selected financial data of Stage II at and
for the year ended December 31 in each of the five years through 2000. The
selected financial data presented below has been derived from the Company's
audited financial statements. For each of the three years through December 31,
2000, the following financial information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as well as the Financial Statements of the Company and related Notes
included elsewhere in this Report.



                                       5
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                       2000        1999       1998         1997        1996
                                                                      ------      ------     ------       ------      ------
<S>                                                                 <C>         <C>         <C>         <C>         <C>
INCOME STATEMENT DATA:
Net sales ........................................................   $  9,891    $ 10,537    $  9,867    $ 16,547    $ 33,428
Cost of goods sold ...............................................      8,158       7,982       7,859      14,234      28,016
                                                                     --------    --------    --------    --------    --------
  Gross profit ...................................................      1,733       2,555       2,008       2,313       5,412
Commission and other income ......................................         18          97         251         442         678
                                                                     --------    --------    --------    --------    --------
                                                                        1,751       2,652       2,259       2,755       6,090
Selling, general and administrative expenses .....................      2,638       2,431       3,391       6,083       9,195
Loss (gain) on lease cancellation ................................       --          (244)        561        --          --
Impairment of prepaid salary and non-compete .....................       --          --          --           255         512
Impairment of goodwill ...........................................       --          --          --         5,029        --
Loss (gain) on sale of securities ................................        (11)        (22)       --           285        --
Loss (gain) on settlement of litigation ..........................       --          --          --          (249)        (13)
                                                                     --------    --------    --------    --------    --------
  Operating income (loss) ........................................       (876)        487      (1,693)     (8,648)     (3,604)
Royalty income ...................................................        100        --          --          --          --
Interest expense, net ............................................        497         405         544         690       1,588
                                                                     --------    --------    --------    --------    --------
  Income (loss) from continuing operations
   before income taxes (benefit)  ................................     (1,273)         82      (2,237)     (9,338)     (5,192)
Income taxes (benefit) ...........................................          7           6          81          74         (33)
                                                                     --------    --------    --------    --------    --------
  Income (loss) from continuing operations .......................     (1,280)         76      (2,318)     (9,412)     (5,159)
                                                                     --------    --------    --------    --------    --------
Discontinued operations:
  Loss from discontinued operations ..............................       --          --          --          --          (324)
  Gain (loss) on disposal of discontinued
   operations ....................................................       --          --          --           163      (1,479)
                                                                     --------    --------    --------    --------    --------
                                                                         --          --          --           163      (1,803)
                                                                     --------    --------    --------    --------    --------
Net income (loss) ................................................   $ (1,280)   $     76    $ (2,318)   $ (9,249)   $ (6,962)
                                                                     ========    ========    ========    ========    ========
Net income (loss) per common share:
  Income (loss) from continuing operations .......................   $   (.31)   $    .02    $   (.59)      (2.28)   $  (1.23)
  Income (loss) from discontinued operations .....................       --          --           --          .04        (.43)
                                                                     --------    --------    --------    --------    --------
Total net income (loss) per common share .........................       (.31)        .02        (.59)      (2.24)      (1.69)

Weighted average common shares outstanding .......................      4,124       4,037       3,904       4,128       4,196
                                                                     ========    ========    ========    ========    ========

<CAPTION>


                                                                                          AS OF DECEMBER 31,
                                                                     ---------------------------------------------------------
                                                                         2000        1999        1998        1997        1996
                                                                     --------    --------    --------    --------    ---------
SUMMARY BALANCE SHEET DATA:
  Total assets ...................................................   $  5,697    $  6,409    $  6,800    $ 11,178    $ 25,809
  Due to factor ..................................................      2,636       1,817       2,331       4,650       7,174
  Long term debt, excluding current portion ......................       --          --          --         ---           699
  Shareholders' equity ...........................................      2,067       3,310       3,031       5,327      14,390
</TABLE>



                                       6
<PAGE>


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

GENERAL

      The Company has historically developed its product lines primarily through
the acquisition of license rights to nationally recognized brand names for sales
of its apparel in the United States. During the last three years, the Company
streamlined its operations to focus on its most popular labels, relinquishing
its license rights for various brand name lines and liquidating its Canadian and
Hong Kong subsidiaries. The relinquished lines were replaced with exclusive
licenses for the ADOLFO brand in 1998 and the STANLEY BLACKER brand in 1999.
Stage II also increased emphasis on its own proprietary labels, primarily TIMBER
RUN and, commencing in 1999, the CROSS COLOURS trademark.

      In general, the Company's licensed brand name apparel sells at a higher
price and with greater gross profit margins than comparable non-branded apparel.
These advantages are partially offset by royalty and advertising costs included
in selling, general and administrative ("SG&A") expenses. The Company's new
lines were acquired with a view toward retaining the advantages of brand name
recognition without the high costs associated with its prior licenses.

      Prior to a change of control transaction that added a new management team
to Stage II in May 1998, the Company's difficulties in reducing SG&A expenses
and maintaining strong gross profit margins in the face of intensified
competition in the retail apparel market contributed to substantial net losses.
A turnaround strategy implemented by new management to reduce costs and increase
operating efficiencies contributed to modestly profitable operating results in
the last two quarters of 1998 before giving effect to various noncash or
nonrecurring items and throughout 1999. During 2000, despite a disciplined
adherence to these turnaround initiatives, an increasing soft retail market led
to significant order cancellations and related inventory writedowns, combined
with expenses for the launch of its CROSS COLOURS campaign, contributed to a net
loss of $1.3 million for the year.

      The Company has initiated a strategy designed to reverse this trend by
emphasizing trademark licensing in an effort to reduce the costs and inventory
risks associated with its apparel distribution business. While continuing to
distribute its own apparel lines on at least a transitional basis, Stage II will
continue to focus on opportunities to license a wide variety of retail items
under its CROSS COLOURS and TIMBER RUN brands in both domestic and international
markets. The Company may also seek to acquire additional trademark assets to
expand its licensing program.

RESULTS OF OPERATIONS

      SEASONALITY. Stage II experiences some seasonal business fluctuations due
primarily to seasonal buying patterns for its product mix of casual apparel and
activewear. While sales of the Company's products are made throughout the year,
the largest sales volume has historically occurred in the third quarter. The
following table reflects these quarterly fluctuations, which should not be
construed as indicative of future net sales.

                               QUARTERLY NET SALES
                                 (IN THOUSANDS)

                         FIRST      SECOND       THIRD      FOURTH
                        QUARTER     QUARTER     QUARTER     QUARTER      TOTAL
                        -------     -------     -------     -------      -----

2000................... $2,935      $2,758      $2,392      $1,806      $9,891
1999...................  1,591       2,270       3,412       3,264      10,537
1998...................  1,855       1,653       4,130       2,229       9,867

      The following tables present the Company's gross profit, net income (loss)
and net income (loss) per share during the last three years. The reduction in
gross profit in the fourth quarters of 2000 and 1998 reflects the sell off of
discontinued lines and an increase in inventory markdowns. Amounts may not add
across due to rounding.



