UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 29, 2001

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

Commission File No. 333-24189

GFSI, INC.
(Exact Name of Registrant as Specified in Charter)

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

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

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

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

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

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

The aggregate market value of the voting stock held by non-affiliates (as
defined in Rule 405) of the registrant as of September 1, 2001 was $0.

On September 1, 2001, there was 1 share of the Registrant's common stock, $.01
par value per share, issued and outstanding.

TABLE OF CONTENTS

PART I

Page
-----

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

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

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

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

PART II

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

Item 6 - Selected Financial Data................................................................. 8

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

Item 7A - Quantitative and Qualitative Disclosures About Market Risks............................ 13

Item 8 - Consolidated Financial Statements....................................................... 14

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

PART III

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

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

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

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

PART IV

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

Signatures............................................................................. 39

PART I

ITEM 1 - BUSINESS

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

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

The Company is a leading designer, manufacturer and marketer of high
quality, custom designed sportswear and activewear bearing names, logos and
insignia of resorts, corporations, national associations, colleges and
professional sports leagues and teams. The Company custom designs and decorates
an extensive line of high-end outerwear, fleecewear, polo shirts, T-shirts,
woven shirts, sweaters, shorts, pants, headwear and sports luggage. The Company
markets its product to over 15,000 active customer accounts through its
well-established and diversified distribution channels.

On January 29, 1998, the Company established a wholly owned subsidiary,
Event 1, Inc. ("Event 1") to provide a concessionaire outlet for the Company's
sportswear and activewear. Event 1 provides increasing sales for the Company's
products with the National Collegiate Athletic Association ("NCAA"), Big 10
Conference, Big 12 Conference, the Atlantic Coast Conference and PGA tour
events.

On June 25, 2001, the Company acquired 100% of the stock of Champion
Products, Inc., ("Champion") for approximately $9.5 million. In conjunction with
the acquisition of Champion, the Company entered into a 15 year licensing
agreement (the "Licensing Agreement") with the seller which permits the Company
to sell decorated Champion apparel in the college bookstore, military and resort
markets. Under the Licensing Agreement, the Company will pay a royalty to the
seller based upon net sales beginning in fiscal 2004.

On June 29, 2001, the Company sold its Tandem Marketing business for
approximately $2.7 million in cash, net of closing costs, and the buyer's
assumption of approximately $1.2 million in liabilities. The Company recognized
a $629,787 gain on the sale of Tandem Marketing.

During fiscal 1997, the Company converted its fiscal year to a 52/53 week
fiscal year which ends on the Friday nearest June 30. Previously, the Company's
fiscal year ended June 30. The twelve month periods ended June 27, 1997, July 2,
1999, June 30, 2000 and June 29, 2001 each contain 52 weeks. The twelve month
period ended July 3, 1998 contains 53 weeks.

SALES DIVISIONS AND SUBSIDIARIES

The Company believes that it enjoys distinct competitive advantages in each
of its sales divisions and its subsidiaries because of its ability to quickly
deliver high quality, customized products and provide excellent customer
service. The Company operates state-of-the-art design, embroidery and screen
print manufacturing and distribution facilities which management believes have
set the standard in the sportswear and activewear industry for product quality
and response time to orders and re-orders. This allows the Company's customers
to carry less inventory, increase merchandise turnover and reduce the risk of
obsolete merchandise.

Resort Division. The Resort division is a leading marketer of custom
logoed sportwear and activewear to over 6,100 active customer accounts,
including destination resorts, family entertainment companies, hotel chains,
golf clubs, cruise lines and casinos.

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

Corporate Division. The Corporate division is a leading marketer of
corporate identity sportswear and activewear

for use by a diverse group of corporations in incentive and promotional programs
as well as for office casual wear and uniforms. The division services over 5,000
active customer accounts.

The Company believes that it has an advantage over its competitors
because it is one of the few brand name suppliers of sportswear and activewear
focused on the corporate market. The Corporate division markets its products to
various areas within the corporate market. Products are sold by the Company's
national sales force of approximately 40 independent sales agents, directly to
corporate customers in connection with corporate incentive programs, employee
pride and recognition initiatives, corporate meetings and outings, company
retail stores and catalog programs and dealer incentive programs. Commencing in
fiscal 2001, products are sold by the Company's employee sales force to
advertising incentive distributors for program fulfillment for national
companies.

Licensed Apparel Division. The Licensed Apparel Division includes the
college bookstore business, sales under professional sports team, league and
event licensing agreements and sales to the military. The Company has over 2,700
active college bookstore accounts, including nearly every major college and
university in the United States. The largest college bookstore accounts include
the major college bookstore lease operations as well as high volume, university
managed bookstores.

The Company's professional sports team, league and event licensors
include, among others, the NBA, the NHL, NASCAR and Major League Baseball. The
Company targets the upscale adult sports enthusiast through the Company's
existing distribution channels as well as through new channels such as stadium
stores and team retail outlets. The Company has over 800 active professional
sports related customer accounts.

Event 1 Subsidiary. The Event 1 subsidiary was established in fiscal
1998 to provide concessionaire services that create additional outlets for the
Company's products. Since its inception, Event 1 has become the leading event
merchandiser in the collegiate championship industry. The subsidiary has renewed
and extended its agreements with the NCAA, Big 10 Conference, Big 12 Conference,
the Atlantic Coast Conference, and various other institutions and entities.

PRODUCTS

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

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

Fleecewear. The Company's fleecewear products represented approximately 18%
of net sales for fiscal 2001. Current styles offered by the Company include
classic crew sweatshirts, cowl neck tops, half-zip pullovers, hooded tops,
vests, henleys and bottoms. Products are constructed of a wide range of quality
fabrics including combed cotton, textured fleece ribbed knit cotton and inside
out fleece. The resulting product line offers customers a variety of styles
ranging from relaxed, functional looks to more sophisticated, casual looks.

Outerwear. The Company's outerwear products represented approximately 19%
of net sales for fiscal 2001. These products are designed to offer consumers
contemporary styling, functional features and quality apparel. Product offerings
include a variety of weights and styles, including heavy nylon parkas, denim
jackets, corduroy hooded pullovers, nylon windshirts and water-resistant poplin
jackets. The Company also provides a number of functional features such as
adjustable cuffs, windflaps, vented backs, drawstring bottoms and heavyweight
fleece lining.

Polo Shirts, Woven Shirts and Sweaters. The Company's polo shirt, woven
shirt and sweater products represented approximately 20% of net sales for fiscal
2001. The Company's products in this category are designed to be suitable for
both leisure and work-related activities with a full range of materials and
styles.

T-Shirts and Bottoms. The Company's T-shirt and bottoms products
represented approximately 13% of net sales for fiscal 2001. The Company's
products are designed to address consumer needs for comfort, fit and function
while providing innovative logo designs. The Company offers a full line of
T-shirts, shorts and pants in a variety of styles, fabrics and colors.

Women's. The Company's women's products represented approximately 8% of net
sales for fiscal 2001. Recognizing the market demand for specific women-sized
apparel, the Company has designed a more complete women's collection.

Other. The Company also sells headwear, sports luggage, and a number of
other miscellaneous apparel items. Event 1 also sells non-apparel items at
events including basketballs, pennants and related items. Sales of "Other" items
represented approximately 22% of net sales for fiscal 2001.

DESIGN, MANUFACTURING AND MATERIALS SOURCING

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

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

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

COMPETITION

The Company's primary competitors vary within each of its three divisions.
In the resort division, there are few national competitors and even fewer that
operate in all of the varied segments in which the Company operates. In the
corporate identity market, there are several large manufacturers of corporate
identity products. The Company believes it is one of the few manufacturers and
marketers of corporate identity products that specializes in the activewear
product segment. In the college bookstore apparel market, the Gear brand and its
closest two competitors have traditionally held greater than 50% of the market.

