Our marketing is performed by both employed sales personnel and independent sales representatives located throughout the country. Our sales force services the retail direct, sporting goods, military, private label, department store and college bookstore customer bases. During fiscal year 2006,2007, we served approximately 15,00016,000 customers. No single customer accounted for more than 10% of our sales in fiscal years 2007, 2006 2005 or 2004.2005. Part of our strategy is not to become dependent on any single customer. Substantially all of our revenues for the past three fiscal years have been generated from domestic sales. With the acquisition of Junkfood Clothing, we hope to expandhave expanded our international presence in Canada, Europe, and Asia and expectAustralia and hope our international sales couldcan become a larger portion of our revenue in future years. Revenue attributable to foreign countries are approximately 1% or less of consolidated net revenue for fiscal years 2007, 2006 and 2005.

The majority of our knit apparel products are produced based on forecasts to permit quick shipment and to level production schedules. Specialty knit apparel products and private label knit apparel styles are generally made only to order. Some customers place multi-month orders and request shipment at their discretion. We offer same-day shipping inon our catalog goods within our Activewear Apparel segment and both segments use third party carriers to ship products to our customers. In order to better serve our customers, we allow our customers to order products by the piece, by the dozen, or in full case quantities. As a significant portion of our business consists of at-once EDI orders and direct catalog orders, we believe that backlog order levels do not give a general indication of future sales.

Our sales reflect some seasonality, with sales during our first and fourth fiscal quarters generally being the highest, and sales during our second fiscal quarter generally being the lowest. The apparel industry is characterized by rapid shifts in fashion, consumer demand and competitive pressures, resulting in both price and demand volatility. The demand for any particular product varies from time to time based largely upon changes in consumer preferences and general economic conditions affecting the apparel industry, such as consumer expenditures for non-durable goods.

We knit, dye, finish and cut our fabric in company-owned plants located in Fayette, Alabama, Maiden, North Carolina, and Fayetteville, North Carolina. Our garments are primarily sewn in our company-owned plants in Fayetteville, North Carolina, and Rowland, North Carolina, in a leased facility in La Paz, El Salvador, in two leased facilities in Campeche, Mexico and in two leased facilities in San Pedro Sula, Honduras. At the 2007, 2006 2005 and 20042005 fiscal year ends, our long-lived assets in Honduras, El Salvador and Mexico collectively comprised 5.2%27.3%, 6.2%5.2% and 7.9%6.2%, respectively, of our total net property, plant and equipment. In addition, duringAt the past three2007, 2006 and 2005 fiscal years, garments were sewn throughyear ends, our joint venturelong-lived assets in Costa Rica. Our joint venture in Costa Rica wasHonduras comprised 18.9%, 2.4% and 2.4%, respectively, of a 50% equity ownership interest in SOHA, S.A. held by Soffe’s subsidiary SAIM, LLC that was carried on our balance sheet under the equity method of accounting. SOHA’s management was independent from us,total net property, plant and the other 50% of SOHA S.A. was owned by a group of individual Costa Rican shareholders. SOHA’s assets did not constitute a material portionequipment. The percentage of our long-lived assets. In June 2006, we sold our equity in the joint ventureassets located offshore has increased from previous years due to the other shareholders,FunTees Acquisition and on July 6, 2006 we dissolved SAIM, LLC.the Ceiba Textiles initiative. In fiscal yearyears 2007, 2006 and 2005, approximately 70%, 74% and 73%, respectively, of our manufactured products were sewn in company-operated locations and 1% was sewn by our joint venture in Costa Rica.locations. The remaining products were sewn by outside contractors located in the Caribbean basin.

