SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

_X _ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDING JANUARY 3, 1998

                                       OR

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

               Commission file numbers 333-42411 and 333-42411-01

                               Glenoit Corporation
             (Exact name of registrant as specified in its charter)

Delaware                                                           13-3862561
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                            Identification Number)

                            Glenoit Asset Corporation
             (Exact name of registrant as specified in its charter)

Delaware                                                           51-0343206
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                            Identification Number)

                              111 West 40th Street
                            New York, New York 10018
                            Telephone: (212) 391-3915
   (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

        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 |_|  No |X|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regular 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. |_|

None  of  the  voting  securities  of  Glenoit   Corporation  or  Glenoit  Asset
Corporation is held by non-affiliates.

As of January 3, 1998,  there were 1,000  shares of Glenoit  Corporation  common
stock outstanding.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


<PAGE>


GLENOIT CORPORATION AND GLENOIT ASSET CORPORATION


FORM 10-K Annual Report Index


Item 1.  Business, page 1.

Item 2.  Properties, page 8.

Item 3.  Legal Proceedings, page 8.

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

Item 5.  Market for Registrant's Common Equity and Related  Stockholder Matters,
         page 9.

Item 6.  Selected Financial Data, page 10.

Item 7.  Management's  Discussion and Analysis of Financial Condition and 
         Results of Operations, page 12.

Item 8.  Financial Statements and Supplementary Data, page 14.

Item 9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure, page 14.

Item 10.  Directors and Executive Officers of the Registrant, page 15.

Item 11. Executive Compensation, page 16.

Item 12. Security  Ownership of Certain  Beneficial Owners and Management,  
          page 19.

Item 13. Certain Relationships and Related Transactions, page 20.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K,
         page 22.


<PAGE>


                                     PART I

ITEM 1: BUSINESS

General

     Glenoit,  founded  in 1954,  is a domestic  manufacturer  and  marketer  of
specialty   fabrics  known  as   "sliver-knit"   pile  fabrics  and  a  domestic
manufacturer  of printed  rugs for the home.  Through its Fabric  Division,  the
Company  produces an extensive line of sliver  (pronounced  "sly-ver") knit pile
fabrics,  principally  made from acrylic,  which are used in the  manufacture of
performance-oriented  outerwear,  sportswear, coats, accessories, home textiles,
automotive  interiors,  military  uniforms,  toys and a variety of other end-use
products. The Company principally  manufactures fabrics on a made-to-order basis
and currently has over 1,100  customers.  Sliver-knit  pile fabrics are produced
through a  specialized  process in which fabric is  manufactured  directly  from
loose  fibers,  in contrast to the more  traditional  knitting  process in which
fibers are first spun into yarn and then knit into fabric.  Through its Consumer
Products  Division,  the Company  manufactures a wide variety of printed kitchen
rugs,  welcome mats, bath rugs and children's  area rugs sold primarily  through
national  discount  retailers.  The  Company  also  manufactures  rugs  designed
specifically for use in the kitchen.  The Fabric Division and Consumer  Products
Division accounted for approximately 73% and 27%, respectively, of the Company's
net sales of $146.9 million in fiscal 1997.

     The Company has  experienced  rapid growth in sales,  operating  income and
earnings before interest,  taxes,  depreciation and amortization ("EBITDA") over
the past five years.  In connection  with this growth,  the Company has incurred
significant   debt.  As  of  January  3,  1998,  the  Company  had   outstanding
indebtedness of $102.8 million (excluding trade payables,  accrued  liabilities,
and unused commitments under its credit facilities).  From fiscal 1993 to fiscal
1997,  the Company's net sales have grown from $62.5 million to $146.9  million,
representing a compound annual growth rate ("CAGR") of 23.8%,  operating  income
has grown from $5.8 million to $25.9  million  representing  a CAGR of 45.4% and
EBITDA has grown  from $7.1  million to $29.1  million,  representing  a CAGR of
42.3%.  This  growth has  principally  occurred  in the Fabric  Division  and is
attributable  to  the  Company's   development  and   introduction  of  branded,
performance-oriented sliver-knit fabrics. These fabrics were developed to target
the increasing consumer preference towards more casual and comfortable dress and
a growing  emphasis  on  outdoor  activities  and  styling  related  to  outdoor
activities.  Beginning with  Glenaura(TM)  in 1993, the Company has introduced a
series of  branded,  performance-oriented  fabrics  which have  transformed  the
Company's  Fabric  Division from a  traditional  deep-pile  fabric  manufacturer
dependent  upon the coat market into a  diversified  fabric  producer  serving a
broader  range  of  faster  growing  end-use   markets.   Today,  the  Company's
performance-oriented   fabrics  are   principally   manufactured   from  acrylic
micro-fiber  and are  marketed  under the  brand  names  Berber by  Glenoit(TM),
Glenaura(TM), Zendura(TM) and GlenPile(TM).

