<PAGE>

================================================================================


                       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, 1999           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, 2000, there were 4,121,267 shares of Common Stock outstanding,
and the aggregate market value of shares held by unaffiliated shareholders was
approximately $2,800,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report.


================================================================================

<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. During the last two years, the Company has streamlined its operations
under a new management team, increased its focus on its most popular labels,
acquired the CROSS COLOURS trademark, a pioneer in the early development of
young men's urban fashion, added an Internet enabled virtual showroom for new
and existing customers.

         MARKET POSITION. The Company believes it is a recognized supplier with
a reputation for quality and value in its market segment. 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 1999, Stage II had over 500
customers, with increasing penetration anticipated from its new brands targeted
at higher end markets and from a recently implemented program for licensing its
own CROSS COLOURS brand outside its market sector.

         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. The Company's products are produced to its specifications by
various independent manufacturers in Asia, Africa and Europe.

         MARKET INNOVATION. Stage II launched an innovative business-to-business
website on the Internet in March 1999 for sales of its licensed brandname and
proprietary apparel lines to retailers in the United States and worldwide sales
of its proprietary lines. The facility enhances the Company's visibility to the
trade and provides a convenient sourcing tool to its customers. Ultimately, the
website is also expected to reduce Stage II's dependence on commissioned
salesmen, resulting in higher profit margins. See "Marketing."

         PRODUCT INNOVATION. In May 1999, Stage II acquired the CROSS COLOURS
trademark, a pioneer brand in the early development of young men's urban
streetwear. The brand was originally launched in 1989, achieving rapid success
in the early 1990s by creating a fresh new urban look in the young men's fashion
forward market. The Company has developed its own lines of CROSS COLOURS
streetwear and plans to license a wide variety of retail items to expand the
availability of these products in mainstream market segments. See
"ProductsCCross Colours Trademark" below.

REDIRECTION OF BUSINESS

         PRIOR LOSSES. Prior to its management change in 1998, the Company had
difficulties in maintaining strong gross profit margins and cutting fixed costs.
This resulted in substantial losses between 1995 and 1997. See "Management's
Discussion and Analysis of Financial Position and Results of Operations." Stage
II's new management brought in during 1998 implemented a number of strategic
changes to reverse the decline in the Company's business. These efforts were
undertaken with a view to increasing shareholder values by cutting expenses,
restructuring the sales force, improving controls, increasing productivity,
adding new apparel lines and acquiring the CROSS COLOURS TRADEMARK to the
strengthen the Company's asset base and market appeal.

         CHANGE OF CONTROL. In May 1998, Stage II and three of its founders (the
"Founders") completed various transactions (the "Change of Control
Transactions") with Richard Siskind, the principal shareholder and CEO of
several companies engaged in the apparel industry. The Change of Control
Transactions included the sale to Mr. Siskind of 1.9 million shares of the
Company's common stock ("SA Common Stock") held by the Founders. As part of the
Change of Control Transactions, the Company also added a new management team
headed by Mr. Siskind, reconstituted its

<PAGE>


board of directors and obtained a new credit facility arranged by Mr. Siskind.
The Company believes Mr. Siskind's experience and industry contacts have
substantially contributed to its turnaround, reflected by its return to
profitability in 1999.

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 as many as sixteen brand name
licenses by 1993.

         During the last three years, the Company streamlined its operations to
focus on its most popular labels, relinquishing its license rights for six brand
name lines, liquidating its interests in its Canadian and Hong Kong subsidiaries
and discontinuing its arrangements with a licensee of NBA and NFL brand
sportswear. The relinquished lines have been replaced with a new exclusive
license for the ADOLFO brand in 1998 and the STANLEY BLACKER brand in August
1999. In addition, the Company has increased emphasis on its own proprietary
labels, primarily TIMBER RUN, MAIN EVENT, PRO TOUR and, commencing in 1999, the
CROSS COLOURS trademark, a pioneer brand in the early development of young men's
urban fashion. Stage II has relaunched the Cross Colours brand for the 2000
Spring/Summer season with the same innovation in design and marketing associated
with the pioneer trademark. Its new lineup of CROSS COLOURS streetwear has been
well received by upstairs specialty stores nationwide, creating momentum for the
line as well as licensing opportunities for products outside the Company's
market sector.

         ADOLFO LICENSES. In August 1998, the Company added exclusive ADOLFO
licenses for two separate apparel lines. The first includes mens activewear and
leisure lifestyle apparel. The second features an upscale collection of mens
knitwear, sweaters and woven shirts. Both lines are targeted for department,
sporting goods and specialty stores. The licenses run for three-year terms with
extension rights through December 2009. The ADOLFO Collection marks the
Company's initial success in trading up to more upscale brands identified with
higher quality markets, while the activewear license provides an opportunity to
expand recognition for this brand within the Company's existing customer base.
Stage II has allocated substantial resources to build the new lines and believes
the favorable terms of the license, coupled with the other components of its
turnaround strategy, will contribute to the planned rebuilding of its core
business. Sales of the new ADOLFO lines commenced in the 1999 Spring season.

         STANLEY BLACKER LICENSE. In August 1999, the Company obtained an
exclusive license to use the STANLEY BLACKER brand for men's activewear,
swimwear, jeans, sleepwear and loungewear, as well as various categories of
accessories. With this established prestige brand, Stage II expects to increase
its presence in the higher end markets with a wider distribution channel for the
covered categories, upgrading its product mix to further improve overall
margins.

         LICENSED BRAND NAME APPAREL SALES. The Company's licensed brand name
apparel generally sells at a higher price and with greater gross profit margins
than its comparable private and proprietary label apparel. During 1999, 1998 and
1997, sales of brand name apparel accounted for approximately 19%, 46% and 60%,
respectively, of the Company's net sales. The historical reduction in licensed
brand name apparel as a percentage of product mix reflects an increased reliance
on proprietary labels in response to greater demand for more moderately priced
men's and boys' activewear. The Company's new management team has moderated this
trend by adding apparel lines that retain the advantages of brand name
recognition without the high costs associated with Stage II's prior licenses.

         LICENSE AGREEMENTS. The Company's current license agreements require it
to make minimum annual royalty payments ranging from approximately $37,500 to
$150,000. These thresholds generally increase for each successive license year.
The license agreements also provide the licensor with a right of termination if
the Company defaults on these obligations or fails to maintain quality control.
Stage II is in compliance with the terms of each of its license agreements. The
agreements run for various periods and are generally renewable. Prior to
expiration of a profitable license, Stage II is usually able to obtain renewals
or replacements on comparable terms.


                                       2
<PAGE>


         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 SA Common Stock. The Company plans to leverage
the brand's strong association with the early development of young men's urban
streetwear to capitalize on the growing popularity of this style in young men's
fashion. The Company's strategy is to develop its own lines of CROSS COLOURS
products internally and license a wide variety of retail items to expand the
availability of lifestyle urban streetwear under this brand to a wider audience,
targeting upscale retailers at price points below fashion forward levels.

         The Company's planned licensing business for CROSS COLOURS is focused
on kids' and juniors' activewear, footwear, accessories and home products. The
licensing campaign was initiated in the first quarter of 2000 under an exclusive
three-year manufacturing and distribution arrangement for boys' sportswear with
Kids Headquarters, a division of Wear Me Apparel, one of the largest privately
owned children's apparel companies with over 25 years of success in this market.
The launch of CROSS COLOURS for boys is scheduled for the Fall 2000 season.
Stage II is continuing to review additional licensing proposals for this brand
in other categories of the fast growing urban streetwear youth fashion market.