In conjunction with the sale of our yarn spinning facility located in Edgefield, South Carolina in January 2005, we entered into a five-year agreement with Parkdale America to supply our yarn requirements. During this five-year period, we will purchase exclusively from Parkdale all yarn required by Delta Apparel and our wholly owned subsidiaries for use in our manufacturing operations (excluding yarns that Parkdale did not manufacture as of the date of the agreement in the ordinary course of its business)business or due to temporary Parkdale capacity restraints). The purchase price of yarn is based upon the cost of cotton plus a fixed conversion cost. If Parkdale’s operations are disrupted and it is not able to provide us with our yarn requirements, we may need to obtain yarn from alternative sources. Although alternative sources are available, we may not

We sell our products in a highly competitive market in which numerous distributors and manufacturers compete, some of which are larger, more diversified and have greater financial resources than we do. Competition in the Activewear Apparel segment for catalog goods is generally based upon price, service, delivery time, quality and flexibility, with the relative importance of each factor depending upon the needs of particular customers and the specific product offering. For the private label market, quality and service are greater factors for customer choice. With respect to branded product lines in our Retail-Ready segment, competition is mainly based upon consumer recognition and preference. Our strategy for Soffe includes sustaining the strong reputation of Soffe and adapting our product offerings to the changes in fashion trends and consumer preferences. Our strategy for Junkfood is to continue buildingto build strong brand recognition, increase our product offerings by addingwith the men’s, boy’s and children’s lines, and increase our customer base. In addition, with respect to both the Activewear and Retail-Ready Apparel segments, we want to provide the best overall value to our customers. OurWe believe that our favorable competitive aspects include the high consumer recognition and loyalty to the Soffe and Junkfood brands, the high quality of our products, and our flexibility and process control, which leads to product consistency. Our ability to remain competitive in the areas of quality, price, design, marketing, product development, manufacturing, and distribution will, in large part, determine our future success.

We own trademarks which are important to our business. We believe that Soffe®Soffe^®, which has been in existence since 1946, has stood for quality and value in the Activewearactivewear market for more than fiftysixty years. Soffe®Soffe^® has been a registered trademark since 1992. Junkfood®Junkfood^® has been a registered trademark since 1999, and is a recognized brand primarily in the vintage apparel marketplace. In addition to the Soffe®Soffe^® and Junkfood®Junkfood^® trademarks, we also rely on the strength of our Sweet and Sour®Sour^®, DELTA®Junk Mail^®, QUAIL HOLLOW™Delta^®, Quail Hollow™, and Intensity Athletics®Athletics^® brands.

We have the right to use trademarks under license agreements. Soffe is an official licensee for over 300 colleges and universities, and Junkfood licenses over 60 trademarks for its vintage apparel products.several hundred trademarks. Our license agreements are primarily non-exclusive in nature and typically have terms that range from one to three years. Historically, we have been able to renew our license agreements and do not anticipate difficulty in renewing our license agreements in the future. Although we are not dependent on any single license, we believe our license agreements in the aggregate are of significant value to our business.

As of July 1, 2006June 30, 2007, we employed approximately 4,0006,200 full time employees, of whom approximately 1,6001,800 were employed in the United States. We have never had a strike or work stoppage and believe that our relations with our employees are good. We have invested significant time and resources in ensuring that the working conditions in all of our facilities meet or exceed the standards imposed by the governing laws. We have obtained WRAP (Worldwide Responsible Apparel Production) certification for all of our existing sewing plants that we operate in Honduras, El Salvador and Mexico. We also obligate our third party manufacturing contractors to follow our employment policies.

Our corporate internet address iswww.deltaapparel.comwww.deltaapparelinc.com. Through the website, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC

We are subject to various federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, storm water flows, air emissions and solid waste disposal. Our plants generate very small quantities of hazardous waste, which are either recycled or disposed of off-site. Most of our plants are required to possess one or more discharge permits and we are currently in compliance with the requirements of these permits.

We incur capital and other expenditures each year that are aimed at achieving compliance with current and future environmental standards. Generally, the environmental rules applicable to us are becoming increasingly stringent. We do not expect that the amount of these expenditures in the future will have a material adverse effect on our operations, financial condition or liquidity. There can be no assurance, however, that future changes in federal, state, or local regulations, interpretations of existing regulations or the discovery of currently unknown problems or conditions will not require substantial additional expenditures. Similarly, the extent of our liability, if any, for past failures to comply with laws, regulations and permits applicable to our operations cannot be determined.

We operate in a rapidly-changing, highly competitive business environment that involves substantial risks and uncertainties, including, but not limited to, the risks identified below. The risks described below are not the only risks that we face. Additional risks not presently known to us or that we currently do not view as material, may become material, and may impair our business operations. Any of these risks could cause, or contribute to causing, our actual results to differ materially from expectations.

