Signal Apparel Company Inc – ‘8-K/A’ for 3/22/99

On:  Friday, 6/4/99   ·   For:  3/22/99   ·   Accession #:  891554-99-1196   ·   File #:  1-02782

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Amendment to Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K/A       Amendment No. 1                                       30    124K 

Document Table of Contents

8-K/A
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A
 AMENDMENT NO. 1, TO

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

Date of Report (Date of earliest event reported): March 22, 1999

SIGNAL APPAREL COMPANY, INC.
(Exact name of Registrant as specified in its charter)

Indiana                         1-2782                   62-0641635   
(State or other                   (Commission             (I.R.S. Employer    
jurisdiction                     File Number)           Indentification No.)
of incorporation)                                                               

34 Englehard Avenue, Avenel, New Jersey                         07001           
(Address of principal executive offices)                   (zip code)       

Registrant's telephone number, including area code (732) 382-2882               

200 Manufacturers Road, Chattanooga, Tennessee 37405
(Former name or former address, if changed since last report.)

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The registrant hereby amends the following items, financial statements, exhibits
or other portions of its Annual Report on Form 8-K dated March 22, 1999, which  
was filed with the Commission on April 6, 1999:                                 

Item 7.  Financial Statements and Exhibits.                                     

(a)  Financial Statements of Businesses Acquired.           

         See Financial Statements Supplement to this Amended Report.

(b)  Pro Forma Financial Information.                       

 SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited summary pro forma Income Statement and Other Financial  
Data give effect to the acquisition as if it had been consummated on January 1, 
1998. The Pro Forma Balance Sheet Data gives effect to the acquisition as if it 
had consummated on December 31, 1998. The Pro Forma Financial Information does  
not purport to represent what Signal's results of operations or financial       
position actually would have been had the acquisition described herein in fact  
been consummated on the dates indicated or to project the results of operations 
or financial positions for any future period or date. The Pro Forma Financial   
Information is based upon assumptions that Signal's management believes are     
reasonable and should be read in conjunction with the section of this Report    
entitled "Unaudited Pro Forma Financial Information Concerning the Acquisition" 
and financial statements and the notes thereto included elsewhere in this Report
or incorporated herein by reference.                                            

                                                         Pro Forma
                                                        Year Ended
                                                         December 31, 1998

Income Statement Data:                                                          
Net sales                                                  $ 112,142    
Net loss                                                   $ (45,610)   
Other Financial Data:                                                           
Basic/diluted net loss per common share                    $   (1.08)   
Weighted average number of shares outstanding                 46,010    
Balance Sheet Data:                                                             
Total assets                                               $  59,839    
Long-term debt, net of current maturities                  $  13,968    
Shareholders' deficit                                      $ (51,818)   

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 UNAUDITED PRO FORMA FINANCIAL INFORMATION
CONCERNING THE ACQUISITION

     The following unaudited pro forma condensed balance sheet and statements of
operations have been prepared to reflect the Company's purchase from Tahiti of  
substantially all of Tahiti's assets and the assumption of selected liabilities 
of Tahiti under the terms of the Acquisition Agreement. The closing of the      
acquisition took place on March 22, 1999. The purchase price for the assets is  
approximately $15,873,000, subject to adjustment, to be paid in the Company's   
common stock valued at $1.1875 per share or 13,366,000 common shares.           

 The unaudited pro forma condensed statements for operations of the year
ended December 31, 1998, and the unaudited pro forma condensed balance sheet as 
of December 31, 1998, set forth below, have been prepared by combining the      
Company's audited consolidated statement of operations for the year ended       
December 31, 1998 with Tahiti's unaudited statement of operations for the twelve
months ended December 31, 1998; and combining the Company's audited consolidated
balance sheet as of December 31, 1998 with Tahiti's unaudited condensed balance 
sheet as of December 31, 1998.                                                  

The unaudited pro forma condensed statement of operations for the year
ended December 31, 1998 was prepared as if the acquisition had occurred on      
January 1, 1998. The unaudited pro forma condensed balance sheet as of December 
31, 1998 was prepared giving effect to the acquisition on such date.            

 For purpose of presenting pro forma results, no changes in revenues and
expenses have been made to reflect the result of any modification to operations 
that might have been made had the acquisition been consummated on the assumed   
effective date for each statement as described above. The pro forma expenses    
include the recurring costs which are directly attributable to the acquisition, 
such as interest expense and amortization of goodwill, change in certain        
expenses, and the related tax effects. The pro forma adjustments made to the pro
forma condensed balance sheets include (i) adjustments to remove selected Tahiti
assets not acquired and liabilities not assumed in the acquisition, (ii) the    
issuance to Tahiti and its former stockholders (collectively) of 13,366,000     
shares of the Company's common stock, and (iii) the recognition of goodwill     
resulting from the acquisition. The pro forma financial information does not    
purport to be indicative of the results which would have been attained had the  
acquisition been completed as of the date and for the periods presented or which
may be attained in the future.                                                  

  The unaudited pro forma condensed balance sheet reflects the preliminary
allocation of purchase price to the assets acquired and liabilities assumed in  
the acquisition to the Company's tangible and intangible assets and liabilities.
The final allocation of such purchase price, and the resulting depreciation and 
amortization expense in the accompanying unaudited pro forma statements of      
operations, will differ from the preliminary estimates due to the final         
allocation being based on actual closing date amounts of assets and liabilities,
and a final determination of the fair market values of property and other assets
as of the closing date.                                                         

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Signal Apparel Company, Inc.
 Pro Forma Condensed Balance Sheet
 31-Dec-98
 (Unaudited)
(In Thousands)

                                                        [Enlarge/Download Table]

                                                                             ProForma Adjustments                    
                                                                       -------------------------------               
                                          Signal        Tahiti              Debit             Credit         Combined
                                       ------------------------------------------------------------------------------
                                                                                                                     
                   Assets                                                                                            
Current Assets:                                                                                                      
      Restricted cash                  $    --        $    --           $                                  $    --   
      Cash and cash equivalents              403           --                                                    403 
      Receivables                          1,415            145                                                1,560 
      Note receivable                        283           --                                                    283 
      Inventories                         12,641         10,396                                               23,037 
      Due from Related Party                --            2,587                              2,587(a)           --   
      Prepaid expenses and other             539            546                                 40(a)          1,045 
                                       ------------------------------------------------------------------------------
             Total current assets         15,281         13,674              --              2,627            26,328 
                                       ------------------------------------------------------------------------------

Net PP&E                                   3,001          1,786                                                4,787 

Goodwill                                    --                             27,878(b)                          27,878 

Restricted cash                             --              750                                274(a)            476 

Other Assets                                 182            188                                                  370 
                                       ------------------------------------------------------------------------------
                   Total Assets        $  18,464      $  16,398         $  27,878        $   2,901         $  59,839 
                                       ==============================================================================

Liabilities and Shareholders' Deficit                                                                                
Current Liabilities:                                                                                                 
      Accounts payable                 $   8,133      $   2,983                89(a)                       $  11,027 
      Accrued liabilities                  9,760          1,856               490(a)                          11,126 
      Accrued interest                     3,810                                                               3,810 
      Royalty payable                                       590                                                  590 
      Due to Shareholder                                    183               183(a)                            --   
      Due to Related Party                                6,780                10(a)                           6,770 
      Current portion of long-term         6,435             50                                                6,485 
             debt                                                                                                    
      Revolving advance account           44,049         13,832                                               57,881 
                                       ------------------------------------------------------------------------------
                                          72,187         26,274               772             --              97,689 
                                       ------------------------------------------------------------------------------

Long-term debt                            13,968           --                                                 13,968 