         PRODUCT MIX. The Company's new ADOLFO collections and other apparel
lines added in 1999 replaced its DUNLOP and SPALDING licenses, which accounted
for over 10% of net sales in 1998 and 1997, respectively. Stage II has also
increased emphasis on its own TIMBER RUN label, which accounted for
approximately 17%, 25% and 15% of its net sales in 1999, 1998 and 1997,
respectively, as well as its internal and licensed CROSS COLOURS lines, which
are expected to begin contributing to net sales at meaningful levels in 2000.

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 nine sales employees and three sales agents located in New York
City and other domestic locations. 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 and
its virtual Internet showroom. 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.

         INTERNET SALES. In March 1999, the Company launched its website
(Stageii.com) for business-to-business e-commerce transactions. The website is
designed to bring the Company's showroom to apparel retailers of all sizes
anywhere in the world. As a result, for the first time, the Company's "new look"
items can be conveniently accessed at any time on the Internet, potentially
changing the way many retailers will do business.

         Recognizing the impact of the Internet as a marketing tool in a
business-to-business environment, Stage II developed its website specifically
for reaching out to its current and potential customer base, including smaller
retailers whose limited resources would otherwise restrict their access to key
apparel manufacturers. The Company believes the introduction of its innovative
website may eliminate this disadvantage, allowing retailers of any size to gain
instantaneous contact with Stage II to review the showroom and immediately order
current merchandise from inventory on a real-time basis. As a result, the
website gives the smaller retailer the same access to the Company's latest
apparel lines as the major nationwide retail chains. This not only eliminates
costly product review trips by customers but may also reduce the Company's
marketing expenses.

         The Company designed its website to be user friendly and convenient for
browsing throughout the Company's entire on-line showroom. Having identified a
customer need, the Company believes its website provides the solution for the
many retailers who can now buy apparel simply and directly through the Internet
on an "as needed" basis for new orders and reorders. Through its commitment to
helping its customers succeed, the Company has sought to add another major
component to its turnaround strategy.


                                       3
<PAGE>


         CUSTOMERS. In 1999, 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 1999
(measured by sales) were Ames Department Stores, Pamida, Academy, United
Merchandising, Modecraft Fashions, Wal-Mart Stores, Value City, Ann & Hope,
Mercantile Stores and General Textiles. Approximately 32% of the Company's 1999
net sales were made to these customers, of which Ames Department Stores, Inc.
accounted for approximately 16% of net sales in both 1999 and 1998.

         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 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.

SALES AGENCY OPERATIONS

         Historically, the Company's Hong Kong subsidiary, Stage II Apparel
Corp. of Hong Kong, Ltd. ("Stage II HK"), provided sales agency services to
Stage II and acted as purchasing agent to certain major retailing customers of
the Company. These functions included monitoring the production and quality
control of garments manufactured for the Company in various foreign locations,
inspecting production facilities and evaluating potential future suppliers.
Stage II HK also assisted the Company's manufacturers in locating and purchasing
manufacturing machinery and raw materials when necessary to ensure timely
delivery of finished products to meet the Company's manufacturing orders. The
operations of Stage II HK were wound down during the fourth quarter of 1997,
with its monitoring functions being replaced by outside contractors as part of
the Company's cost cutting measures.


                                       4
<PAGE>

         During 1999 and 1998, Stage II acted as purchasing agent in apparel
sourcing transactions for third parties aggregating $480,000 and $2.4 million,
respectively. Rather than include these amounts in its net sales, the Company
books its fees for these services as commission income. Information on the
amounts of net sales and commission income as well as operating profit and
identifiable assets attributable to the Company's operations in the United
States and abroad is set forth in Note 2 of the Notes to the Company's
Consolidated Financial Statements included elsewhere in this Report.

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 orders for garments at March 15, 2000 totaled
approximately $2.5 million, including 2000 sales through that date, compared to
backlog of approximately $3.8 million at March 26, 1999, including sales through
that date. All of the orders at March 15, 2000 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.

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.


                                       5
<PAGE>


EMPLOYEES

         As of December 31, 1999, 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

         In July 1998, Stage II obtained a cancellation of its office lease at
350 Fifth Avenue in New York City and relocated its administrative and sales
offices to 1385 Broadway, New York, New York. The cancelled lease covered 10,800
square feet for a term through 2006 at an average annual rent of $343,000 plus
electricity, taxes and expense escalations. In the absence of the cancellation,
the Company's estimated future obligations under the lease would have aggregated
approximately $4 million. The lease cancellation required a fee of $325,000 and
was effective as of July 15, 1998. The lease cancellation fee, together with
related relocation costs and writeoffs of leasehold improvements, were
recognized in 1998 at a total estimated cost of $561,000, of which $244,000 was
reversed in 1999 based on actual lease cancellation and relocation costs. The
Company's new lease arrangements cover 3,000 square feet through 2003 at a total
annual cost of approximately $80,000, representing annual savings over $330,000.

DISTRIBUTION FACILITIES

         During the last two years, the Company distributed substantially all of
its finished garments in the United States from a public distribution facility
located in the New York metropolitan area, leased on a month-to-month basis. In
1999 and 1998, the Company's aggregate warehouse and distribution costs were
approximately $117,000 and $140,000, respectively.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a party to several 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.


                                     PART II

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

TRADING MARKET

         The SA Common Stock is listed for trading on the AMEX under the symbol
SA. The following table sets forth, for the periods indicated, the high and low
sales prices for the SA Common Stock as reported on the AMEX.


                                       6
<PAGE>

                                                           MARKET PRICES
                                                       ---------------------
                                                       HIGH             LOW
                                                       -----           -----
1998:

First quarter......................................    $2.06           $ .63
Second quarter.....................................     1.00             .50
Third quarter......................................     1.75             .56
Fourth quarter.....................................     1.38             .81

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 (through March 15, 2000).............     1.50            1.00


SECURITY HOLDERS

         As of February 29, 2000, there were 110 holders of record of the SA
Common Stock. Stage II estimates that there are at least 750 beneficial owners
of SA Common Stock.

DIVIDENDS

          The Company has not paid any dividends on the SA 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 1999. The
selected financial data presented below has been derived from the Company's
audited consolidated financial statements, which have been restated for 1995 to
account for the operations of the Company's Canadian subsidiary as discontinued
operations in view of the Company's decision in 1996 to dispose of its interest
in the subsidiary. For each of the three years through December 31, 1999, 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 Consolidated Financial Statements of the Company and related Notes
included elsewhere in this Report.


                                       7
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                 ------------------------------------------------------------
                                                   1999         1998         1997         1996         1995
                                                 --------     --------     --------     --------     --------
INCOME STATEMENT DATA:
<S>                                              <C>          <C>          <C>          <C>          <C>
Net sales ...................................    $ 10,537     $  9,867     $ 16,547     $ 33,428     $ 60,177
Cost of goods sold ..........................       7,982        7,859       14,234       28,016       48,357
                                                 --------     --------     --------     --------     --------
   Gross profit .............................       2,555        2,008        2,313        5,412       11,820
Commission and other income .................          97          251          442          678        1,599
                                                 --------     --------     --------     --------     --------
                                                    2,652        2,259        2,755        6,090       13,419
Selling, general and administrative expenses        2,431        3,391        6,083        9,195       13,341
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 ...........         (22)          --          285           --           --
Loss (gain) on settlement of litigation .....          --           --         (249)         (13)         577
                                                 --------     --------     --------     --------     --------
   Operating income (loss) ..................         487       (1,693)      (8,648)      (3,604)        (499)
Interest expense, net .......................         405          544          690        1,588        2,421
                                                 --------     --------     --------     --------     --------
   Income (loss) from continuing operations
     before income taxes (benefit) ..........          82       (2,237)      (9,338)      (5,192)      (2,920)
Income taxes (benefit) ......................           6           81           74          (33)        (342)
                                                 --------     --------     --------     --------     --------
   Income (loss) from continuing operations .          76       (2,318)      (9,412)      (5,159)      (2,578)
                                                 --------     --------     --------     --------     --------
Discontinued operations:
   Loss from discontinued operations ........          --           --           --         (324)        (684)
   Gain (loss) on disposal of discontinued
     operations .............................          --           --          163       (1,479)          --
                                                 --------     --------     --------     --------     --------
                                                       --           --          163       (1,803)        (684)
                                                 --------     --------     --------     --------     --------
Net income (loss) ...........................    $     76     $ (2,318)    $ (9,249)    $ (6,962)    $ (3,262)
                                                 ========     ========     ========     ========     ========
Net income (loss) per common share:
   Income (loss) from continuing operations .    $    .02     $   (.59)    $  (2.28)       (1.23)    $   (.60)
   Income (loss) from discontinued operations          --           --          .04         (.43)        (.18)
                                                 --------     --------     --------     --------     --------
Weighted average common shares outstanding ..       4,037        3,904        4,128        4,196        4,195
                                                 ========     ========     ========     ========     ========