COMPETITION.OUR INDUSTRY IS COMPETITIVE.We sell our products in a highly competitive market in which numerous distributors and manufacturers compete, some of which are larger, more diversified and have greater financial resources than we do. Competition in the Activewear Apparelactivewear apparel industry for catalog goods is generally based upon price, service, delivery time, quality and flexibility, with the relative importance of each factor depending upon the needs of particular customers and the specific product offering. For the private label market, quality and service are greater factors for customer choice. With respect to branded product lines in the retail industry, competition is mainly based upon consumer recognition and preference. If we are unable to remain competitive in the areas of quality, price, design, marketing, product development, manufacturing, and distribution, it could have a material adverse effect on our results of operations.

DISRUPTION INWE RELY ON OUR DISTRIBUTION OPERATIONS.OPERATIONS TO DELIVER PRODUCT TO CUSTOMERS.We have company-owned and leased distribution facilities located throughout the United States. Any significant interruption in the operation of any of these facilities may delay shipment of merchandise to our customers or damage our reputation, or otherwisewhich could have a material adverse effect on our financial condition and results of operations. Moreover, a failure to successfully coordinate the operations of these facilities in planning and distribution activities also could have a material adverse effect on our financial condition and results of operations.

OUR BUSINESS OPERATIONS RELY ON OUR INFORMATION SYSTEMS.We depend on information systems to manage our inventory, process transactions, respond to customer inquiries, purchase, sell and ship goods on a timely basis and maintain cost-effective operations. We may experience operational problems with our information systems as a result of system failures, viruses, or other causes. Any material disruption or slowdown of our systems could cause operational delays that could have a material adverse effect on our results of operations.

CREDIT RISK.WE ARE EXPOSED TO THE RISK OF FINANCIAL NON-PERFORMANCE BY OUR CUSTOMERS ON A SIGNIFICANT AMOUNT OF OUR SALES.We are exposed to the risk of financial non-performance by our customers on a significant amount of our sales. Our extension of credit involves considerable judgment and is based on an evaluation of each customer’s financial condition and payment history. We monitor our credit risk exposure by periodically obtaining credit reports and updated financials on our customers. In addition, we mitigate our risk of loss by obtaining credit insurance on a portion of our accounts receivable. We maintain an allowance for doubtful accounts for potential credit losses based upon our historical trends and other available information. However, the inability to collect on sales to significant customers or a group of customers could have a material adverse effect on our results of operations.

OUR BUSINESS INCURS SIGNIFICANT FREIGHT AND TRANSPORTATION COSTS.We incur significant freight costs to transport our goods from our domestic textile plants to off-shore sewing facilities and then to bring our goods back into the United States. In addition, we incur transportation expenses to ship our products to our customers. Transportation costs significantly increased during fiscal year 2006, have remained high in fiscal year 2007, and, accordingly, had an unfavorable impact on our results of operations. Further significant increases in the costs of freight and transportation could have a material adverse effect on our results of operations, as there can be no assurance that these increased costs could be passed to our customers.

THE PRICE OF ENERGY CONSUMPTIONIS PRONE TO SIGNIFICANT FLUCTUATIONS AND PRICES.VOLATILITY.Our manufacturing operations require high inputs of energy, and therefore changes in energy prices directly impact on our gross profits. Energy costs significantly increased during fiscal year 2006 and remained high in fiscal year 2007, and thus had an unfavorable impact on our results of operations. We are focusing on manufacturing methods that will reduce the amount of energy used in the production of our apparel products to mitigate the rising costs of energy. However, further significant increases in energy prices could have a material adverse effect on our results of operations, as there can be no assurance that these increased costs could be passed to our customers.

THE MARKET PRICE OF DELTA APPAREL SHARES.SHARES IS AFFECTED BY ITS ILLIQUIDITY.Various investment banking firms have informed us that public companies with relatively small market capitalizations have difficulty generating institutional interest, research coverage or trading volume. This illiquidity can translate into price discounts as compared to industry peers or to the shares’ inherent value. We believe that the market perceives us to have a relatively small market capitalization. This could lead to our shares trading at prices that are significantly lower than our estimate of their inherent value.