                                       7
<PAGE>

                             QUARTERLY GROSS PROFIT
                                 (IN THOUSANDS)

                         FIRST      SECOND       THIRD      FOURTH
                        QUARTER     QUARTER     QUARTER     QUARTER      TOTAL
                        -------     -------     -------     -------      -----

2000................... $  755      $  765      $  616      $ (403)     $1,733
1999...................    515         636         664         740       2,555
1998...................    418         434       1,092          64       2,008


                           QUARTERLY NET INCOME (LOSS)
                                 (IN THOUSANDS)

                         FIRST      SECOND       THIRD      FOURTH
                        QUARTER     QUARTER     QUARTER     QUARTER      TOTAL
                        -------     -------     -------     -------      -----

2000................... $   37      $   20      $ (148)     $(1,189)   $(1,280)
1999...................     11          27           6          32          76
1998...................   (692)       (632)       (472)       (522)     (2,318)


                      QUARTERLY NET INCOME (LOSS) PER SHARE

                         FIRST      SECOND       THIRD      FOURTH
                        QUARTER     QUARTER     QUARTER     QUARTER    TOTAL
                        -------     -------     -------     -------    -----

2000................... $    .01    $    .00    $  (.04)    $  (.29)  $   (.31)
1999...................      .00         .01        .00         .01        .02
1998...................     (.18)       (.16)      (.12)       (.13)      (.59)


      2000 AND 1999. Net sales of $9.9 million in 2000 decreased by 6.1% from
$10.5 million in 1999. The decline in net sales during 2000 reflects overall
weakness in the Company's segment of the apparel market, which contributed to
significant order cancellations and related inventory writedowns.

      Cost of goods sold as a percentage of sales increased to 82.5% in 2000
compared to 75.8% in 1999. The increase in 2000 reflects increasingly softness
in the casual apparel market during the year, combined with off price sales of
discontinued brands.

      Commission and other income decreased by 81.4% during 2000 compared to the
prior year, reflecting a decrease in emphasis on the Company's lower margin
sales agency business.

      SG&A expenses in 2000 were $2.6 million for the year, an increase of 8.5 %
compared to $2.4 million in 1999, reflecting additional costs for the Company's
launch of its CROSS COLOURS brand of urban streetwear.

      Interest and factoring expenses aggregated $572,000 or 5.8% of sales in
2000 compared to $475,000 or 4.5% of sales in the prior year. The increase
reflects higher borrowing levels and interest rates.

      The Company recognized a net loss of $1,280,000 or $.31 per share in 2000
compared to net income of $76,000 or $.02 per share realized in 1999, reflecting
the foregoing factors and trends. Average common shares outstanding were
4,124,000 in 2000 and 4,037,000 in 1999.

      1999 AND 1998. Net sales of $10.5 million in 1999 increased by 6.1% from
$9.9 million in 1998. The increase primarily reflects a restructuring of the
Company's sales force by division or brand name to promote a more highly
motivated team with a deeper knowledge of each product line and targeted
customer base.



                                       8
<PAGE>

      Cost of goods sold as a percentage of sales decreased to 75.8% in 1999
compared to 79.6% in 1998. The decrease reflects improved arrangements with new
manufacturing sources, higher gross profit margins on the Company's new apparel
lines, greater concentration on core customer accounts and tighter inventory
controls.

      Commission and other income decreased by 61.4% during 1999 compared to the
prior year, reflecting a decrease in emphasis on the Company's lower margin
sales agency business.

      SG&A expenses in 1999 were $2.4 million, down 28.3% from $3.4 million in
1998, reflecting a cost reduction program initiated by the Company's new
management team. As a percentage to sales, SG&A expenses were 23.1% in 1999
compared to 34.4% in 1998.

      Interest and factoring expenses aggregated $475,000 or 4.5% of sales in
1999 compared to $892,000 or 9.1% of sales in 1998. The decrease reflects a
reduction in borrowing levels primarily attributable to tighter inventory and
factoring controls.

      The Company realized net income of $76,000 or $.02 per share in 1999
compared to a net loss of $2.3 million or $.59 per share net loss recognized in
1998. Average common shares outstanding were 4,037,000 in 1999 and 3,904,000 in
1998.

LIQUIDITY AND CAPITAL RESOURCES

      LIQUIDITY. Net cash used by Stage II's operating activities during 2000
aggregated $1,772,000. The Company's cash position decreased from $691,000 at
December 31, 1999 to $104,000 at December 31, 2000, reflecting cash requirements
to fund the Company's net loss for the year.

      CAPITAL   RESOURCES.   At  December  31,  2000,  the  Company   retained
marketable securities with a carrying value of $573,000.

      The Company has a credit facility with the CIT Group/Commercial Services,
Inc. The credit facility provides for the factor to purchase the Company's
accounts receivable that it has preapproved, without recourse, except in cases
of merchandise returns or billing or merchandise disputes in the normal course
of business. In addition, the factor is responsible for the accounting and
collection of all accounts receivable sold to it by Stage II. The factor
receives a commission under the credit facility in an amount less than 1% of the
net receivables it purchases. The agreements covering the credit facility also
provide for the issuance of letters of credit to fund the Company's foreign
manufacturing orders and for short term borrowings at a floating interest rate
equal to 1/2% above the prime rate.

      The Company's obligations under its credit facility are payable on demand
and secured by its inventory and accounts receivable. The aggregate amount of
letters of credit and borrowings available under the credit facility are
determined from time to time by the factor based upon the Company's financing
requirements and financial performance. The agreements covering the credit
facility may be terminated without penalty by the Company on May 31, 2001 or the
end of any subsequent contract year upon 60 days notice.

      As of December 31, 2000, the Company's net direct borrowings under its
credit facility aggregated $2.6 million. This reflects an increase of $819,000
from debt levels at December 31, 1999. The increase primarily reflects
additional borrowings to support higher inventory levels and to fund the
Company's operating loss for the year. Stage II may reborrow amounts repaid
under its Credit Agreement or seek other external means to finance its
operations in the future. As of December 31, 2000, the Company had no material
capital expenditure requirements.

      The Company plans to redirect its business to capitalize on trademark
licensing opportunities and limit its apparel distribution operations in an
effort to reduce the costs and inventory risks associated with its historical
core business. Borrowings available under its credit facility are expected to be
sufficient to meet the Company's anticipated working capital requirements
associated with its planned reduction in apparel distribution operations and
concentration on licensing opportunities for its existing trademark inventory.
To the extent additional trademark



                                       9
<PAGE>

assets are identified for expansion of its licensing program, the Company would
be required to seek external sources of financing other than its credit facility
to fund acquisitions.

      As a result of declining market prices for the Company's common stock and
operating losses recognized in 2000, its common stock could be subject to
delisting on the AMEX for failure to meet requirements for continuing AMEX
listing. In that event, in addition to reduced liquidity in the outstanding
common stock and related risks to Stage II shareholders, the Company's ability
to finance trademark acquisitions or other opportunities through equity
transactions could be substantially impaired.

      INFLATION.  The  general  level of  inflation  in  domestic  and foreign
economies  has not had a material  effect on the Company's  operating  results
during the last three years.