<CAPTION>
                                                                     AS OF DECEMBER 31,
                                                 ------------------------------------------------------------
                                                   1999         1998         1997         1996         1995
                                                 --------     --------     --------     --------     --------
SUMMARY BALANCE SHEET DATA:
<S>                                              <C>          <C>          <C>          <C>          <C>
   Total assets...............................   $  6,409     $  6,800     $ 11,178     $ 25,809     $ 39,536
   Due to factor..............................      1,817        2,331        4,650        7,174       11,658
   Long term debt, excluding current portion..         --           --           --          699        1,295
   Shareholders' equity.......................      3,310        3,031        5,327       14,390       21,678
</TABLE>

                                       8
<PAGE>

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

GENERAL

         INTRODUCTION. 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 six brand name lines, liquidating
its Canadian and Hong Kong subsidiaries and discontinuing its arrangements with
a licensee of NBA and NFL brand sportswear. The relinquished lines have been
replaced with a new exclusive license for the ADOLFO brand in 1998, the STANLEY
BLACKER brand in 1999 and an increased emphasis on the Company's own proprietary
labels, primarily TIMBER RUN and, commencing in 1999, the CROSS COLOURS
trademark, a pioneer in the early development of young men's urban fashion. The
Company has developed its own lines of CROSS COLOURS streetwear and plans to
license a wide variety of retail items to expand the availability of these
products in mainstream market segments.

         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 Stage II's prior licenses.

         Difficulties in reducing SG&A expenses and maintaining strong gross
profit margins in the face of intensified competition, consolidation and overall
weakness in the retail apparel market contributed to substantial net losses from
1995 though 1997. Although the Change of Control Transactions were not
implemented in time to avoid an additional loss of $2.3 million in 1998, the
success of various cost cutting programs introduced by the Company's new
management team contributed to a return to profitable operations in the last two
quarters of 1998 before giving effect to lease cancellation and relocation
expenses of $561,000, writeoffs of accounts receivable and other noncash or
nonrecurring items that added $769,000 to SG&A expenses in the second half of
the year. In 1999, the first full year under new management, Stage II realized
modest levels of net income in each quarter, marking the Company's first
profitable year since 1993.

         CHANGE OF CONTROL.  The Change of Control  Transactions  were completed
in May 1998. They included the sale of  approximately  1.9 million  shares of SA
Common  Stock held by the Founders to Richard  Siskind,  the  Company's  current
CEO.  They  also  included  the   reconstitution   of  the  Company's  board  of
directors,  the addition of a new management  team headed by Mr. Siskind and the
arrangement  by  Mr.  Siskind  of  a  new  credit  facility  for  Stage II.  See
"Business--Redirection of Business."

         TURNAROUND STRATEGY. As part of the strategy for returning the Company
to profitability, its new management adopted a turnaround strategy that includes
the following components:

         o INCREASED SALES -implemented more favorable licensing arrangements
and restructured the sales force by division or brand name to promote a more
highly motivated staff with a deeper knowledge of each product line and targeted
customer base;

         o INCREASED PROFIT MARGINS -modified manufacturing arrangements to
promote efficiencies, with greater control of inventories, to lower the cost of
sales while creating faster inventory turn, thereby avoiding unnecessary
markdowns;

         o LOWER FACTORING AND RENT CHARGES -added more stringent controls to
reduce factoring charges and relocated offices at annual rent savings over
$330,000;


                                       9
<PAGE>

         o PROMOTED ADMINISTRATIVE EFFICIENCIES C-pursued cost cutting
initiatives, on an aggressive basis where appropriate, with a minimum objective
of bringing overhead costs in line with sales;

         o OPTIMIZED FINANCIAL EFFICIENCIES C-prioritized the collection of
accounts receivable and the stricter management of customer returns and
allowances; and

         o INCREASED PRODUCTIVITY C-increased organizational efficiencies and
reduced the Company's cost of management below prior ratios as a percentage of
sales, with a greater use of stock options to offset substantial reductions in
salary levels.

RECENT DEVELOPMENTS

         INTERNET SALES. In March 1999, Stage II launched an e-commerce
business-to-business website on the Internet for sales of its branded and
proprietary apparel lines to retailers in the United States. Over time, the
facility is expected to enhance the Company's visibility to the trade and
provide a convenient sourcing tool to its customers. If successful, it could
also reduce the Company's dependence on commissioned salesmen, resulting in
higher gross profit margins. While sales on the website have been modest to
date, the Company has achieved its initial goal of attracting additional
retailers, who use the facility as a virtual showroom and then follow up with
orders via phone or fax, avoiding the time and expense of traveling to the
Company's showroom in New York City.

         PRODUCT INNOVATION. In May 1999, Stage II completed the acquisition of
the CROSS COLOURS trademark, a pioneer brand in the early development of young
men's urban fashion. The Company has developed its own lines of CROSS COLOURS
products internally, with a strategy of offering affordable prices to expand the
availability of lifestyle urban streetwear to a wider audience within the young
men's youth market. In addition to its own CROSS COLOURS apparel lines, Stage II
also plans to license a wide variety of retail items under this brand, focusing
initially on footwear, accessories, kids' and juniors' activewear and home
products.

         The Company's licensing campaign for CROSS COLOURS was initiated in the
first quarter of 2000 with Kids Headquarters under an exclusive three-year
manufacturing and distribution arrangement for boys' sportswear. Kids
Headquarters is a division of Wear Me Apparel, one of the largest privately
owned children's apparel companies with over 25 years of success in this market.
The launch of CROSS COLOURS for boys is scheduled for the Fall 2000 season.
Additional licensing proposals for this brand are continuing to be reviewed for
other categories of the fast growing urban streetwear youth fashion market.

         NEW LICENSE AGREEMENT. In August 1999, the Company obtained an
exclusive license to use the STANLEY BLACKER brand for men's activewear,
swimwear, jeans, sleepwear and loungewear, as well as various categories of
accessories. With this established prestige brand, Stage II expects to increase
its presence in the higher end markets with a wider distribution channel for the
covered categories, upgrading its product mix to further improve overall
margins.

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.


                                       10
<PAGE>

                               QUARTERLY NET SALES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                     FIRST            SECOND             THIRD           FOURTH
                                    QUARTER           QUARTER           QUARTER          QUARTER            TOTAL
                                    --------         ---------         ---------         --------         ---------
<C>                                 <C>              <C>               <C>               <C>              <C>
1999.............................   $  1,591         $   2,270         $   3,412         $  3,264         $  10,537
1998.............................      1,855             1,653             4,130            2,229             9,867
1997.............................      4,067             2,348             5,718            4,414            16,547
</TABLE>

         The following tables present the Company's gross profit from continuing
operations, income (loss) from continuing operations and income (loss) per share
from continuing operations on a quarterly basis during the last three years. The
reduction in gross profit from continuing operations in the fourth quarters of
1998 and 1997 reflects the sell off of discontinued lines and an increase in
inventory markdowns. Amounts may not add across due to rounding.