As of August 18, 2006,2007, we had outstanding 8,540,7518,398,395 shares of common stock. We believe that approximately 59.1%64.9% of our stock is beneficially owned by persons who beneficially own more than 5% of the outstanding shares of our common stock and related individuals, and that ofindividuals. Additionally, within this group approximately 34.9%35.8% of the outstanding stock is beneficially owned by institutional investors whothat own more than 5% of the outstanding shares. Sales of substantial amounts of our common stock in the public market by any of these large holders could adversely affect the market price of the common stock.

OUR PRINCIPAL SHAREHOLDERS MAY EXERT SUBSTANTIAL INFLUENCE.As of August 18, 2006, two2007, three members of our board of directors and related individuals had or shared the voting power with respect to approximately 24.2%29.1% of the outstanding shares of our common stock. These individuals will exert substantial influence with respect to all matters submitted to a vote of shareholders, including the election of our directors. In addition, our directors, executive officers and related individuals, as a group (comprised of 1216 people), owned 29.0%32.3% of our outstanding stock as of August 18, 2006,2007, and therefore will exert substantial influence with respect to all matters submitted to a vote of shareholders, including the election of directors.

OUR OPERATIONS ARE SUBJECT TO POLITICAL AND ECONOMIC UNCERTAINTYRISKS IN MEXICO, HONDURAS AND MEXICO.EL SALVADOR.We have two company-operated sewing facilities in each of Mexico and Honduras and one company-operated sewing facility in Mexico. In conjunction with the acquisition of FunTees in fiscal year 2007, we will be adding a facility in El Salvador. If the labor markets tighten in any of these countries, it could have adverse effects on the industries located in the applicable country. In addition, economic or legal changes could occur that affect the way in which we conduct our business in any of these countries. For example, a growing economy could lower unemployment which could increase wage rates or make it difficult to retain employees or employ enough people to meet demand. The applicable government could also decide to add additional holidays or change employment lawlaws, thereby increasing our costs to operate in that country. Domestic unrest or political instability in any of these countries could also disrupt our operations. Any of these political, social or economic conditions could adversely affect our results of operations.

U.S.WE ARE SUBJECT TO INTERNATIONAL TRADE REGULATIONS.Our products are subject to foreign competition, which in the past has been faced with significant U.S. government import restrictions. Foreign producers of apparel often have significant labor cost advantages. Given the number of these foreign producers, the substantial elimination of import protections that protect

The World Trade Organization or “WTO”, a multilateral trade organization, was formed in January 1995 and is the successor to the General Agreement on Tariffs and Trade or “GATT”. This multilateral trade organization, has set forth mechanisms by which world trade in clothing is being progressively liberalized by phasing-out quotas and reducing duties over a period of time that began in January of 1995. As it implements the WTO mechanisms, the U.S. government is negotiating bilateral trade agreements with developing countries (which are generally exporters of textile and apparel products) that are members of the WTO to encourage them to reduce their tariffs on imports of textiles and apparel in exchange for reductions by the United States in tariffs on imports of textiles and apparel. The remaining quotas were eliminated on January 1, 2005, significantly changing the competitiveness of many countries as apparel sourcing locations. As we believe that we are a low-cost producer of high quality apparel, we do not expect this to have a material impact on our results of operations in future years if NAFTA CBI Parity and CAFTA remain in place. In addition, the U.S. Government may take other action to improve the impact of a possible influx of textile and apparel products from China. There is, however, no assurance that our future results will not be impacted by increased global competition.

OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL RULES.REGULATION.Our operations must meet extensive federal, state and local regulatory standards in the areas of safety, health and environmental pollution controls. There can be no assurance that interpretations of existing regulations, future changes in existing laws, or the enactment of new laws and regulations will not require substantial additional expenditures. Similarly, the extent of our liability, if any, for the discovery of currently unknown problems or conditions, or past failures to comply with laws, regulations and permits applicable to our operations, cannot be determined.

OUTSIDEWE HAVE A SIGNIFICANT AMOUNT OF INDEPENDENT CONTRACT PRODUCTION.We have historically relied upon third party suppliers for up to 40%30% of our sewing production. Any shortage of supply or significant price increases from our suppliers could adversely affect our results of operations.