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

Market Primary Competitors
---------------- -----------------------------------------------------------
Resort Cutter & Buck and local and regional competitors
Corporate Cutter & Buck, Ashworth, Land's End
Licensed Apparel Jansport (VF Corp.), Cotton Exchange, Russell Athletic,
M.V. Sports

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

EMPLOYEES

The Company employs approximately 728 people at its two facilities in
Lenexa, Kansas, of which approximately 108 are members of management, 297 are
involved in either product design, customer service, sales support or
administration and 323 are involved in manufacturing. The Company employs
approximately 77 people in its Bedford, Iowa facility all of which are involved
in embroidery manufacturing. In an effort to adjust employment levels in
accordance with its production schedule and reduce its operating costs, the
Company has instituted a voluntary time off program under which management
occasionally grants a limited number of employees extended time off (typically
four to six weeks). During extended time off periods, employees remain on call
and continue to receive employee benefits such as health insurance, but do not
receive hourly wages. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that the dedication of its employees
is critical to its success, and that its relations with its employees are
excellent.

TRADEMARKS

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

The Company licenses its GEAR For Sports(R) trademark to Richmont Apparel
Group L.P. ("Richmont", formerly Softwear Athletics, Inc.) to produce and
distribute GEAR For Sports(R) adult sportswear and activewear, headwear and
sports luggage products in Canada in accordance with a license agreement (the
"Richmont License Agreement"). Pursuant to the Richmont License Agreement,
Richmont has obtained an exclusive, non-transferable and non-assignable license
to manufacture, advertise and promote adult apparel, headwear and bags in
Canada. The Richmont License Agreement had an initial term of eighteen months,
ending September 30, 1995, but has been extended by Richmont, at its option,
through calendar 2001. Richmont did not renew the licensing agreement for
calendar 2002. For three years after the termination of the Richmont License
Agreement, Richmont will be prohibited from selling products covered by the
Richmont License Agreement or other similar products to any Richmont customer
who was not a Richmont customer prior to the commencement of the Richmont
License Agreement.

In fiscal 1999, the Company entered into licensing agreements with Bonmax
Co., Ltd. (the "Bonmax License Agreement") and with GEAR For Sports, Ltd. (the
"GEAR Ltd. License Agreement") to produce and distribute GEAR For
Sports(R)sportswear in Japan and the European Union, respectively. Pursuant to
both of these agreements, Bonmax Co., Ltd. and Gear For Sports, Ltd. have
obtained exclusive, non-transferable and non-assignable licenses to manufacture,
advertise and promote adult apparel, headwear and bags in Japan and the European
Union, respectively. For three years after the termination of the licensing
agreements, Bonmax Co., Ltd. and Gear For Sports, Ltd. are prohibited from
selling products covered by the agreement or other similar products to any
customer who was not a customer prior to the commencement of the licensing
agreements. The Bonmax License Agreement had an initial term of one year, but
was extended by Bonmax Co., Ltd. at its option, for two successive one year
terms. In consideration for the license grant, Bonmax Co., Ltd. pays the Company
an annual royalty. The Company expects to renew the Bonmax License Agreement,
which is scheduled to expire March 31, 2002. The Gear Ltd. License Agreement has
an initial term of two years, but can be extended by Gear For Sports, Ltd. for
one additional four year term.

In connection with its acquisition of Champion, the Company entered into a
license agreement with Sara Lee Corporation (the "Champion License Agreement").
Pursuant to the Champion License Agreement, the Company is granted the exclusive
right to use the Champion(R) name and C(R) logo and related trademarks on
certain products sold in the collegiate, military and specialty markets in the
United States. The Champion License Agreement is scheduled to expire on June 30,
2016. In consideration for the license grant, the Company pays Sara Lee a
quarterly royalty based on a percentage of net sales of products bearing the
licensed marks beginning in year three of the Champion License Agreement.

LICENSES

The Company markets its products, in part, under licensing agreements,
primarily in its Licensed Apparel division. In fiscal 2001, net sales under the
Company's 451 active licensing agreements totaled $32.3 million, or
approximately 54% of the division net sales and 17% of the Company's net sales.
The Company's licensing agreements are mostly with (i) high volume, university

managed bookstores such as the University of Notre Dame, Harvard University, the
University of Southern California and the University of Michigan, (ii)
professional sports leagues such as MLB, the NBA, NASCAR and the NHL and (iii)
major sporting events such as the Ryder Cup and the Indianapolis 500. Such
licensing agreements are generally renewable every one to three years with the
consent of the licensor.

ITEM 2 - PROPERTIES

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

ITEM 3 - LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 29, 2001.

PART II

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

The only authorized, issued and outstanding class of capital stock of the
Company is common stock. There is no established public trading market for the
Company's common stock. At June 29, 2001, all common stock of the Company was
held by Holdings.

The Company has not declared or paid any cash dividends on its common stock
since the Company's formation in February 1997. The Company's financing
agreements contain restrictions on the Company's ability to declare or pay
dividends on its common stock. The distributions to Holdings during fiscal 1999,
2000 and 2001 were made pursuant to the tax sharing agreement between the
Company and Holdings.

ITEM 6 - SELECTED FINANCIAL DATA

The following table presents selected: (i) historical operating and other
data of the Company for fiscal years ended June 27, 1997, July 3, 1998, July 2,
1999, June 30, 2000 and June 29, 2001; and (ii) historical balance sheet data of
the Company as of June 27, 1997, July 3, 1998, July 2, 1999, June 30, 2000 and
June 29, 2001. The historical financial statements for the Company for fiscal
1997, 1998, 1999 and 2000 have been audited by Deloitte & Touche LLP. The
historical financial statements for the Company for fiscal 2001 have been
audited by PricewaterhouseCoopers LLP. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Results of Operations and Financial Condition", and the historical
consolidated financial statements of the Company and the related notes thereto
included elsewhere in this annual report. Certain reclassifications have been
made to the financial data for the years ended June 27, 1997, July 3, 1998, July
2, 1999 and June 30, 2000 to conform to the June 29, 2001 presentation.

Fiscal Years Ended
-------------------------------------------------------------
(Dollars in thousands, except per share data)

June 27, July 3, July 2, June 30, June 29,
1997 1998 1999 2000 2001
-------- ------- --------- -------- --------

Statements of Income Data:
Net sales..................................... $188,302 $ 215,426 $ 208,919 $ 206,686 $ 186,242
Gross profit.................................. 75,977 86,600 84,130 80,512 71,664
Operating expenses (1)........................ 40,038 48,932 53,289 49,279 50,936
---------- ---------- -------- --------- ---------
Operating income.............................. 35,939 37,668 30,841 31,233 20,728
Other income (expense)........................ (8,006) (19,284) (18,345) ( 17,450) (16,247)
---------- ---------- -------- --------- ---------
Income before income taxes and extraordinary
item........................................ 27,933 18,384 12,496 13,783 4,481
Provision for income tax...................... (1,837) (7,248) (4,683) (5,177) (1,630)
Extraordinary item, net of tax benefit (2).... (1,484) -- -- -- --
---------- ---------- -------- --------- ---------
Net Income.................................. $ 24,612 $ 11,136 $ 7,813 $ 8,606 $ 2,851
========== ========= ========= ========= =========
Supplemental Information (3):
Income before income taxes and extraordinary
item........................................ 27,933
Proforma income tax provision................. (11,453)
----------
Proforma income before extraordinary item..... $ 16,480
=========
Balance Sheet Data (as of period end):
Cash and cash equivalents..................... $ 1,116 $ 1,346 $ 10,264 $ 1,446 $ 5,309
Total assets.................................. 95,792 106,035 104,917 99,179 93,567
Long-term debt, including current portion..... 193,000 191,528 180,878 167,309 152,341
Total stockholders' equity (deficiency)....... (121,411) (109,627) (99,014) (86,809) (83,137)
Other Data:
Cash flows from operating activities.......... $ 26,545 $ 3,703 $18,222 $ 3,555 $ 21,547
Cash flows from investing activities.......... 3,643 (2,648) (2,041) (1,937) (8,412)
Cash flows from financing activities.......... (29,212) (825) (7,263) (10,436) (9,272)
EBITDA (4)................................... 39,114 40,607 33,924 34,468 23,774
Depreciation.................................. 3,175 2,938 3,083 3,235 3,046
Capital expenditures.......................... 2,615 2,972 2,291 1,998 1,788
EBITDA margin (5)............................ 20.8% 18.8% 16.2% 16.7% 12.8%

(1) Operating expenses for fiscal 2001 include $836 of restructuring charges,
$1,110 of pre-acquisition integration costs related to the acquisition of
Champion and a $630 gain on the sale of Tandem.