FORWARD LOOKING STATEMENTS

      This Report includes forward looking statements within the meaning of
Section 21E of the Securities Exchange Act relating to matters such as
anticipated operating and financial performance, business prospects,
developments and results of the Company. Actual performance, prospects,
developments and results may differ materially from anticipated results due to
economic conditions and other risks, uncertainties and circumstances partly or
totally outside the control of the Company, including risks of inflation,
fluctuations in market demand for the Company's products, changes in future cost
of sales, customer and licensee performance risks, trademark valuation
intangibles and uncertainties in the availability and cost of capital. Words
such as "anticipated," "expect," "intend," "plan" and similar expressions are
intended to identify forward looking statements, all of which are subject to
these risks and uncertainties.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      Stage II does not hold any derivative securities or other market rate
sensitive instruments. As of December 31, 2000, the Company held Government
National Mortgage Association bonds, corporate bonds, foreign bank and
government bonds and equity securities with an aggregate market value of
$573,000. The Company classifies these securities as available-for-sale and
accounts for the securities at fair value. Unrealized holding gains and losses
on these securities, net of the related tax effect, are excluded from earnings
and reported, until realized, as a component of accumulated other comprehensive
income in the equity section of the accompanying financial statements. Realized
gains and losses from the sale of available-for-sale securities are determined
on a specific identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed other than temporary
results in a reduction in carrying amount to fair value. The impairment is
charged to earnings, and a new cost basis for the security is established.
Dividend and interest income are recognized when earned.


                                       10
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                    PAGE
STAGE II APPAREL CORP:

<S>                                                                                                <C>
Independent Auditor's Report ....................................................................   F-1
Balance Sheets - December 31, 2000 and 1999 .....................................................   F-2
Statements  of  Operations - For the years ended  December 31, 2000,  1999 and 1998  ............   F-3
Statements of  Comprehensive  Loss - For the years ended  December 31, 2000, 1999 and 1998 ......   F-4
Statements of Shareholders'  Equity - For the years ended December 31, 2000, 1999 and 1998 ......   F-5
Statements of Cash Flows - For the years ended  December 31, 2000,  1999 and 1998  ..............   F-6
Notes to Financial Statements ...................................................................   F-7
Schedule II -- Valuation and Qualifying Accounts ................................................   F-16
</TABLE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE

      Not applicable.


                                    PART III

ITEM 10.  EXECUTIVE OFFICERS OF THE COMPANY

      The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
                                                                              OFFICER OF
                                                                              STAGE II
      NAME                  AGE                POSITION                         SINCE
      ----                  ---     ------------------------------            ----------

<S>                        <C>     <C>                                         <C>
      Richard Siskind.....  55      President and Chief Executive Officer       1998
      Beverly Roseman.....  42      Vice President                              1998
      Jon Siskind.........  32      Vice President                              1998
      Neil Fox............  55      Chief Financial Officer                     1999
</TABLE>

      A summary of the business experience and background of the Company's
officers is set forth below.

      RICHARD SISKIND joined the Company as President, Chief Executive Officer
and a director in May 1998. He has been in the apparel business for over 30
years, serving in a variety of roles and positions. By 1977, Mr. Siskind had
assumed the position of president of David Small Industries, Inc. In 1982, he
co-founded Apparel Exchange, Inc., an affiliated company. Both companies, sold
off-price men's, women's and children's apparel and reached sales aggregating
over $100 million by 1989. Mr. Siskind sold both companies in 1989. In 1991, he
founded R. Siskind and Company ("RSC"). He is a director, sole shareholder and
chief executive officer of RSC, which is in the business of purchasing top brand
name men's and women's apparel and accessories, and redistributing it to a
global clientele of upscale off-price retailers.

      BEVERLY ROSEMAN joined the Company as a Vice President and director in May
1998. She joined RSC in 1992 as the Merchandise Manager. In 1995, Mrs. Roseman
was appointed as RSC's Vice President of Buying, Merchandising and Operations.
Mrs. Roseman also oversees the Human Resources, MIS and Operational divisions of
RSC. From 1975 to 1980, Mrs. Roseman worked for R.H. Macy's, first as trainee
and then as a buyer. She was employed from 1980 to 1982 as a buyer for The
Broadway Department Stores in California, from 1982 to 1988 as a buyer for
Marshall's Inc. and from 1988 to 1992 as a Senior Buyer for T.J. Maxx. Mrs.
Roseman is a graduate of Adelphi University.



                                       11
<PAGE>

      JON SISKIND joined the Company as a Vice President and director in May
1998. He graduated from the University of Hartford in 1991, where he received
his B.A. in Economics. He joined RSC in the same year as an account executive
handling the Northeast and Mid West territories. In 1994, he was appointed
National Sales Manager and given the additional responsibility for overseeing
all sales and distribution. In 1995, he was appointed as RSC's Vice President of
Sales. Jon Siskind is the son of Richard Siskind.

      NEIL FOX joined the  Company  as Chief  Financial  Officer in July 1999.
He was Vice President and Chief Financial Officer of KSK  International,  Inc.
from  1996  through  1999,  prior to which he served  for 17 years in  various
capacities at Revlon,  Inc.,  most recently as Vice President and  Controller.
Mr. Fox is a CPA and graduate of Pace University.

      The balance of Part III to this Report is incorporated by reference to the
Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before May 1,
2001.



                                     PART IV

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

         (A) FINANCIAL STATEMENTS AND SCHEDULES:

            (1)   FINANCIAL STATEMENTS: The financial statements listed in the
                  Index under Item 8 are included at the end of this Report.

            (2)   SCHEDULES: Other than Schedule II Valuation and Qualifying
                  Accounts, all schedules for which provision is made in
                  applicable accounting regulations of the SEC have been omitted
                  as the schedules are either not required under the related
                  instructions, are not applicable or the information required
                  thereby is set forth in the Company's Financial Statements or
                  the Notes thereto.



                                       12
<PAGE>

            (3)   EXHIBITS:

   EXHIBIT
   NUMBER:     EXHIBIT
   --------    -------

      2.1*     Amended and Restated Certificate of Incorporation of the Company
     3.2*      By-Laws of the Company
     4.1*      Form of Stock Certificate
    10.1*      1987 Incentive Stock Option Plan
    10.2*      1998 Incentive Stock Option Plan
    10.3       1998 Nonqualified Stock Option Plan--A (incorporated by
               reference to Exhibit 10.4 to the Company's Quarterly Report on
               Form 10-Q (File No. 1-9502) for the quarter ended March 31,
               1998)
    10.4       1998 Nonqualified Stock Option Plan--B (incorporated by
               reference to Exhibit 10.5 to the Company's Quarterly Report on
               Form 10-Q (File No. 1-9502) for the quarter ended March 31,
               1998)
    10.5       Stock Purchase Agreement dated as of February 26, 1998 among the
               Company, Jack Clark, Robert Plotkin, Steven R. Clark and Richard
               Siskind (incorporated by reference to Exhibit 10.1 to the
               Company's Current Report on Form 8-K (File No. 1-9502) filed on
               March 2, 1998).
    10.6       Management Agreement dated as of February 26, 1998 between the
               Company and Richard Siskind (incorporated by reference to Exhibit
               10.2 to the Company's Current Report on Form 8-K (File No.
               1-9502) filed on March 2, 1998).
    24.1       Power of Attorney of Richard Siskind,  Robert Greenberg,  Barry
               Fertel, Beverly Roseman and Jon Siskind.
---------------------------

*     Incorporated by reference to the corresponding Exhibit filed with the
      Company's Registration Statement on Form S-1, as amended (Reg. No.
      33-12959).