WE RELY ON THE STRENGTH OF OUR TRADEMARKS.We rely onOur trademarks include the strength of our trademarks, including the Soffe®Soffe^®, Intensity Athletics®Athletics^®, DELTA®Delta^®, QUAIL HOLLOWQuail Hollow^TM, Junkfood®Junkfood^®, Junk Mail^® and Sweet and Sour®Sour^® brands. We have incurred legal costs in the past to establish and protect these trademarks, but these costs have not been significant. We may in the future be required to expend resources to protect these trademarks. The loss or limitation of the exclusive right to use our trademarks could adversely affect our sales and results of operations.

A SIGNIFICANT PORTION OF OUR BUSINESS RELIES UPON LICENSE AGREEMENTS.Our Retail-Ready Apparel segment relies on its licensed products for a substantial part of its sales. Although we are not dependent on any single license, we believe our license agreements in the aggregate are of significant value to our business. The loss or failure to obtain license agreements could adversely affect our sales and results of operations.

WE DEPEND ON KEY MANAGEMENT.Our success depends upon the talents and continued contributions of our key management, many of whom would be difficult to replace. The loss or interruption of the services of these executives could have a material adverse effect on our business, financial condition and results of operations. Although we maintain employment agreements with certain members of key management, we cannot be assured that the services of such personnel will continue. We do not, however, maintain an employment agreement with Robert W. Humphreys, President and Chief Executive Officer. We believe our future success depends on our ability to retain and motivate our key management, our ability to integrate new members of management into our operations and the ability of all personnel to work together effectively as a team.

During fiscal year 20062007 our manufacturing facilities operated at less than full capacity. WeWith the shutdown of our Fayette, Alabama facility in the first quarter of our fiscal year 2008, we may be slightly inventory constrained in the first half of fiscal 2008 in our Activewear segment. However, as our new facility in Honduras begins production in the second quarter of fiscal 2008, we expect our existing manufacturing facilities to have adequate manufacturing capacity in fiscal year 2007. During fiscal year 2006, we moved our two individual distribution facilities located in California into one larger consolidated facility.ongoing capacity. We believe all of our facilities are suitable for the purposes for which they are designed and are generally adequate to allow us to remain competitive with our principal competitors. In June 2007, we disposed of our former Knoxville, Tennessee warehouse which we had no longer been using to distribute products. Substantially all of our assets are subject to liens in favor of our credit agreement lender.

On May 17, 2006, adversary proceedings were filed in U.S. Bankruptcy Court for the Eastern District of North Carolina against both Delta Apparel, Inc. and M. J. Soffe Co. in which the bankruptcy trustee, on behalf of the debtor National Gas Distributors, LLC, alleges that Delta and Soffe each received avoidable “transfers” of property from the debtor. The amount of the claim is approximately $0.7 million plus interest against Delta, and approximately $0.2 million plus interest against Soffe. We contend that the claims of the trustee have no merit, and have filed counterclaims, totaling approximately $0.4 million, in the adversary proceedings.

Market Information for Common Stock:Our Common Stock is listed and traded on the American Stock Exchange under the symbol “DLA”. As of August 18, 2006,2007, there were approximately 1,2051,164 record holders of our Common Stock.

The following table sets forth, for each of the periods indicated below, the high and low sales prices per share of our Common Stock.Stock as reported on the American Stock Exchange.

As we begin fiscal year 2008, we continue to see weak overall demand for apparel at retail. Despite this macro trend, we are encouraged by the demand for products from our Retail-Ready segment. Our Junkfood business experienced strong growth in our fiscal 2007 fourth quarter and our current indications are that this will continue into the first part of fiscal 2008. We believe we endedthis growth is due, to some extent, from retailers looking for new, fresh product to stimulate the consumer. Junkfood also has new licenses and customer opportunities that should allow us to build on the sales momentum established in the second half of fiscal year 2006 well positioned2007. Our Soffe business had record revenue for fiscal 2007, although fourth quarter sales were below our expectations. We are seeing good sell through of Soffe products and expect to continue increasing our sales and earningsfurther grow this business in fiscal year 2007. During2008 in all channels of distribution.