     The Company  believes  that its  performance-oriented  sliver-knit  fabrics
offer apparel  manufacturers greater design flexibility and superior performance
characteristics  in comparison with competing  fleece  fabrics.  These qualities
include the enhanced design and color  capability of "Jacquard"  knitting (which
allows the fabrics to have  intricate  and  colorful  designs  knitted  into the
fabric rather than printed onto the surface),  added  versatility in texture and
feel  and  greater  warmth-to-weight  ratios  and the  ability  to  promote  the
evaporation of  perspiration,  thereby  providing  greater warmth to the wearer.
These  performance-oriented  fabrics  have  been  introduced  by  the  Company's
customers  into  sportswear  lines  marketed  under  brand  names  such  as  Liz
Claiborne, Jones New York, Ralph Lauren and Anne Klein; outerwear lines marketed
under brand names such as L.L. Bean, Lands' End, Columbia,  Woolrich and Bogner;
and private label programs for retailers  such as Saks Fifth Avenue,  Nordstrom,
Lord & Taylor, Banana Republic, Victoria's Secret and The Gap.

     In addition to  performance-oriented  sliver-knit fabrics, the Company is a
manufacturer  and  marketer  of  faux  furs  in  the  United  States.  Faux  fur
synthetically  replicates  animal fur such as mink,  beaver and  leopard  and is
typically used in women's and children's  coats.  The Company also  manufactures
fabrics used to cover audio  speakers in certain  models of General Motors cars,
fireproof  fabric marketed under the Glentec(TM)  name used by the United States
Navy, and a wide variety of other fabrics used in the  manufacture of toys, golf
club head covers, powder puffs, case linings and other end-use products.

     The  Company   believes  that  it  is  currently  the  principal   domestic
manufacturer of sliver-knit  fabrics made from micro-fiber  (which is defined as
fiber  having a diameter  of less than one  denier).  The  Company's  ability to
produce  these  fabrics is a result of its (i)  manufacturing  expertise  in the
sliver-knitting  process  which is more  complex and  difficult  to utilize than
traditional  knitting,  (ii)  state-of-the-art  sliver-knitting  equipment  with
proprietary  manufacturing   enhancements,   (iii)  experienced  sliver-knitting
workforce  and (iv)  exclusive  supply  agreement  for  Microsupreme(R)  acrylic
micro-fiber with Sterling Fibers,  Inc. Over the last six years, the Company has
replaced or substantially  upgraded all of its knitting equipment.  In addition,
in September  1995 the Company  acquired a 140,000  square-foot  sliver-knitting
manufacturing  facility through its acquisition of the Borg Textile  Corporation
(the "Borg Acquisition") which the Company  successfully  upgraded and converted
to produce higher-margin micro-fiber fabrics. In addition,  effective August 30,
1997, the Company, through its wholly-owned  subsidiary,  Glenoit Corporation of
Canada,  acquired  certain assets and liabilities of Collins & Aikman's  Canada,
Inc.


                                       1
<PAGE>


     The  Consumer  Products  Division  manufactures  a wide  variety of printed
kitchen rugs, welcome mats, bath rugs and children's area rugs which are sold to
national  discount  retailers  including  Wal-Mart,   Kmart  and  Target,  which
typically  sell such rugs at retail  prices  ranging  from  $3.99 to $9.99.  The
Company's kitchen rugs are manufactured under an exclusive  licensing  agreement
with Barth and Dreyfuss of California,  Inc.  ("B&D"),  a major  manufacturer of
kitchen textiles such as towels and potholders.  Under the licensing  agreement,
the  Company  has the  exclusive  right to use B&D's  designs  on the  Company's
kitchen rugs, which are marketed jointly with B&D's kitchen textile products.

     The  Company  believes  that its  vertically  integrated,  state-of-the-art
manufacturing and design operations  provide the Consumer Products Division with
efficient design  capabilities,  a low-cost,  high-quality product line, and the
ability  to  manufacture  and ship  large  orders in a short  time  period.  The
Company's  technology allows it to take a customer's design and produce numerous
rug samples in as little as two hours, without incurring the expense and the one
month time delay  associated  with full scale  production.  The  Company's  heat
transfer and screen printing  capabilities allow it to produce printed rugs that
have an appearance  similar to that of woven rugs but cost significantly less to
produce.  The Company has the ability to produce  over 500,000 rugs per week and
generally ships rugs within five business days after receiving an order.

Business Strategy

     Principal elements of the Company's strategy are:

     Capitalize on Trend Towards Performance  Outerwear and Sportswear.  In each
of  the  last  four  years,   the  Company  has   successfully   introduced  new
performance-oriented  fabrics  designed to target the consumer trend toward more
casual and comfortable  dress and the greater  emphasis on physical  fitness and
the outdoors. With its current line of performance-oriented fabrics, the Company
believes that it is well  positioned to continue to capitalize on this trend and
will seek to continue to penetrate  additional  outerwear and sportswear  lines.
Furthermore,   the   Company   plans   to   capitalize   on   the   demand   for
performance-oriented  fabrics in international  markets such as Japan and Europe
through its  distribution  agreements  with third party sales  organizations  in
these regions.

     Build Brand  Awareness.  The Company has been building brand  awareness for
its  performance-oriented  fabrics by promoting  Glenoit's  brand names  through
garment  hang-tags,  a print advertising  campaign  undertaken  jointly with its
supplier of acrylic  micro-fiber  and designers'  advertisements  and retailers'
catalogs which mention the Company's fabric by name.

