GFSI INC, 10-K, 2000-09-29

GFSI INC
10-K, 2000-09-29
MISCELLANEOUS FABRICATED TEXTILE PRODUCTS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File No. 333-24189

GFSI, INC.

(Exact Name of Registrant as Specified in Charter)

DELAWARE 74-2810748
------------------------------ ------------------------------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification Number

9700 Commerce Parkway
Lenexa, KS 66219
(Address of Principal Executive Offices and Zip Code)

(913) 888-0445
(Registrant's Telephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No []

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

The aggregate market value of the voting stock held by non-affiliates (as
defined in Rule 405) of the registrant as of September 1, 2000 was $0.

On September 1, 2000, there was 1 share of the Registrant's common stock, $.01
par value per share, issued and outstanding.

<PAGE>

TABLE OF CONTENTS

PART I
Page
-----

Item 1 - Business........................................................... 3

Item 2 - Properties......................................................... 8

Item 3 - Legal Proceedings.................................................. 8

Item 4 - Submission of Matters to a Vote of Security Holders................ 8

PART II

Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters............................................. 8

Item 6 - Selected Financial Data............................................ 9

Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 10

Item 7A - Quantative and Qualitative Disclosures About Market Risks......... 14

Item 8 - Consolidated Financial Statements.................................. 15

Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 30

PART III

Item 10 - Directors and Executive Officers.................................. 30

Item 11 - Executive Compensation............................................ 32

Item 12 - Security Ownership of Certain Beneficial Owners and Management.... 33

Item 13 - Certain Relationships and Related Transactions.................... 34

PART IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 35

Signatures........................................................ 37

<PAGE>

PART I

ITEM 1 - BUSINESS

GFSI, Inc. ("GFSI" or the "Company") was incorporated in the State of
Delaware on January 15, 1997. The Company is a wholly owned subsidiary of GFSI
Holdings, Inc. ("Holdings") and was organized by affiliates of The Jordan
Company (TJC) and management to effect the acquisition of Winning Ways, Inc.
("Winning Ways").

On February 27, 1997, Holdings acquired all of the issued and outstanding
capital stock of Winning Ways and immediately thereafter merged Winning Ways
with and into the Company, with the Company as the surviving entity. All of the
capital stock of Winning Ways acquired by Holdings in connection with the
acquisition was contributed to the Company along with the balance of equity
contributions.

The Company is a leading designer, manufacturer and marketer of high
quality, custom designed sportswear and activewear bearing names, logos and
insignia of resorts, corporations, colleges and professional sports leagues and
teams. The Company, which was founded in 1974, custom designs and decorates an
extensive line of high-end outerwear, fleecewear, polo shirts, T-shirts, woven
shirts, sweaters, shorts, headwear and sports luggage. The Company markets its
product to over 25,000 active customer accounts through its well-established and
diversified distribution channels, rather than through the price sensitive mass
merchandise, discount and department store distribution channels.

On January 29, 1998, the Company established a wholly owned subsidiary,
Event 1, Inc. ("Event 1") to provide a retail outlet for the Company's
sportswear and activewear. Event 1 provides increasing sales for the Company's
products at higher margins with increased operating expenses due to site fees
and royalties included in concessionaire agreements with the National Collegiate
Athletic Association, Big 10 Conference, Big 12 Conference and the Atlantic
Coast Conference.

During fiscal 1997, the Company converted its fiscal year to a 52/53 week
fiscal year which ends on the Friday nearest June 30. Previously, the Company's
year ended June 30. The twelve month periods ended June 30, 1996, June 27, 1997,
July 2, 1999 and June 30, 2000 each contain 52 weeks. The twelve month period
ended July 3, 1998 contains 53 weeks.

SALES DIVISIONS AND SUBSIDIARIES

The Company believes that it enjoys distinct competitive advantages in each
of its sales divisions and its subsidiary because of its ability to quickly
deliver high quality, customized products and provide excellent customer
service. The Company operates state-of-the-art design, embroidery and
screenprint manufacturing and distribution facilities which management believes
have set the standard in the sportswear and activewear industry for product
quality and response time to orders and re-orders. Most orders for new product
designs can be filled in four weeks and re-orders rarely take longer than two
weeks. This allows the Company's retail customers to carry less inventory,
increase merchandise turnover and reduce the risk of obsolete merchandise.

Resort Division. The Resort division is a leading marketer of custom logoed
sportwear and activewear to over 6,900 active customer accounts, including
destination resorts, family entertainment companies, hotel chains, golf clubs,
cruise lines, casinos and United States military bases. The division's customers
include widely recognized names such as The Walt Disney Company, Universal
Studios, Pebble Beach, The Phoenician, Caesar's Palace, The Mirage and the PGA
Tour.

The Resort division, with fiscal 2000 net sales of $61.3 million, accounted
for 30.2% of total net sales. The Resort division's net sales remained
consistent in fiscal 2000 with fiscal 1999 at $61.3 million. The division's net
sales have also remained relatively constant as a percentage of total net sales,
increasing to 30.2% in fiscal 2000 from 30.1% in fiscal 1999.

<PAGE>

The Company distributes its Resort division products through its national
sales force of approximately 70 independent sales agents. There are no contracts
with any of the independent sales agents who represent the Company. The Company
believes that it is well known and respected in the resort and leisure industry
because of its quick turn around for new orders and re-orders along with its
product innovation and quality and high level of service.

Corporate Division. The Corporate division is a leading marketer of
corporate identity sportswear and activewear for use by a diverse group of
corporations in incentive and promotional programs as well as for office casual
wear and uniforms. The division services over 6,500 active customer accounts,
including Toyota, Hershey, Dr. Pepper/7Up, Nortel Networks, Anheuser-Busch, and
MCI Worldcom.

The Corporate division, with fiscal 2000 net sales of $67.8 million,
accounted for 33.4% of total net sales. The Corporate division's net sales have
decreased to $67.8 million in fiscal 2000 from $72.6 million in fiscal 1999. The
division's net sales as a percentage of total net sales have decreased to 33.4%
in fiscal 2000 from 35.6% in fiscal 1999.

The Company believes that it has an advantage over its competitors because
it is one of the few brand name suppliers of sportswear and activewear focused
on the corporate market. The Corporate division markets its products to various
areas within the corporate market. Products are sold by the Company's national
sales force of approximately 40 independent sales agents, directly to corporate
customers in connection with corporate incentive programs, employee pride and
recognition initiatives, corporate meetings and outings, company retail stores
and catalog programs and dealer incentive programs. There are no contracts with
any of the independent sales agents.

In addition, the division includes Tandem Marketing, which develops and
administers corporate fulfillment programs on behalf of its major corporate
customers. The Company's corporate fulfillment programs involve providing its
customers with a complete line of branded merchandise which is marketed to the
customer's clients and employees. For example, Toyota may engage the Company to
provide embroidered leisurewear which is then sold or otherwise provided to
Toyota's customers and prospective customers. The Company, through Tandem
Marketing, leverages its existing corporate customer base to market a full line
of products, including articles of merchandise imprinted or otherwise customized
with the corporation's name, logo or message. These products include sportswear
and activewear designed and manufactured by the Company, as well as other
premium merchandise such as glassware and stationary items. Currently, Tandem
Marketing has active catalog programs with Lexus, Bell South Corporation,
Michelin North America, Inc., Discover Novus Networks, State Farm, and Shelter
Insurance as well as several others. In fiscal 2000, Tandem Marketing accounted
for approximately $13.5 million, or 19.9%, of the Corporate division's net
sales, of which approximately 46% were derived from products designed and
manufactured by the Company.

College Bookstore Division. The College Bookstore division is a leading
marketer of custom designed, embroidered and silk-screened sportswear and
activewear products to over 2,400 active customer accounts, including nearly
every major college and university in the United States. The division's largest
accounts include each of the major college bookstore lease operators, such as
Barnes & Noble College Bookstores, Inc., Follett College Stores and Nebraska
Book Company as well as high volume, university managed bookstores, such as the
University of Southern California, the University of Connecticut, Brigham Young
University, the University of Michigan and the United States Air Force and Naval
academies. The National Association of College Stores has selected the Company
as "Vendor of the Year" three times, an honor no other supplier has won more
than once.

The College Bookstore division, with fiscal 2000 net sales of $43.4
million, accounted for 21.4% of total net sales. The College Bookstore
division's net sales have increased to $43.4 million in fiscal 2000 from $41.6
million in fiscal 1999. The College Bookstore divisions' net sales as a
percentage of total net sales has increased slightly to 21.4% in fiscal 2000
from 20.4% in fiscal 1999.

Sports Specialty Division. The Sports Specialty division had fiscal 2000
sales of $12.4 million, representing 6.1% of total net sales. The Sports
Specialty division's net sales have increased to $12.4 million in fiscal 2000
from $12.0 million in fiscal 1999. The division's net sales as a percentage of
total net sales have increased to 6.1% in fiscal 2000 from 5.9% in fiscal 1999.
Established in 1994, the division has entered into licensing agreements to
design, manufacture and market sportswear and activewear bearing the names,
logos and insignia of professional sports leagues and teams as well as major
sporting events. The Company's licensors include, among others, the NBA, the
NHL, NASCAR and Major League Baseball. The division targets the upscale adult
sports enthusiast through the Company's existing distribution channels as well
as through new channels such as stadium stores and team retail outlets. The
division markets its products to over 1,000 active customer accounts, including
the Indianapolis Motor Speedway, the Chicago Bulls, the Cleveland Indians, the
Boston Bruins and Madison Square Garden.

<PAGE>

Event 1 Subsidiary. The Event 1 subsidiary was established in the third
quarter of fiscal 1998 to provide retail services that create additional outlets
for the Company's products. Since its inception, Event 1 has become the leading
event merchandiser in the collegiate championship industry due to the benefits
of the streamlined business model where the licensee serves as the
concessionaire. The subsidiary has renewed and extended its agreements with the
NCAA, Big 10 Conference, Big 12 Conference, and the Golf Course Superintendents
Association of America to provide on-site retail merchandising services at their
events. The subsidiary also holds merchandising rights with the Atlantic Coast
Conference, The Atlantic Ten Conference and various other institutions and
entities.

PRODUCTS

The Company's extensive product offerings include: (i) fleecewear; (ii)
outerwear; (iii) polo shirts, woven shirts and sweaters; (iv) T-shirts and
shorts; and (v) other apparel items and accessories. These products are sold in
each of the Company's four markets and are currently offered in over 400
combinations of style and color. While its products are generally characterized
by a low fashion risk, the Company attempts to incorporate the latest trends in
style, color and fabrics with a heavy emphasis on innovative graphics to create
leading-edge fashion looks.

The Company believes that the quality and breadth of its product lines and
its innovative logo designs represent significant competitive advantages in its
markets. In order to further capitalize on these advantages, the Company intends
to continue to expand both the depth and breadth of its product lines.
Currently, the Company has major product introductions in headwear and sports
luggage.

The following illustrates the attributes of the Company's current product
lines:

Fleecewear. The Company's fleecewear products represented approximately 21%
of net sales for fiscal 2000. Current styles offered by the Company include
classic crew sweatshirts, cowl neck tops, half-zip pullovers, hooded tops,
vests, henleys and bottoms. Products are constructed of a wide range of quality
fabrics including combed cotton, textured fleece ribbed knit cotton and inside
out fleece. The resulting product line offers customers a variety of styles
ranging from relaxed, functional looks to more sophisticated, casual looks.

Outerwear. The Company's outerwear products represented approximately 25%
of net sales for fiscal 2000. These products are designed to offer consumers
contemporary styling, functional features and quality apparel. Products
offerings include a variety of weights and styles, including heavy nylon parkas,
denim jackets, corduroy hooded pullovers, nylon windshirts and water-resistant
poplin jackets. The Company also provides a number of functional features such
as adjustable cuffs, windflaps, vented backs, drawstring bottoms and heavyweight
fleece lining.