Other noncurrent liabilities                --             --                --                                      

Preferred stock                           52,789           --                                                 52,789 
Common stock                                 326            105               105(b)           134(b)            460 
Additional paid in capital               165,242                                            15,739(b)        180,981 
Accumulated deficit                     (284,931)        (9,981)                             9,981(b)       (284,931)
                                       ------------------------------------------------------------------------------
      Subtotal                           (66,574)        (9,876)              105           25,854           (50,701)
Less treasury shares                      (1,117)                                                             (1,117)
                                       ------------------------------------------------------------------------------
                                         (67,691)        (9,876)              105           25,854           (51,818)
                                       ------------------------------------------------------------------------------

                                       ------------------------------------------------------------------------------
Total liabilities and shareholders'                                                                                  
      deficit                          $  18,464      $  16,398         $     877        $  25,854         $  59,839 
                                       ==============================================================================

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Signal Apparel Company, Inc.
 Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 1998
 (Unaudited)
 (In Thousands, Except per Share Data)

                                                        [Enlarge/Download Table]

                                                                               ProForma           ProForma     
                                           Signal           Tahiti            Adjustments           Total      
                                         ----------------------------------------------------------------------
                                                                                                               
Net Sales                                $  50,076         $  62,066                              $ 112,142    
Cost of Sales                               42,999            49,434                                 92,433    
                                         ----------------------------------------------------------------------
      Gross Profit                           7,077            12,632              --                 19,709    
Royalty expense                              4,211             4,965             9,176                         
SG&A expenses                               22,843            12,652             1,859(c)            37,122    
                                                                                    18(f)                      
                                                                                  (250)(g)                     
Interest expense                             8,645             3,383              --                 12,028    
Other (income) expense, net                 (1,315)                                                  (1,315)   
Write-off of goodwill                        4,542                                                    4,542    
Nonrecurring charges                         3,758              --                                    3,758    
                                         ----------------------------------------------------------------------
      Loss before income taxes             (35,607)           (8,368)           (1,627)             (45,602)   

Income Taxes                                  --                  (8)                8(d)               --     

      Net loss                           $ (35,607)        $  (8,376)        $  (1,619)           $ (45,602)   

Less: preferred stock dividends             (4,062)             --                                   (4,062)   

Net loss applicable to common stock      $ (39,669)           (8,376)        $  (1,619)             (49,664)   
                                         ======================================================================

Weighted average shares outstanding         32,644              0.15               N/A               46,010(e) 

Basic/diluted net loss per common share  $   (1.22)        $ (55,840)              N/A            $   (1.08)(e)

 EXPLANATION OF ADJUSTMENTS REFLECTED ON
PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS

(a)  To remove selected Tahiti assets not acquired and the liabilities not      
assumed in the acquisition.                                           

(b)  To recognize the issuance of 13,366,000 shares of the Company's common     
 stock and the excess of the cost of the assets acquired over their fair
value at the date of acquisition as goodwill and to eliminate the     
historical equity balances of Tahiti.                                 

(c)  To reflect amortization of goodwill recorded in connection with (b) above. 
   The Company will amortize goodwill on a straight-line basis over a period
of 15 years.                                                          

(d)  To consider the federal and state tax effects of the pro forma adjustments 
and the impact of the Tahiti results on the consolidated income taxes.

(e)  Net earning per common share are computed assuming that the 13,366,000     
shares of the Company's common stock issued in connection with the    
acquisition are outstanding for the entire periods presented.         

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(f)  To reflect increased compensation to be paid to the former stockholders of 
     Tahiti, offset in part by the reduction of charitable contributions made by
Tahiti.                                                               

(g)  To reflect nonrecurring costs associated with the merger.                  

 [THIS SPACE INTENTIONALLY LEFT BLANK]

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(c) Exhibits.                                                         

        (10.1)    Asset Purchase Agreement dated as of December 17, 1998, by
           and among the Company, Tahiti Apparel, Inc. and the
stockholders of Tahiti Apparel, Inc.*   

          (10.2)    Amendment, dated March 16, 1999, to Asset Purchase Agreement
                dated as of December 17, 1998, by and among the Company,
                    Tahiti Apparel, Inc. and the stockholders of Tahiti Apparel,
Inc. *                                  

      (10.3)    Escrow Agreement, dated March 16, 1999, by and among the
               Company, Tahiti Apparel, Inc. and Wachtel & Masyr, LLP*

      (10.4)    Agreement, dated March 16, 1999, between Tahiti Apparel,
             Inc. and Ming Yiu Chan, together with related Form of
            Promissory Note (assumed by the Company at closing)*

       (10.5)    Stock Resale Agreement, dated March 16, 1999, between the
                   Company, Tahiti Apparel, Inc., Zvi Ben-Haim, Michael Harary
and Ming Yiu Chan*                      

          (10.6)    Registration Rights Agreement, dated March 16, 1999, between
                the Company, Tahiti Apparel, Inc., Zvi Ben-Haim, Michael
Harary and Ming Yiu Chan*               

     (10.7)    Employment Agreement, dated March 16, 1999, between the
Company and Zvi Ben-Haim*               

     (10.8)    Employment Agreement, dated March 16, 1999, between the
Company and Michael Harary*             

          (10.9)    Securities Transfer Agreement, dated March 16, 1999, between
the Company and Zvi Ben-Haim*           

          (10.10)   Securities Transfer Agreement, dated March 16, 1999, between
the Company and Michael Harary*         

       (10.11)   Form of Warrants to be issued to each of Zvi Ben-Haim and
                 Michael Harary under Securities Transfer Agreements dated
March 16, 1999*                         

       (10.12)   Revolving Credit, Term Loan and Security Agreement, dated
             March 12, 1999, between the Company and BNY Financial
Corporation (individually and as Agent)*

          (10.13)   Second Amended and Restated Factoring Agreement, dated March
                    12, 1999, between the Company and BNY Financial Corporation*

        (10.14)   Subscription and Stock Purchase Agreement, dated March 12,
                1999, between the Company and BNY Financial Corporation*

     (10.15)   Form of Warrants to purchase the Company's Common Stock
                  issued to BNY Financial Corporation, dated March 12, 1999*

     (10.16)   Second Amendment to Asset Purchase Agreement concerning
     Tahiti Apparel, Inc., dated April 15, 1999.**

*  Previously filed with this Report.                                           

** Incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q for  
the quarter ended April 3, 1999.                                                

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
registrant has duly caused this report to be signed on its behalf by the        
undersigned hereunto duly authorized.                                           

Date: June 4, 1999              SIGNAL APPAREL COMPANY, INC.                    

        By: /s/ Robert J. Powell
                        --------------------------------
        Robert J. Powell
       Vice President,
                   General Counsel & Secretary

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 FINANCIAL STATEMENTS SUPPLEMENT

 INDEX TO FINANCIAL STATEMENTS

TAHITI APPAREL, INC.

                                                        [Enlarge/Download Table]

                                                                                     PAGE
                                                                                     ----

                          AS OF JUNE 30, 1998 AND 1997                                   

                                                                                         
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                             F-2 

   Balance Sheets as of June 30, 1998 and 1997                                       F-3 
   Statements of Operations For The Years Ended June 30, 1998, 1997 and 1996         F-4 
   Statements of Stockholders' Equity (Deficit) For The Years Ended June 30, 1998,       
     1997 and 1996                                                                   F-5 
   Statements of Cash Flows For The Years Ended June 30, 1998, 1997 and 1996         F-6 

NOTES TO FINANCIAL STATEMENTS                                                        F-7 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                             F-14 
  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                          

                           FISCAL QUARTER ENDED AS OF                                    
                      DECEMBER 31, 1998 AND 1997(unaudited)                              

   Balance Sheets as of December 31, 1998 and June 30, 1998                         F-18 
   Statements of Operations For The Three Months Ended December 31, 1998 and 1997   F-19 
   Statements of Cash Flows For The Three Months Ended December 31, 1998 and 1997   F-20 

NOTES TO FINANCIAL STATEMENTS                                                       F-21 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                             F-21 
  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                          

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of                                                          

Tahiti Apparel, Inc.:                               

We have audited the accompanying balance sheets of Tahiti Apparel, Inc. as of   
June 30, 1998 and 1997, and the related statements of operations, stockholders' 
equity (deficit) and cash flows for each of the three years in the period ended 
June 30, 1998. These financial statements are the responsibility of the         
Company's management. Our responsibility is to express an opinion on these      
financial statements based on our audits.                                       

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

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of Tahiti Apparel, Inc. as of June
30, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1998, in conformity with        
generally accepted accounting principles.                                       

                               ARTHUR ANDERSEN LLP

Roseland, New Jersey                                                            
August 31, 1998                                                                 

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TAHITI APPAREL, INC.