     Increase  Penetration of Home Textile Market with  Innovative New Products.
The Company plans to continue to develop innovative fabric products for the home
textile  market,  a  relatively  small but fast  growing  segment  of the Fabric
Division.  The Company believes that its micro-fiber fabrics are well suited for
use in products  for the home textile  market,  and the Company  recently  began
selling  its  micro-fiber  fabrics  for  use  in  throws,  covered  pillows  and
comforters.

     Leverage Existing Distribution  Channels.  The Company seeks to utilize its
strong distribution relationships with large national discount retailers such as
Wal-Mart,  Kmart and Target to expand distribution of consumer products.  Today,
the Company  primarily  sells  kitchen rugs through this  distribution  channel;
however,  the  Company is planning to expand its  distribution  of welcome  mats
through this channel.  In addition,  the Company seeks to expand distribution of
its rugs through other channels such as hardware and specialty retail stores.

     Make  Selective  Acquisitions.  The  Company  intends  to pursue  selective
strategic  acquisitions in order to increase fabric  manufacturing  capacity and
broaden fabric and consumer  product  offerings.  The Company  believes that the
Borg Acquisition  demonstrates its ability to re-train  personnel and upgrade an
existing manufacturing operation to produce higher margin micro-fiber products.


                                       2
<PAGE>


Products

     Fabric Division

     The Fabric Division manufactures a diverse line of sliver-knit pile fabrics
used in the manufacture of performance-oriented  outerwear,  sportswear,  coats,
accessories,  home textiles,  automotive interiors,  military clothing and other
products. The Fabric Division's largest and fastest growing segment is a line of
performance-oriented   micro-fiber  fabrics  which  are  principally  made  from
Microsupreme(R)  micro-fiber  produced by  Sterling  Fibers,  Inc. In 1993,  the
Company introduced the first of its performance-oriented fabrics,  Glenaura(TM),
and has since introduced Berber by Glenoit(TM)  (1994),  Zendura(TM)  (1995) and
GlenPile(TM)  (1996).  These fabrics are primarily  used in the  manufacture  of
outerwear,  sportswear,  and  accessories,  including  coats,  pullovers,  heavy
shirts, hats, gloves, scarves, robes and slippers, and are sold to manufacturers
of sportswear marketed under brand names such as Liz Claiborne,  Jones New York,
Ralph Lauren and Anne Klein;  manufacturers  of outerwear  marketed  under brand
names such as L.L. Bean, Lands' End, Columbia,  Woolrich and Bogner; and private
label  programs  for  retailers  such as Saks Fifth  Avenue,  Nordstrom,  Lord &
Taylor, Banana Republic, Victoria's Secret and The Gap. In addition, the Company
sells micro-fiber fabrics in the home textile market for use in throws,  covered
pillows and comforters manufactured and marketed by Revman Industries Inc. under
the brand name Indoor Outfitters(TM).

     The Fabric  Division's second largest product category is faux fur which is
composed  of  fabrics  with a  heavier,  deeper  pile than  performance-oriented
fabrics and is used in women's and children's  coats and linings,  which was the
Fabric Division's  principal  business prior to 1993. Faux fur is typically used
to replicate  traditional animal fur such as mink, beaver, seal and leopard. The
Company believes that it is the leading domestic  supplier of faux fur and sells
its fabrics to manufacturers of garments that are sold through retailers such as
Saks  Fifth  Avenue,  Bloomingdale's,  Nordstrom,  Neiman  Marcus,  Kmart and JC
Penney.

     In the automotive market,  the Company's  fabrics,  which allow for greater
sound  penetration  than other knit or woven  fabrics,  are used to cover  audio
speakers in the interiors of  automobiles  produced by the  Cadillac,  Buick and
Oldsmobile  divisions  of General  Motors  Corporation.  The Company  also sells
fabric to the U.S.  Government,  including a fireproof fabric marketed under the
brand name  Glentec(TM),  which is used by the United  States Navy. In addition,
the  Company's  fabrics  are used in the  manufacture  of toys,  golf  club head
covers,  powder puffs,  linings for golf bags and musical  instrument  cases and
other end-use products.

     Consumer Products Division

     The Consumer  Products  Division produces a wide variety of printed kitchen
rugs,  welcome  mats,  bath rugs and  children's  area rugs which are  typically
two-feet by three-feet in size. The Consumer Product  Division's largest product
category is kitchen rugs,  which  accounted  for a  substantial  majority of its
fiscal 1997 net sales.  The  Company's  kitchen rugs are  manufactured  under an
exclusive license agreement with B&D. Under this agreement,  the Company has the
exclusive right to use B&D copyrighted  designs to produce kitchen rugs that are
coordinated  with B&D's towels,  pot holders and other kitchen  textiles.  These
products are marketed  jointly to retailers  as a  coordinated  package.  In the
children's area rug category,  the Company produces rugs decorated with licensed
cartoon characters for Couristan,  Inc., a major manufacturer and distributor of
area  rugs.  The  Company's  rugs have  various  surface  textures  and are made
primarily from  polyester.  The Company also produces  cotton and  polypropylene
rugs.  The  Consumer  Products  Division  sells its rugs  directly  to  national
discount retailers such as Wal-Mart, Kmart and Target, which typically sell such
rugs at retail prices ranging from $3.99 to $9.99.