Polo Shirts, Woven Shirts and Sweaters. The Company's polo shirt, woven
shirt and sweater products represented approximately 23% of net sales for fiscal
2000. The Company's products in this category are designed to be suitable for
both leisure and work-related activities with full range of materials and
styles.

T-Shirts and Shorts. The Company's T-shirt and shorts products represented
approximately 16% of net sales for fiscal 2000. The Company's products are
designed to address consumer needs for comfort, fit and function while providing
innovative logo designs. The Company offers a full line of T-shirts and shorts
in a variety of styles, fabrics and colors.

Other. The Company also sells headwear, sports luggage, lines of women's
products and a number of other miscellaneous apparel items. In addition, through
its Tandem Marketing division, the Company distributes a full line of corporate
fulfillment products. Sales of "Other" items represented approximately 15% of
net sales for fiscal 2000.

<PAGE>

DESIGN, MANUFACTURING AND MATERIALS SOURCING

The Company operates state-of-the-art design, embroidery and screen print
manufacturing and distribution facilities in Lenexa, Kansas and Bedford, Iowa.

The Company's design group consists of more than 75 in-house artists and
graphic designers who work closely with each customer to create the product
offering and customization that fulfills the account's needs. The design group
is responsible for presenting new ideas to each account in order to continually
generate new products. This design function is a key element in the Company's
ability to provide value-added services and maintain superior relations with its
customers. Once the design and logo specifications have been determined, the
Company's in-plant manufacturing process begins. This manufacturing process
consists of embroidery and/or screen printing applications to Company- designed
non-decorated apparel ("blanks"). Substantially all of the screen printing and a
significant portion of the embroidery operations are performed by the Company in
its Lenexa, Kansas and Bedford, Iowa facilities. In addition, the Company
outsources embroidery work to Impact Design, Inc. and Kansas Custom Embroidery,
each an affiliate of the Company, as well as to independent contractors, when
necessary. The Company maintains the most updated machinery and equipment
available in order to ensure superior product quality and consistency.

All of the Company's blanks are sourced and manufactured to the Company's
specifications by third party vendors. The Company closely monitors each of its
vendors in order to ensure that its specifications and quality standards are
met. A significant portion of the Company's blanks are contract manufactured in
various off-shore plants. The Company's imported items are currently
manufactured in China, Taiwan, Korea, Malaysia, Hong Kong, Singapore, Indonesia,
Pakistan, Guatemala, Honduras, Israel, Philippines, Thailand and Mexico. No
foreign country has a manufacturing concentration above 28%. Approximately 5% of
its blanks are contract manufactured in the United States. The Company has
long-standing contractual relationships with most of its eight independent
buying agents who assist the Company in its efforts to control garment quality
and delivery. None of these agents represent the Company on an exclusive basis.
The Company has independent buying agents in each foreign country where it
purchases blanks.

COMPETITION

The Company's primary competitors vary within each of its four distinct
markets. In the resort and leisure market, there are few national competitors
and even fewer that operate in all of the varied segments in which the Company
operates. In the corporate identity market, there are several large
manufacturers of corporate identity products. The Company believes it is one of
the few manufacturers and marketers of corporate identity products that
specializes in the activewear product segment. In the college bookstore market,
the top five competitors hold an aggregate market share of approximately 60%,
and the Company believes the market share of each such competitor has increased
slightly over the last five years. In the sports specialty market, the Company
competes with a large number of manufacturers of licensed sportswear. The
Company believes, however, that it is one of the few manufacturers of sports
specialty products with a primary focus on the adult sports enthusiast.

The following table sets forth the Company's primary competitors in each of
its markets:

<TABLE>
<CAPTION>
Market Primary Competitors
------------------ ---------------------------------------------------------------------------------------
<S> <C>
Resort Cutter & Buck and local and regional competitors
Corporate HA-LO Marketing, Hermann Marketing, Swingster (American Marketing Industries)
College Bookstore Champion Products, Jansport (VF Corp.), Cotton Exchange, Russell Athletic, M.V. Sports
Sports Specialty Champion Products, Russell Corporation, PUMA/Logo 7
</TABLE>

Competition in each of the Company's markets generally is based on product
design and decoration, customer service and overall product quality. The Company
believes that it has been able to compete successfully because of its ability to
create diverse and innovative designs, provide excellent customer service,
leverage its GEAR For Sports(R) brand name and differentiate its products on the
basis of quality.

<PAGE>

EMPLOYEES

The Company employs approximately 762 people at its two facilities in
Lenexa, Kansas, of which approximately 113 are members of management, 273 are
involved in either product design, customer service, sales support or
administration and 376 are involved in manufacturing. The Company employs
approximately 68 people in its Bedford, Iowa facility all of which are involved
in embroidery manufacturing. In an effort to adjust employment levels in
accordance with its production schedule and reduce its operating costs, the
Company has instituted a voluntary time off program under which management
occasionally grants a limited number of employees extended time off (typically
four to six weeks). During extended time off periods, employees remain on call
and continue to receive employee benefits such as health insurance, but do not
receive hourly wages. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that the dedication of its employees
is critical to its success, and that its relations with its employees are
excellent.

TRADEMARKS

The Company markets its products primarily under the GEAR FOR SPORTS(R)
trademarked brand name. In addition, the Company markets its products under,
among others, the Pro GEAR(R), Tandem Marketing(R), Big Cotton(R), and Winning
Ways(R) trademarks. Generally, the Company's trademarks will remain in effect as
long as the trademark is used by the Company and the required renewals are
obtained.

The Company licenses its GEAR FOR SPORTS(R) trademark to Richmont Apparel
Group L.P. ("Richmont", formerly Softwear Athletics, Inc.) to produce and
distribute GEAR FOR SPORTS(R) adult sportswear and activewear, headwear and
sports luggage products in Canada in accordance with a license agreement (the
"Richmont License Agreement"). Pursuant to the Richmont License Agreement,
Richmont has obtained an exclusive, non-transferable and non-assignable license
to manufacture, advertise and promote adult apparel, headwear and bags in
Canada. The Richmont License Agreement had an initial term of eighteen months,
ending September 30, 1995, but has been extended by Richmont, at its option, for
five successive one year terms and was extended for an additional five year term
in fiscal 2000. In consideration for the license grant, Richmont has agreed to
pay the Company an annual royalty calculated as the greater of: (i) 450,000
Canadian dollars, 525,000 Canadian dollars, 600,000 Canadian dollars, 675,000
Canadian dollars and 750,000 Canadian dollars for calendar years 2000, 2001,
2002, 2003 and 2004, respectively or (ii) 10% of Net Sales (as defined therein)
to non-affiliates. Such royalty payments are made to the Company on a
semi-annual basis. In addition, for three years after the termination of the
Richmont License Agreement, Richmont will be prohibited from selling products
covered by the Richmont License Agreement or other similar products to any
Richmont customer who was not a Richmont customer prior to the commencement of
the Richmont License Agreement.

In fiscal 1999, the Company entered into licensing agreements with Bonmax
Co., Ltd. (the "Bonmax License Agreement") and with GEAR For Sports, Ltd.
(the"GEAR Ltd. License Agreement") to produce and distribute GEAR FOR
SPORTS(R)sportswear in Japan and the 13 country European Union, respectively.
Pursuant to both of these agreements, Bonmax Co., Ltd. and Gear For Sports, Ltd.
have obtained exclusive, non-transferable and non-assignable licenses to
manufacture, advertise and promote adult apparel, headwear and bags in Japan and
the European Union, respectively. For three years after the termination of the
licensing agreements, Bonmax Co., Ltd. and Gear For Sports, Ltd. are prohibited
from selling products covered by the agreement or other similar products to any
customer who was not a customer prior to the commencement of the licensing
agreements. The Bonmax License Agreement had an initial term of one year, but
was extended by Bonmax Co., Ltd. at its option, for a successive one year term
and may be extended by Bonmax Co., Ltd. for one additional one year term. In
consideration for the license grant, Bonmax Co., Ltd. agrees to pay the Company
an annual royalty calculated in the second year of the term as the greater of:
(i) $312,500 or (ii) 12.5% of Net Sales (as defined therein) to non-affiliates.
The minimum royalty payment to the Company in the third year of the agreement,
if extended, is $375,000. Such royalty payments are due to the Company on a
quarterly basis. The Company expects to renew the Bonmax License Agreement,
which is scheduled to expire March 31, 2001. The Gear Ltd. License Agreement has
an initial term of two years, but can be extended by Gear For Sports, Ltd. for
one additional four year term. In consideration for the license grant, Gear For
Sports, Ltd. agrees to pay the Company an annual royalty calculated as the
greater of (i) 62,500 pounds sterling and 187,500 pounds sterling in the license
periods ending December 1999 and December 2000, respectively, or (ii) 12.5% of
Net Sales (as defined therein) to non-affiliates. Such payments are due to the
Company on a quarterly basis.

<PAGE>

LICENSES

The Company markets its products, in part, under licensing agreements,
primarily in its College Bookstore and Sports Specialty divisions. In fiscal
2000, net sales under the Company's 450 active licensing agreements totaled
$48.3 million, or approximately 23% of the Company's net sales. In fiscal 2000,
$33.3 million of College Bookstore division net sales, representing
approximately 77% of the division's net sales and 16.4% of total net sales, were
recorded under this division's licensing agreements. In addition, in fiscal
2000, $10.3 million of Sports Specialty division net sales, representing
approximately 83.1% of the division's net sales and 5.1% of total net sales,
were recorded under licensing agreements. The Company's licensing agreements are
mostly with (i) high volume, university managed bookstores such as the
University of Notre Dame, the University of Southern California and the
University of Michigan, (ii) professional sports leagues such as MLB, the NBA
and the NHL and (iii) major sporting events such as the Ryder Cup and the
Indianapolis 500. Such licensing agreements are generally renewable every one to
three years with the consent of the licensor.

ITEM 2 - PROPERTIES

The Company owns each of its three properties: its 250,000 square foot
headquarters and manufacturing facility in Lenexa, Kansas, its 100,000 square
foot manufacturing and distribution facility located approximately two miles
from its headquarters and its 23,000 square foot embroidery facility located in
Bedford, Iowa. Approximately 200,000 square feet of the headquarter/
manufacturing facility and all of the manufacturing/distribution facility in
Lenexa, and the embroidery facility in Bedford are devoted to the design and
manufacture of the Company's products and to customer service.

ITEM 3 - LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceeding the resolution
of which, the management of the Company believes, would have a material adverse
effect on the Company's results of operations of financial condition, nor to any
other pending legal proceedings other than ordinary, routine litigation
incidental to its business.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 2000.

PART II

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

The only authorized, issued and outstanding class of capital stock of the
Company is common stock. There is no established public trading market for the
Company's common stock. At June 30, 2000, all common stock of the Company was
held by Holdings.

The Company has not declared or paid any cash dividends on its common stock
since the Company's formation in February 1997. The Company's financing
agreements contain restrictions on the Company's ability to declare or pay
dividends on its common stock. The distributions to Holdings during fiscal 1998,
1999 and 2000 were made pursuant to the tax sharing agreement between the
Company and Holdings.