                QUARTERLY GROSS PROFIT FROM CONTINUING OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                      FIRST            SECOND            THIRD            FOURTH
                                     QUARTER           QUARTER          QUARTER           QUARTER           TOTAL
                                    --------         ---------         ---------         --------         ---------
<C>                                 <C>              <C>               <C>                 <C>             <C>
1999.............................   $    515         $     636         $     664           $  740          $  2,555
1998.............................        418               434             1,092               64             2,008
1997.............................        677               300             1,295               41             2,313


               QUARTERLY INCOME (LOSS) FROM CONTINUING OPERATIONS
                                 (IN THOUSANDS)

                                      FIRST            SECOND            THIRD            FOURTH
                                     QUARTER           QUARTER          QUARTER           QUARTER           TOTAL
                                    --------         ---------         ---------         --------         ---------
1999.............................   $     11         $      27         $       6          $    32          $     76
1998.............................       (692)             (632)             (472)            (522)           (2,318)
1997.............................     (1,068)           (1,678)              133           (6,799)           (9,412)


          QUARTERLY INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS

                                      FIRST            SECOND            THIRD            FOURTH
                                     QUARTER           QUARTER          QUARTER           QUARTER           TOTAL
                                    --------         ---------         ---------         --------         ---------
1999.............................   $    .00         $     .01         $     .00          $   .01          $    .02
1998.............................       (.18)             (.16)             (.12)            (.13)             (.59)
1997.............................       (.26)             (.40)              .03            (1.66)            (2.28)
</TABLE>

         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 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. As reflected in the progressive quarterly sales growth throughout
the year, it also reflects the emergence of Stage II's revamped product mix and
marketing strategy. The sales growth in 1999 on a comparative year-to-year basis
was tempered by tighter inventory controls implemented


                                       11
<PAGE>

by the Company's new management team following the Change of Control
Transactions in May 1998. See "Business--Redirection of Business."

         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 or, when considered with a gain
of $244,000 on a lease cancellation reserve, $2.2 million, reflecting a decrease
of 28.3% from SG&A expenses of $3.4 million in 1998, or a decrease of 35.5%
after the lease cancellation adjustment. That adjustement reflectes actual lease
cancellation and office relocation costs versus estimated costs used for
establishing the reserve in 1998. See "PropertiesBNew York Office Headquarters."
The decrease in 1999 SG&A expenses was primarily attributable to a cost cutting
plan adopted as part of the Company's turnaround strategy. See
AGeneralBTurnaround Strategy@ above. As a percentage of 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 the prior year. 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 in 1998 reflecting the
foregoing trends. Average common shares outstanding were 4,037,000 in 1999 and
3,904,000 in 1998.

         1998 AND 1997. Net sales of $9.9 million in 1998 decreased by 40.4%
from $16.5 million from continuing operations in 1997. The decrease primarily
reflects the termination of unprofitable apparel divisions as part of the
planned reduction in the scope of operations, as well as the elimination of
lower margin customer accounts with a longer term view of strengthening gross
profit margins. The decline was also influenced in the first half of 1998 by
temporary disruptions in the Company's factoring arrangements in connection with
the Change of Control Transactions.

         Cost of goods sold as a percentage of sales decreased to 79.6% in 1998
compared to 86.0% in 1997. The decrease reflects improved arrangements with new
manufacturing sources, higher gross profit margins on the Company's revamped
apparel lines, greater concentration on core customer accounts and tighter
inventory controls.

         Commission and other income of $251,000 during 1998 decreased by 43.2%
from $442,000 in 1997, reflecting a reduction in the Company's sales agency
business in connection with the termination of its Hong Kong subsidiary.

         SG&A expenses of $3.4 million in 1998 decreased by 44.3% compared to
$6.1 million in 1997, primarily attributable to a reduction in variable costs
associated with lower sales volumes and a cost cutting plan adopted as part of
the Company's redirection of its business. SG&A expenses for 1998 include
various nonrecurring or noncash items totaling $769,000, primarily comprised of
writedowns of accounts receivable. Before accounting for these items, SG&A
expenses as a percentage of sales decreased to 34.3% in 1998 compared to 36.8%
in 1997.

         Stage II recognized a loss on lease cancellation totaling $561,000 in
the third quarter of 1998 resulting from a cancellation fee for the termination
of its prior office lease and related relocation expenses and writeoffs of
leasehold improvements. The Company expects to achieve long term benefits more
than offsetting these nonrecurring expenses from substantial saving over the
term of its new office lease. See "Recent DevelopmentsCOffice Relocation" above.

         Interest and factoring expenses aggregated $892,000 or 9.1% of sales in
1998 compared to $932,000 or 5.6%


                                       12
<PAGE>

of sales in 1997. The decrease reflects lower factoring expenses from more
favorable factoring arrangements and a reduction in amount of factored
receivables during 1998. See "Liquidity and Capital Resources" below.

         The Company recognized a net loss of $2.3 million or $.59 per share
based on 3,904,000 average common shares outstanding in 1998, compared to a net
loss from continuing operations of $9.4 million in 1997 or $2.28 per share,
after accounting for the disposal of the Company's discontinued subsidiary,
based on 4,128,000 average common shares outstanding, reflecting the foregoing
trends.

LIQUIDITY AND CAPITAL RESOURCES

         LIQUIDITY. Net cash provided by Stage II's operating activities during
1999 aggregated $551,000. The Company's cash position decreased from $992,000 at
December 31, 1998 to $691,000 at December 31, 1999, due primarily to reduced
factor debt.

         CAPITAL RESOURCES. In 1998, the Company sold marketable securities
netting $3.0 million, all of which was used to reduce short term debt. At
December 31, 1999, the Company retained marketable securities with a carrying
value of $665,000.

         In connection with the Change of Control Transactions, Stage II
obtained a new factoring and credit facility with The CIT Group/Commercial
Services, Inc. (the ACredit Facility@) to replace its prior credit facility. The
agreements covering the Credit Facility provide 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 2% above the prime rate.

         The Company's obligations under the Credit Facility are payable on
demand and secured by its inventory, accounts receivable and marketable
securities. 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, 2000 or the end of any subsequent contract year upon 60 days
notice.

         As of December 31, 1999, the Company's net direct borrowings under the
Credit Facility aggregated $1.8 million. This reflects a reduction of $514,000
from debt levels at December 31, 1998. The reduction was primarily attributable
to a substantial reduction of inventory since the Change of Control
Transactions.

         The Company believes that its internally generated funds and borrowings
available under its Credit Facility will be sufficient to meet its foreseeable
working capital requirements. 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, 1999, the Company had no material capital expenditure
requirements.

         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


                                       13
<PAGE>

of the Company, including risks of inflation, fluctuations in market demand for
the Company's products and changes in the level of future expenses for the
manufacturing and distribution of those products. 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, 1999, the Company held U.S. Treasury
Notes, Government National Mortgage Association bonds, corporate bonds, foreign
bank and government bonds and equity securities with an aggregate market value
of $665,000. 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 consolidated 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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
STAGE II APPAREL CORP. AND SUBSIDIARIES:                                                                      PAGE

<S>                                                                                                          <C>
Independent Auditors' Report..............................................................................    F-1
Consolidated Balance Sheets - December 31, 1999 and 1998..................................................    F-2
Consolidated Statements of Operations - For the years ended December 31, 1999, 1998 and 1997..............    F-3
Consolidated  Statements of Comprehensive Loss - For the years ended December 31, 1999, 1998 and 1997.....    F-4
Consolidated  Statements of  Shareholders'  Equity - For the years ended December 31, 1999, 1998 and 1997.    F-5
Consolidated Statements of Cash Flows - For the years ended December 31, 1999, 1998 and 1997..............    F-6
Notes to Consolidated Financial Statements................................................................    F-7
Schedule II -- Valuation and Qualifying Accounts..........................................................    F-18
</TABLE>

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

         Not applicable.