Sales and Marketing

     Fabric Division

     The Fabric  Division's  marketing  efforts are handled by an in-house sales
force  supported  by  a  customer  service   department.   The  Fabric  Division
supplements its sales coverage with several  experienced  commissioned,  outside
sales  organizations  specializing  in  certain  markets.  The  Fabric  Division
maintains  a showroom  at the  Company's  headquarters  in New York.  The Fabric
Division  has its own design  and  research  and  development  departments  that
develop  exclusive  designs  for  the  Company  and  certain  of  the  Company's
customers.  No  single  customer  accounted  for  more  than  10% of the  Fabric
Division's  net sales in fiscal 1997,  reflecting  the diversity of its customer
base.

     The Fabric  Division  principally  manufactures  fabrics on a made-to-order
basis,  thereby  minimizing  its inventory.  The Company's  performance-oriented
fabrics are marketed  principally  under the brand names Berber by  Glenoit(TM),
Glenaura(TM),  Zendura(TM) and GlenPile(TM), and are being increasingly promoted
through garment hang-tags and through a print advertising


                                       3
<PAGE>


campaign   undertaken  jointly  with  the  Company's  supplier  of  Microsupreme
micro-fiber.  As a result  of  growing  consumer  recognition  of the  Company's
branded fabrics,  designers and retailers are  increasingly  using the Company's
brand names in their advertising and catalogs.

     Consumer Products Division

     The  B&D  sales  force,  supervised  by the  Consumer  Products  Division's
marketing management, acts as representative agents for substantially all of the
Consumer  Products  Division's  products.  In  return,  the  Company  pays B&D a
variable  royalty  on the sale of all rugs  printed  with B&D  designs  and also
contributes to the  compensation of the B&D sales force.  The Consumer  Products
Division's   marketing   management  maintains  active  relationships  with  key
customers,  and  marketing  calls to these  customers  are made  jointly  by the
Company and B&D employees.  The Consumer  Products Division markets its products
primarily to national  discount  retailers  such as Wal-Mart,  Kmart and Target,
which  collectively  accounted for  approximately  57% of the Consumer  Products
Division's net sales in fiscal 1997. The Consumer Products Division has recently
entered into strategic marketing relationships in order to increase distribution
of the Company's rugs through hardware stores and specialty retail gift shops.

     In order to support its sales force and  respond  promptly to the  delivery
requirements  of  its  customers,   the  Consumer   Products  Division  utilizes
Electronic Data Interchange  ("EDI") with most of its principal  customers.  EDI
minimizes the lead time for customer orders, permits a more efficient,  targeted
manufacturing  schedule,  and improves  communication,  planning and  processing
times at each stage of the production  cycle.  EDI,  combined with the Company's
manufacturing capabilities,  allows the customer to place an order on Monday and
in most cases have the products shipped by Friday.  This rapid order turn-around
has resulted in an expanded relationship with Wal-Mart,  Kmart, Target and other
major customers.

Manufacturing Facilities and Operations

     The Company operates two manufacturing facilities located in Tarboro, North
Carolina,  one manufacturing facility located in Jacksboro,  Tennessee,  and one
manufacturing  facility located in Elmira,  Ontario,  Canada. The North Carolina
and Canadian  facilities  are owned by the Company.  The  Tennessee  facility is
leased with an expiration  date in September  2005, and an annual rental cost of
approximately   $340,000.   The  Company  also  maintains  a  10,000-square-foot
administrative  office and sales  showroom  at 111 West 40th  Street in New York
City's garment district, providing easy access to the Company's major customers.
The lease on the New York  office  expires on July 31,  2005,  and has an annual
rental cost of approximately  $296,000.  The Company is currently in the process
of increasing its capacity in the Fabric Division  through a plant expansion and
installation of new manufacturing  equipment at its three fabric facilities.  In
the opinion of management,  with the completion of this expansion, the Company's
manufacturing  capacity is sufficient to meet the Company's  requirement for the
foreseeable future. The following table sets forth certain information  relating
to the Company's facilities:

                                      Approximate
         Location                     Square Feet     Use
         --------                     -----------     ---
Tarboro, North Carolina
     Plant #1 .....................     427,000    Fabric Division
     Plant #2 .....................     281,000    Consumer Products Division
Jacksboro, Tennessee ..............     140,000    Fabric Division
Elmira, Ontario ...................     135,000    Fabric Division
New York, New York ................      10,000    Headquarters and Showroom
                                               

     Fabric Division

     The Company is a vertically integrated manufacturer involved in all aspects
of  the  sliver-knitting  process  including  dyeing,   carding,   knitting  and
finishing.  Sliver-knit fabrics are produced using a process in which the fabric
is knit  directly  from loose  fibers,  in  contrast  with the more  traditional
knitting process in which fibers are first spun into yarn before being knit into
fabric. In the sliver-knitting  process,  pile is constructed by attaching loose
fibers to a lightweight  knit  backing.  Tufts of fibers are caught in the tight
loops of the knit,  allowing  their loose ends to stand free from the backing to
form the pile.  Because the fibers are added  individually,  various  colors and
types of fiber can be mixed.  This  allows for  versatility  in fabric  texture,
appearance  and  technical  features.   In  addition,   the  Company's  computer
controlled  sliver-knitting  machines have the capability of creating  intricate
"Jacquard" patterns by mixing various fibers and colors. The Company's equipment
also  performs a number of finishing  processes  that create  different  surface
textures from sheared and  velvet-like to curled  "sherpa" to "hi-low"  patterns
with a subtle embossed look. With the Company's  state-of-the-art  equipment and
experienced research and production  personnel,  the Company manufactures a wide
variety of fabrics that can be used in a range of end-use products.