 BALANCE SHEETS AS OF JUNE 30, 1998 AND 1997

                                                        [Enlarge/Download Table]

                         ASSETS                                         1998           1997    
                         ------                                     ------------   ------------
                                                                                               
CURRENT ASSETS:                                                                                
   Cash and cash equivalents (Note 2)                               $          0   $     27,188
   Restricted cash - current (Note 2)                                    100,000        126,557
   Accounts receivable - nonfactored, net of allowance                                         
     for doubtful accounts (Note 2)                                      318,677        220,951
   Inventories (Notes 2 and 4)                                        10,376,422      4,850,355
   Prepaid expenses and other current assets                             982,061        172,383
   Deferred income taxes (Notes 2 and 5)                                       0        363,217
   Due from affiliate (Note 7)                                           924,375              0
   Due from officers (Note 7)                                          1,464,131        491,515
                                                                    ------------   ------------

                Total current assets                                  14,165,666      6,252,166
                                                                    ------------   ------------

FURNITURE, FIXTURES AND EQUIPMENT (NOTE 2):                                                    
   Furniture and fixtures                                                342,368        214,020
   Machinery and equipment                                                44,924         44,326
   Computer equipment                                                    402,998        282,922
   Leasehold improvements                                                990,474        185,229
                                                                    ------------   ------------

                Total furniture, fixtures and equipment                1,780,764        726,497

   Less- Accumulated depreciation and amortization                       271,184        107,376
                                                                    ------------   ------------

                Furniture, fixtures and equipment, net                 1,509,580        619,121
                                                                    ------------   ------------

RESTRICTED CASH (Note 2)                                                 644,242        461,540

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

DEFERRED INCOME TAXES (Notes 2 and 5)                                          0        124,000
                                                                    ------------   ------------

OTHER ASSETS                                                             187,849        171,205
                                                                    ------------   ------------

                Total assets                                        $ 16,507,337   $  7,628,032
                                                                    ============   ============


      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                    1998          1997     
      ----------------------------------------------                ------------   ------------
                                                                                               
CURRENT LIABILITIES:                                                                           
   Cash overdraft                                                   $     89,766   $          0
   Current portion of note payable (Note 6)                               49,000         30,000
   Due to factor (Note 3)                                              6,166,405         92,986
   Accounts payable                                                    2,685,937      1,760,949
   Due to related party (Note 7)                                       6,772,207      1,644,394
   Royalties payable (Note 8)                                          1,361,562        775,033
   Accrued expenses and other current liabilities                        874,225      2,387,094
     (Notes 7 and 8)                                                                           
   Due to stockholder (Note 7)                                           178,412        169,407
                                                                    ------------   ------------

              Total current liabilities                               18,177,514      6,859,863
                                                                    ------------   ------------

NOTE PAYABLE (Note 6)                                                          0         46,000
                                                                    ------------   ------------

COMMITMENTS AND CONTINGENCIES (Note 8)                                                         

STOCKHOLDERS' EQUITY (DEFICIT):                                                                
   Common stock, no par value; authorized 300 shares; issued and                               
      outstanding 150 shares                                             104,990        104,990
   Retained earnings (deficit)                                        (1,775,167)       617,179
                                                                    ------------   ------------

              Total stockholders' equity (deficit)                    (1,670,177)       722,169
                                                                    ------------   ------------

              Total liabilities and stockholders' equity (deficit)  $ 16,507,337   $  7,628,032
                                                                    ============   ============

The accompanying notes to financial statements are an integral part of these    
balance sheets.                                                                 

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TAHITI APPAREL, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

                                                        [Enlarge/Download Table]

                                                        1998           1997          1996     
                                                    ------------   ------------  ------------ 
                                                                                              
NET SALES (Note 2)                                  $ 64,574,007   $ 46,781,696  $ 34,431,340 

COST OF SALES (Note 7)                                47,672,730     32,189,436    25,796,690 
                                                    ------------   ------------  ------------ 

                Gross profit                          16,901,277     14,592,260     8,634,650 

SELLING, GENERAL AND ADMINISTRATIVE                                                           
   EXPENSES (Notes 2, 7 and 8)                        16,900,310     10,990,237     7,906,219 
                                                    ------------   ------------  ------------ 

                Income from operations                       967      3,602,023       728,431 

INTEREST EXPENSE                                       3,150,686      1,576,980     1,145,224 
                                                    ------------   ------------  ------------ 

                (Loss) income before provision for                                            
                  income taxes                        (3,149,719)     2,025,043      (416,793)

(BENEFIT) PROVISION FOR INCOME TAXES                                                          
   (Note 5)                                             (757,373)       825,816       193,967 
                                                    ------------   ------------  ------------ 

                Net income (loss)                   ($ 2,392,346)  $  1,199,227  ($   610,760)
                                                    ============   ============  ============ 

The accompanying notes to financial statements are an integral part of these    
statements.                                                                     

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TAHITI APPAREL, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

Common Stock    
-------------------------     
          Shares                    Retained
                        Issued       Amount        Earnings        Total
                        -----------   -----------   -----------    -----------

BALANCE, June 30, 1995           150   $   104,990   $    28,712    $   133,702 
   Net loss                        0             0      (610,760)      (610,760)
                        -----------   -----------   -----------    -----------

BALANCE, June 30, 1996           150       104,990      (582,048)      (477,058)
  Net income                      0             0     1,199,227      1,199,227
                        -----------   -----------   -----------    -----------

BALANCE, June 30, 1997           150       104,990       617,179        722,169 
   Net loss                        0             0    (2,392,346)    (2,392,346)
                        -----------   -----------   -----------    -----------

BALANCE, June 30, 1998           150   $   104,990   ($1,775,167)   ($1,670,177)
                        ===========   ===========   ===========    ===========

The accompanying notes to financial statements are an integral part of these    
statements                                                                      

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TAHITI APPAREL, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

                                                        [Enlarge/Download Table]

                                                               1998         1997          1996     
                                                           -----------   -----------   ----------- 
                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                              
   Net income (loss)                                       ($2,392,346)  $ 1,199,227   ($  610,760)
   Adjustments to reconcile net income to net cash                                                 
     provided by operating activities-                                                             
       Provision for doubtful accounts                         144,000       190,000       267,447 
       Depreciation and amortization                           246,543       105,983        21,983 
       Deferred tax provision (benefit)                        487,217      (357,217)      (23,000)
       Changes in assets and liabilities-                                                          
         Due from factor, net                                        0     2,376,464       228,215 
         Accounts receivable - nonfactured                    (241,726)      127,963       134,999 
         Inventories                                        (5,526,067)   (2,700,525)      426,985 
         Prepaid expenses and other current assets            (809,678)      (69,915)       80,848 
         Due from affiliate                                   (924,375)            0             0 
         Due from officers                                    (972,616)     (291,344)     (218,450)
         Other assets                                          (16,644)       32,626       215,824 
         Accounts payable                                      924,988    (2,003,829)   (1,050,365)
         Due to related party                                5,127,813             0             0 
         Royalties payable                                     586,529       395,074       (75,627)
         Accrued expenses and other current liabilities     (1,512,869)    1,596,110       577,255 
         Due from stockholder                                    9,005             0       159,235 
                                                           -----------   -----------   ----------- 