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

(3) In fiscal 1997, the Company was an S-Corporation and therefore was not
subject to federal and certain state income taxes. The supplemental
statement of income data presented for fiscal 1997 includes an unaudited
adjustment for income taxes which represents the approximate income tax
expense that would have been recorded if the Company had been a
C-Corporation, assuming a combined federal and state income tax rate of
41%.

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

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

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

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

FORWARD-LOOKING STATEMENTS

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

RESULTS OF OPERATIONS

The following table sets forth certain historical financial information of
the Company, expressed as a percentage of net sales, for fiscal 1999, 2000 and
2001:

Fiscal Year Ended
-----------------------------------
July 2, June 30, June 29,
1999 2000 2001
------ --------- -------
Net sales....................... 100.0% 100.0% 100.0%
Gross profit.................... 40.3 39.0 38.5
EBITDA.......................... 16.2 16.7 12.8
Operating income................ 14.8 15.1 11.1

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

FISCAL YEAR ENDED JUNE 29, 2001 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000

Net Sales. Net sales declined 9.9% in fiscal 2001 to $186.2 million from
$206.7 million in fiscal 2000. The decrease was principally attributable to
decreases in the Company's licensed apparel and corporate divisions. The
decrease in net sales at the Company's licensed apparel division was due to
college bookstore customers' reducing individual location inventories. Corporate
sales declined in fiscal 2001 due to a curtailment of purchasing, marketing and
employee relations incentive items by many corporations.

Gross Profit. Gross profit for fiscal 2001 decreased 11.0% to $71.7 million
from $80.5 million in fiscal 2000, due primarily to the decline in sales noted
above. Gross profit as a percentage of net sales declined slightly in fiscal
2001 to 38.5% from 39.0% in fiscal 2000.

Operating Expenses. Operating expenses increased $1.7 million or 3.4%, to
$50.9 million in fiscal 2001 from $49.3 million in fiscal 2000. Operating
expenses as a percentage of net sales increased in fiscal 2001 to 27.3% from
23.8% in fiscal 2000. The increases in operating expenses were primarily
attributable to the following non-recurring activities in fiscal 2001: $1.1
million of integration costs associated with the acquisition of Champion and
$0.8 million in costs associated with severance and employee termination
benefits related to the execution of a restructuring plan; which were partially
offset by $0.6 million in gain related to the sale of Tandem. In addition, the
Company incurred costs associated with the change in its corporate division's
sales strategy to supplement independent sales representatives selling directly
to corporations by focusing employee representatives on selling through
advertising incentive distributors, who, in turn, fulfill corporate incentive
programs.

EBITDA. EBITDA for fiscal 2001 decreased $10.7 million to $23.8 million
from $34.5 million in fiscal 2000. EBITDA as a percentage of net sales decreased
to 12.8% in fiscal 2001 from 16.7% in fiscal 2000. The decrease in EBITDA was
the result of the decline in sales and the increase in operating expenses.

Operating Income. Operating income for fiscal 2001 decreased $10.5 million
to $20.7 million in fiscal 2001 from $31.2 million in fiscal 2000. Operating
income as a percentage of net sales decreased to 11.1% in fiscal 2001 from 15.1%
in fiscal 2000. The decrease in operating income was the result of the decline
in sales and the increase in operating expenses.

Other Income (Expense). Other expense in fiscal 2001 decreased $1.2 million
to $16.2 million from $17.5 million in fiscal 2000 due to declining balances on
the Company's long-term debt outstanding and declining interest rates.

Net Income. Net income decreased $5.8 million to $2.9 million in fiscal
2001 from $8.6 million in fiscal 2000. The decrease in net income was the result
of the decline in sales and the increase in operating expenses.

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

Net Sales. Net sales declined 1.1% in fiscal 2000 to $206.7 million from
$208.9 million in fiscal 1999. The decrease is primarily attributable to a
decrease in the Company's corporate division net sales. The decline in corporate
division sales is attributable to service and fulfillment difficulties related
to the installation of the Company's Enterprise Resource Planning System.
Additionally, the corporate division has experienced a shift in the buying
patterns of its customers from outerwear to other products, and had some
vacancies in its sales representative force during fiscal 2000.

Gross Profit. Gross profit for fiscal 2000 decreased 4.3% to $80.5 million
from $84.1 million in fiscal 1999, due to the decline in net sales noted above
and increases in production costs as a percentage of net sales due to product
mix changes from higher priced seasonal outerwear to lower priced products.
Gross profit as a percentage of net sales declined to 39.0% in fiscal 2000 from
40.3% in fiscal 1999.

Operating Expenses. Operating expenses for fiscal 2000 decreased 7.5% to
$49.3 million from $53.3 million in fiscal 1999 due primarily to costs incurred
in fiscal 1999 associated with the Company's Enterprise Resource Planning System
installation that was completed in the fourth quarter of fiscal 1999 and
management cost control efforts in fiscal 2000. Operating expenses as a
percentage of net sales decreased to 23.8% in fiscal 2000 from 25.5% in fiscal
1999.

EBITDA. EBITDA for fiscal 2000 increased 1.6% to $34.5 million from $33.9
million in fiscal 1999 as a result of lower operating expenses. EBITDA as a
percentage of net sales increased to 16.7% in fiscal 2000 from 16.2% in fiscal
1999.

Operating Income. Operating income for fiscal 2000 increased 1.3% to $31.2
million from $30.8 million in fiscal 1999 as a result of lower operating
expenses. Operating income as a percentage of net sales increased to 15.1% in
fiscal 2000 from 14.8% in fiscal 1999.

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

Net Income. Net income for fiscal 2000 was $8.6 million compared to $7.8
million in fiscal 1999. The increase was the result of lower operating and
interest expenses.I

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities in fiscal 2001, 2000 and 1999 was
$21.5 million, $3.6 million and $18.2 million, respectively. Reductions in
inventory and accounts receivable and increases in payables contributed to the
increase in cash provided by operating activities in fiscal 2001 compared to
fiscal 2000. Increases in inventory and accounts receivable contributed to the
decline in cash provided by operating activities in fiscal 2000 compared to
fiscal 1999.

Cash used in investing activities for fiscal 2001, 2000 and 1999 was $8.4
million, $1.9 million and $2.0 million, respectively. The cash used in investing
activities in fiscal 2001 was related to the purchase of Champion and capital
expenditures, partially offset by $2.7 million in proceeds from the sale of
Tandem. In fiscal 2000 and fiscal 1999 cash used in investing activities
represented capital expenditures.

Cash used in financing activities for fiscal 2001, 2000 and 1999 and was
$9.3 million , $10.4 million and $7.3 million, respectively. The cash used in
financing activities in fiscal 2001 and fiscal 2000 was primarily related to
long- term debt payments, of which $8.5 million and $7.8 million were debt
prepayments in fiscal 2001 and fiscal 2000, respectively. The cash used in
financing activities in 1999 was primarily related to long-term debt repayments
and net payments under the revolving credit agreement.

The Company believes that cash flows from operating activities and
borrowings under the Credit Agreement will be adequate to meet the Company's
short-term and long-term liquidity requirements prior to the maturity of its
Credit Agreement in fiscal 2003 and the Senior Subordinated Notes in fiscal
2007, although no assurance can be given in this regard.