     The  sliver-knitting  process  begins  with  loose  fibers  that  have been
selected  for the  aesthetic  and  technical  qualities  they  will  lend to the
finished  fabric.  Most of the fibers used by the  Company  are  pre-dyed by the
supplier and then mixed to create the


                                       4
<PAGE>


required shade. The loose fibers are blown together in air chambers mixing their
color and fiber type. The mixed fibers are subsequently sent through a series of
carding  machines that aligns them in the same direction,  producing a soft rope
called "roving" or "sliver." The sliver is fed into the sliver-knitting  machine
where  portions  of the  fibers  are blown by small air jets into the high speed
needles. As the needles knit the lightweight but strong knit backing, the fibers
are caught securely into each of the loops. The high-speed, computerized needles
can be  programmed to knit a large variety of patterns  using  multiple  slivers
simultaneously.  After  knitting,  the pile fabric is sent to the finishing area
and sheared to the desired height.  The fabric is subsequently  placed through a
series of technical  finishing processes developed by the Company to control the
weight, thickness and surface texture of the final fabric.

     Since 1991,  under a new  management  team,  the  Company  has  replaced or
upgraded  substantially all of its knitting  machines,  including those from the
Jacksboro  facility acquired in the Borg Acquisition.  In addition,  the Company
has  replaced  or  upgraded   its   blending  and  carding   machines  and  made
modifications to its dyeing and finishing equipment.

     Consumer Products Division

     The  Consumer  Products   Division's  rug   manufacturing   operations  are
vertically  integrated.   The  rug  manufacturing  process  begins  with  fabric
formation (although the Company purchases certain pre-formed fabrics on the open
market).  The fabric is then coated with a durable textured  backing.  Next, the
fabric is printed with a design and cut into individual rugs. After cutting, the
rugs are "serged" and inspected for quality. The customer's unique price tag and
bar code are attached, and the rugs are packaged for shipment.

     The Company's  technology allows it to take a customer's design and produce
numerous rug samples in as little as two hours without incurring the expense and
one month delay associated with full scale production.  Accordingly, the Company
commences full production only after it has received  confirmed  orders from its
customers. The Company has the ability to produce over 500,000 rugs per week and
generally  ships rugs within five  business days after  receiving an order.  The
Company believes that its production  capabilities are an important  competitive
advantage.

     The Company uses a high-speed,  continuous heat transfer  printing  process
that results in deep and permanent  colors which will withstand  machine washing
and drying. In addition,  heat transfer printed rugs have an appearance  similar
to that of rugs woven from dyed yarn,  yet can be  produced  at a  substantially
lower cost than woven rugs. In 1995,  the Company  added screen  printing to its
manufacturing  capabilities  to enable  the  printing  of  designs on cotton and
polypropylene rugs as well as to facilitate shorter production runs.


                                       5
<PAGE>


Licenses and Trademarks

     The Company's principal trademarks are Glenoit(TM),  Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM), GlenPile(TM) and Glentec(TM).

     Under an agreement with B&D, the Company has the exclusive right to use B&D
copyrighted  designs on its  printed  kitchen  rugs in all  countries  worldwide
except Canada. Under the licensing agreement, the Company is required to pay B&D
a variable  royalty  (subject  to a $250,000  annual  minimum)  on all  products
utilizing  B&D designs.  This  agreement  terminates in November 1998 and may be
extended  indefinitely at the Company's option in successive one-year periods by
giving  written  notice to B&D at least 90 days  before the  expiration  of each
term. Under this agreement,  the Company is required to maintain a high level of
quality  and style and to comply with  certain  reporting  obligations.  B&D can
terminate  the  agreement  in the event of a  material  default  by the  Company
(including a failure to pay the $250,000 minimum annual royalty).

Raw Materials and Suppliers

     The Company's principal raw materials are acrylic and polyester,  which the
Company purchases from several large chemical  companies.  The Company's largest
supplier is Sterling Fibers,  Inc.,  which is the exclusive  supplier of acrylic
micro-fiber  used in the  Company's  fabrics.  The  Company  seeks  to  purchase
sufficient amounts of acrylic and polyester to cover existing order commitments.
The Company  does not  speculate  on the price of raw  materials.  Although  the
Company has always been able to obtain sufficient supplies of raw materials, any
shortage  or  interruption   in  the  supply,   variations  in  the  quality  or
fluctuations in the cost of raw materials  could have a material  adverse effect
on the Company's  business,  financial  condition or results of operations.