      (B) REPORTS ON FORM 8-K:

      None.


                                       13
<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, this __th day of
March, 2001.

                             STAGE II APPAREL CORP.




<TABLE>
<S>                                           <C>
By:     /s/ NEIL FOX                           By:   /s/ RICHARD SISKIND
   ---------------------------                     ---------------------------
           Neil Fox                                     Richard Siskind
    Chief Financial Officer                     President and Chief Executive Officer
(Principal Financial and Accounting Officer)       (Principal Executive Officer)
</TABLE>



      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacity and on the date
indicated.



                                          TITLE                       DATE

Richard Siskind, Robert Greenberg,      Directors
Barry Fertel, Beverly Roseman and
Jon Siskind*


By:    /s/ RICHARD SISKIND
    -------------------------
*Richard Siskind as attorney-in-fact                             March 28, 2001




                                       14
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders of Stage II Apparel Corp.:



We have audited the accompanying balance sheets of Stage II Apparel Corp. as of
December 31, 2000 and 1999, and the related statements of operations,
comprehensive loss, shareholders' equity and cash flows and the related Schedule
II for each of the years in the three-year period ended December 31, 2000. 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 audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Stage II Apparel Corp. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2000, in
conformity with generally accepted accounting principles.

In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.


                                         /s/ MAHONEY COHEN & COMPANY, CPA, P.C.



New York, New York
February 27, 2001


                                       F-1
<PAGE>


                             STAGE II APPAREL CORP.
                                 BALANCE SHEETS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                  ---------------
                                                                                  2000       1999
                                                                                  ----       ----
<S>                                                                             <C>        <C>
ASSETS:
 Current assets:
  Cash and cash equivalents ..................................................   $   104    $   691
    Marketable securities ....................................................       573       --
    Accounts receivable ......................................................       129        393
  Finished goods inventory ...................................................     2,843      2,145
  Prepaid expenses ...........................................................        50         62
                                                                                 -------    -------
        Total current assets .................................................     3,699      3,291
  Property and equipment, at cost, less accumulated depreciation .............        28         34
  Marketable securities ......................................................      --          665
  Goodwill, less accumulated amortization and impairment of $8,154 and
   $7,988 at December 31, 2000 and 1999, respectively ........................     1,460      1,626
  Trademark, less accumulated amortization of $39 and $11 at December 31, 2000
   and 1999, respectively ....................................................       236        264
  Other assets ...............................................................       274        529
                                                                                 -------    -------
   TOTAL ASSETS ..............................................................   $ 5,697    $ 6,409
                                                                                 =======    =======

LIABILITIES:
  Current liabilities:
    Due to factor ............................................................   $ 2,636    $ 1,817
    Accounts payable .........................................................       490        380
    Due to affiliate .........................................................       347        640
    Other current liabilities ................................................       157        162
                                                                                 -------    -------
        Total current liabilities ............................................     3,630      2,999
  Deferred income ............................................................      --          100
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 1,000 shares authorized;
    none issued and outstanding ..............................................      --         --
  Common stock, $.01 par value, 9,000 shares authorized;  5,014 and 5,011
    shares issued and 4,128 and 4,122 shares outstanding at December 31, 2000
    and 1999, respectively ...................................................        50         50
Additional paid-in capital ...................................................     7,366      7,363
  Accumulated deficit ........................................................    (3,425)    (2,145)
                                                                                 -------    -------
                                                                                   3,991      5,268
  Less treasury stock, at cost; 889 shares at December 31, 2000 and 1999,
    respectively .............................................................    (1,879)    (1,879)
  Accumulated other comprehensive loss .......................................       (45)       (79)
                                                                                 -------    -------
    TOTAL SHAREHOLDERS' EQUITY ...............................................     2,067      3,310
                                                                                 -------    -------

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................   $ 5,697    $ 6,409
                                                                                 =======    =======
</TABLE>



See Notes to Financial Statements.



                                       F-2
<PAGE>

                             STAGE II APPAREL CORP.
                            STATEMENTS OF OPERATIONS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                         -------------------------------
                                                           2000        1999        1998
                                                         --------    -------     -------
<S>                                                     <C>         <C>         <C>
Net sales ............................................   $  9,891    $ 10,537    $  9,867
Cost of goods sold ...................................      8,158       7,982       7,859
                                                         --------    --------    --------

Gross profit .........................................      1,733       2,555       2,008
Commission and other income ..........................         18          97         251
                                                         --------    --------    --------
                                                            1,751       2,652       2,259

Selling, general and administrative expenses .........      2,638       2,431       3,391
(Gain) loss on lease cancellation ....................       --          (244)        561
Gain on sale of marketable securities ................        (11)        (22)       --
                                                         --------    --------    --------
Operating income (loss) ..............................       (876)        487      (1,693)

Other income (expenses):
  Royalty income .....................................        100        --          --
  Interest income ....................................         75          70         348
  Interest and factoring expenses ....................       (572)       (475)       (892)
                                                         --------    --------    --------

Income (loss) before income taxes ....................     (1,273)         82      (2,237)

Income taxes .........................................          7           6          81
                                                         --------    --------    --------
Net income (loss) ....................................   $ (1,280)   $     76    $ (2,318)
                                                         ========    ========    ========

Basic and dilutive net income (loss) per common share:   $   (.31)   $    .02    $   (.59)
                                                         ========    ========    ========

Weighted average common shares outstanding ...........      4,124       4,037       3,904
                                                         ========    ========    ========
</TABLE>






See Notes to Financial Statements.


                                       F-3
<PAGE>


                             STAGE II APPAREL CORP.
                        STATEMENTS OF COMPREHENSIVE LOSS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                              -------------------------------
                                                                                2000        1999        1998
                                                                              --------    -------     -------
<S>                                                                          <C>         <C>         <C>
Net income (loss) .........................................................   $(1,280)    $    76     $(2,318)

Other comprehensive income (loss): Unrealized gains (losses) on securities:
   Unrealized holding gains (losses) arising during the period ............        45         (59)         22
   Less: reclassification adjustment for gains included in
     net income (loss) ....................................................       (11)        (22)       --
                                                                              -------     -------     -------
                                                                                   34         (81)         22
                                                                              -------     -------     -------

Comprehensive loss ........................................................   $(1,246)    $    (5)    $(2,296)
                                                                              =======     =======     =======
</TABLE>








See Notes to Financial Statements.