                                       14
<PAGE>

                                    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......  54          President and Chief Executive Officer            1998
         Beverly Roseman......  41          Vice President                                   1998
         Jon Siskind..........  31          Vice President                                   1998
         Neil Fox.............  54          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 in connection with the Change of Control
Transactions. 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 in connection with the Change of Control Transactions. 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.

         JON SISKIND joined the Company as a Vice President and director in May
1998 in connection with the Change of Control Transactions. 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 2000 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission on or
before May 1, 2000.


                                       15
<PAGE>

                                    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 C 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
                           Consolidated Financial Statements or the Notes
                           thereto.

                  (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).

            21.1          Subsidiaries of the Company (incorporated by reference
                          to Exhibit 21.1 to the Company's Annual Report on Form
                          10-K (File No. 1-9502) for the year ended December 31,
                          1994).

            24.1          Power of Attorney of Richard Siskind, Robert
                          Greenberg, Barry Fertel, Beverly Roseman and Jon
                          Siskind.

            27.1          Financial Data Schedule

----------
*   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.


                                       16
<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 28th day of
March, 2000.

                             STAGE II APPAREL CORP.




<TABLE>
<CAPTION>
<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                                March 28, 2000
   ---------------------------------------
     *Richard Siskind as attorney-in-fact


                                       17
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


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



We have audited the accompanying consolidated balance sheets of Stage II Apparel
Corp. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated 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, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stage II Apparel
Corp. and subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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 consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information required
to be included therein.


                                             MAHONEY COHEN & COMPANY, CPA, P.C.



New York, New York
March 3, 2000


                                      F-1
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                          ----------------------
                                                                                            1999         1998
                                                                                          ---------    ---------
<S>                                                                                       <C>          <C>
ASSETS:
  Current assets:
   Cash and cash equivalents..........................................................    $     691    $     992
   Accounts receivable................................................................          393          103
   Finished goods inventory...........................................................        2,145        2,855
   Prepaid expenses...................................................................           62           54
                                                                                          ---------    ---------
     Total current assets.............................................................        3,291        4,004
   Property and equipment, at cost, less accumulated depreciation.....................           34           86
   Marketable securities..............................................................          665          388
   Goodwill, less accumulated amortization and impairment of $7,988 and
     $7,821 at December 31, 1999 and 1998, respectively...............................        1,626        1,793
   Trademark, less accumulated amortization of $11 at December 31, 1999...............          264           --
   Other assets.......................................................................          529          529
                                                                                          ---------    ---------
     TOTAL ASSETS.....................................................................    $   6,409    $   6,800
                                                                                          =========    =========

LIABILITIES:
   Current liabilities:
     Due to factor....................................................................    $   1,817     $  2,331
     Accounts payable.................................................................          380        1,031
     Due to affiliate.................................................................          640           26
     Accrued royalties................................................................            2           80
     Other current liabilities........................................................          160          301
                                                                                          ---------    ---------
       Total current liabilities......................................................        2,999        3,769
   Deferred income....................................................................          100           --
COMMITMENTS AND CONTINGENCIES (note 14)
SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 1,000 shares authorized;
     none issued and outstanding......................................................           --           --
   Common stock, $.01 par value, 9,000 shares authorized; 5,011 and 4,993 shares
     issued and 4,122 and 3,904 shares outstanding at December 31, 1999 and 1998,
     respectively.....................................................................           50           50
   Additional paid-in capital.........................................................        7,363        7,502
   Accumulated deficit................................................................       (2,145)      (2,221)
                                                                                          ---------    ---------
                                                                                              5,268        5,331
   Less treasury stock, at cost; 889 and 1,089 shares at December 31, 1999 and
       1998, respectively.............................................................       (1,879)      (2,302)
   Accumulated other comprehensive income (loss)......................................          (79)           2
                                                                                          ---------    ---------
     TOTAL SHAREHOLDERS' EQUITY.......................................................        3,310        3,031
                                                                                          ---------    ---------

   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.........................................    $   6,409    $   6,800
                                                                                          =========    =========
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-2
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                           -------------------------------------
                                                                              1999          1998         1997
                                                                           ---------      ---------    ---------
<S>                                                                        <C>            <C>          <C>
Net sales..............................................................    $  10,537      $   9,867    $  16,547
Cost of goods sold.....................................................        7,982          7,859       14,234
                                                                           ---------      ---------    ---------

Gross profit...........................................................        2,555          2,008        2,313
Commission and other income............................................           97            251          442
                                                                           ---------      ---------    ---------
                                                                               2,652          2,259        2,755

Selling, general and administrative expenses...........................        2,431          3,391        6,083
Loss (gain) on lease cancellation......................................         (244)           561           --
Impairment of prepaid salary and non-compete...........................           --             --          255
Impairment of goodwill.................................................           --             --        5,029
Loss (gain) on sale of marketable securities...........................          (22)            --          285
Gain on settlement of litigation.......................................           --             --         (249)
                                                                           ---------      ---------    ---------
Operating income (loss)................................................          487         (1,693)      (8,648)

Other income (expenses):
   Interest income.....................................................           70            348          242
   Interest and factoring expenses.....................................         (475)          (892)        (932)
                                                                           ---------      ---------    ---------

Income (loss) from continuing operations before income taxes...........           82         (2,237)      (9,338)

Income taxes...........................................................            6             81           74
                                                                           ---------      ---------    ---------
Income (loss) from continuing operations...............................           76         (2,318)      (9,412)
Discontinued operations:
   Gain on disposal of discontinued operations.........................           --             --          163
                                                                           ---------      ---------    ---------
Net income (loss)......................................................    $      76      $  (2,318)   $  (9,249)
                                                                           =========      =========    =========


Basic and dilutive net income (loss) per common share:
   Income (loss) from continuing operations............................    $     .02      $    (.59)    $  (2.28)
   Gain from discontinued operations                                              --             --          .04
                                                                           ---------      ---------    ---------
                                                                           $     .02      $    (.59)   $   (2.24)
                                                                           =========      =========    =========

Weighted average common shares outstanding.............................        4,037          3,904        4,128
                                                                           =========      =========    =========
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                           -------------------------------------
                                                                              1999           1998         1997
                                                                           ---------      ---------    ---------
<S>                                                                        <C>            <C>          <C>
Net income (loss)......................................................    $      76      $  (2,318)   $  (9,249)

Other comprehensive income (loss):
   Foreign currency translation adjustments............................           --             --           87
   Unrealized gains (losses) on securities:
     Unrealized holding gains (losses) arising during the period.......          (59)            22           24
     Less: reclassification adjustment for losses (gains) included
       in net income (loss)............................................          (22)            --          285
                                                                           ---------      ---------     --------
                                                                                 (81)            22          396
                                                                           ---------      ---------     --------

Comprehensive loss.....................................................    $      (5)     $  (2,296)    $ (8,853)
                                                                           =========      =========     ========
</TABLE>




See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>


                     STAGE II APPAREL CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                              COMMON                                                   ACCUMULATED
                                               STOCK      ADDITIONAL      RETAINED        TREASURY        OTHER          TOTAL
                                                PAR         PAID IN       EARNINGS         STOCK      COMPREHENSIVE   SHAREHOLDERS'
                                               VALUE        CAPITAL       (DEFICIT)         COST          INCOME         EQUITY
                                              --------      --------       --------       --------       --------       --------
<S>                                           <C>           <C>            <C>            <C>            <C>            <C>
Balance at December 31, 1996 ...........      $     50      $  7,502       $  9,346       $ (2,092)      $   (416)      $ 14,390