     The Company has entered into a supply  agreement  dated February 1, 1997 by
and between the Company and Sterling  Fibers,  Inc. (the "Sterling  Agreement"),
pursuant to which the Company has the exclusive  right to purchase from Sterling
(and the  Company has agreed not to purchase  from any other  supplier)  colored
micro-fiber for the purpose of  manufacturing  pile knits (other than pile knits
based on  stretchable  yarns such as spandex) in the United  States,  Mexico and
Canada, subject to the terms and conditions of the Sterling Agreement. Under the
Sterling  Agreement,  the Company has agreed to purchase from  Sterling  certain
minimum quantities of Sterling's Microsupreme(R)  micro-fiber,  and Sterling and
the Company have agreed to promote and  advertise  micro-fiber  and  micro-fiber
products.  The Sterling  Agreement  has an initial term  expiring on February 1,
2000, but will be automatically  extended for successive one-year periods unless
either  party gives  written  notice to other party at least one year before the
expiration  of the  current  term.  Either  party  may  terminate  the  Sterling
Agreement in the event of a default by the other party which is not cured within
30 days after notice.

Competition

     The textile industry is highly competitive,  with no one company dominating
the industry.  The Company's  competitors range from large vertically integrated
textile  companies  producing a variety of goods to numerous  smaller  companies
which direct their efforts at particular niches in the textile markets.  Each of
these competitors seeks to set or anticipate  fashion trends and respond quickly
to changes in styles with new products.  The primary  competitive factors in the
textile  industry  are price,  product  styling  and  differentiation,  quality,
manufacturing  flexibility,  delivery  time and customer  service.  In addition,
imports of foreign-made textile and apparel products are a significant source of
competition for many domestic textile  manufacturers.  The Company believes that
its  manufacturing  presence in the United States and its emphasis on shortening
production  and lead times  allows the  Company to  respond  more  quickly  than
foreign  producers to changing  fashion  trends and to its  domestic  customers'
requirement  that  suppliers meet tight  production  schedules and provide rapid
delivery.  The Company's  continued  success,  however,  will be affected by the
ability of certain of the Company's customers to remain  competitive,  which may
be affected by the level of imports.  The Company's  continued success will also
depend upon the Company's ability to maintain its manufacturing  flexibility and
capacity and, most importantly,  its ability to continue to produce  innovative,
quality products to satisfy specific customer needs.

     The Fabric Division competes directly with several smaller manufacturers of
sliver-knit pile fabrics,  including Monterey Mills, Inc., Tex-Tenn Corporation,
Draper Knitting Company,  Inc. and Roller Fabrics Inc. The Company also competes
with  manufacturers of competing  non-sliver-knit  natural and synthetic fabrics
such as high-end fleece.  Such  manufacturers  include Malden Mills Distributors
Corp., Dyersberg Corporation and Menra Mills Corporation.


                                       6
<PAGE>


     The Consumer Products Division competes with various  manufacturers of rugs
for the home, including foreign rug producers.  The Consumer Products Division's
principal  competitors  are  Bacova  Guild  Ltd.,  a  subsidiary  of  Burlington
Industries,  Inc.,  and American  Rug  Craftsmen,  Inc., a subsidiary  of Mohawk
Industries, Inc.

Employees

     The Company benefits from an experienced work force with which it maintains
good working  relationships.  As of January 3, 1998, the Company  employed 1,288
employees, of whom 1,103 were hourly and 185 were salaried.

     Of the Company's hourly employees, approximately 385 are represented by the
Union  of  Needletrades,   Industrial  Textile  Employees  and  are  located  in
Jacksboro,  Tennessee and Elmira,  Ontario.  The Tennessee  agreement  with this
union expires on February 21, 1999. The Canadian  agreement expires December 25,
1999. The Company's other facilities are non-unionized.

Backlog

     The Fabric  Division's  order backlog was  approximately  $ 10.6 million at
January 3, 1998 as compared to  approximately  $10.8 million at January 4, 1997.
Substantially  all of the orders  outstanding at January 3, 1998 are expected to
be filled within three months of that date.  Orders on hand are not  necessarily
indicative of total future sales.

     No significant  order backlog exists for the Consumer  Products Division as
most customers order on a weekly basis.

Environmental, Safety and Health Regulation

     The Company is subject to increasingly  stringent federal,  state and local
laws and regulations governing,  among other things, the management of hazardous
substances,  discharges to air and water,  and  occupational  health and safety.
Such laws include the Federal Water Pollution Control Act, the Clean Air Act and
the  Resource   Conservation   and  Recovery  Act.  The  Company's   operations,
particularly  its dyeing and  finishing  processes,  result in the  discharge of
substantial  quantities of wastewater  and  hazardous air  emissions.  Operating
permits  establishing  discharge  and emission  limits for these  processes  are
subject to revocation,  modification or renewal,  and violations of such permits
may result in substantial fines and/or civil or criminal sanctions.

     The Company may be subject to the  requirements  of the 1990  Amendments to
the Federal Clean Air Act,  including  those  relating to emissions of hazardous
air pollutants.  The Company believes that it will be able to achieve compliance
with such  requirements  at a cost  which  will not be  material.  However,  the
Company cannot currently  estimate with certainty the impact of future emissions
limitations or enforcement practices upon its operations.