                Net cash (used in) provided by operating                                           
                  activities                                (4,870,226)      600,617       134,589 
                                                           -----------   -----------   ----------- 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                              
   Restricted cash, net                                       (156,145)     (271,550)     (316,547)
   Purchases of furniture, fixtures and equipment           (1,137,002)     (635,981)      (51,508)
                                                           -----------   -----------   ----------- 

                Net cash (used in) provided by investing                                           
                  activities                                (1,293,147)     (907,531)     (368,055)

CASH FLOWS FROM FINANCING ACTIVITIES:                                                              
   Repayments on note payable                                  (27,000)      (55,210)      (40,038)
   Due to factor, net                                        6,073,419             0             0 
   Cash overdraft                                               89,766             0             0 
                                                           -----------   -----------   ----------- 

                Net cash provided by (used in) financing                                           
                  activities                                 6,136,185       (55,210)      (40,038)
                                                           -----------   -----------   ----------- 

                Net decrease in cash and cash equivalents      (27,188)     (362,124)     (273,504)

CASH AND CASH EQUIVALENTS, beginning of year                    27,188       389,312   $   662,816 
                                                           -----------   -----------   ----------- 

CASH AND CASH EQUIVALENTS, end of year                     $         0   $    27,188   $   389,312 
                                                           ===========   ===========   =========== 

SUPPLEMENTAL CASH FLOW INFORMATION:                                                                
   Cash paid for-                                                                                  
     Interest                                              $ 3,150,686   $ 1,576,980   $ 1,145,224 
                                                           ===========   ===========   =========== 
     Income taxes                                          $    17,903   $    69,200   $    76,571 
                                                           ===========   ===========   =========== 

The accompanying notes to financial statements are an integral part of these    
statements                                                                      

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TAHITI APPAREL, INC.

 NOTES TO FINANCIAL STATEMENTS

(1)  ORGANIZATION AND BACKGROUND:                                               

Tahiti Apparel, Inc. (the Company) is an importer and distributor of  
   women's clothing, specifically swimwear, swimwear cover-ups and bodywear.
     The products are imported primarily from the Far East and sold to specialty
stores, department stores and mass merchant chains.                   

  On June 30, 1996, the stockholders executed an agreement to merge Tahiti
Apparel, Inc., a previously inactive corporation, into Key Item Speed 
 Sourcing, Inc. and to change the name of the Company to Tahiti Apparel,
     Inc. As a result, this transaction was accounted for as a reorganization of
    companies under common control which is similar to a pooling of interests.
     The accompanying financial statements include the financial results of both
    Key Item Speed Sourcing, Inc. and Tahiti Apparel, Inc. The merger and name
change was filed with the state of New Jersey on August 6, 1996.      

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                

Use of Estimates-                                                     

        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, 
          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 reported period. Actual results could differ
from those estimates.                                       

Cash and Cash Equivalents-                                            

          Cash and cash equivalents represent all highly liquid investments with
maturities of one year or less when acquired.               

Restricted Cash-                                                      

      Restricted cash represents certificates of deposit of $744,242 and
     $588,097 at June 30, 1998 and 1997, respectively, which have been
     assigned to a bank as security for letters of credit (see Note 7)
issued by banks on behalf of the Company.                   

Allowance for Doubtful Accounts-                                      

        The Company provides an allowance for doubtful accounts arising from
        operations of the business, which allowance is based upon a specific
        review of certain outstanding and historical collection performance.
          In determining the amount of the allowance, the Company is required to
        make certain estimates and assumptions and actual results may differ
    from these estimates and assumptions. The allowance for doubtful
       nonfactored accounts receivable was $205,254 and $52,680 as of June
30, 1998 and 1997, respectively.                            

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Inventories-                                                          

    Inventories are stated at the lower of cost (using the first-in,
        first-out method) or market. Inventories, which consist primarily of
         finished goods, have been pledged in accordance with the terms of the
Company's factoring agreement (see Note 4).                 

Furniture, Fixtures and Equipment-                                    

         Furniture, fixtures and equipment are stated at cost. Depreciation is
         provided using the straight-line method based on the estimated useful
lives of the assets.                                        

Furniture and fixtures                   4 -10 years    
Machinery and Equipment                    10 years     
Computer equipment                         7 years      
Leasehold improvements                    Lease term    

Long-Lived Assets-                                                    

          The provisions of Statement of Financial Accounting Standards No. 121,
     "Accounting for the Impairment of Long-Lived Assets" ("SFAS 121")
     requires, among other things that an entity review its long-lived
          assets and certain related intangibles for impairment whenever changes
          in circumstances indicate that the carrying amount of an asset may not
    be fully recoverable. The Company does not believe that any such
changes have occurred.                                      

Income Taxes-                                                         

  The Company accounts for taxes in accordance with Statement of
          Financial Accounting Standards No. 109, "Accounting for Income Taxes."
        This statement requires the Company to recognize deferred tax assets
      and liabilities for the expected future tax consequences of events
          that have been recognized in the Company's financial statements or tax
       returns. Under this method, deferred tax assets and liabilities are
        determined based on the differences between the financial statements
 carrying amounts and the tax basis of assets and liabilities.

Revenue Recognition-                                                  

        Revenue is recognized when the Company's products are shipped to its
customers.                                                  

Concentrations of Credit Risk-                                        

      In 1998, 1997 and 1996, Wal-Mart accounted for 55%, 50% and 50% of
         sales, respectively. In 1998, 1997 and 1996, Kmart accounted for 26%,
26% and 23% of sales, respectively.                         

Advertising Costs-                                                    

       The Company expenses nonreimbursable advertising costs as costs are
         incurred. The amounts charged to advertising expense during the years
   ended June 30, 1998, 1997 and 1996 were approximately $264,000,
$41,000 and $182,000, respectively.                         

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Financial Instruments-                                                

        The Company's financial instruments consist mainly of cash, accounts
        receivable, accounts payable and amounts due to factor. The carrying
        amounts of these financial instruments approximate fair value due to
their short-term nature.                                    

Reclassifications-                                                    

    Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.   

(3)  DUE TO FACTOR:                                                             

Due to factor consists of the following-                              

                                   June 30
                                      ----------------------------
                                      1998            1997
                                      ------------    ------------

Factor receivables                    $ 15,233,891    $ 14,858,900
 Due to factor                          (21,056,296)    (14,456,555)
 Allowance for returns and discounts       (344,000)       (495,331)
                                      ------------    ------------

                 Net due to factor     ($ 6,166,405)   ($    92,986)
                                      ============    ============

   The Company has an accounts receivable financing arrangement (the "Factor
Agreement") with a financial institution (the "Factor") covering      
     substantially all of its accounts receivable. The Factor Agreement provides
for the payment of a commission ranging from .70% to .80% of the face 
amount for all accounts sold to the Factor. In addition, the Factor   
   Agreement also provides for advances to be made against eligible accounts
     receivable, factored without recourse, and eligible inventory as determined
 by the Factor. The outstanding advances bear interest at the prime rate
     (8.50% at June 30, 1998) plus 1.5%. Under the Factor Agreement, the Company
    can obtain letter of credit financing to fund the Company's foreign orders
    up to a defined borrowing base at a monthly rate of .25%. All transactions
     under the Factor Agreement are personally guaranteed by two stockholders of
  the Company and secured by the factored receivables and inventory of the
  Company. Additionally, during 1997, stockholders of the Company provided
    the Factor side collateral of approximately $200,000 which was returned to
the stockholders prior to June 30, 1997.                              

     Either party to the Factor Agreement may terminate with 60 days notice. The
Factor Agreement provides that a minimum amount of receivables        
  ($30,000,000) must be sold to the factor per each Factor Agreement year.