Purchase of treasury stock in settlement            --            --             --           (210)            --           (210)
Foreign currency translation adjustment             --            --             --             --             87             87
Unrealized gain on securities, net of
   reclassification adjustment .........            --            --             --             --            309            309
Net loss ...............................            --            --         (9,249)            --             --         (9,249)
                                              --------      --------       --------       --------       --------       --------

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
                                              ========      ========       ========       ========       ========       ========
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                          --------------------------------------
                                                                            1999           1998           1997
                                                                          --------       --------       --------
<S>                                                                       <C>            <C>            <C>
OPERATING ACTIVITIES:
Net income (loss) ..................................................      $     76       $ (2,318)      $ (9,249)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
  Depreciation and amortization ....................................            63            115            124
  Amortization and impairment of goodwill and non-compete covenant .           178            175          5,908
  Gain on settlement of litigation .................................            --             --           (249)
  Loss (gain) on sale of marketable securities .....................           (22)            --            285
  Loss (gain) on lease cancellation ................................          (244)           561             --
  Changes in assets and liabilities:
    Accounts receivable ............................................          (290)           393            838
    Finished goods inventory .......................................           710           (359)         2,634
    Prepaid expenses ...............................................            (8)           160            160
    Prepaid income taxes and refunds receivable ....................            --             30            100
    Other assets ...................................................            --            300            467
    Accounts payable ...............................................          (407)           181           (988)
    Due to affiliate ...............................................           614             26             --
    Income taxes payable ...........................................            --             --             (8)
    Accrued royalties ..............................................           (78)             2           (104)
    Other current liabilities ......................................          (141)          (230)          (215)
    Deferred income ................................................           100             --             --
                                                                          --------       --------       --------
Net cash provided by (used in) operating activities ................           551           (964)          (297)
                                                                          --------       --------       --------
INVESTING ACTIVITIES:
  Purchase of property and equipment, net ..........................           (11)            (4)           (39)
  Sale or redemption of available for sale marketable securities ...            81          3,170          6,259
  Purchase of available for sale marketable securities .............          (417)          (211)          (905)
                                                                          --------       --------       --------
  Net cash provided by (used in) investing activities ..............          (347)         2,955          5,315
                                                                          --------       --------       --------
FINANCING ACTIVITIES:
  Payments of notes payable ........................................            --             --         (1,046)
  Borrowings from factor ...........................................         4,989         10,527         19,731
  Repayments to factor .............................................        (5,503)       (12,846)       (22,255)
  Decrease (increase) in restricted cash ...........................            --            679           (679)
  Repayments to bank ...............................................            --             --           (434)
  Exercise of stock options ........................................             9             --             --
  Treasury stock transactions, net .................................            --             --           (210)
                                                                          --------       --------       --------
Net cash used in financing activities ..............................          (505)        (1,640)        (4,893)
                                                                          --------       --------       --------
Effects of exchange rate changes on cash ...........................            --             --             87
                                                                          --------       --------       --------
Net increase (decrease) in cash and cash equivalents ...............          (301)           351            212
Cash and cash equivalents at beginning of year .....................           992            641            429
                                                                          --------       --------       --------
Cash and cash equivalents at end of year ...........................      $    691       $    992       $    641
                                                                          ========       ========       ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid for income taxes .......................................      $      7       $     51       $      2
                                                                          ========       ========       ========

  Cash paid for interest, excluding factoring fees .................      $    314       $    646       $    642
                                                                          ========       ========       ========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  Increase (decrease) in allowance for decline in market value of
      available for sale securities ................................      $     81       $    (22)      $   (309)
                                                                          ========       ========       ========

  Issuance of treasury stock in exchange for trademark .............      $    275       $     --       $     --
                                                                          ========       ========       ========
</TABLE>


See Notes to Consolidated Financial Statements.

                                      F-6
<PAGE>

                     STAGE II APPAREL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Stage II Apparel Corp. and its subsidiaries (the
"Company" or "Stage II"). Each subsidiary is wholly owned other than a majority
owned Canadian subsidiary that was liquidated during 1997. All significant
intercompany balances and transactions have been eliminated in consolidation.

         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. See Note 14CCommitments and Contingencies. Stage
II also acts as purchasing agent for various major retailing customers.

         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 benefitted. 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. The
trademark is reported net of accumulated amortization of $11,000 at December 31,
1999.

         ASSET IMPAIRMENT UNDER FAS 121. The Company complies with the Financial
Accounting Standards Board's 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. See Note 4--Discontinued Operations and
Note 9CSettlement of Townsley Litigation.

         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, 1999 and 1998 consist of U.S. Treasury
Notes, 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 consolidated 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


                                      F-7
<PAGE>

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 are 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 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. 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.

         EARNINGS (LOSS) PER SHARE. The Company has adopted Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("FAS 128"). In
accordance with FAS 128, primary net income (loss) per common share is replaced
with basic income (loss) per common share, which is calculated by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Fully diluted net income per common share is replaced with diluted
net income per common share, reflecting the maximum dilutive effect of common
stock issuable upon exercise of stock options, warrants, stock subscriptions and
conversion of preferred stock.

         STOCK BASED COMPENSATION. Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("FAS 123"), encourages but
does not require companies to record compensation cost for stock based employee
compensation plans at fair value. The Company has elected to continue to account
for stock based compensation using the method prescribed in Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB
25"), and related Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's common stock at the date of the option grant over the amount the
employee must pay to acquire the stock. See Note 15BStock Options.

         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 revenues 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.

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 1999 and 1998, approximately 11% and 16% of
net sales were made to one customer. During 1997, approximately 27%of net sales
were made to two customers.


                                      F-8
<PAGE>

         Information regarding the Company's geographic operations is set forth
below.

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                GEOGRAPHIC AREAS
                                    ---------------------------------------------------------------------------
                                               UNITED STATES                           INTERNATIONAL
                                    -----------------------------------      ----------------------------------
                                      1999         1998          1997          1999         1998         1997
                                    --------     --------      --------      --------     --------     --------
<S>                                 <C>          <C>          <C>            <C>          <C>          <C>
Revenues ......................     $ 10,634     $ 10,118      $ 16,565      $     --     $     --     $    424
Operating profit (loss) .......          487       (1,693)       (7,448)           --           --       (1,200)
Identifiable assets ...........        6,409        6,800        11,138            --           --           40
Depreciation and amortization .          241          175           616            --           --          130
Capital spending ..............           11            4            39            --           --           --
</TABLE>


NOTE 3.  DUE TO FACTOR

         Prior to May 1998, Stage II maintained a factoring and credit facility
(the "Prior Credit Facility") under a factoring agreement with a financial
institution, providing 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 was responsible for the accounting and
collection of all accounts receivable sold to it by the Company. The factor
received a commission under the Prior Credit Facility in an amount less than 1%
of the net receivables it purchased. The Prior Credit Facility also provided 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 2%
above the prime rate. The Company's obligations under the Prior Credit Facility
were payable on demand and secured by its inventory, accounts receivable,
marketable securities and collateral pledged under shareholder guarantees.

         In May 1998, Stage II replaced the Prior Credit Facility with a new
factoring and credit facility from a different financial institution (the
"Credit Facility"). The agreements covering the Credit Facility provide for
substantially the same terms and conditions as the Prior Credit Facility. 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 Credit Facility may be
terminated without penalty by the Company on May 31, 2000 or the end of any
subsequent contract year by either party upon 60 days notice.