     The Company's  operations also are governed by certain  requirements  under
the  Occupational  Safety and Health Act relating to workplace safety and worker
health which,  among other things,  establish  permissible  exposure  limits for
cotton dust,  formaldehyde,  asbestos and noise. In addition, the Company may be
liable  under  environmental  laws,   particularly  the  Federal   Comprehensive
Environmental  Response,  Compensation  and  Liability  Act,  for the cleanup of
contamination  that  occurs  on or  from  the  Company's  properties,  including
contamination that occurred prior to the Company's ownership or operation of the
properties,  or for cleanup of contamination  on any off-site  location to which
the Company shipped hazardous substances for disposal.

     The Company believes that it is in compliance in all material respects with
all applicable environmental, health and safety requirements. However, there can
be no assurance that the costs or liabilities  related to such requirements that
may be imposed in the future will not result in a material adverse effect on the
Company's  business,  financial  condition and results of operations.


                                       7
<PAGE>


Legal Proceedings

     The  Company is a party to various  litigation  matters  incidental  to the
conduct of its business. The Company does not believe that the outcome of any of
the  matters in which it is  currently  involved  will have a  material  adverse
effect on the Company's business, financial condition or results of operations.

     The  Company's  and its  parent's,  Glenoit  Universal,  Ltd.  ("Holdings")
federal income tax returns for January 1, 1994 and December 31, 1994,  have been
examined by the Internal  Revenue Service  ("IRS").  The IRS has assessed taxes,
penalties  and  interest  of   approximately   $3.0  million   relating  to  the
deductibility  of certain  expenses  claimed as deductions  by the Company.  The
Company is currently in the process of  responding to the IRS. In the opinion of
management,  adequate  provision  has been  made in the  accompanying  financial
statements  for its  income tax  obligations;  however,  should  the  Company be
responsible  for all taxes,  penalties  and  interest  assessed by the IRS,  the
Company  would be required to pay an  additional  amount of  approximately  $1.6
million over amounts currently  accrued.  The Company believes that the proposed
adjustments by the IRS are inappropriate and intends to vigorously contest these
assessments.

     The Company's  state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of Finance,
which in April 1997,  assessed taxes and interest in the amount of approximately
$130,000.  The Company is currently in the process of responding to the New York
Department of Finance, as it believes that the proposed  adjustments made by the
New York  Department  of Finance are  inappropriate  and  intends to  vigorously
contest these assessments.

     Pursuant  to the  completion  of a  series  of  transactions  in  order  to
consummate a leverage recapitalization ("the Recapitalization"),  the Seller has
agreed to indemnify Holdings against any tax liability of Holdings,  the Company
or its  subsidiaries  incurred prior to the  Recapitalization.  The term of such
indemnity  extends to the applicable  statute of  limitations  for assessing any
such tax. Any claims under the tax  indemnity  are required to be reduced by any
tax benefit received by Holdings,  the Company or its subsidiaries that arise in
connection  with  the  event  giving  rise  to the  indemnity  claim  and may be
satisfied  only by offset  against  the  amounts  owed by Holdings to the Seller
under the terms of the Seller Notes.

ITEM 2: PROPERTIES

     For information concerning the principal physical properties of the Company
and  subsidiaries,  see  "Item 1:  BUSINESS  - -  Manufacturing  Facilities  and
Operations". 

ITEM 3: LEGAL PROCEEDINGS

     For  information  concerning  any material  pending legal  proceedings  the
Company  or its  subsidiaries  are party to,  see  "Item 1:  BUSINESS  - - Legal
Proceedings".

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

     None


                                       8
<PAGE>


                                     PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MEETINGS

     Glenoit  Corporation is a privately held company with no established public
trading  market for its equity  securities.  The equity  securities  are held by
Glenoit  Universal,  Ltd.  ("Holdings").  Glenoit Asset  Corporation is a wholly
owned subsidiary of Glenoit Corporation.

     Glenoit  Corporation  will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principle and
interest of debt obligations of Holdings,  (ii) to cover certain  administrative
and operating  expenses of Holdings and (iii) to cover  certain tax  liabilities
allocable  to the  Company,  subject  in each  case to  certain  conditions  and
restrictive  covenants in the agreements governing the Company's credit facility
and 11% Senior Subordinated Notes.

     During fiscal 1997, the Company  distributed  $7.3 million to Holdings.  No
such distributions were made during fiscal 1996.


                                       9
<PAGE>


ITEM 6: SELECTED FINANCIAL DATA


     Set forth below are selected historical  consolidated financial data of the
Company for the periods indicated. The historical consolidated financial data of
the Company prior to December 13, 1995 reflect the historical results of Glenoit
Mills, Inc. and subsidiary ("Mills").  The selected historical financial data of
the Company as of and for the years ended December 30, 1995, January 4, 1997 and
January 3, 1998 has been derived from the Consolidated  Financial  Statements of
the Company included elsewhere herein. The selected historical financial data of
the Company as of and for the years ended  January 1, 1994 and December 31, 1994
has been derived from the Consolidated  Financial  Statements of the Company not
included herein. The selected consolidated financial data set forth below should
be read in conjunction with  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated  Financial  Statements
of the Company and  related  notes  thereto  included  elsewhere  in this Annual
Report.