                                       F-4
<PAGE>


                             STAGE II APPAREL CORP.
                       STATEMENTS OF SHAREHOLDERS' EQUITY

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                     RETAINED             ACCUMULATED
                                                      ADDITIONAL     EARNINGS                OTHER           TOTAL
                                            COMMON     PAID-IN     (ACCUMULATED  TREAS.   COMPREHENSIVE   SHAREHOLDERS'
                                             STOCK     CAPITAL       DEFICIT)    STOCK    INCOME (LOSS)      EQUITY
                                             -----     -------       --------    -----    -------------      ------
<S>                                       <C>         <C>          <C>         <C>        <C>             <C>
Balance at December 31, 1997 ...........   $    50     $7,502       $     97    $(2,302)   $   (20)        $ 5,327

Unrealized gains on securities, net of
  reclassification adjustment ..........      --          --           --         --            22              22
Net loss ...............................      --          --         (2,318)      --         --             (2,318)
                                           -------     -------      -------    -------    -------          -------

Balance at December 31, 1998 ...........        50       7,502       (2,221)    (2,302)         2            3,031

Unrealized losses on securities, net of
  reclassification adjustment ..........      --          --           --         --          (81)             (81)
Issuance of treasury stock for trademark      --          (148)        --          423        ---              275
Exercise of stock options ..............      --             9         --         --         --                  9
Net income .............................      --          --             76       --         --                 76
                                           -------     -------      -------    -------    -------          -------

Balance at December 31, 1999 ...........        50       7,363       (2,145)    (1,879)       (79)           3,310

Unrealized gains on securities, net of
  reclassification adjustment ..........      --          --           --         --           34               34
Exercise of stock options ..............      --             3         --         --         --                  3
Net loss ...............................      --          --         (1,280)      --         --             (1,280)
                                           -------     -------      -------    -------    -------          -------
Balance at December 31, 2000 ...........   $    50     $ 7,366      $(3,425)  $ (1,879)   $   (45)         $ 2,067
                                           =======     =======      =======    =======    =======          =======
</TABLE>










See Notes to Financial Statements.


                                       F-5
<PAGE>


                             STAGE II APPAREL CORP.
                            STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                         2000        1999         1998
                                                                        ------      ------       ------
<S>                                                                   <C>         <C>         <C>
OPERATING ACTIVITIES:
Net income (loss) ..................................................   $ (1,280)   $     76    $ (2,318)
Adjustments to reconcile net income (loss) to net cash
 provided by (used in) operating activities:
 Depreciation and amortization .....................................        229         241         290
 Gain on sale of marketable securities .............................        (11)        (22)       --
 Loss (gain) on lease cancellation .................................       --          (244)        561
 Changes in assets and liabilities:
   Accounts receivable .............................................        264        (290)        393
   Finished goods inventory ........................................       (698)        710        (359)
   Prepaid expenses ................................................         12          (8)        160
   Prepaid income taxes and refunds receivable .....................       --          --            30
   Other assets ....................................................       --          --           300
   Accounts payable ................................................        110        (407)        181
   Due to affiliate ................................................       (293)        614          26
   Other current liabilities .......................................         (5)       (219)       (228)
   Deferred income .................................................       (100)        100        --
                                                                       --------    --------    --------
Net cash provided by (used in) operating activities ................     (1,772)        551        (964)
                                                                       --------    --------    --------
INVESTING ACTIVITIES:
 Purchase of property and equipment ................................        (20)        (11)         (4)
 Sale or redemption of available-for-sale marketable securities ....        205          81       3,170
 Purchase of available-for-sale marketable securities ..............        (68)       (417)       (211)
 Decrease in cash surrender value ..................................        246        --          --
                                                                       --------    --------    --------
 Net cash provided by (used in) investing activities ...............        363        (347)      2,955
                                                                       --------    --------    --------
FINANCING ACTIVITIES:
 Borrowings from factor ............................................      5,911       4,989      10,527
 Repayments to factor ..............................................     (5,092)     (5,503)    (12,846)
 Decrease in restricted cash .......................................       --          --           679
 Exercise of stock options .........................................          3           9        --
                                                                       --------    --------    --------
Net cash provided by (used in) financing activities ................        822        (505)     (1,640)
                                                                       --------    --------    --------
Net increase (decrease) in cash and cash equivalents ...............       (587)       (301)        351
Cash and cash equivalents at beginning of year .....................        691         992         641
                                                                       --------    --------    --------
Cash and cash equivalents at end of year ...........................   $    104    $    691    $    992
                                                                       ========    ========    ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid for income taxes ........................................   $      7    $      7    $     51
                                                                       ========    ========    ========
 Cash paid for interest, excluding factoring fees ..................   $    449    $    314    $    646
                                                                       ========    ========    ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 Increase (decrease) in allowance for decline in market value of
    available for sale securities ..................................   $    (34)   $     81    $    (22)
                                                                       ========    ========    ========
 Issuance of treasury stock in exchange for trademark ..............   $   --      $    275    $     --
                                                                       ========    ========    ========
</TABLE>






See Notes to Financial Statements.


                                      F-6

<PAGE>



                             STAGE II APPAREL CORP.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      BUSINESS ACTIVITY. The Company designs, arranges for the manufacture and
markets an extensive range of sports and casual apparel. Products are marketed
under exclusive and non-exclusive brand name licenses as well as proprietary and
private labels.

      REVENUE RECOGNITION. Stage II recognizes revenue from all categories of
apparel sales at the time merchandise is shipped. Commissions from sales agency
operations are recognized when invoiced to customers.

      GOODWILL. The Company's goodwill, representing the excess of purchase
price over fair value of net assets acquired, is amortized on a straight-line
basis over 15 years, the expected periods to be benefited. Stage II assesses the
recoverability of goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired products, customers and operations.

      TRADEMARK. The trademark acquired by the Company in 1999 is stated at cost
and is amortized using the straight-line method over ten years.

      ASSET IMPAIRMENT UNDER FAS 121. The Company complies with the Financial
Accounting Standards Board Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF ("FAS 121"). FAS 121
requires long-lived assets and certain identifiable intangibles to be reviewed
for impairment whenever changes in circumstances such as significant declines in
sales, earnings or cash flows or material changes in the business climate
indicate that their carrying amount may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the asset to future net cash flows expected to be generated by the asset. If the
asset is considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the asset exceeds the fair value
of the asset. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less cost to sell.

      CASH EQUIVALENTS. The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.

      MARKETABLE SECURITIES. The Company maintains an account with a brokerage
firm containing a money market fund and marketable securities, with balances
insured against the brokerage firm's failure for up to $500,000 ($100,000 for
cash) by the Securities Investor Protection Corporation. Marketable securities
at December 31, 2000 and 1999 consist of Government National Mortgage
Association ("GNMA") bonds, corporate equity and debt securities. The Company
classifies its debt and equity securities as available-for-sale and records the
securities at fair value. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and are reported, until realized, as a component of accumulated other
comprehensive income in the equity section of the accompanying financial
statements. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis. A decline in the
market value of any available-for-sale security below cost that is deemed other
than temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings, and a new cost basis for the security is
established. Dividend and interest income are recognized when earned.

      FINISHED GOODS INVENTORY. Finished goods inventory is stated at the lower
of cost (first-in, first-out method) or market.

      PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost.
Depreciation and amortization are computed on both the straight-line and
accelerated methods, at rates based upon estimated useful lives of 3 to 7 years
for furniture, fixtures and equipment and the shorter of the lease term or life
of the leasehold improvements. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from



                                       F-7
<PAGE>

the accounts, and any resulting gain or loss is reflected in operations. The
cost of maintenance and repairs is charged to income as incurred, and
significant renewals and betterments are capitalized.

      INCOME TAXES. Deferred income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are projected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

      NET INCOME (LOSS) PER COMMON SHARE. The Company calculates net income
(loss) per share as required by SFAS No. 128, "Earnings per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
the basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share exclude any dilutive effect of stock options, warrants
and convertible securities.