The Company anticipates paying dividends to Holdings to enable Holdings to
pay corporate income taxes, interest on notes issued by Holdings (the "Holdings
Discount Notes"), fees payable under a consulting agreement and certain other
ordinary course expenses incurred on behalf of the Company. Holdings is
dependent upon the cash flows of the Company to provide funds to service the
Holdings Discount Notes. Holdings Discount Notes do not have an annual cash flow
requirement until fiscal 2005 as they accrete interest at 11.375% per annum,
compounded semi-annually to an aggregate principal amount of $108.5 million at
September 15, 2004. Thereafter, the Holdings Discount Notes will accrue interest
at the rate of 11.375% per annum, payable semi-annually, in cash on March 15 and
September 15 of each year, commencing on March 15, 2005. Additionally, Holdings'
cumulative non-cash preferred stock ("Holdings Preferred Stock") dividends total
approximately $412,000 annually. Holdings Preferred Stock may be redeemed at
stated value (approximately $3.4 million) plus accrued dividends with mandatory
redemption in fiscal 2009.

NEW ACCOUNTING STANDARDS

In September 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") released its consensus on EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs". EITF No. 00-10
sets forth guidance on how a seller of goods should classify in the income
statement: (a) amounts billed to a customer for shipping and handling and (b)
costs incurred for shipping and handling. The Company implemented this EITF
during the fourth quarter of fiscal 2001, and, as a result, increased net sales
by $5,018,938, $3,705,191 and $3,823,694 for fiscal years ended July 2, 1999,
June 30, 2000 and June 29, 2001, respectively, to reclassify amounts billed to
customers for shipping and handling to net sales that were previously reported
as reductions to operating expenses.

In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 addresses the accounting and reporting for
business combinations and requires that all business combinations be accounted
for using one method, the purchase method. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001, and contains certain
transition provisions, effective for the Company beginning January 1, 2002, that
apply to purchase method business combinations for which the acquisition date
was before July 1, 2001. SFAS No. 142 addresses the financial accounting and
reporting for goodwill and other intangible assets acquired in a business
combination after they have been initially recognized in the financial
statements, eliminates amortization of goodwill, and requires that goodwill be
tested for impairment at least annually. SFAS No. 142 is effective for the
Company beginning January 1, 2002. SFAS Nos. 141 and 142 will not have an impact
on the Company's historical consolidated financial statements.

The FASB's Emerging Issues Task Force released its consensus No. 00-22,
"Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to be Delivered in
the Future" which is effective January 1, 2002. The Company is currently
evaluating the impact that adopting the EITF will have on its presentation of
results of operations.

In April 2001, the EITF reached a consensus on EITF Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products". The consensus concluded that consideration from a vendor
to a reseller of the vendor's products is generally presumed to be an adjustment
to the selling prices of the vendor's products and, therefore, should be
classified as a reduction of revenue. EITF No. 00-25 is effective beginning
January 1, 2002. The Company is currently evaluating the impact that adopting
the EITF will have on its presentation of results of operations.

SEASONALITY AND INFLATION

The Company experiences seasonal fluctuations in its sales and
profitability, with generally higher sales and gross profit in the first and
second quarters of its fiscal year. In fiscal 2001, net sales of the Company
during the first half and second half of the fiscal year were approximately 56%
and 44%, respectively. The seasonality of sales is primarily due to higher
college bookstore sales volume during the first two fiscal quarters. With the
acquisition of the Champion college bookstore business, the Company expects the
seasonal fluctuation to increase in fiscal 2002. Sales at the Company's Resort
and Corporate divisions typically show no significant seasonal variations.

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

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS

Page
-----

Report of Independent Accountants...................................................... 15

Independent Auditor's Reports........................................................... 16

Consolidated Balance Sheets - June 30, 2000 and June 29, 2001........................... 17

Consolidated Statements of Income - Years Ended July 2, 1999, June 30, 2000,
and June 29, 2001............................................................... 18

Consolidated Statements of Changes in Stockholders' Equity (Deficiency) -
Years Ended July 2, 1999, June 30, 2000, and June 29, 2001..................... 18

Consolidated Statements of Cash Flows - Years Ended July 2, 1999, June 30, 2000,
and June 29, 2001............................................................... 20

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

Report of Independent Accountants

To the Board of Directors
GFSI, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity
(deficiency) and of cash flows present fairly, in all material respects, the
financial position of GFSI, Inc. and its subsidiaries at June 29, 2001, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
September 12, 2001

INDEPENDENT AUDITORS' REPORT

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

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

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

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

DELOITTE & TOUCHE LLP

Kansas City, Missouri
September 8, 2000

GFSI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, June 29,
ASSETS 2000 2001
---------------- ---------------

Current assets:
Cash and cash equivalents.......................................... $ 1,446,205 $ 5,308,854
Accounts receivable, net of allowance for doubtful accounts of
$848,225 and $696,988 at June 30, 2000 and June 29, 2001........ 29,801,096 22,694,322
Inventories, net................................................... 40,139,639 37,735,617
Deferred income taxes.............................................. 1,121,741 910,828
Prepaid expenses and other current assets.......................... 1,117,391 1,143,310
----------------- --------------
Total current assets.......................................... 73,626,072 67,792,931

Property, plant and equipment, net...................................... 19,355,825 18,574,473

Other assets:
Deferred financing costs, net of accumulated amortization of
$3,851,934 and $5,040,750 at June 30, 2000 and June 29, 2001.... 6,192,400 5,193,506
Other.............................................................. 5,001 2,006,082
--------------- -------------
6,197,401 7,199,588
Total assets............................................. $ 99,179,298 $ 93,566,992

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Accounts payable................................................... $ 5,316,494 $ 12,777,790
Accrued interest expense........................................... 4,000,443 3,774,778
Accrued expenses................................................... 7,668,152 5,895,123
Income taxes payable............................................... 93,270 198,710
Current portion of long-term debt.................................. 6,953,012 6,699,631
Total current liabilities..................................... 24,031,371 29,346,032

Deferred income taxes................................................... 1,048,894 1,189,369
Long-term debt, less current portion.................................... 160,355,533 145,641,802
Other long-term obligations............................................. 552,268 526,804

Commitments and contingencies (Notes 2 and 5)...........................

Stockholders' equity (deficiency):
Common Stock, $.01 par value, 10,000 shares authorized, one
share issued at June 30, 2000 and June 29, 2001................... -- --
Additional paid-in capital........................................ 58,127,463 59,127,463
Accumulated deficiency............................................ (144,936,231) (142,264,478)
--------------
Total stockholders' equity (deficiency)......................... (86,808,768) (83,137,015)
-------------- --------------
Total liabilities and stockholders' equity (deficiency).... $ 99, 179,298 $ 93,566,992
============== ==============

See notes to consolidated financial statements.

GFSI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended
---------------------------------------------------
July 2, June 30, June 29,
1999 2000 2001
------- -------- -------

Net sales.................................................... $ 208,919,043 $ 206,686,000 $ 186,242,327
Cost of sales................................................ 124,789,335 126,173,741 114,578,443
Gross profit....................................... 84,129,708 80,512,259 71,663,884

Operating expenses:
Selling ................................................ 23,297,855 24,479,665 23,225,097
General and administrative.............................. 29,990,683 24,799,427 26,394,077
Restructuring costs..................................... -- -- 836,291
Acquisition of business................................. -- -- 1,110,331
Gain on disposition of business......................... -- -- (629,787)
------------- -------------- -------------
53,288,538 49,279,092 50,936,009
------------- -------------- -------------
Operating income................................... 30,841,170 31,233,167 20,727,875

Other income (expense):
Interest expense........................................ (18,589,826) (17,661,033) (16,660,774)
Other ................................................ 244,874 211,279 414,320
------------- -------------- -------------
(18,344,952) (17,449,754) (16,246,454)
------------- -------------- -------------

Income before income taxes .................................. 12,496,218 13,783,413 4,481,421
Income tax expense........................................... (4,683,426) (5,177,684) (1,630,880)
------------- -------------- -------------
Net income ................................................ $ 7,812,792 $ 8,605,729 $ 2,850,541
============= ============== ==============

See notes to consolidated financial statements.