(4)  INVENTORIES:                                                               

Inventories are summarized as follows:                                

                                    1998              1997
                                     -----------       -----------

Raw materials                        $   326,680       $    37,014
Work-in-process                          376,751                 0
Finished goods                         9,672,991         4,813,341
                                     -----------       -----------

                                     $10,376,422       $ 4,850,355
                                     ===========       ===========

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(5)  INCOME TAXES:                                                              

The provision for income taxes consists of the following for the years
ended June 30, 1998, 1997 and 1996-                                   

                      1998           1997           1996
                       -----------    -----------    -----------
Federal-                                                          
 Current               ($1,001,640)   $   922,179    $   182,279
  Deferred                  390,000       (282,451)       (18,000)
                       -----------    -----------    -----------

                          (611,640)       639,728        164,279
                       -----------    -----------    -----------

State-                                                            
 Current                  (242,950)       260,854         34,688
  Deferred                   97,217        (74,766)        (5,000)
                       -----------    -----------    -----------

                          (145,733)       186,088         29,688
                       -----------    -----------    -----------

               Total   ($  757,373)   $   825,816    $   193,967
                       ===========    ===========    ===========

    A reconciliation of the differences between the effective tax rate and the
 statutory U. S. income tax rate (34%) is as follows for the years ended
June 30, 1998, 1997 and 1996-                                         

                                                        [Enlarge/Download Table]

                                                        1998           1997          1996    
                                                    -----------    -----------   ----------- 
                                                                                             
Federal income tax provision at statutory rate      ($1,047,614)   $   688,515   $   164,279 
State income tax provision, net of Federal benefit     (184,873)       137,301        29,688 
Valuation allowance                                   1,719,704              0             0 
Reversal of previously recorded tax liability        (1,244,590)             0             0 
                                                    -----------    -----------   ----------- 

                Total                               ($  757,373)       825,816       193,967 
                                                    -----------    -----------   ----------- 

Effective tax rate                                        (21.3%)         40.8%         46.5%
                                                    ===========    ===========   =========== 

   The deferred income tax benefit for the year ended June 30, 1997 amounted
   to $357,217. Significant components of deferred tax assets as of June 30,
1998 and 1997 are as follows-                                         

                                         1998           1997
                                          ---------      ---------

Allowance for doubtful accounts           $ 111,000      $ 197,000
Inventory                                   270,000        166,217
Contributions                               403,000        124,000
Depreciation                                 25,000              0
Valuation allowance                        (809,000)             0
                                          ---------      ---------

                Total                     $       0      $ 487,217
                                          =========      =========

 The Company incurred a net operating loss of approximately $100,000 for
   Federal income tax purposes during 1998. The deferred tax benefit for the
loss was not recorded in the accompanying financial statements as     
   management was unable to determine that the realization of such asset was
more likely than not, and thus provided a valuation allowance for the 
    deferred tax asset generated. In addition, due to the loss recorded during
  1998, management was unable to conclude that the realization of deferred
  tax assets totaling $809,000 at June 30, 1998 were more likely than not.
Accordingly, during 1998 a $809,000 valuation allowance was recorded  
against the net deferred tax assets.                                  

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(6)  NOTE PAYABLE:                                                              

 On October 25, 1993, the Company entered into a stock buy-out agreement
    (the "Stock Agreement") with a stockholder. The Stock Agreement called for
     the Company to repurchase the 50 shares of the Company's stock owned by the
 stockholder for total consideration of $400,000. In accordance with the
   terms of the Stock Agreement the Company paid $150,000 to the stockholder
     in 1993. In addition, the Stock Agreement required five annual installments
 of $50,000 (inclusive of interest at a rate of 7.00%) to be paid to the
stockholder commencing on October 15, 1994. The final installment of  
$49,000 is due and payable on October 15, 1998.                       

(7)  RELATED PARTY TRANSACTIONS:                                                

     The Company has outstanding advances of $1,464,131 and $491,515 at June 30,
1998 and 1997, respectively, to certain officers including two        
  stockholders. Accrued interest, included within due from officers in the
   accompanying balance sheet, totaled approximately $108,000 and $31,000 as
   of June 30, 1998 and 1997, respectively. The advances which bear interest
at the prime rate (8.50% at June 30, 1998) are payable on demand.     

    On November 1, 1997, the Company and the Affiliate entered into a Products
    Warehousing Agreement (the "Warehousing Agreement"). Under the Warehousing
     agreement the Company has contracted the Affiliate to warehouse and service
    orders of the Company's products under policies and procedures provided by
  the Company within the Warehousing Agreement for a period of five years.
Following expiration, the Warehousing Agreement shall be automatically
   renewed as written in one year increments unless either party provides at
least sixty days notice prior to expiration. The Warehousing Agreement
   provides payment terms for the Affiliate for performing services. The fee
  structure is delineated in an exhibit to the Warehousing Agreement where
prices are set based upon per piece and per dozen of pieces handled.  

     As of June 30, 1998 and 1997, the Company has outstanding advances/payables
of approximately $924,000 and ($2,000), respectively due from/(to) an 
affiliated company (the "Affiliate"). The Affiliate, incorporated in  
     December 1996, has four stockholders, two of which are 33 1/3% stockholders
    of the Company and two who are officers of the Company. The Affiliate acts
    as a contractor for the Company for the receipt, warehousing, and shipment
   of the Company's inventory. The Company made payments to the Affiliate in
the amount of $3,041,000 and $440,000 in fiscal 1998 and 1997,        
respectively. It is the Company's intent to deduct the $924,375 in    
   outstanding advances against future invoices for services rendered by the
Affiliate.                                                            

A stockholder loaned $150,000 to the Company to fund a certificate of 
   deposit which provides security to a bank for letters of credit issued by
that bank on behalf of the Company in relation to certain licensing   
  agreements. As of June 30, 1998 and 1997, the certificate of deposit had
     earned interest of $28,412 and $19,407, respectively, which is reflected as
   an additional stockholder loan payable in the accompanying balance sheet.

    A related party owned by a stockholder providing financing for the Company
by opening bank letters of credit to suppliers and provides acceptance
financing for merchandise shipped under those letters of credit. The  
related party provided continuous financing which reached a maximum of
approximately $8 million in open letters of credit and acceptances,   
    combined. The related party is compensated for the letters of credit at 3%
   of their face amount, and interest on acceptances is accrued at an annual
rate of 11%. The Company made payments to the related party in the    
   approximate amount of $10,450,000, $10,085,000, and $14,061,000 in fiscal
   1998, 1997 and 1996, respectively, related to the inventory purchases and
the letter of credit fees discussed above. Included within current    
liabilities in the accompanying balance sheet are amounts due to the  
 related party of approximately $6,772,000 and $1,644,000 as of June 30,
   1998 and 1997, respectively. During fiscal 1998, the Company extended its
payment terms with the related party. As a result,                    

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  beginning in March 1998, interest was accrued on past due invoices at an
annual rate of 12.75%. As of June 30, 1998, approximately $76,500 of  
accrued interest is included within accrued expenses and other current
liabilities related to the past due accounts payable outstanding.     

(8)  COMMITMENTS AND CONTINGENCIES:                                             

Leases-                                                               

     The future minimum lease payments for all noncancellable leases at June 30,
1998, are as follows-                                                 

1999                                          $609,000    
2000                                           486,000    
2001                                           432,000    
2002                                           424,000    
2003                                           433,000    
Thereafter                                   1,280,000    
                                       ---------------

                                        $3,664,000
                                       ===============

Rent expense under the Company's various lease agreements totaled     
approximately $479,000, $104,000, and $116,000 in 1998, 1997 and 1996,
respectively.                                                         

Employment and Consulting Contracts-                                  

        During 1997, the Company entered into a two year employment contract
       with an officer which provides for guaranteed annual base and bonus
         compensation of $240,000, plus an additional incentive bonus based on
     the sales performance of specific product lines. Either party may
terminate the contract with thirty days written notice.     