      STOCK-BASED COMPENSATION. The Company follows SFAS No. 123, "ACCOUNTING
FOR STOCK-BASED COMPENSATION." The provisions of SFAS No. 123 allow companies to
either expense the estimated fair value of stock options or to continue to
follow the intrinsic value method set forth in Accounting Principles Board
Opinion 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" ("APB 25") but disclose
the pro forma effects on net income (loss) had the fair value of the options
been expensed. The Company has elected to continue to apply APB 25 in accounting
for its stock option incentive plans. See Note 12-Stock Option Plans.

      USE OF 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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.

      COMPREHENSIVE INCOME. Effective January 1, 1998, the Company adopted
Financial Accounting Standards Board Statement No. 130, "REPORTING COMPREHENSIVE
INCOME" ("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components in financial statements.

      RECLASSIFICATION. Certain amounts reported in the 1999 financial
statements have been reclassified to conform with the 2000 presentation.

NOTE 2.  MAJOR CUSTOMERS AND GEOGRAPHIC AREA DATA

      Stage II operates in one industry segment. The Company's apparel sales are
made primarily in the United States. Its customers are generally comprised of
sporting goods and specialty store chains, mass merchandisers and various
wholesale membership clubs. During 2000, 1999 and 1998, approximately 10%, 11%
and 16% of respective net sales were made to one customer.

NOTE 3.  DUE TO FACTOR

      In May 1998, Stage II entered into a new factoring and credit facility
with a financial institution (the "Credit Facility"). The agreement provides for
the factor to purchase the Company's accounts receivable that it had
preapproved, without recourse except in cases of merchandise returns or billing
or merchandise disputes in the normal course of business. In addition, the
factor is responsible for the accounting and collection of all accounts
receivable sold to it by the Company. The factor receives a commission under the
Credit Facility in an amount less than 1% of the net receivables it purchased.
The Credit Facility also provides for the issuance of letters of credit to fund
the Company's foreign manufacturing orders and for short-term borrowings at a
floating interest rate equal to 1/2% above the prime rate. The aggregate amount
of letters of credit and borrowings available under the Credit Facility is
determined from time to time by the factor based upon the Company's financing
requirements and financial performance. The Credit Facility may be terminated
without penalty by the Company on May 31, 2001 or



                                       F-8
<PAGE>

the end of any subsequent contract year by either party upon 60 days notice. The
Company's obligations under the Credit Facility are payable on demand and
secured by its inventory and accounts receivable. The Company has been advised
by its factor that it believes there is a technical event of default under the
agreement, but that it does not intend to exercise or seek any remedies under
the agreement.

      The Company was indebted to the factor under the Credit Facility at
December 31, 2000 and 1999 as follows:

                                 (IN THOUSANDS)

                                                     DECEMBER 31,
                                                   -----------------
                                                    2000      1999
                                                   ------    -------
      Factor advances...........................   $3,056    $2,763
      Accounts receivable.......................     (420)     (946)
                                                   ------    ------
      Net due to factor.........................   $2,636    $1,817
                                                   ======    ======


NOTE 4. ACCOUNTS RECEIVABLE

      Accounts receivable, less allowances for returns, discounts and bad debts
aggregating $24,000 and $17,000 at December 31, 2000 and 1999, respectively,
consist primarily of non-factored receivables and other amounts due from
customers for domestic shipments and overseas commissions. Substantially all of
the Company's receivables have been pledged to secure the Company's obligations
under the Credit Facility. See Note 3-Due to Factor.

NOTE 5.     PROPERTY AND EQUIPMENT

      The major classes of property and equipment are as follows:

                                 (IN THOUSANDS)
                                                              DECEMBER 31,
                                                            -----------------
                                                             2000      1999
                                                            ------    -------

      Furniture, fixtures and equipment..................   $  230    $  586
      Leasehold improvements.............................       12        12
                                                            ------    ------
                                                               242       598
      Less accumulated depreciation and amortization.....      214       564
                                                            ------    ------
      Total..............................................   $   28    $   34
                                                            ======    ======


NOTE 6. MARKETABLE SECURITIES

      The following table sets forth the amortized cost, gross unrealized
holding gains, gross unrealized holding losses and fair value for
available-for-sale securities by major security type at December 31, 2000 and
1999:


                                      F-9

<PAGE>

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            GROSS       GROSS
                                                         UNREALIZED  UNREALIZED
                                               AMORTIZED   HOLDING     HOLDING     FAIR
                                                 COST       GAINS      LOSSES      VALUE
                                                 ----       -----      ------      -----
<S>                                           <C>         <C>       <C>         <C>
Year ended December 31, 2000:
  Asset backed securities maturing 2023-2029 .   $241       $---       $ (3)       $238
  Corporate bonds maturing 2003 ..............     27          1        --           28
  Municipal bonds maturing 2002-2010 .........     78        --         --           78
  Equity securities ..........................    184        --         (16)        168
  GNMA's maturing 2023 .......................     76        --         (27)         49
  Industrial Development Bank of Israel bonds
   maturing 2001 .............................      6        --         --            6
  State of Israel bond maturing 2001 .........      6        --         --            6
                                                 ----       ----       ----        ----
Total ........................................   $618       $  1       $(46)       $573
                                                 ====       ====       ====        ====

Year ended December 31, 1999:
  Asset backed securities maturing 2023 - 2029   $411       $  2       $(20)       $393
  Corporate bonds maturing 2003 ..............     27        --          (1)         26
  Municipal bond maturing 2014 ...............     34        --          (2)         32
  Equity securities ..........................    184        --         (30)        154
  GNMAs maturing 2023 ........................     76        --         (28)         48
  Industrial Development Bank of Israel bonds
   maturing 2001 .............................      6        --         --            6
  State of Israel bond maturing 2001 .........      6        --         --            6
                                                 ----       ----       ----        ----

Total ........................................   $744       $  2       $(81)       $665
                                                 ====       ====       ====        ====
</TABLE>


NOTE 7.  FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying amounts of financial instruments approximate their fair
values as of December 31, 2000 and 1999. The methods and assumptions used to
estimate the fair values of the financial instruments vary among the types of
instruments. For cash, accounts receivable, due to factor, accounts payable, due
to affiliate and other current liabilities, the short maturity of the
instruments and obligations supports their fair values at their respective
carrying amounts. For marketable securities, fair values are based on quoted
market prices at the reporting date for these or similar investments.

NOTE 8.  LEASES

      The Company leases showroom and office space under an operating lease
expiring in 2004. The lease includes escalation clauses based upon the cost of
living, as defined. See Note 9. For the years ended December 31, 2000, 1999 and
1998, rent expense charged to operations, including variable storage charges at
a public warehouse utilized on a month-to-month basis, aggregated approximately
$140,000, $120,000 and $271,000, respectively.