GFSI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)

YEARS ENDED JULY 2, 1999, JUNE 30, 2000 AND JUNE 29, 2001

Retained
Common Stock Additional Earnings Total
----------------- Paid-In (Accumulated Stockholders'
Share Amounts Capital Deficiency) Equity (Deficiency)
----- ------- ---------- ------------- -------------------

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

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

Balance, June 30, 2000......... 1 -- 58,127,463 (144,936,231) (86,808,768)
Net income................. 2,850,541 2,850,541
Capital contributions from GFSI
Holdings, Inc.............. 1,000,000 1,000,000
Distributions to GFSI
Holdings, Inc.............. (178,788) (178,788)
------ ------- ------------ -------------- -------------

Balance, June 29, 2001......... 1 $ -- $ 59,127,463 $(142,264,478) $(83,137,015)
====== ======= ============ ============== =============

See notes to consolidated financial statements.

GFSI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended
------------------------------------------------

July 2, June 30, June 29,
1999 2000 2001
--------------- -------------- ------------

Cash flows from operating activities:
Net income........................................... $ 7,812,792 $ 8,605,729 $ 2,850,541
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ...................................... 3,083,490 3,235,324 3,045,912
Amortization of deferred financing costs........... 1,155,580 1,155,580 1,188,816
(Gain) on disposition of business.................. -- -- (629,787)
(Gain) loss on sale or disposal of property, plant
and equipment.................................... (44,282) 56,545 (99,015)
Deferred income taxes.............................. (161,691) 534,079 156,388
Changes in operating assets and liabilities:
Accounts receivable, net........................... (607,052) (1,420,388) 5,109,405
Inventories, net................................... 7,974,699 (3,816,043) 8,498,301
Prepaid expenses, other current assets and
other assets..................................... 624,582 (555,784) (113,918)
Accounts payable, accrued expenses and other
long-term obligations............................ (973,056) (3,920,226) 1,434,463
Income taxes payable............................ (642,896) (319,921) 105,440
-------------- -------------- ---------------
Net cash provided by operating activities...... 18,222,166 3,554,895 21,546,546
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment. 249,398 61,489 202,919
Purchases of property, plant and equipment........... (2,290,711) (1,998,240) (1,787,532)
Proceeds from disposition of business................ -- -- 2,672,458
Acquisition of business.............................. -- -- (9,500,000)
Net cash used in investing activities.......... (2,041,313) (1,936,751) (8,412,155)
Cash flows from financing activities:
Net changes to revolving credit agreement borrowing.. (5,600,000) -- --
Payments on long-term debt........................... (5,049,839) (14,035,648) (15,061,032)
Distributions to GFSI Holdings, Inc.................. -- -- (178,788)
Capital contributions from GFSI Holdings, Inc........ 2,800,000 3,600,000 1,000,000
Cash paid for financing costs........................ -- -- (189,922)
Seller financing for acquisition of business......... -- -- 5,158,000
Proceeds from training grants........................ 586,524 -- --
Net cash used in financing activities.......... (7,263,315) (10,435,648) (9,271,742)
Net increase (decrease) in cash and
cash equivalents............................. 8,917,538 (8,817,504) 3,862,649
Cash and cash equivalents,
Beginning of period.................................. 1,346,171 10,263,709 1,446,205
End of period........................................ $ 10,263,709 $ 1,446,205 $ 5,308,854
============= ============== =============
Supplemental cash flow information:
Interest paid................................ $ 17,295,085 $ 16,329,449 $ 15,697,623
============= ============== =============
Income taxes paid............................ $ 2,804,209 $ 1,530,298 $ 359,451
============= ============== =============
Non-cash investing and financing activities:
Equipment purchased under capital lease............ $ 468,338 $ 93,920
============== ============

See notes to consolidated financial statements.

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 2, 1999, JUNE 30, 2000 AND JUNE 29, 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Ownership--The Company is a wholly-owned subsidiary of GFSI Holdings, Inc.

Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, Event 1, Inc. and
CC Products, Inc. All significant intercompany accounts and transactions have
been eliminated.

Fiscal Year--The Company utilizes a 52/53 week fiscal year which ends on
the Friday nearest June 30. The twelve month periods ended July 2, 1999, June
30, 2000 and June 29, 2001, each contain 52 weeks.

Revenue Recognition--The Company recognizes revenue upon shipment of its
products to its customers.

Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.

Inventories--Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventories consist primarily
of non-decorated apparel ("blanks"). Included in inventories are markdown
allowances of $1,254,565 and $1,125,000 at June 30, 2000 and June 29, 2001
respectively.

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

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

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

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

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

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising Costs-- All costs related to advertising GFSI's products are
expensed in the period incurred. Advertising expenses totaled $1,658,814,
$1,676,842 and $1,811,190 for the years ended July 2, 1999, June 30, 2000 and
June 29, 2001, respectively.

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

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

Use of Estimates--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Segment Information-- No single customer represents ten percent or more of
consolidated net sales. In addition, substantially all of the Company's net
sales are derived from sources within the United States of America and all of
its assets are located within the United States of America.

New Accounting Standards --In September 2000, the Emerging Issues Task
Force ("EITF") of the Financial Accounting Standards Board ("FASB") released its
consensus on EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees
and Costs". EITF No. 00-10 sets forth guidance on how a seller of goods should
classify in the income statement: (a) amounts billed to a customer for shipping
and handling and (b) costs incurred for shipping and handling. The Company
implemented this EITF during the fourth quarter of fiscal 2001, and, as a
result, increased net sales by $5,018,938, $3,705,191 and $3,823,694 for fiscal
years ended July 2, 1999, June 30, 2000 and June 29, 2001, respectively, to
reclassify amounts billed to customers for shipping and handling to net sales
that were previously reported as reductions to operating expenses.

The FASB's Emerging Issues Task Force released its consensus No. 00-22,
"Accounting for 'Points' and Certain Other Time- Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to be Delivered in
the Future" which is effective January 1, 2002. The Company is currently
evaluating the impact that adopting the EITF will have on its presentation of
results of operations.

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications-- Certain reclassifications have been made to the 1999
and 2000 consolidated financial statements to conform to the 2001 presentation.

2. RESTRUCTURING, ACQUISITION AND DISPOSITION

During fiscal 2001, the Company recorded $836,291 in severance and employee
termination benefits related to the execution of a restructuring plan that
eliminated approximately 50 positions.

On April 20, 2001, the Company signed a Stock Purchase Agreement to
purchase 100% of the issued and outstanding stock of Champion Products, Inc.
("CPI" or "Champion") through a wholly-owned subsidiary, CC Products, Inc., and
on June 25, 2001 the transaction closed. The Company paid approximately $9.5
million for the common stock of CPI and a non-competition agreement which was
payable in four installments through October 1, 2001. The Company incurred
$1,110,331 of preparatory integration costs in fiscal 2001 associated with the
acquisition of Champion. In addition, the Company entered into a 15 year License
Agreement (the "License Agreement") with Sara Lee Corporation (the former parent
company of CPI) for the exclusive use of the Champion logo and related
trademarks on certain products sold beginning July 1, 2001. Under the License
Agreement, the Company will pay a royalty to Sara Lee Corporation based upon net
sales beginning in fiscal 2004. The royalty rate ranges from 3% to 6% of net
sales from years 3 to 15 of the License Agreement. The License Agreement
provides for guaranteed minimum royalties of $1 million per year in years 3 and
4 of the License Agreement. CC Products, Inc. was designated a restricted
subsidiary under the Credit Agreement and the Senior Subordinated Notes and
executed guarantees for those debt instruments in June 2001.

The Company used the purchase method of accounting to record this
transaction as follows:

Inventory $ 7,250,000
Other long-term asset acquired 500,000
Non-competition agreement 2,000,000
Deferred tax liability (195,000)
------------
$ 9,555,000

Amounts paid and payable as of June 20, 2001 related to the acquisition of
Champion were as follows:

Amount financed by seller $ 5,158,000
Other current obligations 147,000
Amount paid to seller at closing 4,250,000
-----------
$ 9,555,000
===========

Unaudited pro-forma consolidated results of operations for the years ended
June 30, 2000 and June 29, 2001, as if the Company had acquired Champion as of
the beginning of each year, follow. The pro-forma results include estimates and
assumptions which management believes are reasonable and exclude the $1,110,331
of non-recurring preparatory and integration costs incurred in fiscal 2001
related to the acquisition. However, pro-forma results are not necessarily
indicative of the results which would have occurred if the acquisition had
occurred as of the beginning of the periods indicated, or which may result in
the future.