   In April 1998, the Company entered into a three year consulting
          agreement with an officer providing for an annual fee of $600,000 (the
         "Fee") during the term. The Fee is payable in monthly installments of
         $50,000, which commenced in April 1998. The consulting agreement also
 provides for additional fees ("Additional Fees"), as defined,
       calculated as a percentage of net sales of certain products sold by
          the officer and payable on a quarterly basis. The Fee is considered an
         advance and is not earned by the officer until the calculation of the
       Additional Fee based upon net sales equals or exceeds $600,000 (the
          "Sales Threshold"). In the event the Sales Threshold is not met in any
          given year, the difference between the Sales Threshold and the portion
of the Fee and Additional Fee advanced to the officer (the  
        "Shortfall") shall be added to the Sales Threshold in any subsequent
      year of the consulting agreement. Included in prepaid expenses and
        other current assets in the accompanying June 30, 1998 balance sheet
  is $150,000 of the Fee advanced to the officer. The consulting
agreement also provides for early termination under certain 
          conditions, including not achieving a minimum sales level, as defined.

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Litigation-                                                           

       The Company is involved in legal proceedings incurred in the normal
        course of business. In the opinion of management and its counsel, if
      adversely decided, none of these proceedings would have a material
      effect on the financial position or results from operations of the
Company.                                                    

License Agreements-                                                   

       The Company has licenses for the right to use certain trademarks in
    connection with the sale of its products. The license agreements
    require the Company to pay a percentage of sales of the licensed
   products, as defined. In addition, minimum royalty payments and
   advertising expenditures is also generally required, as well as
       providing for maintenance of quality control. Royalty expense under
 these agreements was approximately $4,547,000, $2,804,000 and
 $1,842,000 for the years ended June 30, 1998, 1997, and 1996,
        respectively. As of June 30, 1998, future minimum guaranteed royalty
         payments under existing license agreements aggregate to approximately
$5,645,000 through the year 2002.                           

Letters of Credit-                                                    

       At June 30, 1998, and 1997, the Company was contingently liable for
 irrevocable standby letters of credit totaling $3,158,000 and
$1,113,000, respectively.                                   

Litigation Settlement-                                                

       In June 1998, the Company settled a copyright infringement lawsuit.
        Under the terms of the Settlement Agreement, the Company is required
  to pay $40,000 to the plaintiff in two $20,000 installments in
          addition to certain legal fees incurred. The first installment was due
      on or before July 6, 1998 and the second installment was due on or
  before August 1, 1998. The Company has accrued $44,000 for the
          settlement and related legal expenses which is included within accrued
    expenses and other liabilities in the accompanying June 30, 1998
balance sheet.                                              

         Under the terms of the Settlement Agreement, the Company committed to
          purchase from the plaintiff a minimum of $2,000,000 of fabric from the
  date of the settlement through March 1, 2000, (the "Settlement
Period"). If the Company fails to meet the fabric purchase  
         requirements an additional payment will be required on April 1, 2000.
         If the Company purchases more than $1,000,000 of fabric but less than
      $2,000,000 of fabric during the Settlement Period, $50,000 will be
          due. If the purchased fabric amount is less than $1,000,000 during the
Settlement Period, $75,000 will be due.                     

   Any late payments under the Settlement Agreement are subject to
       interest changes at an annual rate of 18%. If the Company sells its
     assets during the Settlement Period, the buyer of the assets will
          assume the contingent minimum fabric purchase liability or the Company
        will make the additional $50,000 or $75,000 payment, based on fabric
purchases through the asset sale date.                      

Buying Agency Agreement-                                              

        In February 1998, the Company entered into a Buying Agency Agreement
       with an agent based in Taiwan (the "Agent"). Under the terms of the
        Buying Agency Agreement, the Agent will act as a nonexclusive buying
       agent for the company in connection with the Company's purchases of
        wearing apparel in Taiwan, Hong Kong, Philippines, Indonesia, Korea,
and the United States.                                      

     The Agent will charge a commission of 6% of the invoice price for
        purchases in the United States and Taiwan and a commission of 7% for
         purchases in the other countries. The Company will also reimburse the
        Agent for freight and insurance expenses incurred on the shipment of
goods. Letter                                               

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          of credit financing is required under the Buying Agency Agreement upon
which the Agent may draw from on the Company's behalf.      

 There is no term or purchase requirement in the Buying Agency
       Agreement. The Company can terminate the Buying Agency Agreement if
        the Agent fails to perform with any terms of the agreement or if the
     Agent discontinues performance for any thirty day period, changes
ownership or enters bankruptcy proceedings.                 

Collateral Agreement-                                                 

       In July 1998, the Company, Signal Apparel Company, Inc. ("Signal"),
and the Factor (see Note 3) entered into an agreement (the  
        "Agreement") whereby Signal would provide letter of credit financing
      for the Company. Under the Company's Factor Agreement (see Note 3)
     letter of credit financing is available, however, the Company had
        reached its borrowing base limit. The Factor Agreement also provided
         the Factor with first lien on the Company's inventory and receivables
         from factored sales. Under the Agreement, Signal is provided with the
    first lien on the Company's inventory purchased under letters of
      credit opened by Signal on behalf of the Company. Signal will also
       guarantee to the Factor payment of all invoices attributable to the
         letters of credit opened by Signal. The Company will pay Signal a fee
         of 2% of the total invoice cost of the goods plus the costs to import
the goods and the costs to prepare the goods for shipment.  

(8)  SUBSEQUENT EVENT:                                                          

The Company is currently negotiating the sale of its assets to Signal 
Apparel Company, Inc. ("Signal") in exchange for stock in Signal.     

MANAGEMENT'S DISSCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:                                                          

Year Ended June 30, 1998 Compared With The Prior Fiscal Year                    

Net sales totaled $64.6 million and $46.8 million for the fiscal years ended    
June 30, 1998 and 1997 respectively, or an increase of $17.8 million (38%). The 
increase in net sales in fiscal 1998 compared with fiscal 1997, was principally 
due to an increase in bodywear and activewear sales in the first six months of  
fiscal 1998. Those non-seasonal sales totaled $16.6 million in the first six    
months of the fiscal year ended June 30, 1998 compared with $2.9 million for the
first six months of fiscal 1997, or an increase of $13.7 million (472%). Prior  
to fiscal 1998, the company was very seasonal with virtually all sales occurring
in the January to June period which is the swimwear sales season. The balance of
the increase was due to growth in seasonal sales to the existing customer base  
($2.7 million or approximately 6%) and the entry into a new channel of          
distribution ($1.2 million or approximately 2%). Sales in the new channel of    
distribution were made to specialty retailers and the higher-priced, better     
stores with swimwear and related garments made under the Jones of New York label
under a licensing agreement.                                                    

Cost of sales totaled $47.6 million and $32.2 million representing percentages  
of net sales of 74% and 69% in the fiscal years ended June 30, 1998 and 1997,   
respectively. The increase in the cost of sales is principally the result of    
higher sales volume. The increase in cost of sales as a percentage of net sales 
in fiscal 1998 as compared with fiscal 1997 is due to the inclusion of higher   
product costs in connection with the entry into the new channel of distribution 
described above and the product costs in connection with a new product which was
launched in fiscal 1998 and subsequently abandoned. Additionally, cost of       

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sales includes higher manufacturing costs and a premium to expedite imported    
merchandise which was delayed due to the company's inability to open letters of 
credit in favor of the manufacturers in a timely manner due to a shortage of    
working capital (see LIQUIDITY AND CAPITAL RESOURCES below).                    

Gross profit of $17 million and $14.6 million for the fiscal years ended June   
30, 1998 and 1997 represented 26% and 31%, respectively, of net sales of those  
years. The increases in gross profit are the result of the sales increase in    
each of the years and the changes as a percentage of net sales result from the  
changes in cost of sales as described above.                                    