      In July 1998, the Company obtained a cancellation of its office lease at
350 Fifth Avenue in New York City, which covered 10,800 square feet for a term
through 2006 at an average annual rent of $343,000 plus electricity, taxes and
expense escalations. The lease cancellation was effective as of July 15, 1998,
subject to payment of a $325,000 cancellation fee in four installments through
October 1, 1998. In connection with the cancellation, the Company relocated its
administrative and sales offices to 1385 Broadway, New York, New York, where it
obtained a lease for 3,000 square feet through 2004 at a total annual cost of
approximately $80,000. The loss on the lease cancellation for the year ended
December 31, 1998 was estimated at $561,000. The Company reversed $244,000 of
that amount in 1999 to reflect the difference between estimated and actual lease
cancellation and relocation expenses.





                                      F-10
<PAGE>

      At December 31, 2000, future minimum annual rentals under the
noncancellable operating lease (excluding variable storage charges at a public
warehouse that may be utilized on a month-to-month basis) are as follows:

                                 (IN THOUSANDS)

      YEAR ENDING
     DECEMBER 31,
     ------------

         2001...................................................   $  79
         2002...................................................      79
         2003...................................................      79
         2004...................................................      13
                                                                   -----
         Total..................................................   $ 250
                                                                   =====


NOTE 9.  RELATED PARTY TRANSACTIONS

      SERVICES BY AFFILIATE. In May 1998, Richard Siskind, the President, Chief
Executive Officer and a director of the Company, acquired 1.9 million shares of
the Company's common stock from three of its founders. See Note 12--Stock Option
Plans. During 1999, a company controlled by Mr. Siskind (the "affiliate") opened
letters of credit of approximately $180,000, for the purchase of merchandise by
the Company. During 2000, 1999 and 1998, certain employees of the affiliate
performed services for the Company at no charge, and the Company shared certain
office and warehouse space of the affiliate at no charge. During 2000 and 1999,
the Company purchased from the affiliate $1.3 million and $2.2 million of
inventory, respectively. During 2000 Company sold $474,000 of inventory to the
affiliate. At December 31, 2000 and 1999, the Company was indebted to the
affiliate in the aggregate amounts of $347,000 and $640,000, respectively.

      LEASE FROM AFFILIATE. In 1998, the Company entered into an operating lease
for showroom space with a company owned by Jon Siskind, an officer and director
of the Company and the son of Richard Siskind. See Note 8-Leases. Rent expense
charged to operations for this lease was approximately $92,000, $87,000 and
$12,000 for the years ended December 31, 2000, 1999 and 1988, respectively.

      PURCHASE OF TRADEMARK FROM A DIRECTOR. In 1999, Stage II purchased a
trademark from a group including one of the Company's outside directors. In
payment for the trademark, the Company exchanged 200,000 shares of its common
stock from treasury shares with a cost basis of $423,000 and a fair value of
$275,000, the difference of which was charged to additional paid in capital.

NOTE 10.  INCOME TAXES

      The provision for income taxes consists of the following:

                                 (IN THOUSANDS)

                                                      YEAR ENDED DECEMBER 31,
                                                   ---------------------------
                                                    2000       1999      1998
                                                   ------     ------    ------
Provision for income taxes:
  Domestic:
   Current:
     Federal....................................   $  ---     $  ---    $   79
     State......................................        7          6         2
                                                   ------     ------    ------
                                                   $    7     $    6    $   81
                                                   ======     ======    ======


      The total provision for income taxes for the years ended December 31,
2000, 1999 and 1998 varied from the United States federal amounts computed by
applying the U.S. statutory rate of 34% to pre-tax income (loss) as a result of
the following:





                                      F-11
<PAGE>

                       (IN THOUSANDS, EXCEPT PERCENTAGES)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                 -----------------------------------------------------------
                                                   2000        RATE        1999      RATE     1998     RATE
                                                 -------    --------     -------   --------  -------  ------
<S>                                             <C>           <C>        <C>        <C>     <C>       <C>
Computed expected tax (benefit) ..............   $ (433)       34.0       $   28     34.0    $ (788)   34.0
Utilization of NOL carryforward ..............       --          --          (28)   (34.0)       --      --
Limitation on NOL due to change of control ...       --          --           --       --     1,088   (47.0)
State and local income taxes (benefit), net
  of federal income tax benefit ..............        7         (.5)           6      7.3         1      --
Change in valuation allowance ................      429       (33.7)          --       --      (348)   15.0
Alternative minimum tax ......................       --          --           --       --        49    (2.1)
Adjustment of previously recorded tax benefit                                  3       3.7       30    (1.3)
Nondeductible expenses for income tax purposes        4         (.3)           3       3.7       11     (.5)
Other ........................................       --                       (6)     (7.4)      38    (1.6)
                                                 ------      ------       ------     -----    -----    ----
                                                 $    7         (.5)      $    6       7.3    $  81    (3.5)
                                                 ======      ======       ======     =====    =====    ====
</TABLE>


      The tax effects of temporary differences that gave rise to a significant
portion of the deferred tax assets and liabilities at December 31, 2000 and 1999
are as follows:

                                 (IN THOUSANDS)

                                                                DECEMBER 31,
                                                              ----------------
                                                               2000      1999
                                                              ------    ------
Current deferred tax assets:
  Inventory tax basis greater than financial statement basis  $  150    $   51
  Less valuation allowance.................................     (150)      (51)
                                                              -------   ------
  Net current deferred tax assets..........................   $  ---    $  ---
                                                              ======    ======

Long-term deferred tax assets:
  Net operating loss carryforward..........................   $2,275    $1,743
  Amortization of goodwill and covenant not to compete.....      712       794
                                                              ------    ------
   Total long-term deferred tax assets.....................    2,987     2,537
Less valuation allowance...................................   (2,987)   (2,537)
                                                              -------   ------
  Net long-term deferred tax assets........................   $  ---    $  ---
                                                              ======    ======


      For the years ended December 31, 2000, 1999 and 1998, the Company recorded
net increases (decreases) in the total valuation allowance of $549,000,
$(168,000) and $(348,000), respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not,
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. As of December 31, 2000, the Company had net operating
loss carryforwards for income tax purposes of approximately $5.4 million
expiring through 2020, subject to annual limitations.

NOTE 11.  COMMITMENTS AND CONTINGENCIES

      OUTSTANDING  LETTERS OF CREDIT.  At December 31,  2000,  the Company was
contingently  liable on outstanding  letters of credit issued under its Credit
Agreement in the aggregate amount of $.3 million.  See Note 3-Due to Factor.



                                      F-12
<PAGE>

      LICENSE AGREEMENTS. The Company's license agreements generally require
minimum royalty payments and advertising expenditures, as well as providing for
maintenance of quality control. Royalty expense for the years ended December 31,
2000, 1999 and 1998 aggregated approximately $152,000, $50,000 and $200,000,
respectively.

      The Company's STANLEY BLACKER license runs for a term ending December 31,
2001, with renewal options under certain circumstances. Minimum royalties are
established at $37,500 for the year ending December 31, 2001.

      The Company is the licensor of its CROSS COLOURS trademark for boys'
sportswear apparel under an agreement with a three-year term ending in 2002.
Unpaid minimum royalties to Stage II under the agreement are $420,000 in 2001
and $660,000 in 2002. The Company has brought an action in New York County
Supreme Court against the licensee for unpaid royalties aggregating in excess of
$1.5 million under the license agreement. The licensee has filed counterclaims
seeking the return of an initial $100,000 payment under the agreement. The
Company believes the counterclaims are without merit and plans to vigorously
pursue its claims.