<PAGE>

ITEM 6 - SELECTED FINANCIAL DATA

The following table presents selected: (i) historical operating and other data
of the Company for fiscal years ended June 30, 1996, June 27, 1997, July 3,
1998, July 2, 1999 and June 30, 2000; and (ii) historical balance sheet data of
the Company as of June 30, 1996, June 27, 1997, July 3, 1998, July 2, 1999 and
June 30, 2000. The historical financial statements for the Company have been
audited by Deloitte & Touche LLP. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition", and the historical consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this annual report. Certain reclassifications have been made to the
financial data for the years ended June 30, 1996, June 27, 1997, July 3, 1998
and July 2, 1999 to conform to the June 30, 2000 presentation.

<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------------------------------
(Dollars in thousands, except per share data)

June 30, June 27, July 3, July 2, June 30,
1996 1997 1998 1999 2000
------- -------- -------- --------- ---------
Statements of Income Data:
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 169,321 $ 183,298 $ 211,164 $ 203,900 $ 202,981
Gross profit.................................. 66,242 74,595 85,477 83,161 79,773
Operating expenses............................ 33,409 38,656 47,809 52,320 48,540
----------- ---------- ----------- -------- --------
Operating income............................. 32,833 35,939 37,668 30,841 31,233
Other income (expense)........................ (2,607) (8,006) (19,284) (18,345) ( 17,450)
----------- ---------- --------- -------- ---------
Income before income taxes and extraordinary
item 30,226 27,933 18,384 12,496 13,783
Income tax expense............................ -- 1,837 7,248 4,683 5,177
Extraordinary item, net of tax benefit (1).... -- 1,484 -- -- --
----------- ---------- --------- -------- ---------
Net Income.................................. $ 30,226 $ 24,612 $ 11,136 $ 7,813 $ 8,606
=========== ========== ========= ======== =========

Supplemental Information (2):
Income before income taxes and extraordinary item 30,226 27,933
Proforma income tax provision................. 12,393 11,453
----------- ----------
Proforma income before extraordinary item..... $ 17,833 $ 16,480
=========== ==========
Balance Sheet Data (as of period end):

Cash and cash equivalents..................... $ 140 $ 1,116 $ 1,346 $ 10,264 $ 1,446
Total assets.................................. 78,711 95,792 106,035 104,917 99,179
Long-term debt, including current portion..... 22,276 193,000 191,528 180,878 167,309
Total stockholders' equity (deficiency)....... 34,479 (121,411) (109,627) (99,014) (86,809)
Other Data (2):
Cash flows from operating activities.......... $ 34,000 $ 26,545 $ 3,703 $18,222 $ 3,555
Cash flows from investing activities.......... (2,480) 3,643 (2,648) (2,041) (1,937)
Cash flows from financing activities.......... (31,493) (29,212) (825) (7,263) (10,436)
EBITDA (3)................................... 36,035 39,114 40,607 33,924 34,468
Depreciation.................................. 3,201 3,175 2,938 3,083 3,235
Capital expenditures.......................... 2,611 2,615 2,972 2,291 1,998
EBITDA margin (4)............................ 21.3% 21.3% 19.2% 16.6% 17.0%
Ratio of earnings to fixed charges (5)........ 12.5x 4.5x 2.0x 1.7x 1.8x
Distributions to shareholders per share (6)... $ 23.37
</TABLE>

(Footnotes on the following page)

<PAGE>

(1) The statement of income data presented for the year ended June 27, 1997
includes an extraordinary loss related to the early extinguishment of debt
in the amount of $2,474 ($1,484 on an after-tax basis).

(2) Prior to the Acquisition, the Company was an S-Corporation and therefore
was not subject to federal and certain state income taxes. The supplemental
statement of income data presented for fiscal years prior to 1998 includes
an unaudited adjustment for income taxes which represents the approximate
income tax expense that would have been recorded if the Company had been a
C-Corporation, assuming a combined federal and state income tax rate of
41%.

(3) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with GAAP, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. In addition, the Company believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs.

(4) EBITDA margin represents EBITDA as a percentage of net sales.

(5) In the computation of the ratio of earnings to fixed charges, earnings
consist of income before income taxes, plus fixed charges. Fixed charges
consist of interest expense on indebtedness plus that portion of lease
rental expense representative of the interest factor.

(6) Distributions were made to shareholders of Winning Ways, Inc. only prior to
the recapitalization transactions on February 27, 1997.

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

The following discussion and analysis of the Company's results of
operations and its liquidity and capital resources should be read in conjunction
with the consolidated financial statements and the related notes thereto
appearing elsewhere in this annual report.

Robert M. Wolff was appointed Chairman and Chief Executive Officer on
September 6, 2000 at the annual Board of Directors meeting, replacing John L.
Menghini, who announced his retirement to pursue philanthropic interests. Mr.
Wolff, who has remained as an active Chairman over the last three years, assumes
his former role as Chief Executive Officer. Larry D. Graveel, Chief Operating
Officer, assumed Mr. Menghini's responsibilities as President.

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis of financial condition and results
of operations and other sections of this annual report contain forward-looking
statements relating to future results of the Company. Such forward-looking
statements are identified by use of forward-looking words such as "anticipates",
"believes", "plans", "estimates", "expects", and "intends" or words or phrases
of similar expression. These forward-looking statements are subject to various
assumptions, risks and uncertainties, including but not limited to, changes in
political and economic conditions, demand for the Company's products, acceptance
of new products, developments affecting the Company's products and to those
discussed in the Company's filings with the Securities and Exchange Commission.
Accordingly, actual results could differ materially from those contemplated by
the forward-looking statements.

<PAGE>

The following sets forth the amount and percentage of net sales for each of
the periods indicated (dollars in thousands). Certain reclassifications have
been made to the fiscal year 1998 data to conform to the 1999 and 2000
presentation:

Fiscal Year Ended
------------------------------------------------------------------------------
JULY 3, 1998 JULY 2, 1999 JUNE 30, 2000
---------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Resort ............................. $ 66,346 31.4% $ 61,335 30.1% $ 61,309 30.2%
Corporate........................... 72,874 34.5% 72,634 35.6% 67,791 33.4%
College Bookstore.................... 42,696 20.2% 41,645 20.4% 43,427 21.4%
Sports Specialty..................... 13,083 6.2% 12,023 5.9% 12,445 6.1%
Event 1.............................. 8,595 4.1% 10,571 5.2% 10,777 5.3%
Other............................... 7.570 3.6% 5,692 2.8% 7,232 3.6%
--------- --------- ---------
Total............................... $ 211,164 $ 203,900 $ 202,981
========= ========= =========
</TABLE>

RESULTS OF OPERATIONS

The following table sets forth certain historical financial information of
the Company, expressed as a percentage of net sales, for fiscal 1998, 1999 and
2000:

Fiscal Year Ended
----------------------------------
July 3, July 2, June 30,
1998 1999 2000
------- ------- --------
Net sales............................ 100.0% 100.0% 100.0%
Gross profit......................... 40.5 40.8 39.3
EBITDA............................... 19.2 16.6 17.0
Operating income..................... 17.8 15.1 15.4

EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flow from operating activities, which
are determined in accordance with generally accepted accounting principles, it
is included herein to provide additional information with respect to the ability
of the Company to meet its future debt service, capital expenditure and working
capital requirements. In addition, the Company believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs. See the Consolidated Statements of Cash Flows of the
Company and the related Notes to the Consolidated Financial Statements included
herein for further information.

FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JULY 2, 1999

Net Sales. Net sales declined .5% in fiscal 2000 to $203.0 million from
$203.9 million in fiscal 1999. The decrease is primarily attributable to a
decrease in the Company's Corporate division net sales of 6.7%, partially offset
by increases in net sales at the Company's College Bookstore, Sports Specialty
and Other divisions of 4.3%, 3.5% and 27.1%, respectively, and a 1.9% increase
in Event 1 subsidiary sales. The decline in Corporate division sales is
attributable to increased competition and difficulties related to the
installation of the Company's Enterprise Resource Planning System. Additionally,
the Corporate division has experienced a shift in the buying patterns of its
customers from outerwear to other products, and had some vacancies in its sales
representative force during fiscal 2000. Sales for all divisions were adversely
affected by the third consecutive year of unseasonably warm fall and winter
temperatures in most of the country.

<PAGE>

Gross Profit. Gross profit for fiscal 2000 decreased 4.1% to $79.8 million
from $83.2 million in fiscal 1999, due to the slight decline in net sales noted
above and increases in production costs as a percentage of net sales due to
product mix changes from higher priced seasonal outerwear to lower priced
products. Gross profit as a percentage of net sales declined to 39.3% in fiscal
2000 from 40.8% in fiscal 1999.

Operating Expenses. Operating expenses for fiscal 2000 decreased 7.2% to
$48.5 million from $52.3 million in fiscal 1999 due primarily to costs incurred
in fiscal 1999 associated with the Company's Enterprise Resource Planning System
installation that was completed in the fourth quarter of fiscal 1999 and
management cost control efforts in fiscal 2000. Operating expenses as a
percentage of net sales decreased to 23.9% in fiscal 2000 from 25.6% in fiscal
1999.

EBITDA. EBITDA for fiscal 2000 increased 1.6% to $34.5 million from $33.9
million in fiscal 1999 as a result of the net sales, gross margin and operating
expense changes noted above. EBITDA as a percentage of net sales increased to
17.0% in fiscal 2000 from 16.6% in fiscal 1999.

Operating Income. Operating income for fiscal 2000 increased 1.3% to $31.2
million from $30.8 million in fiscal 1999 as a result in the net sales, gross
profit and operating expense changes noted above. Operating income as a
percentage of net sales increased to 15.4% in fiscal 2000 from 15.1% in fiscal
1999.

Other Income (Expense). Other expense decreased 4.9% to $17.4 million in
fiscal 2000 from $18.3 million in fiscal 1999 due to decreases in interest
expense associated with borrowing under the Company's $115 million Credit
Agreement due to declining balances on the Company's long-term debt.

Income Taxes. Income tax expense increased 10.6% to $5.2 million in fiscal
2000 from $4.7 million in fiscal 1999 due to the increase in operating income
and decrease in interest expense noted above. The Company's effective tax rates
were 37.6% and 37.5%, in fiscal 2000 and 1999, respectively.

Net Income. Net income for fiscal 2000 was $8.6 million compared to $7.8
million in fiscal 1999 as the result of the changes in operating income,
interest expense and income tax expense described above.

FISCAL YEAR ENDED JULY 2, 1999 COMPARED TO FISCAL YEAR ENDED JULY 3, 1998

Net Sales. Net sales for fiscal 1999 decreased 3.4% to $203.9 million from
$211.2 million in fiscal 1998. The decrease in net sales is primarily
attributable to decreases in the Company's Resort, College Bookstore and Sports
Specialty divisions of 7.6%, 2.5% and 8.1%, respectively. Management believes
that the decreases in net sales at the Resort, College Bookstore and Sports
Specialty divisions are primarily due to unseasonably warm fall and winter
temperatures in most of the country. These decreases in net sales were partially
offset by an increase in net sales in the Company's Event 1 subsidiary of 23.0%
for the year ended July 2, 1999.

Gross Profit. Gross profit for fiscal 1999 decreased 2.7% to $83.2 million
from $85.5 million in fiscal 1998, due to the decreases in net sales noted
above. Gross profit as a percentage of net sales increased slightly to 40.8% in
fiscal 1999 from 40.5% in fiscal 1998.

Operating Expenses. Operating expenses for fiscal 1999 increased 9.4% to
$52.3 million from $47.8 million in fiscal 1998 primarily due to increased
staffing levels and licensing and site fees associated with Event 1. Operating
expenses as a percentage of net sales increased to 25.6% in fiscal 1999 from
22.6% in fiscal 1998.

EBITDA. EBITDA for fiscal 1999 decreased 16.5% to $33.9 million from $40.6
million in fiscal 1998 primarily as a result of the net sales and related gross
profit decreases and operating expense increases noted above. EBITDA as a
percentage of net sales decreased to 16.6% in fiscal 1999 from 19.2% in fiscal
1998.