Selling, general and administrative expenses increased $5.9 million to $16.9    
million (26% of net sales) in the fiscal year ended June 30, 1998 compared with 
$11 million (24% of net sales) in fiscal 1997. Much of the increase is          
attributable to the increase in sales volume including higher royalties for     
licensed products of $1.8 million, increased payroll and related taxes for      
increased staff of $.9 million, higher legal and professional fees of $.5       
million, increased rent $.4 million for additional showroom and office space,   
increased office administrative expenses of $.4 million, increased advertising  
of $.2 million and depreciation of $.2 million related to capital expenditures  
for additional space and computer systems. The 2% of net sales, or approximately
$1.3 million increase in selling, general and administrative expenses in fiscal 
1998 as compared with fiscal 1997 that is not directly related to the volume    
increase is the result of costs in connection with sales in the new channel of  
distribution and the new product launch described above.                        

Interest expense increased $1.6 million to $3.2 million (5% of net sales) in the
fiscal year ended June 30, 1998 from $1.6 million (3% of net sales) in fiscal   
1997. The increase resulted from higher loan balances outstanding due to        
increased volume and a shortage of working capital (see discussion of LIQUIDITY 
AND CAPITAL RESOURCES below).                                                   

Year Ended June 30, 1997 Compared With The Prior Fiscal Year                    

Net sales increased $12.4 million or 36% from $34.4 million in the year ended   
June 30, 1996 to $46.8 million in the year ended June 30, 1997. The increase    
resulted from higher seasonal sales to existing customers. Non-seasonal bodywear
and activewear sales decreased $1.1 million from $4.0 million in the first six  
months of the fiscal year ended June 30, 1996 to $2.9 million in the first six  
months of the fiscal year ended June 30, 1997.                                  

Cost of sales totaled $32.2 million, or 69% of net sales for the year ended June
30, 1997. This represents an increase of $6.4 million from $25.8 million, or 75%
of net sales for the previous fiscal year. The increase in cost of sales is the 
direct result of the increased sales, however, the decrease expressed as a      
percentage of net sales from 75% to 69% was the effect of a selling price       
increase made at the end of fiscal 1996 and in effect for the full fiscal year  
ended June 30, 1997.                                                            

Gross profit increased from $8.6 million, or 25% of net sales for the fiscal    
year ended June 30, 1996 to $14.6 million, or 31% of net sales for the fiscal   
year ended June 30, 1997. The improvement in gross profit expressed as a        
percentage of net sales resulted from the selling price increase described      
above.                                                                          

The total of selling, general and administrative expenses increased $3.9 million
in the fiscal year ended June 30, 1997 to $11.8 million, or 25% of net sales,   
from $7.9 million, or 23% of net sales, in fiscal 1996. Included in             
volume-related increases are higher royalties for licensed products of $1       
million, increased payroll and related taxes for increased staff of $1.4        
million, increased warehousing and shipping costs of $.5 million and increased  
sales-related travel and selling expenses of $.7 million                        

Interest expense increased from $1.2 million, or 4% of net sales for the fiscal 
year ended June 30, 1996 to $1.6 million, or 3% of net sales for the fiscal year
ended June 30, 1997. The increase resulted from greater borrowings in fiscal    
1997 to support the increased sales recorded in that year.                      

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LIQUIDITY AND CAPITAL RESOURCES                                                 

The working capital deficit was $.6 million at June 30, 1997 and worsened to    
$3.9 at June 30, 1998. The trend throughout fiscal 1998 was the consumption of  
working capital with the result of a severe shortage at June 30, 1998. At June  
30, 1998, the company had ceased payment to a shareholder who provided letter of
credit and acceptance financing to the company and was in arrears in payment of 
trade accounts payable, royalties payable to licensors and other liabilities.   
The severe shortage in working capital was caused by the net loss recorded for  
fiscal 1998 ($2.3 million), an increase in inventory ($5.5 million), an increase
in prepaid expenses ($.8 million) and increases in due from officers ($1        
million) and due from related parties ($.9 million).                            

In the fiscal year ended June 30, 1998, the working capital demands caused by   
the net cash used by operating activities of $4.9 million and capital spending  
of $1.1 million were met by borrowings under an accounts receivable factoring   
and inventory loan agreement. Borrowings under that agreement are near the      
maximum available. Sale of the company's inventory to provide liquidity is      
possible, however, sale of seasonal inventory in the off season will result in  
deep discounts from normal selling prices. The company intends to complete the  
intended acquisition by Signal Apparel Company, Inc. and benefit from the       
greater financial resources of that company. While both parties to the          
acquisition believe it will be accomplished, no assurances can be given that it 
will close. Should the acquisition not close, the company will pursue a         
financing alternative that had been discussed with a new source. The financing  
package is intended to be a combination of purchase order financing to provide  
letters of credit for imported products and asset-based financing to meet the   
company's working capital needs. In addition, the company explored an           
equity/debt placement which will be re-evaluated in the event that the intended 
acquisition does not occur.                                                     

At June 30, 1998, the company had capital expenditure commitments totaling      
approximately $1 million, the bulk of which is related to completion of         
leasehold improvements in leased space for offices and showrooms.               

YEAR 2000 COMPLIANCE PLAN                                                       

The company purchased hardware and software and installed the new systems during
fiscal 1997 to support operational and customer demands resulting from the      
increased sales levels. The company's year 2000 initiative involves internal and
external professionals and is ongoing. Preliminary findings indicate that the   
systems require slight modification to be year 2000 compliant with a total      
estimated cost of less than $100 thousand.                                      

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TAHITI APPAREL, INC.

FINANCIAL STATEMENTS

FISCAL QUARTER ENDED AS OF
 DECEMBER 31, 1998 AND 1997(unaudited)

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TAHITI APPAREL, INC.
BALANCE SHEETS
(In Thousands)

                                                                [Download Table]

                                                              December 31,  June 30,
                            Assets                               1998        1998   
                                                               --------    -------- 
                                                             (Unaudited)            
                                                                                    
CURRENT ASSETS:                                                                     
         Cash and Cash Equivalents                             $   --      $   --   
         Restricted Cash-Current                                   --           100 
         Accounts Receivable-Net of Allowance                                       
           for Doubtful Accounts                                    145         319 
         Inventories                                             10,396      10,376 
         Prepaid Expenses and Other Current Assets                  546         983 
         Due From Affiliate                                         961         924 
         Due From Officers                                        1,626       1,464 
                                                               --------    -------- 

                       Total Current Assets                      13,674      14,166 

FURNITURE, FIXTURES AND EQUIPMENT-NET                             1,786       1,510 

RESTRICTED CASH                                                     750         644 

OTHER ASSETS                                                        188         188 
                                                               --------    -------- 

                       Total Assets                            $ 16,398    $ 16,507 
                                                               ========    ======== 

                       Liabilities and Stockholders' Deficit                        

CURRENT LIABILITIES:                                                                
         Cash Overdraft                                        $    298    $     90 
         Current Portion of Note Payable                             50          49 
         Due to Factor                                           13,832       6,166 
         Accounts Payable                                         2,685       2,686 
         Due to Related Party                                     6,780       6,772 
         Royalties Payable                                          590       1,362 
         Accrued Expenses and Other Current Liabilities           1,856         874 
         Due to Stockholder                                         183         178 
                                                               --------    -------- 
                       Total Current Liabilities                 26,274      18,177 

STOCKHOLDER'S DEFICIT:                                                              
         Common Stock, No Par Value; Authorized 300                                 
           Shares; Issued and Outstanding 150 Shares                105         105 
         Accumulated Deficit                                     (9,981)     (1,775)
                                                               --------    -------- 
                       Total Stockholder's Deficit               (9,876)     (1,670)