For the fiscal year, sales reached an all-time record of $270.1$312.4 million, an 18.4%a 15.7% increase from $228.1$270.1 million in sales in the prior year.year as the FunTees acquisition provided significant additional sales in our private label business in the Activewear segment, partially offset by sales declines in our catalog business in the Activewear segment. Gross margins for the year improved 590decreased 620 basis points to 29.6%23.4% compared to 23.6%29.6% in the prior year driven primarily from increased salesexcess manufacturing and startup costs of $5.4 million associated with the integration of the higher margin branded apparel products and improved manufacturing costs and lower raw material pricing. This was offset partially by higher energy and transportation costs.

Gross margins for the year ended July 1, 2006 improved 590 basis points to 29.6% compared to 23.6% in the prior year as a result of the higher gross margins associated with the Retail-Ready business and improved manufacturing costs. These increases were partially offset by higher energy and transportation costs. Gross margins as a percentage of sales are higher in the Retail-Ready segment than the Activewear segment due to the higher average selling prices achieved on the branded products, partially offset by higher manufacturing costs. Our gross margins may not be comparable to other companies, since some entities include costs related to their distribution network in cost of goods sold and we exclude a portion of them from gross margin, including them in selling, general and administrative expenses.

Selling, general and administrative expenses for fiscal year 2006 were $53.5 million, or 19.8% of net sales, an increase of $15.6 million from $37.9 million, or 16.6% of net sales, in fiscal year 2005. The 320 basis point increase in selling, general and administrative expenses was primarily due to the increased selling costs associated with the Junkfood business. Selling costs as a percentage of net sales are higher in the Retail-Ready segment primarily due to the additional staffing, higher commissions, royalty expense on licensed products, and increased advertising expenses associated with selling branded apparel products. Distribution expenses were also higher in fiscal year 2006, resulting from the additional costs associated with the move and duplication of expense associated with moving into our new consolidated distribution center in California. Bad debt expense improved from fiscal year 2005, primarily because in the prior year we took approximately $0.8 million in expense resulting from non-payment by a single customer.

Operating income for fiscal year 2006 was $26.4 million, an increase of $10.3$10.4 million, or 64.4%, from $16.0 million in fiscal year 2005. The increase is primarily the result of the higher gross profit in fiscal year 2006, partially offset by higher distribution and selling, general and administrative expenses described above. The Activewear and Retail-Ready segments contributed $6.9 million and $19.1 million in operating income, respectively.

Other income for fiscal year 2006 was $0.7 million, compared to other income of $4.1 million in fiscal year 2005. Other income in fiscal year 2006 is primarily related to insurance proceeds received as a result of losses of inventory during the 2005 hurricane season. The 2005 other income was a result of the sale of our yarn manufacturing plant in Edgefield, South Carolina to Parkdale America, LLC for $10 million in cash in January 2005. The sale of the Edgefield Plant resulted in a pre-tax financial gain of $3.6 million. In addition, in May 2005, we sold our Bladenboro, North Carolina building, resulting in a pre-tax financial gain of $0.4 million.

Net interest expense for fiscal year 2006 was $3.8 million, an increase of $0.8 million from fiscal year 2005. The increase in interest expense resulted from an increase in interest rates and higher average debt levels.

On August 22, 2005, Delta Apparel, Junkfood, and M. J. Soffe Co. refinanced Delta Apparel’s $42.75 million credit facility and consolidated M. J. Soffe Co.’s $38.5 million credit facility with it pursuant towe entered into a Second Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with Wachovia Bank, National Association, (the successor by merger to Congress Financial Corporation (Southern)), as Agent, and the financial institutions named in the Amended Loan Agreement as Lenders.

Pursuant to the Amended Loan Agreement, Delta Apparel, Junkfood, and M. J. Soffe Co. became co-borrowers under a singleour credit facility the maturity of the loans under the credit facility was extended to August 2008, and theprovides a line of credit available to us was increased to $85of $90 million (subject to borrowing base limitations based on the value and type of collateral provided), which represents an increase of $3.75 million that matures in the aggregate amount that was available under the prior two credit facilities.

The credit facility contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in EITF 95-22), whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. Pursuant to EITF 95-22, we will classify borrowings under the new facility as noncurrentnon-current debt.