Operating Income. Operating Income for fiscal 1999 decreased 18.1% to $30.8
million from $37.7 million in fiscal 1998 as a result of the net sales and
related gross profit decreases and operating expense increases noted above.
Operating income as a percentage of net sales decreased to 15.1% in fiscal 1999
from 17.8% in fiscal 1998.

Other Income (Expense). Other expense decreased 4.9% in fiscal 1999 to
$18.3 million from $19.3 million in fiscal 1999 due to lower revolving loan
balances in fiscal 1999 and the effect of scheduled term debt payments.

<PAGE>

Income Taxes. Income tax expense decreased 35.4% to $4.7 million in
fiscal 1999 from $7.2 million in fiscal 1998 due to the decrease in operating
income discussed above. The Company's effective tax rates were 37.5% and 39.4%,
in fiscal 1999 and 1998, respectively.

Net Income. Net income for fiscal 1999 was $7.8 million compared to $11.1
million in fiscal 1998. The decrease in net income is the result of the changes
in operating income, interest expense and tax expense noted above.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities in fiscal 2000, 1999 and 1998 was
$3.6 million, $18.2 million and $3.7 million, respectively. Changes in inventory
and accounts receivable contributed to the decline in cash provided by operating
activities in fiscal 2000 as compared to fiscal 1999. Declining inventory levels
and small growth in accounts receivable contributed to the increase in cash
provided by operating activities in fiscal 1999 as compared to fiscal 1998.
Changes in working capital resulted in cash sources (uses) of ($10.0) million,
$6.4 million and ($10.9) million in fiscal 2000, 1999 and 1998, respectively.

Cash used in investing activities for fiscal 2000, 1999 and 1998 was $1.9
million, $2.0 million, and $2.6 million, respectively, which primarily
represented capital expenditures for plant and equipment.

Cash used in financing activities for fiscal 2000, 1999 and 1998 and was
$10.4 million , $7.3 million and $.8 million, respectively. The cash used in
financing activities in fiscal 2000 was primarily related to $14 million in
long- term debt payments, of which $7.8 million was debt prepayments. The cash
used in financing activities in 1999 was primarily related to long-term debt
repayments and net payments under the Revolving Credit Agreement. The cash used
in financing activities in fiscal 1998 was primarily attributable to payments on
long-term debt.

The Company believes that cash flows from operating activities and
borrowings under the Credit Agreement will be adequate to meet the Company's
short-term and long-term liquidity requirements prior to the maturity of its
Credit Agreement in 2002 and the Senior Subordinated Notes in 2007, although no
assurance can be given in this regard. Under the Credit Agreement, the Revolver
provides $50 million of revolving credit availability (of which approximately
$12.6 million was utilized for outstanding Commercial and stand-by letters of
credit as of June 30, 2000).

The Company anticipates paying dividends to Holdings to enable Holdings to
pay corporate income taxes, interest on notes issued by Holdings (the "Holdings
Discount Notes"), fees payable under a consulting agreement and certain other
ordinary course expenses incurred on behalf of the Company. Holdings is
dependent upon the cash flows of the Company to provide funds to service the
indebtedness represented by $50.0 million of Holdings Discount Notes. Holdings
Discount Notes do not have an annual cash flow requirement until 2005 as they
accrete interest at 11.375% per annum, compounded semi-annually to an aggregate
principal amount of $108.5 million at September 15, 2004. Thereafter, the
Holdings Discount Notes will accrue interest at the rate of 11.375% per annum,
payable semi-annually, in cash on March 15 and September 15 of each year,
commencing on March 15, 2005. Additionally, Holdings' cumulative non-cash
preferred stock ("Holdings Preferred Stock") dividends total approximately
$421,000 annually. Holdings Preferred Stock may be redeemed at stated value
(approximately $3.6 million) plus accrued dividends with mandatory redemption in
2009.

NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. This
statement, as amended by SFAS No. 137 and SFAS No. 138, establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for all quarters of fiscal years
beginning after June 15, 2000. The Company does not expect the implementation of
this statement to have a material impact on the Company's financial position,
results of operations or cash flows.

<PAGE>

In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 entitled "Revenue Recognition." The
bulletin, as amended, is to be adopted, if needed, no later than the fourth
fiscal quarter of fiscal years commencing after December 15, 1999, with
retroactive adjustment to the first fiscal quarter of that year. The effect, if
any, of complying with the accounting described in this bulletin has not been
determined by management.

SEASONALITY AND INFLATION

The Company experiences seasonal fluctuations in its sales and
profitability, with generally higher sales and gross profit in the first and
second quarters of its fiscal year. In fiscal 2000, net sales of the Company
during the first half and second half of the fiscal year were approximately 52%
and 48%, respectively. The seasonality of sales and profitability is primarily
due to higher volume at the College Bookstore division during the first two
fiscal quarters. Sales and profitability at the Company's Resort, Corporate and
Sports Specialty divisions typically show no significant seasonal variations. As
the Company continues to expand into other markets in its Resort, Corporate and
Sports Specialty divisions, seasonal fluctuations in sales and profitability are
expected to decline.

The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company's market risk exposure is primarily due to possible
fluctuations in interest rates. Derivative financial instruments, including an
interest rate swap agreement, are used by the Company to manage its exposure on
variable rate debt obligations. The Company enters into such agreements for
hedging purposes and not with a view toward speculating in the underlying
instruments. The Company uses a balanced mix of debt maturities along with both
fixed rate and variable rate debt to manage its exposure to interest rate
changes. For additional information on the Company's derivative financial
instruments, refer to notes 8 and 9 to the Consolidated Financial Statements.
The Company's outstanding long-term debt at June 30, 2000 is as follows:

<TABLE>
<CAPTION>
PRINCIPAL NOTIONAL RECEIVE MATURITY ESTIMATED
AMOUNT AMOUNT PAY RATE RATE DATE FAIR VALUE
--------- -------- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED RATE DEBT:

Senior Subordinated Notes $ 125,000,000 N/A 9.625% N/A March, 2007 $ 93,750,000
Mortgage Payable 328,842 N/A 7.60% N/A June, 2004 328,842

Variable Rate Debt:

Term Loan A $ 20,984,884 N/A 9.0625% (1) N/A December, 2002 $ 20,984,884
Term Loan B 20,560,948 N/A 9.5625% (2) N/A March, 2004 20,560,948
Interest Rate Swap Agreement N/A $7,000,000 5.62%(3) 6.76125%(4) Nov., 2000 42,621
</TABLE>

(1) Rate resets periodically to Eurodollar Rate plus 2.25%. Rate represents
rate in effect at June 30, 2000.
(2) Rate resets periodically to Eurodollar Rate plus 2.75%. Rate represents
rate in effect at June 30, 2000.
(3) Fixed payment rate.
(4) Rate resets periodically to LIBOR. Rate represents rate in effect at June
30, 2000.

The fixed rate portion of the Company's long-term debt does not bear significant
interest rate risk. The variable rate debt would be affected by interest rate
changes to the extent the debt is not matched with an interest rate swap or cap
agreement or to the extent, in the case of the revolving credit agreement, that
balances are outstanding. An immediate 10 percent change in interest rates would
not have a material effect on the Company's results of operations over the next
fiscal year, although there can be no assurances that interest rates will not
significantly change.

<PAGE>

ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditor's Report............................................. 16

Consolidated Balance Sheets - July 2, 1999 and June 30, 2000.............. 17

Consolidated Statements of Income - Years Ended July 3, 1998,
July 2, 1999 and June 30, 2000......................................... 18

Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) - Years Ended July 3, 1998, July 2, 1999
and June 30, 2000...................................................... 19

Consolidated Statements of Cash Flows - Years Ended July 3, 1998,
and July 2, 1999 and June 30, 2000..................................... 20

Notes to Consolidated Financial Statements................................ 21

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
GFSI, Inc. and subsidiary
Lenexa, Kansas

We have audited the accompanying consolidated balance sheets of GFSI, Inc.
(a wholly owned subsidiary of GFSI Holdings, Inc.) and subsidiary (the
"Company") as of June 30, 2000 and July 2, 1999, and the related consolidated
statements of income, stockholders' equity (deficiency) and cash flows for each
of the three years in the period ended June 30, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 30, 2000
and July 2, 1999 and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 2000, in conformity with
accounting principles generally accepted in the United State of America.

DELOITTE & TOUCHE LLP

Kansas City, Missouri
September 8, 2000

<PAGE>

GFSI, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
July 2, June 30,
ASSETS 1999 2000
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 10,263,709 $ 1,446,205
Accounts receivable, net of allowance for doubtful accounts of
$832,487 and $848,225 at July 2, 1999 and June 30, 2000........ 28,380,708 29,801,096
Inventories, net.................................................. 36,323,596 40,139,639
Deferred income taxes............................................. 1,790,011 1,121,741
Prepaid expenses and other current assets......................... 561,607 1,117,391
------------- -------------
Total current assets......................................... 77,319,631 73,626,072

Property, plant and equipment, net.................................... 20,244,605 19,355,825

Other assets:
Deferred financing costs, net of accumulated amortization of
$2,696,354 and $3,851,934 at July 2, 1999 and June 30, 2000... 7,347,980 6,192,400
Other............................................................. 5,001 5,001
------------- -------------
7,352,981 6,197,401
------------- -------------
Total assets........................................... $ 104,917,217 $ 99,179,298
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:

Accounts payable.................................................. $ 8,289,400 $ 5,316,494
Accrued interest expense.......................................... 4,484,043 4,000,443
Accrued expenses.................................................. 7,947,616 7,668,152
Income taxes payable.............................................. 413,191 93,270
Current portion of long-term debt................................. 6,549,660 6,953,012
------------ ------------
Total current liabilities.................................... 27,683,910 24,031,371

Deferred income taxes................................................... 1,183,085 1,048,894
Long-term debt, less current portion.................................... 174,328,195 160,355,533
Other long-term obligations............................................. 736,524 552,268

Commitments and contingencies (Note 5)

Stockholders' equity (deficiency):

Common Stock, $.01 par value, 10,000 shares authorized, one
share issued at July 2, 1999 and June 30, 2000.................... -- --
Additional paid-in capital........................................ 54,527,463 58,127,463
Accumulated deficiency............................................ (153,541,960) (144,936,231)
------------- -------------
Total stockholders' deficiency.................................. ( 99,014,497) (86,808,768)
------------- -------------
Total liabilities and stockholders' equity (deficiency). $ 104,917,217 $ 99, 179,298
============= =============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

GFSI, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------
July 3, July 2, June 30,
1998 1999 2000
------------------- ------------- -------------
<S> <C> <C> <C>

Net sales.................................................... $ 211,164,245 $ 203,900,105 $ 202,980,809
Cost of sales................................................ 125,686,859 120,739,292 123,207,652
------------- ------------- -------------
Gross profit....................................... 85,477,386 83,160,813 79,773,157

Operating expenses:
Selling ................................................ 22,987,547 23,297,855 24,479,665
General and administrative.............................. 24,821,533 29,021,788 24,060,325
------------- ------------- -------------
47,809,080 52,319,643 48,539,990
------------- ------------- -------------
Operating income................................... 37,668,306 30,841,170 31,233,167

Other income (expense):
Interest expense........................................ (19,217,109) (18,589,826) (17,661,033)
Other ................................................ (67,074) 244,874 211,279
------------- ------------- -------------
(19,284,183) (18,344,952) (17,449,754)
------------- ------------- -------------