                       Total Liabilities and Stockholder's                          
                         Deficit                               $ 16,398    $ 16,507 
                                                               ========    ======== 

See accompanying notes to financial statements

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TAHITI APPAREL, INC.
STATEMENTS OF OPERATIONS

For the Six Months Ended
December 31, 1998 and 1997

(In Thousands)

 (Unaudited)

                                                      1998            1997
                                                      --------        --------

Net Sales                                              $ 14,141        $ 16,648 
 Cost of Sales                                          13,828          12,066
                                                      --------        --------

Gross Profit                                                313           4,582 

Selling, General and Administrative                                             
        Expenses                                         7,156           6,439
                                                      --------        --------

Loss From Operations                                                            
                                                         (6,843)         (1,857)

Interest Expense                                          1,362           1,130 
                                                      --------        --------

Loss Before Benefit for Income Taxes                     (8,205)         (2,987)

Income Taxes                                               --               765 
                                                      --------        --------

Net Loss                                               $ (8,205)       $ (2,222)
                                                      ========        ========

See Accompanying Notes to Financial Statements

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 TAHITI APPAREL, INC
STATEMENTS OF CASH FLOWS
(In Thousands)
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                        For the Six Months Ended        
                                                                December 31,1998        December 31,1997
                                                                ----------------        ----------------
                                                                                                        
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                   
              Net Loss                                               $(8,206)               $(2,222)    
              Adjustments to Reconcile Net Loss                                                         
                to Net Cash Used by Operating                                                           

              Activities-                                                                               
                          Depreciation                                   118                     66     
                          Changes in Assets and Liabilities-                                            
                            Accounts Receivable                          174                     (8)    
                            Inventories                                  (20)                (8,688)    
                            Prepaid Expenses                             436                 (1,592)    
                            Due From Related Party                       (37)                  --       
                            Due From Officers                           (162)                    35     
                            Other Assets                                  (1)                   146     
                            Accounts Payable                              (1)                    (3)    
                            Due to Related Party                           8                  5,126     
                            Royalties Payable                           (771)                   277     
                            Accrued Expenses                             982                 (1,936)    
                            Due to Stockholder                             5                   --       
                                                                     -------                -------     
                                      Net Cash Used by                                                  
                                        Operating Activities          (7,475)                (8,799)    

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                   
              Restricted Cash                                             (6)                    42     
              Purchases of Furniture, Fixtures and Equipment            (394)                  (320)    
                                                                     -------                -------     
                                      Net Cash Used in                                                  
                                        Investing Activities            (400)                  (278)    

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                   
              Note Payable                                                 1                   --       
              Due to Factor                                            7,666                  9,193     
              Cash Overdraft                                             208                      0     
                                                                     -------                -------     
                                      Net Cash Provided by                                              
                                        Financing Activities           7,875                  9,193     

                                      Net Increase in Cash and                                          
                                        Cash Equivalents                --                      116     

CASH AND CASH EQUIVALENTS-beginning of period                           --                       27     
                                                                     -------                -------     

CASH AND CASH EQUIVALENTS-end of period                              $  --                  $   143     
                                                                     =======                =======     

See Accompanying Notes to Financial Statements

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TAHITI APPAREL, INC.

 NOTES TO FINANCIAL STATEMENTS

 (Unaudited)

1. The accompanying financial statements have been prepared on a basis          
consistent with the financial statements for the year ended June 30, 1998. The  
accompanying financial statements include all adjustments which are, in the     
opinion of the company, necessary to present fairly the financial position of   
the company as of December 31, 1998 and its results of operations and cash flows
for the six months ended December 31, 1998. These financial statements should be
read in conjunction with the company's audited financial statements and notes   
thereto as of June 30, 1998 and 1997.                                           

2. The results of operations for the six months ended December 31, 1998 are     
not necessarily indicative of the results to be expected for the full year.     

3. Inventories consisted of the following:                                      

                                        (In Thousands)
                                          December 31,      June 30,
                                          1998            1998
                                           -------         -------

Raw Materials                              $   493         $   326
Work in Process                              1,450             377
Finished Goods                               8,453           9,673
                                           -------         -------
                                           $10,396         $10,376
                                           =======         =======

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS                                                           

Net sales of $14.1 million for the six months ended December 31, 1998 decreased 
$2.6 million or 16% from $16.7 million for the six months ended December 31,    
1997. This decrease resulted primarily from a delay in the shipment of goods    
during the beginning of the 1998/1999 spring season. Several million in orders  
were delayed until January and February, 1999 due to the failure of Tahiti's    
suppliers to timely complete and deliver goods, partially as a result of        
Tahiti's delay in opening letters of credit. These delays occurred during the   
negotiation and consummation of the sale of Tahiti's assets to Signal Apparel.  

Cost of sales increased $1.8 million from $12.1 million (72.5%) for the six     
months ended December 31, 1997 to $13.9 million (97.8%) for the six months ended
December 31, 1998. This increase is primarily the result of the delay in sales  
of higher margin goods until January and February, 1999 and the extra cost of   
air freight associated with the delivery of goods produced late in November and 
December, 1998.                                                                 

Gross profit decreased from $4.6 million for the six months ended December 31,  
1997 to $0.3 million for the same period in 1998. This decrease is the result of
the increased cost of sales as discussed above.                                 

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Selling general and administrative expenses increased $0.8 million from $6.4    
million for the six months ended December 31, 1997 to $7.2 million for the same 
period in 1998. Selling expenses increased $0.2 as a result of extra promotional
and marketing expenses, including trade shows and travel expenses.              
Administrative expenses increased $0.5 million largely as a result of costs     
associated with the negotiation and preparation for the sale of the Tahiti      
assets to Signal Apparel and higher payroll costs associated with staff         
increases.                                                                      

Interest expense increased $0.3 million from $1.1 million for the six months    
ended December 31, 1997 to $1.4 million for the six months ended December 31,   
1998. The increase resulted from larger borrowings from Tahiti's factor due to a
shortage of working capital.                                                    

LIQUIDITY AND CAPITAL RESOURCES                                                 

The working capital deficit was <$3.9> at June 30, 1998 and declined to a       
deficit of <$12.6> at December 31, 1998. The worsening deficit was principally  
the result of the net loss of $8.2 million and increased borrowings related to  
the significant letters of credit required to be opened for goods to be         
delivered in January and February, 1999. The borrowings of Tahiti were repaid in
full when the acquisition by Signal Apparel was completed.                      

At December 30, 1998, Tahiti had capital expenditure commitments totaling       
approximately $0.7 million, largely related to the completion of leasehold      
improvements in space leased for showrooms and offices.                         

YEAR 2000 COMPLIANCE PLAN                                                       

The company purchased hardware and software and installed the new systems during
fiscal 1997 to support operational and customer demands resulting from the      
increased sales levels. The company's year 2000 initiative involves internal and
external professionals and is ongoing. Preliminary findings indicate that the   
systems require slight modification to be year 2000 compliant with a total      
estimated cost of less than $100 thousand.                                      

F-22

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘8-K/A’ Filing		Date		First		Last			Other Filings
		4/1/00		21
		3/1/00		21
Filed on:		6/4/99		8
		4/15/99		7					10-K
		4/6/99		2					8-K
		4/3/99		7					10-Q,  10-Q/A,  NT 10-Q
For Period End:		3/22/99		1		3			8-K
		3/16/99		7
		3/12/99		7
		12/31/98		2		30			10-K,  10-K/A,  NT 10-K
		12/30/98		30
		12/17/98		7
		10/15/98		19
		8/31/98		10
		8/1/98		21
		7/6/98		21
		6/30/98		9		30
		1/1/98		2		3
		12/31/97		9		30			10-K,  10-K/A
		11/1/97		19
		6/30/97		9		29			10-Q
		8/6/96		15
		6/30/96		9		23			10-Q,  10-Q/A
		10/15/94		19
		10/25/93		19
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