Biscayne: 1998 Annual Report TO OUR FELLOW STOCKHOLDERS: 1997 IN REVIEW 1997 was a disappointing year for our Company. While we made notable progress in reducing overhead and operating costs, our operating profitability was less than expected. Net sales in 1997 were $93.2 million versus $105.4 million in 1996. Net loss in 1997 was $3.9 million, or $0.36 per share, compared to net loss in 1996 of $8.7 million, or $0.81 per share. Biscayne's 1997 and 1996 results included net restructuring charges and income tax reserves of $1.5 million and $9.1 million, or $0.14 and $0.85 per share, respectively. The Company's gross margin in the 1997 fiscal year was 24.8%, compared to 25.9% in 1996. The decline in gross margin was largely attributable to warm- weather related markdowns of women's outerwear and increased production costs in children's underwear. Selling, general and administrative expense (S,G&A) declined in 1997, from $24.4 million, or 23.1% in 1996 to $22.2 million, or 23.8% of net sales in 1997. Biscayne's 1997 operating results reflected the impact of several factors, including: unseasonably warm fall/winter weather, which impeded sell-through of outerwear at wholesale and retail levels, decreased realizable sales prices, and increased inventories, as well as increased production costs and lower efficiencies at our children's underwear division. We moved aggressively to improve the Company's long-term sales, profitability, and liquidity. In 1997, we undertook several cost saving activities and operating initiatives, while making investments in product development and marketing. Examples of these initiatives include implementing: (i) a set of initiatives in our Varon unit (led by our new management team) to improve production efficiency, lower variable and overhead expense, and reduce inventories, and (ii) co-operative sourcing among the outerwear product groups, utilizing a network of existing overseas satellite offices and staff. In addition, we expanded our family of licensing partnerships in 1997, signing long-term agreements with several well-known children*s and junior/women's brand names, including: * Starter Corporation to manufacture girl's activewear, swimwear, and outerwear in sizes 4-6x and 7-16. * Healthtex, a division VF Corporation, to manufacture a new collection of children's outerwear under the Healthtex brand name in sizes newborn through 16 for girls and newborn through 7 for boys. The outerwear products include jackets, pramsuits, windsuits, one- and two- piece snowsuits, and padded vests. * XOXO, a division of privately-held Lola, Inc. to manufacture a of junior/ women's outerwear. The XOXO outerwear line will focus on the upscale contemporary junior customer for distribution through major department and better specialty stores. Initial shipments for our new licenses are targeted for delivery in Fall 1998. LOOKING FORWARD We understand that our Company faces several challenges in meeting its long- term objectives of growing sales and improving profitability. To this end, we have identified the following cost reductions in 1998: * consolidating the operations and management of Andy Johns Fashions into the Mackintosh of New England product group, * consolidating and reducing administrative office space, and * closing our last domestic sewing facility producing children's underwear. We believe that these initiatives, in combination with those outlined above, will make Biscayne leaner and more competitive in 1998, and will result in improved operating comparisons to 1997. Earl W. Powell Chairman and Chief Executive Officer Peter Vandenberg, Jr. President and Chief Operating Officer March 1998 M & L INTERNATIONAL M&L International, Inc. is a designer, manufacturer, and marketer of infant's, toddler's, and children's outerwear, sportswear, and swimwear. Garments are marketed to major department and specialty stores and to selected mass merchant accounts. Outerwear products are sold under the Weather Tamer brand name, while sportswear and swimwear products are marketed under the Eclipse label. M&L recently added two licenses for delivery in Fall 1998: one with Starter Corporation to manufacture girl's activewear, swimwear, and outerwear in sizes 4-6x and 7-16, and a second with Healthtexr to make a new collection of children's outerwear in sizes newborn through 16 for girls and newborn through 7 for boys. The Starter line will include sports and high tech styling with high performance fabrications, ripstop nylon coated shells for outerwear, sportswear with main street athletic silhouettes in fleece and knit, and nylon warm-up pants. MACKINTOSH OF NEW ENGLAND Mackintosh of New England makes women's fine woolen coats and two lines of active outerwear, Andy Johns Fashions and Andy Johns Kids. The Andy Johns Fall 1998 collection, which includes peach cotton jackets, ripstop nylon coats, and faux silk coats, is marketed to major department and specialty stores and selected mass merchants. Andy Johns Kids features year-round outerwear for children from ages 4 to 14 in an extensive variety of styles and