In addition to ourthe credit facility with Wachovia Bank, National Association, we have a seller note payable to the former Junkfood shareholders pursuant to the Asset Purchase Agreement dated as of August 22, 2005. The $2.5 million seller note bears interest at 9%, is payable quarterly, and requires principal payments of $750,000 and $1.25 million for each of the periods ending August 22, 2007 and 2008, respectively. At June 30, 2007, we had $2.0 million outstanding under the note.

Based on our expectations, we believe that our credit facility should be sufficient to satisfy our foreseeable working capital needs, and that the cash flow generated by our operations and funds available under our credit line should be sufficient to service our debt payment requirements, to satisfy our day-to-day working capital needs, to fund our planned capital expenditures and to pay dividends under our dividend program. We do, however, expect to amend our current credit facility with Wachovia Bank, National Association in conjunction with the acquisition of Fun-Tees on or around October 2, 2006, although there can be no assurance that we will be able to do so. Any material deterioration in our results of operations, however, may result in us losing our ability to borrow under our revolving credit facility and to issue letters of credit to suppliers or may cause the borrowing availability under our facility to be insufficient for our needs.

The following table summarizes our contractual cash obligations, as of July 1, 2006,June 30, 2007, by future period.

We adopted the fair value based method prescribed in Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment, effective July 3, 2005. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the award vesting period. We determine the fair value of each stock option at the date of grant using the Black-Scholes options pricing model. This model requires that we estimate a

In June 2006, the FASB issued FASB Interpretation 48,Accounting for Uncertainty in Income Taxes (“Interpretation 48”). Interpretation 48 provides clarifying guidance on the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS 109,Accounting for Income Taxesand prescribes recognition and measurement guidance in determining amounts to be recorded in the financial statements. This Interpretation applies to all income basedincome-based tax items and is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the effect that the adoption will have on our financial position and results of operations and do not expect that the adoption of this statement will have a material impact on our financial statements.

In February 2007, the FASB issued FASB Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”), which permits companies to adopt Interpretation 48choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on July 2, 2006.items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the effect that the adoption of Interpretation 48SFAS 159 will have on our financial position and results of operations butand do not expect the adoption of this statement towill have a material impact on our financial statements.

On January 5, 2005, in conjunction with the sale of our yarn spinning facility in Edgefield, South Carolina, we entered into a five-year agreement with Parkdale to supply our yarn requirements. During this five-year period, we will purchase from Parkdale all yarn required by Delta Apparel and our wholly owned subsidiaries for use in our manufacturing operations (excluding yarns that Parkdale did not manufacture as of the date of the agreement in the ordinary course of its business or due to temporary Parkdale capacity restraints). The purchase price of yarn is based upon the cost of cotton plus a fixed conversion cost. Thus, we are subject to the commodity risk of cotton prices and cotton price movements which could result

Our credit agreements provide that the outstanding amounts owed shall bear interest at variable rates. If the amount of outstanding indebtedness at July 1, 2006June 30, 2007 under the revolving credit facilities had been outstanding during the entire year and the interest rate on this outstanding indebtedness werewas increased by 100 basis points, our expense would have increased by approximately $0.5$0.7 million, or 12.6%13.2%, for the fiscal year. This compares to an increase of $0.3$0.5 million, or 10.7%12.6%, for the 20052006 fiscal year based on the outstanding indebtedness at July 2, 2005.1, 2006. The effect of a 100 basis point increase in interest rates has a larger impact as of July 1, 2006June 30, 2007 than as of July 2, 20051, 2006 due to the higher debt levels outstanding on July 1, 2006,June 30, 2007, resulting primarily from the acquisition of the JunkfoodFunTees business. The actual increase in interest expense resulting from a change in interest rates would depend on the magnitude of the increase in rates and the average principal balance outstanding.

Our consolidated financial statements for each of the fiscal years in the three-year period ended July 1, 2006,June 30, 2007 together with the Report of Independent Registered Public Accounting Firm thereon, are included in this report commencing on page F-1 and are listed under Part IV, Item 15 in this report.

Not applicable.

The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of our fiscal year under the headings “Election of Directors”, “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance”.