      MISCELLANEOUS CLAIMS. Various miscellaneous claims and suits arising in
the ordinary course of business have been filed against the Company. In the
opinion of management, none of these matters will have a material adverse effect
on the results of operations or the financial position of the Company.

NOTE 12.  STOCK OPTION PLANS

      The Company maintains Incentive Stock Option Plans (the "Plans") adopted
in 1998 and 1994 providing for the grant of options to purchase up to 1,000,000
shares and 300,000 shares, respectively, of the Company's common stock to key
employees of Stage II. The purchase price per share of common stock issuable
upon the exercise of options granted under the Plans is fixed by a Compensation
Committee of the Board of Directors in an amount equal to, at least 100% of the
market price of the common stock on the date of the grant or 110% of the market
price for any grantee of an incentive stock option who directly or indirectly
possess more than 10% of the total combined voting power of all classes of the
stock of the Company or any parent or subsidiary thereof. Each option granted
under the Plans is exercisable for periods of up to ten years from the date of
grant.

      Stock option activity under the Plans for each of the three years ended
December 31, 2000 is summarized below:

<TABLE>
<CAPTION>
                                                                 WEIGHTED AVERAGE
                                               SHARES SUBJECT     EXERCISE PRICE
                                                 TO OPTIONS         PER SHARE
                                                 ----------         ----------
<S>                                               <C>               <C>
Balance at December 31, 1997.....................   55,000           $    3.250
                                                   -------           ----------

Options granted..................................  917,500                 .750
Options exercised................................     ---                 ---
Options canceled.................................  (65,000)               3.250
                                                   -------           ----------

Balance at December 31, 1998.....................  907,500                 .750
                                                   -------           ----------

Options granted..................................   35,000                1.250
Options canceled.................................  (41,500)                .813
                                                   -------           ----------

Balance at December 31, 1999.....................  901,000                 .836
                                                   -------           ----------

Options granted..................................   35,000                 .518
Options canceled.................................  (15,000)               1.250
                                                   -------           ----------
Balance at December 31, 2000.....................  921,000           $     .811
                                                   =======           ==========
</TABLE>


                                      F-13
<PAGE>

OPTION EXERCISABLE AND AVAILABLE FOR GRANT

Exercisable at December 31,
1998.............................................  907,500
1999.............................................  901,000
2000.............................................  921,000

Available for grant at December 31,
1998.............................................  392,500
1999.............................................  399,000
2000.............................................  379,000

Weighted average fair value of options granted
during the year ended December 31,
1998.............................................    $ .56
1999.............................................     1.25
2000.............................................      .52

Weighted average remaining contractual rights (in months)
  at December 31, 2000...........................    35.46


      For the years ended December 31, 2000 and 1998, common equivalent shares
had an antidilutive effect. The share amounts for the basic and diluted earnings
per share calculations for the year ended December 31, 1999 were as follows:

                                 (IN THOUSANDS)

                                                                    DEC. 31,
                                                                    1999
                                                                   ----------
Weighted average basic shares outstanding........................   4,037
Shares issuable upon exercise of stock options...................     483
                                                                    -----
Weighted average diluted shares outstanding......................   4,520
                                                                    =====


      In May 1998, the Company consummated the transactions contemplated by a
Stock Purchase Agreement and Management Agreement with Richard Siskind,
providing for (i) the sale to Mr. Siskind of 1.9 million shares of the Company's
common stock (the "Control Shares") held by three principal shareholders (the
"Founders") in consideration for their release from guarantees of the Company's
indebtedness to its factor and their receipt of options to reacquire a total of
1.5 million Control Shares from Mr. Siskind at exercise prices ranging from $.50
to $1.50 per share (the "Founders Options"), (ii) the Company's issuance to Mr.
Siskind of options to purchase up to 1.5 million shares of common stock on the
same terms as the Founders Options, exercisable only to the extent the Founders
Options are exercised, (iii) the arrangement by Mr. Siskind of the Credit
Facility for the Company, (iv) the reconstitution of the Company's board of
directors with designees of Mr. Siskind, (v) the addition of a new management
team headed by Mr. Siskind and (vi) the Company's issuance to Mr. Siskind of
options to purchase up to 900,000 shares of common stock at an exercise price of
$.75 per share, exercisable in one-third cumulative annual installments,
commencing in May 1999. All of the options issued to Mr. Siskind were approved
by the shareholders of Stage II at its 1998 annual meeting of shareholders. In
July 1998, Founders Options for 1.35 million Control Shares were acquired from
the Founders by Jon Siskind, an officer and director of the Company.

      The Company follows APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, to account for employee stock option plans. An alternative method of
accounting for stock options is Statement of Financial Accounting Standards No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under FAS 123, employee stock
options are valued at grant date using the Black-Scholes valuation model, and
this compensation cost is recognized ratably over the vesting period. The
Company has adopted the disclosure-only provision of FAS 123 and, as



                                      F-14
<PAGE>

described in Note 1, will continue to apply APB 25 to account for stock options.
If the Company had elected to determine compensation expense as provided in FAS
123, the pro forma effect would have been as follows:

                                                          (IN THOUSANDS)

                                                      YEAR ENDED DECEMBER 31,
                                                   ---------------------------
                                                    2000       1999      1998
                                                   ------     ------    ------

Net income (loss)--  as reported................   $(1,280)   $   76   $(2,318)
Net loss-- pro forma............................    (1,600)     (636)   (2,984)
Earnings (loss) per share--  as reported........      (.31)      .02      (.59)
Loss per share-- pro forma......................      (.39)     (.16)     (.76)


      The Black-Scholes model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are freely transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's options have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure for the fair value
of options issued by the Company to its employees.

      The weighted average Black-Scholes value of options granted under the
stock option plans during 2000, 1999, and 1998 was $.02, $.56, and $.56
respectively. The value was estimated for 2000 using a weighted average expected
life of one year, volatility of 1.95 and risk-free interest rate of 5%. The
value was estimated for 1999 and 1998 using a weighted average expected life of
five to seven years, volatility of 108.98 and risk-free interest rate of 6%.


                                      F-15

<PAGE>


SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS


                             STAGE II APPAREL CORP.

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A                                  COLUMN B                              COLUMN D       COLUMN E
--------                                  --------             COLUMN C         --------       --------
                                                              ADDITIONS
                                                       ----------------------

                                          BALANCE AT   CHARGED TO  CHARGED TO
                                          BEGINNING    COSTS AND     OTHER                    BALANCE AT
                                          OF PERIOD    EXPENSES     ACCOUNTS    DEDUCTIONS   END OF PERIOD
                                          ---------    --------     --------    ----------   -------------
<S>                                      <C>          <C>         <C>          <C>          <C>
ALLOWANCE FOR RETURNS, DISCOUNTS
  AND BAD DEBTS:

Year ended December 31, 2000               $  17         $  76         --        $ (69)(1)       $  24

Year ended December 31, 1999                  56            --         --          (39)(1)          17

Year ended December 31, 1998                 432           208         --         (584)(1)          56
</TABLE>

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

   (1)      Writeoff of uncollectible accounts.


                                      F-16