fabrics. To deepen Mackintosh's penetration of the regional department store market, the Company created the Judy Simon label. It will be carried exclusively by Nordstrom in all of its stores. The Judy Simon line includes sortina nylons, active microfiber, and wool and leather jackets. The Company recently signed a licensing agreement with XOXO to manufacture the XOXO outerwear collection of junior/ women's outerwear. This line will focus on the upscale contemporary junior customer, and will be distributed through major department and better specialty stores. XOXO outerwear expresses a modern attitude, current with the trend and direction of today's fashion. VARON Varon is a supplier of girl's and boy's cotton basic and thermal underwear and girl's daywear, which are marketed to mass merchandisers and regional chains under private label programs. The majority of Varon's products are cotton, though the unit's thermal underwear line is 65% cotton and 35% polyester. These products are offered in thermal cotton interlock and jersey fabrics, and have received excellent acceptance in the private label market. In an effort to meet the challenge of growing demand and increased raw material and labor costs, Varon closed its domestic plants in late 1996 through early 1998, and transferred its production to a new 48,000 square foot offshore facility. This move, combined with the consolidation of administrative, cutting, and distribution activities into a Florida-based facility, centralized Varon's management controls, and will lower the unit's production and overhead expense in 1998. Board of Directors Earl W. Powell Chairman of the Board and Chief Executive Officer President and Chief Executive Officer Trivest, Inc. Private Investment Firm Kurt C. Gutfreund Vice Chairman of the Board and President of M&L Int'l. Peter Vandenberg, Jr. President, Treasurer, and Chief Operating Officer Harold E. Berritt, Esq. Partner Greenberg Traurig Law Firm Phillip T. George, M.D. Chairman Trivest, Inc. Private Investment Firm Joseph B. Gildenhorn Partner The JBG Companies Real Estate Investment Company R. Stephen Lefler President and Chief Executive Officer Hartwell Sportswear, Inc. Apparel Manufacturer James J. Pinto, Esq. President Private Finance Group, Corp. Private Investment Firm Corporate Management Earl W. Powell Chairman of the Board and Chief Executive Officer Kurt C. Gutfreund Vice Chairman of the Board and President of M&L Int'l. Peter Vandenberg, Jr. President, Treasurer, and Chief Operating Officer Rosanne Garrido Vice President and Controller A. Richard Hurwitz Vice President, Corporate Communications Peter W. Klein, Esq. Vice President and General Counsel Marilyn D. Kuffner Secretary Division Showrooms Mackintosh of New England Co. (Mackintosh, Andy Johns, XOXO, Starter) 463 Seventh Avenue New York, New York 10018 M&L - Chicago 1333 North Kingsbury Street Chicago, Illinois 60622 M&L - New York 100 West 33rd Street, Suite 930 New York, New York 10001 M&L - (Healthtex) 100 West 33rd Street, Suite 930 New York, New York 10001 Varon 463 Seventh Avenue New York, New York 10018 Annual Meeting of Stockholders The Annual Meeting of Stockholders of Biscayne Apparel, Inc. will be held Wednesday, June 3, 1998, at 9:00 a.m. at the Grand Bay Hotel, 2669 South Bayshore Drive, Miami, Florida. A formal notice of the meeting, together with the Proxy Statement and Form of Proxy, will be mailed to each stockholder. Policy on Public Disclosure Biscayne is committed to a corporate policy of complete and timely disclosure of information relevant to the Company. The Company recognizes the importance of communicating on a consistent basis with the financial community, individual investors, and the news media, and it is Biscayne*s policy to do so with candor, dispatch, and timeliness. Transfer Agent Questions regarding the transfer of certificates and related subjects should be directed to the Company*s transfer agent, registrar, and dividend disbursing agent as follows: American Stock Transfer & Trust Co. 40 Wall Street New York, NY 10005 Independent Public Accountants Coopers & Lybrand L.L.P. One Sylvan Way Parsippany, New Jersey 07054 Financial Information On-Line The current financial information of Biscayne Apparel has been posted online. This includes news releases, Forms 10-Q, Form 10-K, and parts of the annual report. There is no charge to obtain this information which is available 24 hours a day, seven days a week. You may access the Internet World Wide Web system at the following address: http://www.cfonews.com/bha, or you may dial direct by modem to (718) 279-3590 (for those without Internet access). If you require assistance, please call our service bureau, Corporate Financials Online, at (718) 279-9133. Their experienced staff will be pleased to help you. Stockholder and Investor Inquiries General inquiries or requests for corporate and SEC materials may be directed to : A. Richard Hurwitz Vice President, Corporate Communications Biscayne Apparel, Inc. 2665 South Bayshore Drive Suite 800 Miami, FL 33133-5401 E-Mail: rhurwitz@trivest.com Ends.