Income before income taxes .................................. 18,384,123 12,496,218 13,783,413
Provision for income taxes................................... (7,247,658) (4,683,426) (5,177,684)
------------- ------------- -------------
Net income ................................................ $ 11,136,465 $ 7,812,792 $ 8,605,729
============= ============= =============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

GFSI, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(DEFICIENCY)

YEARS ENDED JULY 3, 1998, JULY 2, 1999 and JUNE 30, 2000

<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Total
----------------- Paid-In (Accumulated Stockholders'
Shares Amounts Capital Deficiency) Equity (Deficiency)
------ ------- ------- ------------ -------------------

<S> <C> <C> <C> <C>
Balance, June 27, 1997 ............... 1 $49,938,963 $ (171,349,550) (121,410,587)
Net income........................ 11,136,465 11,136,465
Capital contributions from
GFSI Holdings, Inc................ 1,788,500 1,788,500
Distributions to GFSI

Holdings, Inc. ................... (1,141,667) (1,141,667)
------ ------- ----------- -------------- -------------

Balance, July 3, 1998................ 1 51,727,463 (161,354,752) (109,627,289)
Net income........................ 7,812,792 7,812,792
Capital contributions from GFSI
Holdings, Inc..................... 2,800,000 2,800,000
------ ------- ----------- -------------- -------------

Balance, July 2, 1999................. 1 -- 54,527,463 (153,541,960) (99,014,497)
Net income........................ 8,605,729 8,605,729
Capital contributions from GFSI
Holdings, Inc..................... 3,600,000 3,600,000
------ ------- ----------- -------------- --------------

Balance, June 30, 2000................ 1 -- $58,127,463 $ (144,936,231) $ (86,808,768)
====== ======= =========== =============== ==============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

GFSI, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------
July 3, July 2, June 30,
1998 1999 2000
----------------- --------------- ---------------
Cash flows from operating activities:

<S> <C> <C> <C>
Net income........................................... $ 11,136,465 $ 7,812,792 $ 8,605,729

Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ...................................... 2,938,400 3,083,490 3,235,324
Amortization of deferred financing costs........... 1,157,247 1,155,580 1,155,580
(Gain) loss on sale or disposal of property, plant and
equipment........................................ 15,206 (44,282) 56,545
Deferred income taxes.............................. (954,872) (161,691) 534,079

Changes in operating assets and liabilities:
Accounts receivable, net........................... (4,086,252) (607,052) (1,420,388)
Inventories, net................................... (6,736,529) 7,974,699 (3,816,043)
Prepaid expenses, other current assets and other assets. 99,451 624,582 (555,784)
Accounts payable, accrued expenses and other long-term
obligations................................. (584,072) (973,056) (3,920,226)
Income taxes payable............................... 718,337 (642,896) (319,921)
------------- ------------ -----------
Net cash provided by operating activities...... 3,703,381 18,222,166 3,554,895
------------- ------------ -----------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment. 323,375 249,398 61,489
Purchases of property, plant and equipment........... (2,971,624) (2,290,711) (1,998,240)
------------- ------------ -----------
Net cash used in investing activities.......... (2,648,249) (2,041,313) (1,936,751)
------------- ------------ -----------
Cash flows from financing activities:
Net changes to revolving credit agreement borrowing. 2,600,000 (5,600,000) --
Issuance of long-term debt........................... 427,694 -- --
Payments on long-term debt........................... (4,500,000) (5,049,839) (14,035,648)
Distributions to GFSI Holdings, Inc.................. (1,141,667) -- --
Capital contributions from GFSI Holdings, Inc........ 1,788,500 2,800,000 3,600,000
------------- ------------ -----------
Proceeds from training grants........................ -- 586,524 --
Net cash used in financing activities.......... (825,473) (7,263,315) (10,435,648)
------------- ------------ -----------
Net increase (decrease) in cash and cash equivalents. 229,659 8,917,538 (8,817,504)
Cash and cash equivalents,
Beginning of period.................................. 1,116,512 1,346,171 10,263,709
------------- ------------ -----------
End of period........................................ $ 1,346,171 $ 10,263,709 $ 1,446,205
============= ============ ===========
Supplemental cash flow information:
Interest paid................................ $ 17,672,932 $ 17,295,085 $ 16,329,449
============= ============ ==============
Income taxes paid............................ $ 6,314,500 $ 2,804,209 $ 1,530,298
============= ============= =============
Non-cash investing and financing activities:
Equipment purchased under capital lease............ $ 468,338
=============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 3, 1998, JULY 2, 1999 and JUNE 30, 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS -- The Company is a leading designer,
manufacturer and marketer of high quality, custom designed sportswear and
activewear bearing names, logos and insignia of resorts, corporations, colleges
and professional sports teams. The Company's customer base is spread throughout
the United States.

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, Event 1,
Inc. All significant intercompany accounts and transactions have been
eliminated.

Fiscal Year--The Company utilizes a 52/53 week fiscal year which ends
on the Friday nearest June 30. The twelve month periods ended July 2, 1999 and
June 30, 2000 each contain 52 weeks and the twelve month period ended July 3,
1998 contains 53 weeks.

REVENUE RECOGNITION -- The Company recognizes revenue upon shipment of
its products to its customers.

CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.

INVENTORIES -- Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method. Included in inventories
are markdown allowances of $1,174,147 and $1,254,565 at July 2, 1999 and June
30, 2000, respectively.

PROPERTY, Plant and Equipment--Property, plant and equipment are
recorded at cost. Major renewals and betterments that extend the life of the
asset are capitalized; other repairs and maintenance are expensed when incurred.

Depreciation and amortization are provided for on the straight-line
method over the following estimated useful lives:

Buildings and improvements.......................... 40 years
Furniture and fixtures.............................. 3-10 years

LONG-LIVED ASSETS -- The Company, using its best estimates based on
reasonable and supportable assumptions and projections, reviews for impairment
of long-lived assets and certain identified intangibles to be held and used
whenever events or changes in circumstances indicate that the carrying amount of
its assets might not be recoverable, and has concluded no financial statement
adjustment is required.

DEFERRED FINANCING COSTS -- Deferred financing costs are amortized
using the straight-line method over the shorter of the terms of the related
loans or the period such loans are expected to be outstanding. Amortization of
deferred financing costs is included in interest expense.

DERIVATIVE FINANCIAL INSTRUMENTS -- The Company is a party to an
interest rate swap agreement. Income or expense resulting from interest rate
swap agreements used in conjunction with on-balance sheet liabilities are
accounted for on an accrual basis and recorded as an adjustment to expense on
the matched instrument. Interest rate swap agreements that are not matched with
specific liabilities are recorded at fair value, with changes in the fair value
recognized in current operations.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ADVERTISING COST -- All costs related to advertising the Company's products
are expensed in the period incurred. Advertising expenses totaled $1,631,259,
$1,658,814 and $1,676,842 for the years ended July 3, 1998, July 2, 1999 and
June 30, 2000, respectively.

INCOME TAXES -- The Company accounts for income taxes using the liability
method in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109. The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between tax bases of assets and liabilities
and their carrying amount for financial reporting purposes, as measured by the
enacted tax rates which will be in effect when these differences are expected to
reverse.

The Company is a party to a tax-sharing agreement with GFSI Holdings, Inc.
("Holdings"). As such, the taxable income of the Company is included in the
consolidated federal and certain state income tax returns of Holdings. The
Company's income tax provision has been calculated as if the Company would have
filed separate federal and state income tax returns.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.

SEGMENT INFORMATION -- The Company has determined that it has a single
reportable operating segment which engages in designing, manufacturing and
marketing logoed apparel. No single customer represents ten percent or more of
consolidated revenues. In addition, substantially all of the Company's revenues
are derived from sources within the United States of America and all of its
assets are located within the United States of America.

NEW ACCOUNTING STANDARDS -- SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued in June 1998. This statement, as
amended by SFAS No. 137 and SFAS No. 138, establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all quarters of fiscal years beginning after
June 15, 2000. The Company does not expect the implementation of this statement
to have a material impact on the Company's financial position, results of
operations or cash flows.

RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998
and 1999 consolidated financial statements to conform to the 2000 presentation.

<PAGE>

2. PROPERTY, PLANT AND EQUIPMENT

July 2, 1999 June 30, 2000
------------ --------------

Land.................................... $ 2,455,373 $ 2,455,373
Buildings and improvements.............. 20,493,021 20,944,494
Furniture and fixtures.................. 16,351,396 17,320,084
------------ -----------
39,299,790 40,719,951

Less: accumulated depreciation.......... 19,368,979 21,382,426
------------ -----------
19,930,811 19,337,525

Construction in progress................ 313,794 18,300
------------ ------------
$ 20,244,605 $ 19,355,825
============ ============

Assets under capital leases are summarized as follows:

July 2, 1999 June 30, 2000
------------ -------------

Furniture and fixtures................... -- $ 468,338
Less: accumulated amortization........... -- 30,579
----------- -----------
Net assets under capital lease -- $ 437,759
==========

The following are the minimum lease payments that will have to be made in each
of the years indicated based on capital and operating leases in effect as of
June 30, 2000:

Fiscal Year: CAPITAL OPERATING
------- ---------

2001.......................................... $ 142,345 $ 480,921
2002.......................................... 142,345 243,612
2003.......................................... 81,439 152,169
2004.......................................... 74,135 141,802
2005.......................................... 71,895 89,779
---------- -----------
Total minimum lease payments.................. 512,159 $ 1,108,283
===========
Amount representing interest.................. (78,288)
----------
Present value of minimum lease payments....... $ 433,871
==========

Rental expense for all operating leases aggregated $414,123, $725,314 and
$659,338 in fiscal years 1998, 1999 and 2000, respectively.

<PAGE>

3. REVOLVING CREDIT AGREEMENT

The Company has a $50,000,000 secured line of credit (the "Line") with an
interest rate that periodically adjusts to the Eurodollar rate plus 2.25%. The
Line is secured by substantially all of the property, plant and equipment of the
Company and matures in December of 2002. The Line is subject to certain
restrictions and covenants, among them being the maintenance of certain
financial ratios, the most restrictive of which require the Company to maintain
a fixed charge coverage ratio greater than 1.03 to 1.0, an interest expense
coverage ratio of greater than 1.55 to 1.0 and a maximum leverage ratio of less
than 4.95 to 1.0, as defined in the agreement. The Company is limited with
respect to the making of payments (dividends and distributions), the incurrence
of certain liens, the sale of assets under certain circumstances, certain
transactions with affiliates, certain consolidations, mergers, and transfers,
and the use of loan proceeds. There were no borrowings against this line as of
July 2, 1999 and June 30, 2000.

Letters of credit against this Line at July 2, 1999 and June 30, 2000, for
unshipped merchandise aggregated $17,783,802 and $11,329,452, respectively.
Stand-by letters of credit issued against the Line at July 2, 1999 and June 30,
2000, aggregated $1,866,561 and $1,275,481, respectively.

4. LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
July 2, June 30,
1999 2000
------- -------
<S> <C> <C> <C>
Senior Subordinated Notes, 9.625% interest rate, due 2007....................... $ 125,000,000 $ 125,000,000
Term Loan A, variable interest rate, 7.4375% and 9.0625 % at
July 2, 1999 and June 30, 2000, respectively, due 2002............ 31,000,000 20,984,884

Term Loan B, variable interest rate, 7.9375% and 9.5625% at
July 2, 1999 and June 30, 2000, respectively, due 2004 ............... 24,500,000 20,560,948

Mortgage payable to the City of Bedford, Iowa, 7.60% interest rate.............. 377,855 328,842
Captial lease obligation........................................................ - - 433,871
------------- -------------
180,877,855 167,308,545

Less current portion............................................................ 6,549,660 6,953,012
------------- -------------
$ 174,328,195 $ 160,355,533
============= =============
</TABLE>

On February 27, 1997, the Company entered into a Credit Agreement with a
group of financial institutions to provide for three credit facilities: (I) a
term loan of $40,000,000 ("Term Loan A"), (ii) a term loan of $25,000,000 ("Term
Loan B" and collectively, with Term Loan A, the "Term Loans") and (iii) a
$50,000,000 secured line of credit (see Note 3).