         The Company was indebted to the factor under the Credit Facility at
December 31, 1999 and 1998 as follows:

                                 (IN THOUSANDS)

                                                           DECEMBER 31,
                                                    -------------------------
                                                       1999           1998
                                                    ----------      ---------

         Factor advances........................    $   2,763        $  3,624
         Accounts receivable....................         (946)         (1,293)
                                                    ---------       ---------
         Net due to factor......................    $   1,817        $  2,331
                                                    =========       =========

NOTE 4.  DISCONTINUED OPERATIONS

         In July 1996, the Company finalized its plan to liquidate the
operations of Woody Sports Apparel, Inc., its 80% owned Canadian subsidiary. The
operations of the subsidiary were accounted for as discontinued operations
because it dealt with a separate and distinct class of customers from those of
the Company's continuing operations. On March 31, 1997, all of the subsidiary's
obligations under its credit facility were repaid, and the facility was
terminated in connection with the liquidation of the subsidiary.


                                      F-9
<PAGE>

NOTE 5.  ACCOUNTS RECEIVABLE

         Accounts receivable, less allowances for returns, discounts and bad
debts aggregating $17,000 and $56,000 at December 31, 1999 and 1998,
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 3CDue to Factor.

NOTE 6.  FINISHED GOODS INVENTORY

         Inventory, consisting primarily of finished goods, is classified as
follows:

                                 (IN THOUSANDS)
                                                               DECEMBER 31,
                                                         ----------------------
                                                            1999         1998
                                                         ---------     --------

         Landed......................................    $   2,145     $  2,705
         In transit..................................           --          150
                                                         ---------     --------
         Total.......................................    $   2,145     $  2,855
                                                         =========     ========



         The finished goods inventory has been pledged to secure the Company's
obligations under the Credit Facility. See Note 3CDue to Factor.

NOTE 7.  PROPERTY AND EQUIPMENT

         The major classes of property and equipment are as follows:

                                 (IN THOUSANDS)
                                                                 DECEMBER 31,
                                                            --------------------
                                                             1999         1998
                                                            -------     --------

         Furniture, fixtures and equipment..............    $   586     $    583
         Leasehold improvements.........................         12            4
                                                            -------     --------
                                                                598          587
         Less accumulated depreciation and amortization.        564          501
                                                            -------     --------
         Total..........................................    $    34     $     86
                                                            =======     ========

NOTE 8.  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, 1999 and
1998. During 1998, the Company sold marketable securities held by Stage II or
its Hong Kong subsidiary ("Stage II HK") netting $3.2 million. The balance of
these securities remain pledged to secure the Company's obligations under the
Credit Facility. See Note 3-Due to Factor.


                                      F-10
<PAGE>

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              GROSS         GROSS
                                                                           UNREALIZED     UNREALIZED
                                                            AMORTIZED        HOLDING        HOLDING          FAIR
                                                              COST            GAINS         LOSSES           VALUE
                                                            ---------      ----------     ----------         ------
Year ended December 31, 1999:
<S>                                                         <C>             <C>             <C>              <C>
   Asset backed securities maturing 2023-2029...........    $   411         $     2         $  (20)          $  393
   Corporate bonds maturing 2003........................         27             ---             (1)              26
   Municipal bonds maturing 2010........................         34             ---             (2)              32
   Equity securities....................................        184             ---            (30)             154
   GNMA's 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
                                                            =======         =======         ======           ======


Year ended December 31, 1998:
   Asset backed securities maturing 2023 - 2029.........    $   275         $     6         $   (4)          $  277
   Municipal bond maturing 2014.........................         35             ---            ---               35
   GNMAs maturing 2023..................................         76             ---            ---               76
                                                            -------         -------         ------           ------
Total...................................................    $   386         $     6         $   (4)          $  388
                                                            =======         =======         ======           ======
</TABLE>

NOTE 9.  SETTLEMENT OF TOWNSLEY LITIGATION

         In 1996, the Company and Stage II HK commenced a lawsuit in the Supreme
Court of the State of New York against Townsley, Ltd. ("Townsley") and its
principal shareholder, Stuart Goldman, to recoup damages incurred in connection
with their October 1994 acquisition of substantially all the assets and related
liabilities of Townsley, the purchase of all the capital stock of Townsley's
Hong Kong subsidiary and the related employment and subsequent termination of
Mr. Goldman as President of the Company and Stage II HK. Mr. Goldman responded
with various counterclaims. During 1997, the parties agreed to settle the
lawsuit for a payment from the Company of approximately $1.15 million. In
addition, Mr. Goldman relinquished 292,135 shares of the Company's common stock
issued to him as part of the purchase price for the Townsley assets.

         The settlement payments and stock repurchase were completed by the
Company in November 1997 and had the effects of extinguishing all obligations
from the Company to Mr. Goldman and generating a settlement gain of $205,000. At
December 31, 1997, the Company recognized noncash impairment charges totaling
$5.3 million, reflecting a $5.0 million writedown of goodwill attributable to a
planned reduction in emphasis on proprietary labels received in the Townsley
acquisition and a prior acquisition as well as a related $255,000 writedown of
Mr. Goldman's prepaid salary and non-compete covenant.

NOTE 10.  FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of financial instruments approximate their fair
values as of December 31, 1999 and 1998. 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.


                                      F-11
<PAGE>

NOTE 11.  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. For the years ended December 31, 1999, 1998 and 1997, rent
expense charged to operations, including variable storage charges at a public
warehouse utilized on a month-to-month basis, aggregated approximately $120,000,
$271,000 and $567,000, 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 was
estimated at $561,000, of which $244,000 was outstanding at December 31, 1998
and included in other current liabilities. This was reversed in 1999 to reflect
the difference between estimated and actual lease cancellation and relocation
expenses.

         At December 31, 1999, 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,

             2000..................................................    $    76
             2001..................................................         79
             2002..................................................         79
             2003..................................................         79
             2004..................................................         13
                                                                       -------
             Total.................................................    $   326
                                                                       =======

NOTE 12.  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 15C
Stock Option Plans. During 1999 and 1998, a company controlled by Mr. Siskind
(the "affiliate") opened letters of credit of approximately $180,000 and $2.1
million, respectively, for the purchase of merchandise by the Company. During
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 1999, the Company purchased $2.2 million
of inventory from the affiliate. At December 31, 1999 and 1998, the Company was
indebted to the affiliate in the aggregate amounts of $640,000 and $26,000,
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 11CLeases. Rent
expense charged to operations for this lease was approximately $87,000 and
$12,000 for the years ended December 31, 1999 and 1998, respectively.


                                      F-12
<PAGE>


         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 in which was charged to additional paid in capital.