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro-forma Supplemental Data
(Unaudited)

Years Ended
------------
June 30, 2000 June 29, 2001
------------- -------------

Net Sales............................. $249,589,000 $226,959,327
Operating Income...................... 32,333,167 24,424,206
Net Income............................ 9,123,649 5,058,308

On June 29, 2001, the Company sold the assets related to its Tandem
Marketing business for approximately $2.7 million in cash, net of closing costs,
and the buyer's assumption of $1.2 million in Tandem related liabilities. The
Company recognized a $629,787 gain on the sale of Tandem Marketing. Tandem
Marketing had revenues of $11.6 million, $13.5 million and $11.7 million for the
fiscal years ended July 2, 1999, June 30, 2000 and June 29, 2001, respectively.
Tandem Marketing had operating income of $1.3 million, $1.9 million and $.5
million for the fiscal years ended July 2, 1999, June 30, 2000 and June 29,
2001, respectively

3. PROPERTY, PLANT AND EQUIPMENT

June 30, 2000 June 29, 2001
-------------- --------------

Land......................................... $ 2,455,373 $ 2,455,373
Buildings and improvements................... 20,944,494 21,004,636
Furniture and fixtures....................... 17,320,084 18,285,124
------------- ------------
40,719,951 41,745,133
Less: accumulated depreciation............... 21,382,426 23,202,103
------------- ------------
19,337,525 18,543,030
Construction in progress..................... 18,300 31,443
------------- -------------
$ 19,355,825 $ 18,574,473
============= ============

Assets under capital leases were as follows:
June 30, 2000 June 29, 2001
------------- -------------

Furniture and fixtures....................... $ 468,338 $ 565,777
Less: accumulated amortization............... 30,579 93,505
---------- -----------
Net assets under capital lease............... $ 437,759 $ 472,272
========== =========

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following are the minimum lease payments that will be made in each of the
years indicated based on capital and operating leases in effect as of June 29,
2001:

Fiscal Year: Capital Operating
------- ---------

2002........................................ $ 165,975 $ 726,516
2003........................................ 105,069 659,918
2004........................................ 97,765 501,203
2005........................................ 95,525 89,779
2006........................................ 9,846 37,755
--------- ------------
Total minimum lease payments................ 474,180 $ 2,015,171
===========
Amount representing interest................ ( 66,893)
----------
Present value of minimum lease payments..... $ 407,287
=========

Rental expense for all operating leases aggregated $725,314, $659,338 and
$598,349 in fiscal years 1999, 2000 and 2001, respectively.

4. LONG-TERM DEBT AND CREDIT AGREEMENT

Long-term debt consisted of:

June 30, June 29,
2000 2001
--------- --------

Senior Subordinated Notes, 9.625% interest rate, due 2007....................... $ 125,000,000 $ 125,000,000
Term Loan A, variable interest rate, 9.0625 % and 7.5% at
June 30, 2000 and June 29, 2001, respectively, due 2002............... 20,984,884 11,053,395
Term Loan B, variable interest rate, 9.5625% and 8.0% at
June 30, 2000 and June 29, 2001, respectively, due 2004 .............. 20,560,948 15,604,794
Mortgage payable to the City of Bedford, Iowa, 7.60% interest rate.............. 328,842 275,957
Capital lease obligations....................................................... 433,871 407,287
------------- -------------
167,308,545 152,341,433
Less current portion............................................................ 6,953,012 6,699,631
------------- -------------
$ 160,355,533 $ 145,641,802
============= =============

On February 27, 1997, the Company entered into a Credit Agreement with a
group of financial institutions to provide for three credit facilities: (i) a
term loan of $40,000,000 ("Term Loan A"), (ii) a term loan of $25,000,000 ("Term
Loan B" and collectively, with Term Loan A, the "Term Loans") and (iii) a
$50,000,000 secured line of credit which matures in December of 2002. On
December 1, 2000, the Company entered into Amendment No. 2 of the Credit
Agreement. The Amendment reduced the secured line of credit to $40 million from
$50 million, adjusted certain financial ratio covenants and increased the
interest rate margins 1.5% on borrowings under the Credit Agreement.

The Credit Agreement is secured by substantially all of the property, plant
and equipment. Borrowings under the Credit Agreement are subject to certain
restrictions and covenants, among them being the maintenance of certain
financial ratios, the most restrictive of which require the Company to maintain
a fixed charge coverage ratio greater than 1.02 to 1.0, an interest expense
coverage ratio of greater than 1.65 to 1.0 and a maximum leverage ratio of less
than 5.2 to 1.0, as defined in the agreement. The Company is limited with
respect to paying dividends and distributions, the incurrence of certain liens,
the sale of assets under certain circumstances, certain transactions with
affiliates, certain consolidations, mergers, and transfers, and the use of loan
proceeds. As of June 29, 2001, the Company was in compliance with the
restrictions and covenants under the Credit Agreement.

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no borrowings outstanding under the line of credit as of June
30, 2000 and June 29, 2001. Letters of credit against this line of credit at
June 30, 2000 and June 29, 2001 for unshipped merchandise aggregated $11,329,452
and $7,865,752, respectively. Stand-by letters of credit issued against this
line of credit at June 30, 2000 and June 29, 2001, aggregated $1,275,481 and
$367,000, respectively.

On February 27, 1997, the Company issued the 9.625% Senior Subordinated
Notes due 2007 (the "Senior Subordinated Notes") in the aggregate principal
amount of $125,000,000. Interest on the Senior Subordinated Notes is payable
semi-annually in cash in arrears on September 1 and March 1, each year. The
Senior Subordinated Notes mature on March 1, 2007 and are redeemable, in whole
or in part, at the option of the Company at any time on or after March 1, 2002
at the redemption prices listed below:

Year Percentage
---- -----------
2002........................................................ 104.813%
2003........................................................ 103.208
2004........................................................ 101.604
2005 and thereafter......................................... 100.000

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

The Senior Subordinated Notes are senior unsecured obligations of the
Company and pursuant to the terms of the Senior Subordinated Notes indenture,
rank pari passu in right of payment to any future subordinated indebtedness of
the Company, and effectively rank junior to secured indebtedness of the Company,
including borrowings under the Credit Agreement. The Senior Subordinated Notes
Indenture includes covenants that, among other things, limit payments of
dividends and other restricted payments and the incurrence of additional
indebtedness. As of June 29, 2001, the Company was in compliance with all such
covenants.

The Senior Subordinated Notes are publicly traded over the counter. At June
29, 2001, the quoted market price for the Senior Subordinated Notes was 77/100.
At June 29, 2001, the Senior Subordinated Notes estimated fair value
approximated $96,250,000.

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

Aggregate maturities of the Company's long-term debt as of June 29, 2001
are as follows:

Year
2002.......................................... $ 6,699,631
2003.......................................... 9,582,529
2004.......................................... 10,957,911
2005.......................................... 90,397
2006.......................................... 10,965
Thereafter.................................... 125,000,000
------------
Total $152,341,433
============

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. COMMITMENTS AND CONTINGENCIES

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

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

6. PROFIT SHARING AND 401(K) PLAN

The Company has a defined contribution (401k) plan which includes employee
directed contributions with an annual Company matching contribution of 50% on up
to 4% of a participant's annual compensation. In addition, the Company may make
additional profit sharing contributions at the discretion of the Board of
Directors. Participants exercise control over the assets of their account and
choose from a broad range of investment alternatives. Contributions made by the
Company to the plan related to the 401(k) match and profit sharing portions
totaled $840,387 for the year ended July 2, 1999, $716,624 for the year ended
June 30, 2000 and $616,756 for the year ended June 29, 2001.