The Credit Agreement is secured by substantially all of the property, plant
and equipment of the Company and is subject to general and financial covenants
that place certain restrictions on the Company. The Company is limited with
respect to the making of payments (dividends and distributions to Holdings); the
incurrence of certain liens; the sale of assets under certain circumstances;
certain transactions with affiliates; certain consolidations, mergers, and
transfers; and the use of loan proceeds.

In addition, on February 27, 1997, the Company issued the 9.625% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes") in the aggregate
principal amount of $125,000,000 in a Regulation 144A private placement. The
Company's Registration Statement on Form S-4 was declared effective on July 24,
1997, providing for the exchange of the Senior Subordinated Notes registered
under the Securities Act of 1933, for the Regulation 144A privately placed
Senior Subordinated Notes.

Interest on the Senior Subordinated Notes is payable semi-annually in cash
in arrears on September 1 and March 1, commencing September 1, 1997. The Senior
Subordinated Notes mature on March 1, 2007 and are redeemable, in whole or in
part, at the option of the Company at any time on or after March 1, 2002 at the
redemption prices listed below:

YEAR PERCENTAGE
---- -----------
2002........................................................ 104.813%
2003........................................................ 103.208
2004........................................................ 101.604
2005 and thereafter......................................... 100.000

Upon the occurrence of a change of control, the Company will be required,
subject to certain conditions, to make an offer to purchase the Senior
Subordinated Notes at a price equal to 101% of the principal amount plus accrued
and unpaid interest to the date of purchase.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Senior Subordinated Notes are senior unsecured obligations of the
Company and pursuant to the terms of the Senior Subordinated Notes indenture,
rank pari passu in right of payment to any future subordinated indebtedness of
the Company, and effectively rank junior to secured indebtedness of the Company,
including borrowings under the Credit Agreement.

At June 30, 2000, the Senior Subordinated Notes estimated fair value
approximated $93,750,000.

The Senior Subordinated Notes Indenture includes covenants that, among
other things, limit payments of dividends and other restricted payments and the
incurrence of additional indebtedness. As of June 30, 2000, the Company was in
compliance with all such covenants.

On June 1, 1998, the Company purchased a building and land in Bedford, Iowa
for approximately $428,000 in the form of a mortgage note payable at $6,325 per
month from July 1998 through June 2004 with a lump sum payment of $97,600 in
June 2004. The note payable to the City of Bedford, Iowa is secured by the
property mortgaged. The Company began utilizing the building for embroidery
production in fiscal year 1999.

In December 1998, the Company received $300,000 from the Community Economic
Betterment Account of the Iowa Department of Economic Development (the "CEBA
Grant") that is included in other long-term obligations in the accompanying
Consolidated Balance Sheets. The CEBA Grant will be forgiven by the Iowa
Department of Economic development if the Company meets certain Iowa employment
requirements as of June 30, 2001 and for a period of thirteen weeks following
June 30, 2001 and, assuming such requirements are met, the CEBA Grant will be
recognized as income. Management believes that the requisite Iowa employment
levels will be reached prior to June 30, 2001.

Aggregate maturities of the Company's long-term debt as of June 30, 2000
are as follows assuming a 52/53 week fiscal year:

FISCAL YEAR

2001.......................................... $ 6,953,012
2002.......................................... 8,661,740
2003.......................................... 12,430,763
2004.......................................... 14,194,338
2005.......................................... 68,692
Thereafter.................................... 125,000,000
-------------
Total $ 167,308,545
=============

As discussed in Note 8 to the financial statements, the floating interest rate
on a previous line of credit agreement was partially converted to a fixed
interest rate of 5.62% by a $7,000,000 notional amount interest rate swap
agreement terminating on November 18, 2000. Such interest rate swap has been
redesignated to the Term Loan A debt agreement.

5. COMMITMENTS AND CONTINGENCIES

The Company, in the normal course of business, is threatened with or named
as a defendant in various lawsuits. It is not possible to determine the ultimate
disposition of these matters, however, management is of the opinion that there
are no known claims or known contingent claims that are likely to have a
material adverse effect on the results of operations, financial condition, or
cash flows of the Company.

Various state and local taxing authorities have examined, or are in the
process of examining the Company's sales and use tax returns. The Company is
currently reviewing status and the results of such examinations, including the
methods used by certain state taxing authorities in calculating the sales tax
assessments and believes that it has accrued an amount adequate to cover the
assessments.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. PROFIT SHARING AND 401(K) PLAN

The Company has a defined contribution plan which includes employee
directed contributions with an annual Company matching contribution of 50% on up
to 4% of a participants annual compensation. In addition, The Company may make
additional profit sharing contributions at the discretion of the Board of
Directors. Participants exercise control over the assets of their account and
choose from a broad range of investment alternatives. Contributions made by the
Company to the plan related to the 401(k) match and profit sharing portions
totaled $288,521 and $344,177, respectively for the year ended July 3, 1998,
$364,096 and $476,291, respectively, for the year ended July 2, 1999 and
$343,450 and $373,174, respectively, for the year ended June 30, 2000.

7. INCOME TAXES

The provision for income taxes for the years ended July 3, 1998, July 2,
1999 and June 30, 2000 consist of the following:

<TABLE>
<CAPTION>
July 3, July 2, June 30,
1998 1999 2000
-------------- ------------- ------------
<S> <C> <C> <C>
Current income tax provision.................... $ 8,202,530 $ 4,845,117 $ 4,643,605
Deferred income tax provision (benefit)......... (954,872) (161,691) 534,079
-------------- ------------- ------------
Total income tax provision...................... $ 7,247,658 $ 4,683,426 $ 5,177,684
=============== ============= ============
</TABLE>

The income tax provisions differ from amounts computed at the statutory
federal income tax rate as follows:

<TABLE>
<CAPTION>
July 3, 1998 July 2, 1999 June 30, 2000
-------------- -------------- ------------------
Amount % Amount % Amount %
------------------------------------------- ----------------------

<S> <C> <C> <C> <C> <C> <C>
Income tax provision at the statutory rate. $6,434,443 35.0% $4,273,676 34.2% $4,724,195 34.3%
Effect of state income taxes, net of
federal benefit............................ 926,603 5.0 493,351 4.0 467,750 3.4
Other...................................... (113,388) (.6) (83,601) (.7) (14,261) (.1)
----------- ------ ---------- ----- ---------- ------
$7,247,658 39.4% $4,683,426 37.5% $5,177,684 37.6%
=========== ====== ========== ===== ========== =====
</TABLE>

The Company's operating results are included in Holding's consolidated
income tax returns. The provision for current income taxes is based on the
Company's taxable income calculated as if the Company filed a separate tax
return.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The sources of the differences that give rise to the
deferred income tax assets and liabilities as of July 2, 1999 and June 30, 2000,
along with the income tax effect of each, are as follows:
<TABLE>
<CAPTION>

July 2, 1999 June 30, 2000
------------------------ ------------------------
Deferred Income Tax Deferred Income Tax
---------------------- ------------------------
<S> <C> <C> <C> <C>
Assets Liabilities Assets Liabilities
--------- ------------ --------- -------------

Accounts receivable................... $ 387,874 $ -- $ 384,709 $ --
Inventory valuation................... 361,154 -- 112,460 --
Property, plant, and equipment........ -- 1,228,389 -- 1,033,093
Accrued expenses...................... 1,112,767 -- 712,051 --
Other................................. -- 26,480 -- 103,280
------------- ------------ --------- ---------
Total................................. $ 1,861,795 $ 1,254,869 $1,209,220 $1,136,373
=========== =========== ========== ==========
</TABLE>

8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company engages in transactions which result in off-balance sheet risk.
Interest rate swap and cap agreements are used in conjunction with on-balance
sheet liabilities to reduce the impact of changes in interest rates. Interest
rate swap agreements are contractual agreements to exchange, or "swap", a series
of interest rate payments over a specified period, based on an underlying
notional amount but differing interest rate indices, usually fixed and floating.
Interest rate cap agreements are contractual agreements in which a premium is
paid to reduce the impact of rising interest rates on floating rate debt. The
notional principal amount does not represent a cash requirement, but merely
serves as the amount used, along with the reference rate, to calculate
contractual payments. Because the instrument is a contract or agreement rather
than a cash market asset, the financial derivative transactions described above
are referred to as "off-balance sheet" instruments.

The Company attempts to minimize its credit exposure to counter parties by
entering into interest rate swap and cap agreements only with major financial
institutions.

The fair values of the Company's interest rate swap and cap agreements are
not recognized in the financial statements as they are used in conjunction with
on-balance sheet liabilities and were as follows:

Contract or Estimated
Notional Fair Weighted Average
Amount Value Interest Rate
----------- --------- --------------------
Receivable Payable
---------- -------
<S> <C> <C> <C> <C>
Swap:
July 2, 1999....................... $ 7,000,000 $(1,574) 5.0% 5.62%
June 30, 2000...................... 7,000,000 42,621 6.76125% 5.62%
</TABLE>

The Company has entered into an interest rate swap agreement to exchange
fixed interest rates for floating rate debt payments. The interest rate swap
agreement carries a notional amount of $7,000,000 and terminates on November 18,
2000 as further described in Note 4 to the financial statements.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments which include cash and cash equivalents, accounts receivables,
short- term borrowings, accounts payables, long-term debt and derivative
financial instruments.

Cash and cash equivalents -- The carrying amount reported on the balance
sheet represents the fair value of cash and cash equivalents.

Accounts receivable -- The carrying amount of accounts receivable
approximates fair value because of the short-term nature of the financial
instruments.

Accounts payable -- The carrying amount of accounts payable approximates
fair value because of the short-term nature of the financial instruments.

Long-term debt -- Current market values, if available, are used to
determine fair values of debt issues with fixed rates. The carrying value of
floating rate debt is a reasonable estimate of their fair value.

Derivative Financial Instruments -- Quoted market prices or dealer quotes
are used to estimate the fair value of interest rate swap and cap agreements.

The following summarizes the estimated fair value of financial
instruments, by type:
<TABLE>
<CAPTION>

July 2, 1999 June 30, 2000
------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Assets and liabilities:

Cash and cash equivalents....................... $ 10,263,709 $ 10,263,709 $ 1,446,205 $ 1,446,205
Accounts receivable............................. 28,380,708 28,380,708 29,801,096 29,801,096
Accounts payable................................ 8,289,400 8,289,400 5,316,494 5,316,494
Long-term debt.................................. 180,877,855 160,877,855 167,308,545 136,058,545

Off-Balance Sheet Financial Instruments:
Interest rate swap agreements
(asset/(liability)) N/A (1,574) N/A 42,621
</TABLE>

Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.

<PAGE>

GFSI, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. RELATED PARTY TRANSACTIONS

The Company has entered into supply arrangements with several affiliated
companies controlled by certain members of Company management. The agreements
allow the Company to outsource embroidery work to the affiliates in the event
that demand exceeds the Company's manufacturing capacity. Amounts paid to these
entities were $5,781,092, $5,716,298 and $4,783,771 for the years ended July 3,
1998, July 2, 1999 and June 30, 2000, respectively.