All of our employees, including our Chief Executive Officer and Chief Financial Officer (who is also our principal accounting officer), are required to abide by our business conduct policies to ensure that our business is conducted in a consistently legal and ethical manner. We adopted a code of business conduct and ethics known as the Ethics Policy Statement. The Ethics Policy Statement is available on our website. In the event that we amend or waive any of the provisions of the Ethics Policy Statement applicable to our Chief Executive Officer or Chief Financial Officer, we intend to disclose the same on our website atwww.deltaapparel.comwww.deltaapparelinc.com.

The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of our fiscal year under the headings “Management Compensation” and, “Compensation Committee Interlocks and Insider Participation”. and “Compensation Committee Report.”

The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of our fiscal year under the headingheadings “Related Party Transactions”. and “Election of Directors.”

The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of our fiscal year under the headingheadings “Audit and Non-Audit Fees”. and “Election of Directors.”

(a)(1) and (2) Financial Statements and Financial Statement Schedules

     2.4 Asset Purchase Agreement dated as of August 17, 2006 among Delta Apparel, Inc., Fun-Tees, Inc., Henry T. Howe, James C. Poag, Jr., Beverly H. Poag, Lewis G. Reid, Jr., Kurt R. Rawald, Larry L. Martin, Jr., Julius D. Cline and Marcus F. Weibel: Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on August 21, 2006.

     3.1.1 Articles of Incorporation of the Company: Incorporated by reference to Exhibit 3.1 to the Company’s Form 10.

     3.1.2 Amendment to Articles of Incorporation of the Company dated September 18, 2003: Incorporated by reference to exhibit 3.1.2 to the Company’s Form 10-Q filed on November 5, 2003.

     3.2.1 Bylaws of the Company: Incorporated by reference to Exhibit 3.2.1 to the Company’s Form 10.

     3.2.2 Amendment to Bylaws of the Company adopted January 20, 2000: Incorporated by reference to Exhibit 3.2.2 to the Company’s Form 10.

     3.2.3 Amendment to Bylaws of the Company adopted February 17, 2000: Incorporated by reference to Exhibit 3.2.3 to the Company’s Form 10.

     3.2.4 Amendment to Bylaws of the Company adopted June 6, 2000: Incorporated by reference to Exhibit 3.2.4 to the Company’s Form 10.

     3.2.5 Amendment to Bylaws dated August 18, 2006: Incorporated by reference to Exhibit 3.2.5 to the Company’s Form 10-K/A filed on September 15, 2006.

     10.11 Industrial Lease Agreement dated as of October 3, 2003 between M. J. Soffe Co. and Middle Road Properties, LLC: Incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K filed on October 17, 2003.

     10.12 Employment Agreement between Delta Apparel, Inc. and Deborah H. Merrill dated August 25, 2004.January 29, 2007: Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 2, 2007.**

     10.13 Employment Agreement between Delta Apparel, Inc. and Martha M. Watson dated September 30, 2003:January 29, 2007: Incorporated by reference to Exhibit 10.2310.2 to the Company’s Form 10-Q8-K filed on November 5, 2003.February 2, 2007.**

     10.14 Delta Apparel, Inc. 2000 Stock Option Plan, Effective as of February 15, 2000, Amended & Restated March 15, 2000: Incorporated by reference to Exhibit 10.4 to the Company’s Form 10.**

     10.15 Delta Apparel, Inc. Incentive Stock Award Plan, Effective February 15, 20P0,2000, Amended & Restated March 15, 2000: Incorporated by reference to Exhibit 10.5 to the Company’s Form 10.**

     10.16 Yarn Supply Agreement dated as of January 5, 2005 between Delta Apparel, Inc. and Parkdale Mills, LLC and Parkdale America, LLC: Incorporated by reference to Exhibit 10.29 to the Company’s Form 10-Q filed on February 9, 2005.

     10.17 Delta Apparel, Inc. 2004 Non-Employee Director Stock Plan: Incorporated by reference to Exhibit 10.30 to the Company’s Form 10-Q filed on May 16, 2005.

     21 Subsidiaries of the Company.

     23.1 Consent of Independent Registered Public Accounting Firm.

     31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.