7. INCOME TAXES

The provision for income taxes for the years ended July 2, 1999, June 30,
2000 and June 29, 2001 consisted of the following:

July 2, June 30, June 29,
1999 2000 2001
------------- ------------- ------------

Current income tax provision................................. $ 4,845,117 $ 4,643,605 $ 1,474,495
Deferred income tax provision (benefit)...................... (161,691) 534,079 156,385
----------- ---------- ----------
Total income tax provision................................... $ 4,683,426 $ 5,177,684 $ 1,630,880
============= ============ ===========

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

July 2, 1999 June 30, 2000 June 29, 2001
-------------------- --------------------- ----------------------

Amount % Amount % Amount %
------ ----- ------ ---- ------ ----

Income tax provision at the statutory rate $4,273,676 34.2% $4,724,195 34.3% $1,568,497 35.0%
Effect of state income taxes, net of
federal benefit............................. 493,351 4.0 467,750 3.4 149,004 3.3
Other....................................... (83,601) (.7) (14,261) (.1) (86,621) (1.9)
---------- ----- ----------- ----- ----------- -----
$4,683,426 37.5% $5,177,684 37.6% $1,630,880 36.4%
===== ========== ===== =========== =====

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

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The sources of the differences that give rise to the
deferred income tax assets and liabilities as of June 30, 2000 and June 29, 2001
along with the income tax effect of each, were as follows:

June 30, 2000 June 29, 2001
--------------- -------------
Deferred Income Tax Deferred Income Tax
---------------------- ---------------------

Assets Liabilities Assets Liabilities
------ ----------- ------ -----------

Allowance for doubtful accounts.................................. $ 384,709 $ -- $ 271,825 $ --
Property, plant, and equipment................................... -- 1,033,093 -- 1,031,191
Accrued expenses................................................. 712,051 -- 779,277 --
Deferred financing costs......................................... -- -- -- 523,975
Other............................................................ 112,460 103,280 369,697 144,174
---------- --------- ---------- ----------
Total............................................................ $1,209,220 $1,136,373 $1,420,799 $1,699,340
========== ========== ========== ==========

8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

The following summarizes the estimated fair value of financial instruments,
by type:

June 30, 2000 June 29, 2001
------------------------- ---------------------------

Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- -------- -----
Assets and liabilities:
Cash and cash equivalents....................... $ 1,446,205 $ 1,446,205 $ 5,308,854 $ 5,308,854
Accounts receivable............................. 29,801,096 29,801,096 22,694,322 22,694,322
Accounts payable................................ 5,316,494 5,316,494 12,777,790 12,777,790
Long-term debt.................................. 167,308,545 136,058,545 152,341,433 123,591,433
Interest rate swap.............................. -- 42,621 -- --

GFSI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 30, 2000, the Company had an outstanding interest rate swap
agreement with a $7 million notional amount and a $42,621 fair value. The swap
agreement terminated November 18, 2000.

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

9. RELATED PARTY TRANSACTIONS

Holdings has an agreement with an affiliate of the Company to render
services to the Company including consultation on its financial and business
affairs, its relationship with its lenders and stockholders, and the operation
and expansion of its business. The agreement will renew for successive one year
terms unless either party, within 60 days prior to renewal, elects to terminate
the agreement. The Company incurred consulting fees totaling $500,000, $365,000
and $440,000 for the years ended July 2, 1999, June 30, 2000 and June 29, 2001,
respectively, which are included in general and administrative expenses in the
accompanying consolidated financial statements.

Holdings has a non-competition agreement with a shareholder and officer. In
exchange for the covenant not to compete, the shareholder will be paid $250,000
per annum for a period of ten years. For each of the years ended July 2, 1999,
June 30, 2000, and June 29, 2001, $250,000 of expense related to this agreement
was included in general and administrative expenses in the accompanying
financial statements.

The Company and Holdings have entered into a tax sharing agreement (the
"Tax Sharing Agreement") for purposes of filing a consolidated federal income
tax return and paying federal income taxes on a consolidated basis. Pursuant to
the Tax Sharing Agreement, the Company and each of its consolidated subsidiaries
will pay to Holdings on an annual basis an amount determined by reference to the
separate tax liability of the Company as calculated pursuant to Section
1552(a)(1) of the Code and applicable regulations thereunder. For the years
ended July 2, 1999, June 30, 2000 and June 29, 2001 payments under this
agreement, net of capital contributions from Holdings of $2,800,000, $3,600,000
and $1,000,000, respectively, aggregated $2,804,209, $1,530,298 and $359,451,
respectively.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The Registrant engaged PricewaterhouseCoopers LLP as its new independent
accountants as of December 20, 2000. The Registrant's audit committee
recommended the change of independent accountants and the Board of Directors
approved the decision to change independent accountants. During the two most
recent fiscal years prior to the change and through December 20, 2000, the
Registrant had not consulted with PricewaterhouseCoopers LLP regarding the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Registrant's consolidated financial statements.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth the names and ages of Holdings' directors and executive
officers and the positions they hold as of the date of this annual report:

Name Age Position with Company
---- --- ---------------------

Robert M. Wolff 66 Chief Executive Officer and Chairman of the Board of Directors
Larry D. Graveel 52 President, Chief Operating Officer and Director
J. Craig Peterson 49 Senior Vice President, Chief Financial Officer and Director
Michael H. Gary 48 Senior Vice President, Sales Administration and Director
A. Richard Caputo, Jr. 35 Director
John W. Jordan II 53 Director
David W. Zalaznick 47 Director

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

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

Larry D. Graveel has served as President since September 2000. He has
served as a director of the Company since February 1997 and as Chief Operating
Officer of the Company since 1999. Prior to that, Mr. Graveel served as a Senior
Vice President, Merchandising from 1993 to 1999 and as a merchandising manager
of the Company since 1984.

J. Craig Peterson has served as Senior Vice President and Chief Financial
Officer of the Company since March 2001. Prior to that, Mr. Peterson served as
Chief Financial Officer at eScout.com LLC (2000 - 2001), Chief Financial Officer
at Gold Bancshares Corp. (1999 - 2000), and Chief Financial Officer at Unitog
Company (1991 - 1998). Prior to those positions, Mr Peterson was a partner at
KPMG LLP, a public accounting firm.

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

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

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

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

STOCKHOLDERS AGREEMENT

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

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

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

BOARD OF DIRECTORS

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

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

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

ITEM 11 - EXECUTIVE COMPENSATION

The following table sets forth information concerning the aggregate
compensation paid and accrued to the Company's executive officers for services
rendered to the Company during each of the three most recent fiscal years.

Fiscal
Position Year Salary Bonus
-------- -------- ------ ------

Robert M. Wolff 2001 $ 209,005 --
Chairman and Chief Executive Officer 2000 144,837 --
1999 170,000 --

Larry D. Graveel 2001 311,931 --
President 2000 190,000 35,000
Chief Operating Officer 1999 180,000 96,923

Robert G. Shaw (1) 2001 205,083 --
Former Senior Vice President and 2000 170,000 35,000
Chief Financial Officer 1999 160,000 92,000

J. Craig Peterson (1) 2001 87,500 --
Senior Vice President and
Chief Financial Officer

Michael H. Gary 2001 288,654 --
Senior Vice President 2000 200,000 40,000
1999 180,000 96,923

(1) Robert G. Shaw resigned from his position as Chief Financial Officer of the
Company on April 1, 2001 and J. Craig Peterson started working at the Company in
March 2001.

INCENTIVE COMPENSATION PLAN

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

ITEM 12 - SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

Amount of Beneficial
Ownership (1)
---------------------------
Number of Percentage
Shares Owned
--------- ----------

Executive Officers and Directors:
Robert M. Wolff (2)(3)............................................. 60.0 3.0%
Larry D. Graveel (2)(4)............................................ 225.0 11.3
Michael H. Gary (2)(5)............................................. 225.0 11.3
J. Craig Peterson (2)(6)........................................... 50.0 2.5
John W. Jordan II (7)(8)........................................... 78.3125 3.9
David W. Zalaznick (7)............................................. 78.3125 3.9
A. Richard Caputo, Jr. (7)......................................... 50.0 2.5
All directors and executive officers as a group (7 persons)........ 766.625 38.3

Other Principal Stockholders:
JZ Equity Partners PLC (9)......................................... 500.0 25.0
Leucadia Investors, Inc. (10)...................................... 125.0 6.3
------- ----

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

(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. As of June
29, 2001, there were 1,900 shares of common stock of Holdings issued and
outstanding. As of September 1, 2001, there were 1,887.5 shares of common
stock of Holdings issued and outstanding.