Holdings has an agreement with an affiliate of the Company to render
services to the Company including consultation on its financial and business
affairs, its relationship with its lenders and stockholders, and the operation
and expansion of its business. The agreement will renew for successive one year
terms unless either party, within 60 days prior to renewal, elects to terminate
the agreement. In addition, the Company incurred consulting fees totaling
$500,000 for each of the years ended July 3, 1998 and July 2, 1999, and $365,000
for the year ended June 30, 2000 which are included in general and
administrative expenses in the accompanying financial statements.

Holdings has a noncompete agreement with a shareholder. In exchange for the
covenant not to compete, the shareholder will be paid $250,000 per annum for a
period of ten years. For each of the years ended July 3, 1998, July 2, 1999 and
June 30, 2000, $250,000 of expense related to this agreement was included in
general and administrative expenses in the accompanying financial statements.

The Company and Holdings have entered into a tax sharing agreement (the
"Tax Sharing Agreement") for purposes of filing a consolidated federal income
tax return and paying federal income taxes on a consolidated basis. Pursuant to
the Tax Sharing Agreement, the Company and each of its consolidated subsidiaries
will pay to Holdings on an annual basis an amount determined by reference to the
separate tax liability of the Company as calculated pursuant to Section
1552(a)(1) of the Code and applicable regulations thereunder. For the years
ended July 3, 1998, July 2, 1999 and June 30, 2000 payments under this agreement
aggregated $6,314,500, $2,804,209 and $1,530,298, respectively.

<PAGE>

Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

None.

PART III

Item 10 - Directors and Executive Officers

The following sets forth the names and ages of the Company's directors and
executive officers and the positions they hold as of the date of this annual
report:
<TABLE>
<CAPTION>

Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Robert M. Wolff.................... 65 Chairman (1)
John L. Menghini................... 50 President, Chief Executive Officer and Director (1)
Robert G. Shaw..................... 49 Senior Vice President, Finance and Human Resources and Director
Larry D. Graveel................... 51 Executive Vice President, Chief Operating Officer and Director (1)
Michael H. Gary.................... 47 Senior Vice President, Sales Administration
A. Richard Caputo, Jr.............. 34 Director
John W. Jordan II.................. 52 Director
David W. Zalaznick................. 46 Director
</TABLE>

Set forth below is a brief description of the business experience of each
director and executive officer of the Company including each person's principal
occupations and employment during the past five years, the name and principal
business of any corporation or other organization in which such occupations and
employment were carried on and whether such corporation or organization is a
parent, subsidiary or other affiliate of the registrant.

Robert M. Wolff has served as Chairman of the Company since its inception
in 1974. (1)

John L. Menghini has served as Chief Executive Officer since 1999. He has
served as President, Chief Operating Officer and a director of the Company since
1984. Prior to that, Mr. Menghini served as a merchandise manager of the Company
since 1977. (1)

Robert G. Shaw has served as Senior Vice President, Finance and Human
Resources and a director of the Company since 1993. Prior to that, Mr. Shaw held
several management positions with the Company since 1976, including Vice
President of Finance.

Larry D. Graveel has served as Chief Operating Officer since 1999. He has
served as a director of the Company since February 1997 and as Senior Vice
President, Merchandising of the Company since 1993. Prior to that, Mr. Graveel
served as a merchandising manager of the Company since 1984. (1)

Michael H. Gary has served as Senior Vice President, Sales Administration
of the Company since 1993. Prior to that, Mr. Gary held several management
positions in sales administration with the Company since 1982.

A. Richard Caputo, Jr. has served as a director of the Company since
February 1997. Mr. Caputo is a managing director of TJC, a private merchant
banking firm, with which he has been associated since 1990. Mr. Caputo is also a
director of AmeriKing, Inc. and Jackson Products, Inc. as well as other
privately held companies.

John W. Jordan II has served as a director of the Company since February
1997. Mr. Jordan has been a managing director of TJC since 1982. Mr. Jordan is
also a director of Jordan Industries, Inc., Carmike Cinemas, Inc., American
Safety Razor Company, Apparel Ventures, Inc., AmeriKing, Inc., Jordan
Telecommunication Products, Inc., Motors and Gears, Inc., Jackson Products, Inc.
and Rockshox, Inc. as well as other privately held companies.

David W. Zalaznick has served as a director of the Company since February
1997. Mr. Zalaznick has been a managing director of TJC since 1982. Mr.
Zalaznick is also a director of Jordan Industries, Inc., Carmike Cinemas, Inc.,
American Safety Razor Company, Apparel Ventures, Inc., Marisa Christina, Inc.,
AmeriKing, Inc., Jordan Telecommunications Products, Inc., Motors and Gears,
Inc. and Jackson Products, Inc. as well as other privately held companies.

--------
(1) Effective September 6, 2000, John Menghini resigned from the Company and
Robert Wolff was appointed Chief Executive Officer and Larry Graveel was
appointed President and Chief Operating Officer.

<PAGE>

Stockholders Agreement

In connection with the Acquisition, Holdings, the Management Investors and
the Jordan Investors entered into a subscription and stockholders agreement (the
"Stockholders Agreement") which sets forth certain rights and restrictions
relating to the ownership of Holdings stock and agreements among the parties
thereto as to the governance of Holdings and, indirectly, GFSI.

The Stockholders Agreement contains material provisions which, among other
things and subject to certain exceptions, including any restrictions imposed by
applicable law or by the Company's debt agreements, (i) provide for put and call
rights in the event a Stockholder (as defined therein) is no longer employed by
the Company, (ii) restrict the ability of all Stockholders to transfer their
respective ownership interests, other than with respect to transfers to
Permitted Transferees (as defined therein), including rights of first refusal
and tag along rights held by each of the remaining stockholders, (iii) grant
drag along rights to Selling Stockholders (as defined therein) in which the
holders of 75% or more of the common stock of Holdings who agree to transfer
their stock in an arms-length transaction to a nonaffiliated party may require
the remaining stockholders to sell their stock on the same terms and conditions
and (iv) grant each Stockholder piggyback registration rights to participate in
certain registrations initiated by Holdings.

The Stockholders Agreement also contains certain material governance
provisions which, among other things, (i) provide for the election of three
directors (the "Management Directors") nominated by the Management Investors,
three directors (the "Jordan Directors") nominated by the Jordan Investors and
one director nominated by the Stockholders, (ii) prohibit the removal of the
Management Directors other than by the Management Investors or the Jordan
Directors other than by the Jordan Investors and (iii) require the approval of
at least five directors of certain fundamental transactions affecting Holdings
or GFSI, including any proposed dissolution, amendment to the certificate of
incorporation or by-laws or merger, consolidation or sale of all or
substantially all of the assets of Holdings or GFSI. The provisions described
under "Stockholders Agreement" represent all of the material provisions of such
agreement.

Board of Directors

Liability Limitation. The Certificate of Incorporation provides that a
director of the Company shall not be personally liable to it or its stockholders
for monetary damages to the fullest extent permitted by the Delaware General
Corporation Law. In accordance with the Delaware General Corporation Law, the
Certificate of Incorporation does not eliminate or limit the liability of a
director for acts or omissions that involve intentional misconduct by a director
or a knowing violation of law by a director for voting or assenting to an
unlawful distribution, or for any transaction from which the director will
personally receive a benefit in money, property, or services to which the
director is not legally entitled. The Delaware General Corporation Law does not
affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. Any amendment to
these provisions of the Delaware General Corporation Law will automatically be
incorporated by reference into the Certificate of Incorporation and the Bylaws,
without any vote on the part of its stockholders, unless otherwise required.

Indemnification Agreements. Simultaneously with the consummation of the
Offering, the Company and each of its directors entered into indemnification
agreements. The indemnification agreements provide that the Company will
indemnify the directors against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of the Company) to which any of them is, or
is threatened to be, made a party by reason of their status as a director,
officer or agent of the Company, or serving at the request of the Company in any
other capacity for or on behalf of the Company; provided that (i) such director
acted in good faith and in a manner not opposed to the best interest of the
Company, (ii) with respect to any criminal proceedings had no reasonable cause
to believe his or her conduct was unlawful, (iii) such director is not finally
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Company, unless the court views in light of the circumstances
the director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b) of
the Exchange Act, or the rules or regulations promulgated thereunder. With
respect to any action brought by or in the right of the Company, directors may
also be indemnified to the extent not prohibited by applicable laws or as
determined by a court of competent jurisdiction against expenses actually and
reasonably incurred by them in connection with such action if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the Company.

Director Compensation. Each director of the Company receives $20,000 per
year for serving as a director of the Company. In addition, the Company
reimburses directors for their travel and other expenses incurred in connection
with attending meetings of the Board of Directors.

<PAGE>

Item 11 - Executive Compensation

The following table sets forth information concerning the aggregate
compensation paid and accrued to the Company's top five executive officers for
services rendered to the Company during each of the three most recent fiscal
years. The executive officers include Robert M. Wolff, Chairman, John L.
Menghini, President and Chief Executive Officer, Robert G. Shaw, Senior Vice
President, Finance and Human Resources, Larry D. Graveel, Executive Vice
President and Chief Operating Officer and Michael H. Gary, Senior Vice
President, Sales Administration.

Fiscal Other Annual
Position Year Salary Bonus Compensation (1)
-------- ------ -------- ----------- ---------------
<S> <C> <C> <C> <C>

Robert M. Wolff................................. 2000 $144,837 $ -- $ --
Chairman (2) 1999 170,000 -- --
1998 155,000 -- --

John L. Menghini................................ 2000 290,000 95,000 6,000
President and Chief 1999 250,000 255,615 6,400
Executive Officer (2) 1998 250,000 422,750 7,040

Robert G. Shaw.................................. 2000 170,000 35,000 6,000
Senior Vice President and 1999 160,000 92,000 6,400
Chief Financial Officer 1998 160,000 194,112 7,040

Larry D. Graveel................................ 2000 190,000 35,000 6,000
Executive Vice President and 1999 180,000 96,923 6,400
Chief Operating Officer (2) 1998 180,000 201,060 7,040

Michael H. Gary................................. 2000 200,000 40,000 6,000
Senior Vice President 1999 180,000 96,923 6,400
1998 180,000 194,112 7,040

(1) Other annual compensation consists of car allowances, profit sharing,
group medical benefits and individual beneficiary life insurance premiums
paid by the Company.

(2) Effective September 6, 2000, John Menghini resigned from the company and
Robert Wolff was appointed Chief Executive Officer and Larry Graveel was
appointed President and Chief Operating Officer.
</TABLE>

Incentive Compensation Plan

The Company adopted an incentive compensation plan (the "Incentive
Plan"), for senior executives during the fiscal year ended July 3, 1998. The
Incentive Plan provides for annual cash bonuses payable based on a percentage of
EBIT (as defined in the Incentive Plan) if certain EBIT targets are met.

<PAGE>

Item 12 - Security Ownership and Certain Beneficial Owners and Management

All of the outstanding common stock of the company is owned by Holdings.
The table below sets forth certain information regarding beneficial ownership of
the common stock of Holdings held by (i) each of its directors and executive
officers who own shares of common stock of Holdings, (ii) all directors and
executive officers of Holdings as a group and (iii) each person known by
Holdings to own beneficially more than 5% of its common stock. The Company
believes that each individual or entity named has sole investment and voting
power with respect to shares of common stock of Holdings as beneficially owned
by them, except as otherwise noted.
<TABLE>
<CAPTION>

Amount of Beneficial
Ownership
--------------------------
Number of Percentage
Shares Owned
--------- ----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Robert M. Wolff (2)(3)(4)............................................... 60.0 3.0%
John L. Menghini (2)(4)(5).............................................. 257.0 12.9
Robert G. Shaw (2)(6)................................................... 235.0 11.8
Larry D. Graveel (2)(4)(7).............................................. 110.0 5.5
Michael H. Gary (2)(8).................................................. 110.0 5.5
John W. Jordan II (9)(10)............................................... 78.3125 3.9
David W. Zalaznick(9)................................................... 78.3125 3.9
A. Richard Caputo, Jr. (9).............................................. 50.0 2.5
All directors and executive officers as a group (8 persons)............. 971.125 48.7

OTHER PRINCIPAL STOCKHOLDERS:

JZ Equity Partners PLC (11)............................................ 500.0 25.0
Leucadia Investors, Inc. (12).......................................... 125.0 6.3
</TABLE>

-------------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. As of July
3, 1998, there were 2,000 shares of common stock of Parent issued and
outstanding.