NOTE 13.  INCOME TAXES

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

                                                   (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                           ---------------------------------------
                                                                              1999           1998           1997
                                                                           -----------      ---------    ---------
Income (loss) before provision for income taxes,
   including discontinued operations:
<S>                                                                        <C>            <C>            <C>
   Domestic............................................................    $      82      $  (2,318)     $  (7,863)
   Foreign.............................................................           --             --         (1,312)
                                                                           ---------      ---------      ---------
                                                                           $      82      $  (2,318)     $  (9,175)
                                                                           =========      =========      =========
Provision (benefit) for income taxes:
   Domestic:
     Current:
       Federal.........................................................           --             79             74
       State...........................................................            6              2             --
                                                                           ---------      ---------      ---------
                                                                           $       6      $      81      $      74
                                                                           =========      =========      =========
</TABLE>

         The total provision for income taxes for the years ended December 31,
1999, 1998 and 1997 varied from the United States federal amounts computed by
applying the US statutory rate of 34% to pre-tax income (loss) as a result of
the following:

                       (IN THOUSANDS, EXCEPT PERCENTAGES)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                   -------------------------------------------------------------------
                                                    1999        RATE       1998          RATE        1997         RATE
                                                   -------      ----      -------        ----      -------        ----

<S>                                                <C>         <C>        <C>           <C>        <C>           <C>
Computed expected tax (benefit) ..............     $    28      34.0      $  (788)       34.0      $(3,120)       34.0
Utilization of NOL carryforward ..............         (28)    (34.0)          --          --           --          --
Repatriated earnings .........................          --        --           --          --        2,040       (22.2)
Limitation on NOL due to change of control ...          --        --        1,088       (47.0)          --          --
State and local income taxes (benefit), net
   of federal income tax benefit .............           6       7.3            1          --          (90)        1.0
Change in valuation allowance ................          --        --         (348)       15.0          597        (6.5)
Alternative minimum tax ......................          --        --           49        (2.1)          --          --
Amortization and impairment of
   nondeductible goodwill ....................          --        --           --          --          572        (6.3)
Adjustment of previously recorded tax benefit            3       3.7           30        (1.3)          74         (.8)
Nondeductible expenses for income tax purposes           3       3.7           11         (.5)          --          --
Other ........................................          (6)     (7.3)          38        (1.6)           1          --
                                                   -------      ----      -------        ----      -------        ----
                                                   $     6       7.3      $    81        (3.5)     $    74         (.8)
                                                   =======      ====      =======        ====      =======        ====
</TABLE>


                                      F-13
<PAGE>

         The tax effects of temporary differences that gave rise to a
significant portion of the deferred tax assets and liabilities at December 31,
1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                 (IN THOUSANDS)

                                                                                                 DECEMBER 31,
                                                                                          -----------------------
                                                                                             1999           1998
                                                                                          ---------       ------
Current deferred tax assets:
<S>                                                                                       <C>             <C>
   Inventory tax basis greater than financial statement basis.........................    $      51       $   61
   Less valuation allowance...........................................................          (51)         (61)
                                                                                          ---------       ------
   Net current deferred tax assets....................................................    $     ---       $  ---
                                                                                          =========       ======

Long term deferred tax assets:
   Net operating loss carryforward....................................................    $   1,743      $ 1,779
   Amortization of goodwill and covenant not to compete...............................          794          916
                                                                                          ---------       ------
     Total long term deferred tax assets..............................................        2,537        2,695
Less valuation allowance..............................................................       (2,537)      (2,695)
                                                                                          ---------      -------
   Net long term deferred tax assets..................................................    $     ---      $  ---
                                                                                          =========      =======
</TABLE>

         For the years ended December 31, 1999, 1998 and 1997, the Company
recorded net increases (decreases) in the total valuation allowance of
$(188,000), $(348,000) and $597,000, 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, 1999, the Company had
net operating loss carryforwards for income tax purposes of approximately $4.1
million expiring through 2018.

         Prior to 1997, United States income taxes have not been provided on the
unremitted earnings of foreign subsidiaries, since the undistributed earnings
were expected to be indefinitely reinvested or sheltered by available net
operating loss carryforwards. Retained foreign earnings totaling $6.0 million
were repatriated during 1997, and there were no unremitted foreign earnings at
December 31, 1999.

NOTE 14.  COMMITMENTS AND CONTINGENCIES

         OUTSTANDING LETTERS OF CREDIT. At December 31, 1999, the Company was
contingently liable on outstanding letters of credit issued under its Credit
Agreement in the aggregate amount of $1.8 million. See Note 3---Due to Factor.

         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,
1999, 1998 and 1997 aggregated approximately $50,000, $200,000 and $800,000,
respectively. The agreement for the Company's DUNLOP license required minimum
annual royalty payments of $150,000 and was terminated by mutual consent in
1999.

         The license agreements for the Company's ADOLFO lines require annual
minimum royalties aggregating $150,000 in 2000 and $175,000 in 2001. The ADOLFO
license may be extended by the Company through December 2009 and terminated by
the licensor under certain circumstances.

         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 years ending December 31, 2000 and 2001.


                                      F-14
<PAGE>

         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.
Minimum royalties payable to Stage II under the agreement are $180,000 in 2000,
$420,000 in 2001 and $660,000 in 2002.

         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 15.  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. Prior to its termination in 1997, the Company also
maintained a 1987 Plan for options on up to 200,000 shares of common stock. 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, 1999 is summarized below:

<TABLE>
<CAPTION>
                                                                                                WEIGHTED AVERAGE
                                                                         SHARES SUBJECT          EXERCISE PRICE
                                                                           TO OPTIONS              PER SHARE
                                                                           ----------            --------------
<S>                                                                          <C>                    <C>
Balance at December 31, 1996............................................     140,000                $   3.375

Options granted.........................................................         ---                      ---
Options exercised.......................................................         ---                      ---
Options canceled........................................................     (85,000)                   3.625
                                                                           ---------                 --------

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
                                                                           =========                 ========
</TABLE>

                                      F-15
<PAGE>


OPTION EXERCISABLE AND AVAILABLE FOR GRANT

Exercisable at December 31,
1997............................................................      55,000
1998............................................................     907,500
1999............................................................     901,000

Available for grant at December 31,
1997............................................................     445,000
1998............................................................     392,500
1999............................................................     399,000

Weighted average fair value of options granted
during the year ended December 31,
1997............................................................     $   ---
1998............................................................         .56
1999............................................................        1.25

Weighted average remaining contractual rights (in months)
   at December 31, 1999.........................................       47.46


         The share amounts for the basic and diluted earnings per share
calculations for the year ended December 31, 1999 were as follows:

                                 (IN THOUSANDS)

                                                                   DECEMBER 31,
                                                                        1999
                                                                   ------------

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

         For the years ended December 31, 1998 and 1997, common equivalent
shares had an antidilutive effect.

         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 Siskind were approved by
the shareholders of Stage II at its 1998 annual meeting of shareholders. In July
1998, Founder Options for 1.35 million Control Shares were acquired from the
Founders by Jon Siskind, an officer and director of the Company.


                                      F-16
<PAGE>


         The Company has adopted the disclosure-only provision of FAS 123 and,
as 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:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED                  YEAR ENDED
                                                               DECEMBER 31, 1999           DECEMBER 31, 1998
                                                               -----------------           -----------------
<S>                                                              <C>                           <C>
         Net income (loss) C as reported....................     $      76                     $  (2,318)
         Net loss C pro forma...............................          (636)                       (2,984)
         Earnings (loss) per share C as reported............           .02                          (.59)
         Loss per share C pro forma.........................          (.16)                         (.76)
</TABLE>

         The pro forma effect of compensation expense determined as provided in
FAS 123 for the year ended December 31, 1997 would have been immaterial.

NOTE 16.  EMPLOYEE STOCK OWNERSHIP AND SALARY DEFERRAL PLAN

         In 1994, Stage II converted its Profit Sharing Plan into an Employee
Stock Ownership and Salary Deferral Plan (the "Savings Plan"). Under the Savings
Plan, for each dollar contributed by electing employees to a retirement savings
account up to 12% of their annual compensation, the Company may contribute up to
$.40, subject to certain limitations under Section 401(k) of the Internal
Revenue Code. The Saving Plan was terminated in 1998.


                                      F-17
<PAGE>

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS


                     STAGE II APPAREL CORP. AND SUBSIDIARIES

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

COLUMN A                                COLUMN B               COLUMN C               COLUMN D          COLUMN E
--------                                --------              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>
ALLOWANCE FOR RETURNS, DISCOUNTS
   AND BAD DEBTS:

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

Year ended December 31, 1998...........     432            208         ---             (584)(1)             56

Year ended December 31, 1997...........     486            642         ---             (696)(1)            432

</TABLE>


     (1) Writeoff of uncollectible accounts.



                                      F-18