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

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

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

(5) 205 shares are held by Michael H. Gary Revocable Trust, of which Mr. Gary
is a trustee. The remaining 20 shares are held in trust for family
members of Mr. Gary.

(6) 25 shares are held by a financial institution as trustee for Mr. Peterson
and 25 shares are held by the J. Craig Peterson and Linda Z. Peterson
Revocable Trust of which Mr. Peterson is Trustee.

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

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

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

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

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Wolff Employment Agreement. In connection with the acquisition of Winning
Ways, Inc. in 1997, the Company entered into an Employment Agreement with Robert
M. Wolff (the "Wolff Employment Agreement"). Pursuant to the Wolff Employment
Agreement, Mr. Wolff will serve as Chairman of the Company for a ten-year period
ending on the tenth anniversary of the Acquisition. In exchange for his
services, the Company will compensate Mr. Wolff with a base salary of $140,000
per annum, subject to annual increases set forth in the Wolff Employment
Agreement, to provide him with certain employee benefits comparable to that
received by other Company senior executives, including the use of Company cars,
and to reimburse him for expenses incurred in connection with the performance of
his duties as Chairman. In the event that Mr. Wolff no longer provides services
to the Company due to his dismissal for Cause (as defined in the Wolff
Employment Agreement), he will no longer be entitled to any compensation from
the Company as of the date of his dismissal, subject to certain rights of
appeal.

Wolff Noncompetition Agreement. In connection with the Acquisition of
Winning Ways in 1997, Holdings entered into a Noncompetition Agreement with
Robert M. Wolff (the "Wolff Noncompetition Agreement"). Pursuant to the Wolff
Noncompetition Agreement, Mr. Wolff will not, directly or indirectly, (i) (a)
engage in or have any active interest in any sportswear or activewear business
comparable to that of the Company for (b) sell to, supply, provide goods or
services to, purchase from or conduct business in any form with the Company or
Holdings for a ten-year period ending on the tenth anniversary of the
Acquisition, (ii) disclose at any time other than to the Company or Holdings any
Confidential Information (as defined in the Wolff Noncompetition Agreement) and
(iii) engage in any business with the Company or Holdings through an affiliate
for as long as Mr. Wolff or any member of his family is the beneficial owner of
Holdings' capital stock. In exchange for his covenant not to compete, Holdings
will pay Mr. Wolff $250,000 per annum for a period of ten years. In the event
that the Wolff Noncompetition Agreement is terminated for Cause (as defined in
the Wolff Noncompetition Agreement), Holdings will no longer be obligated to
make any payment to Mr. Wolff, but Mr. Wolff will remain obligated to comply
with the covenants set forth in the Wolff Noncompetition Agreement until its
expiration on the tenth anniversary of the Acquisition.

Indemnification Agreements. In connection with the Acquisition of Winning
Ways in 1997, the Company and each of its directors entered into indemnification
agreements. The indemnification agreements provide that the Company will
indemnify the directors against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of the Company) to which any of them is, or
is threatened to be, made a party by reason of their status as a director,
officer or agent of the Company, or serving at the request of the Company in any
other capacity for or on behalf of the Company; provided that (i) such director
acted in good faith and in a manner not opposed to the best interest of the
Company, (ii) with respect to any criminal proceedings had no reasonable cause
to believe his or her conduct was unlawful, (iii) such director is not finally
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Company, unless the court views in light of the circumstances
the director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b) of
the Exchange Act, or the rules or regulations promulgated thereunder. With
respect to any action brought by or in the right of the Company, directors may
also be indemnified to the extent not prohibited by applicable laws or as
determined by a court of competent jurisdiction against expenses actually and
reasonably incurred by them in connection with such action if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the Company.

Shaw Employment Agreement. In April 2001, the Company entered into an
Employment Agreement with Robert G. Shaw (the "Shaw Employment Agreement").
Pursuant to the Shaw Employment Agreement, Mr. Shaw will serve as Vice President
of the Company until February 27, 2007. In exchange for his services, the
Company is to compensate Mr. Shaw with a base salary equal to $60,000, which
base salary is subject to annual increases at the discretion of the Board of
Directors and to provide him with certain employee benefits as set forth in the
Shaw Employment Agreement. As a condition of the Shaw Employment Agreement, Mr.
Shaw was required to sell to Holdings all of the shares of common stock and
preferred stock of Holdings then held by him and his family and affiliates.

Shaw Noncompetition Agreement. In connection with the Shaw Employment
Agreement, in April 2001 Holdings and Mr. Shaw entered into a Noncompetition
Agreement (the "Shaw Noncompetetion Agreement"). Pursuant to the Shaw
Noncometition Agreement, Mr. Shaw will not, directly or indirectly, (i) engage
in or have any interest in any business that (a) produces or markets decorated
activewear and is competitive with or similar to that of the Company or Holdings
or (b) sells to, supplies, provides goods or services to, purchases from, or
does business with the Company or Holdings, (ii) in any capacity, (a) divert
from the Company or Holdings any business with which he has contact while
employed by the Company or Holdings, (b) induce any salesperson, supplier,
vendor or other person transacting business with the Company or Holdings to
distribute or sell services or products competitive with the Company or Holdings
or (c) induce or cause any employee of the Company or Holdings to leave the
employ of the Company or Holdings, or (iii) disclose at any time any
Confidential Information (as defined in the Shaw Noncompetition Agreement) other
than to the Company or Holdings.

PART IV

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

(a) Documents filed as part of this report:

(1) Financial Statements

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

(2) Financial Statement Schedule

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

(3) Exhibits

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

EXHIBIT INDEX

Exhibit
Number Description Page
------- ----------- -----

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

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

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

2.3 Stock Purchase Agreement, dated as of April 20, 2001, by and among Sara Lee Corporation,
Champion Products, Inc. and GFSI, Inc. ***

2.4 First Amendment to Stock Purchase Agreement, dated June 25, 2001, by and among
Sara Lee Corporation, Champion Products, Inc, and GFSI, Inc.

3.1 Certificate of Incorporation of GFSI, Inc. *

3.2 Bylaws of GFSI, Inc. *

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

4.2 Global Series A Senior Subordinated Note *

4.3 Form of Global Series B Senior Subordinated Note *

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

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

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

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

Exhibit
Number Description Page
------- ----------- -----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.18 Employment Agreement, dated as of April 1, 2001, by and between the Company and Robert
G. Shaw.

10.19 Non-competition Agreement, dated as of April 1, 2001, by and between the Company and
Robert G. Shaw.

10.20 License Agreement, dated as of June 25, 2001, by and among Sara Lee Corporation, CC
Products Acquisition, Inc., CC Products, Inc. and the Company.

10.21 Supply Agreement, dated as of June 25, 2001, by and among Sara Lee Corporation, CC
Products Acquisition, Inc., CC Products, Inc. and the Company.

10.22 Fall 2001 Merchandise Agreement, dated as of June 25, 2001, by and among Sara Lee
Corporation, CC Products Acquisition, Inc., CC Products, Inc. and the Company.

Exhibit
Number Description Page
------- ----------- -----

25 Statement of Eligibility of Trustee *

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

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

*** Incorporated by reference to Exhibit 2.3 of the Quarterly Report
on Form 10-Q of the Company filed with the Securities and Exchange
Commission on May 14, 2001 (Commission File No. 333-24189).

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on September 27, 2001.

GFSI, INC.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on
September 27, 2001.

Signatures Title
---------- ------

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

/s/ J. CRAIG PETERSON Senior Vice President, Finance and a Director
-----------------------------------------
J. CRAIG PETERSON (Principle Financial and Accounting Officer)

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

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

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

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