(2) The address of each of Messrs. Wolff, Menghini, Shaw, Graveel and Gary is
c/o GFSI, Inc., 9700 Commerce Parkway, Lenexa, Kansas 66219.

(3) All shares are held by the Robert M. Wolff Trust, of which Mr. Wolff is a
trustee.

(4) Effective September 6, 2000, John Menghini resigned from the company and
Robert Wolff was appointed Chief Executive Officer and Larry Graveel was
appointed President and Chief Operating Officer.

(5) 197 shares are held by the John Leo Menghini Revocable Trust, of which
Mr. Menghini is a trustee. The remaining 60 shares are held in
trust for family members of Mr. Menghini.

(6) 175 shares are held by the Robert Shaw Living Trust, of which Mr. Shaw
is a trustee. The remaining 60 shares are held by Robert Shaw as
custodian of family members.

(7) All shares are held by the Larry D. Graveel Revocable Trust, of which
Mr. Graveel is a trustee.

(8) 90 shares are held by Michael H. Gary Revocable Trust, of which Mr. Gary
is a trustee. The remaining 20 shares are held in trust for family
members of Mr. Gary.

(9) The address of each of Messrs. Jordan, Zalaznick and Caputo is
c/o The Jordan Company, 767 Fifth Avenue, New York, NY 10153.

(10) All shares are held by the John W. Jordan II Revocable Trust, of which
Mr. Jordan is trustee.

(11) The principal address of JZ Equity Partners PLC is c/o Jordan/Zalaznick
Capital Company, 767 Fifth Avenue, New York, NY 10153.

(12) The principal address of Leucadia Investors, Inc. is 315 Park Avenue
South, New York, NY 10010.

<PAGE>

Item 13 - Certain Relationships and Related Transactions

Wolff Employment Agreement. In connection with the acquisition of Winning
Ways, Inc., the Company entered into an Employment Agreement with Robert M.
Wolff (the "Wolff Employment Agreement"). Pursuant to the Wolff Employment
Agreement, Mr. Wolff will serve as Chairman of the Company for a ten-year period
ending on the tenth anniversary of the Acquisition. In exchange for his
services, the Company will compensate Mr. Wolff with a base salary of $140,000
per annum, subject to annual increases set forth in the Wolff Employment
Agreement, to provide him with certain employee benefits comparable to that
received by other Company senior executives, including the use of Company cars,
and to reimburse him for expenses incurred in connection with the performance of
his duties as Chairman. In the event that Mr. Wolff no longer provides services
to the Company due to his dismissal for Cause (as defined in the Wolff
Employment Agreement), he will no longer be entitled to any compensation from
the Company as of the date of his dismissal, subject to certain rights of
appeal.

Wolff Noncompetition Agreement. In connection with the Acquisition of
Winning Ways, Holdings entered into a Noncompetition Agreement with Robert M.
Wolff (the "Wolff Noncompetition Agreement"). Pursuant to the Wolff
Noncompetition Agreement, Mr. Wolff will not, directly or indirectly, (I) (a)
engage in or have any active interest in any sportswear or activewear business
comparable to that of the Company for (b) sell to, supply, provide goods or
services to, purchase from or conduct business in any form with the Company or
Holdings for a ten-year period ending on the tenth anniversary of the
Acquisition, (ii) disclose at any time other than to the Company or Holdings any
Confidential Information (as defined in the Wolff Noncompetition Agreement) and
(iii) engage in any business with the Company or Holdings through an affiliate
for as long as Mr. Wolff or any member of his family is the beneficial owner of
Holdings' capital stock. In exchange for his covenant not to compete, Holdings
will pay Mr. Wolff $250,000 per annum for a period of ten years. In the event
that the Wolff Noncompetition Agreement is terminated for Cause (as defined in
the Wolff Noncompetition Agreement), Holdings will no longer be obligated to
make any payment to Mr. Wolff, but Mr. Wolff will remain obligated to comply
with the covenants set forth in the Wolff Noncompetition Agreement until its
expiration on the tenth anniversary of the Acquisition.

Indemnification Agreements. In connection with the Acquisition of Winning
Ways, the Company and each of its directors entered into indemnification
agreements. The indemnification agreements provide that the Company will
indemnify the directors against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of the Company) to which any of them is, or
is threatened to be, made a party by reason of their status as a director,
officer or agent of the Company, or serving at the request of the Company in any
other capacity for or on behalf of the Company; provided that (I) such director
acted in good faith and in a manner not opposed to the best interest of the
Company, (ii) with respect to any criminal proceedings had no reasonable cause
to believe his or her conduct was unlawful, (iii) such director is not finally
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Company, unless the court views in light of the circumstances
the director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b) of
the Exchange Act, or the rules or regulations promulgated thereunder. With
respect to any action brought by or in the right of the Company, directors may
also be indemnified to the extent not prohibited by applicable laws or as
determined by a court of competent jurisdiction against expenses actually and
reasonably incurred by them in connection with such action if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the Company.

34
<PAGE>

PART IV

Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this report:

(1) Financial Statements

Reference is made to the Index to Consolidated Financial Statements appearing in
Item 8, which Index is incorporated herein by reference.

(2) Financial Statement Schedule

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are not applicable and therefore have been omitted, or the
information has been included in the consolidated financial statements or is
considered immaterial.

(3) Exhibits

A list of the exhibits included as part of this Form 10-K is set forth
below.
<TABLE>
<CAPTION>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>

1 Purchase Agreements, dated February 27, 1997, by and among GFSI, Inc., Donaldson, Lufkin
& Jenrette Securities Corporation and Jefferies & Company, Inc. *

2.1 Agreement for Purchase and Sale of Stock, dated January 24, 1997, among GFSI Holdings,
Inc., GFSI, Inc. and the Shareholders of Winning Ways, Inc. *

2.2 Amendment No. 1 to Agreement for Purchase and Sale of Stock, dated February 27, 1997,
among GFSI Holdings, Inc., GFSI, Inc. and the Shareholders of Winning Ways, Inc. *

3.1 Certificate of Incorporation of GFSI, Inc. *

3.2 Bylaws of GFSI, Inc. *

4.1 Indenture, dated February 27, 1997, between GFSI, Inc. and Fleet National Bank, as Trustee *

4.2 Global Series A Senior Subordinated Note *

4.3 Form of Global Series B Senior Subordinated Note *

4.4 Registration Rights Agreement, dated February 27, 1997, by and among GFSI, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Jefferies & Company, Inc. *

4.5 Subscription and Stockholders Agreement, dated February 27, 1997, by and among GFSI,
Inc. and the investors listed thereto *

4.6 Deferred Limited Interest Guaranty, dated February 27, 1997 by GFSI, Inc. to MCIT PLC *

10.1(a) Credit Agreement, dated February 27, 1997, by and among GFSI, Inc., the lenders listed
thereto and The First National Bank of Chicago, as Agent *

10.1 (b) Amendment No. 1 to Credit Agreement dated September 17, 1997 by and among GFSI, Inc.,
the lenders listed thereto and the First National Bank of Chicago, as agent. **

10.2 Security Agreement, dated February 27, 1997, between GFSI, Inc. and The First National
Bank of Chicago, as Agent *

10.3 Trademark Security Agreement, dated February 27, 1997, between GFSI, Inc. and The First
National Bank of Chicago, as Agent *

10.4 Mortgage, Security Agreement, Financing Statement and Assignment of Rents and Leases,
dated February 27, 1997, by GFSI, Inc. in favor of The First National Bank of Chicago *

10.5 (a) Restricted Account Agreement, dated February 27, 1997, between GFSI, Inc. and Boatmen's
National Bank *

10.5 (b) Restricted Account Agreement, dated February 27, 1997, between GFSI, Inc. and Hillcrest
Bank *

10.6 Tax Sharing Agreement, dated February 27, 1997, between GFSI, Inc. and GFSI Holdings, Inc. *

10.7 Management Consulting Agreement, dated February 27, 1997, between GFSI Holdings, Inc.
and TJC Management Corporation *

10.8 Employment Agreement, dated February 27, 1997, between GFSI, Inc. and Robert M. Wolff *

10.9 Noncompetition Agreement, dated February 27, 1997, between GFSI Holdings, Inc. and
Robert M. Wolff *
</TABLE>

<PAGE>

EXHIBIT
NUMBER DESCRIPTION PAGE
------ ----------- ----
<S> <C> <C>

10.10 Form of Indemnification Agreement, dated February 27, 1997, between GFSI Holdings. Inc.
and its director and executive officers *

10.11 Promissory Note, dated August 12, 1996, between Winning Ways, Inc. and Impact Design,
Inc. *

10.12 Promissory Note, dated August 12, 1996, between Winning Ways, Inc. and Kansas Custom
Embroidery *

10.13 Form of Promissory Note, dated February 27, 1997, between GFSI Holdings, Inc. and the
Management Investors *

10.14 License Agreement, dated April 1, 1994, by and between Winning Ways, Inc. and Softwear
Athletics, Inc. *

10.15 License Agreement, dated October 27, 1998, by and between GFSI, Inc. and Bonmax Co., Ltd. ***

10.16 License Agreement, dated January 1, 1999, by and between GFSI, Inc. and Gear For Sports Ltd ***

10.17 CEBA Loan Agreement, dated April 28, 1998, by and among the Iowa
Department of Economic Development, the City of Bedford and GFSI,Inc. *

12 Statement re: Computation of Ratios 40

25 Statement of Eligibility of Trustee *

27 Financial Data Schedule 41

* Incorporated by reference to the exhibits filed with the
Registration Statement on From S-4 of the Company filed with the
Securities and Exchange Commission on July 22, 1997 (Commission
File No. 333-24189) and all supplements thereto.

** Incorporated by reference to Exhibit 10.2 of the Registration
Statement on Form S-4 of GFSI Holdings, Inc. filed with the
Securities and Exchange Commission of December 17, 1997
(Commission file No. 333-38951) and all supplements thereto.

*** Incorporated by reference to the exhibits filed with the
Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 30, 1999
(Commission File No. 333-24189)

(b) Reports on Form 8-K

None.
</TABLE>

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on September 28, 2000.

GFSI, INC.

By: /s/ ROBERT M. WOLFF
------------------------------------
Robert M. Wolff
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on
September 28, 2000.
<TABLE>
<CAPTION>

Signatures Title
---------- ------
<S> <C>

/s/ ROBERT G. SHAW Senior Vice President, Finance and a Director
---------------------------------------- (Principle Financial and Accounting Officer)
ROBERT G. SHAW

/s/ LARRY D. GRAVEEL President, Chief Operating Officer and a Director
----------------------------------------
LARRY D. GRAVEEL

/s/ MICHAEL H. GARY Senior Vice President and a Director
----------------------------------------
MICHAEL H. GARY

/s/ RICHARD CAPUTO, JR. Director
---------------------------------------
RICHARD CAPUTO, JR.

/s/ JOHN W. JORDAN II Director
----------------------------------------
JOHN W. JORDAN II

/s/ DAVID W. ZALAZNICK Director
--------------------------------------
DAVID W. ZALAZNICK

</TABLE>