<TABLE>
<CAPTION>
                                                                              Fiscal Year
                                                                              -----------
                                                       1993              1994          1995               1996          1997
                                                     ---------         ---------      ---------         ---------      ---------
                                                                                (dollars in thousands)
<S>                                                    <C>               <C>            <C>              <C>            <C>     
Statement of Income Data:
Net sales ......................................       $62,527           $72,469        $93,840          $121,751       $146,921
Cost of sales ..................................        43,035            49,594         67,249            86,525         98,061
                                                     ---------         ---------      ---------         ---------      ---------
Gross profit ...................................        19,492            22,875         26,591            35,226         48,860
Operating expenses .............................        13,691(a)         12,550         16,235            18,045         22,933
                                                     ---------         ---------      ---------         ---------      ---------
Income from operations .........................         5,801            10,325         10,356            17,181         25,927
Interest expense, net ..........................           973             2,208          3,745             9,125         10,938
Other expense (income) .........................          (171)               83            166               589            733
Income tax expense .............................         2,050             2,850          3,083             3,354          5,390
                                                     ---------         ---------      ---------         ---------      ---------
Income before extraordinary loss ...............         2,949             5,184          3,362             4,113          8,866
Extraordinary loss, net of tax benefit .........            --                --          2,407(b)             --          2,857(c)
                                                     ---------         ---------      ---------         ---------      ---------
Net income .....................................        $2,949            $5,184           $955            $4,113         $6,009
                                                     =========         =========      =========         =========      =========
Other Data:
Depreciation and amortization ..................        $1,124            $1,491         $1,946            $3,097         $3,863
Capital expenditures ...........................           838             1,394          5,239             1,679         19,606
Cash flows from operating activities ...........         7,013               142            181             6,429         23,706
Cash flows used in investing activities ........          (838)           (1,201)       (13,076)           (1,388)       (27,763)
Cash flows from financing activities ...........        (6,259)            1,247         13,533            (6,014)         5,080
EBITDA(d) ......................................         7,096            11,733         12,136            19,689         29,056
Adjusted EBITDA(e) .............................        10,532            11,733         12,136            20,990         29,056


Balance Sheet Data:
Cash and cash equivalents ......................          $196              $384         $1,023               $49         $1,072
Working capital(f) .............................         2,844             5,925         17,735            13,340         15,148
Total assets ...................................        14,860            21,317         50,946            49,497         75,230
Total liabilities(g) ...........................         5,906            27,547         97,857            92,295        119,396
Stockholder's equity (deficit) .................         8,954            (6,231)       (46,911)          (42,798)       (44,166)
</TABLE>


(a)  Included in "Operating  expense" during fiscal 1993 is a one time charge of
     $3,436,000  relating to the charge-off of a product supply agreement with a
     related party and an investment in a related party.

(b)  During fiscal 1995, the Company  recognized an  extraordinary  loss, net of
     income tax benefit of  $1,240,000,  as a result of the early  retirement of
     the  Company's  debt  obligations.  See  Notes 4 and 6 to the  Consolidated
     Financial Statements.

(c)  During April 1997,  the Company  recognized an  extraordinary  loss, net of
     income tax benefit of  $1,527,000,  as a result of the  refinancing  of the
     Company's debt in connection with the Initial  Offering.  See Note 6 to the
     Consolidated Financial Statements.

(d)  EBITDA represents income before extraordinary loss plus income tax expense,
     interest expense (net), depreciation and amortization. The Company believes
     that EBITDA provides useful information  regarding the Company's ability to
     service  its  debt;  however,  EBITDA  does not  represent  cash  flow from
     operations,  as defined by generally  accepted  accounting  principles  and
     should not be considered as a substitute  for net income as an indicator of
     the Company's operating performance or cash flow as a measure of liquidity.
     The  definition of EBITDA  presented  herein differs from the definition of
     EBITDA in the  Indenture.  EBITDA has not been adjusted to reflect  certain
     costs and expenses  payable to related parties prior to fiscal 1996,  which
     were  substantially  reduced  as a  result  of  the  Recapitalization.  See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations".

(e)  Adjusted EBITDA represents EBITDA (See Note (d) above), plus (i) for fiscal
     1993,  a one time  charge of  $3,436,000  relating to the  charge-off  of a
     product  supply  agreement  with a  related  party and an  investment  in a
     related party (See Note


                                       10
<PAGE>


     (a) above) and (ii) for fiscal 1996, (A) moving  expenses of  approximately
     $320,000 incurred to relocate the Company's  Consumers Product Division and
     (B) fees of  approximately  $980,000  for a consulting  project  related to
     process improvement and cash flow management.  Adjusted EBITDA is presented
     because the Company believes that it provides useful information  regarding
     the Company's ability to incur and service debt;  however,  Adjusted EBITDA
     does not  represent  cash flow from  operations  as  defined  by  generally
     accepted accounting principles and should not be considered as a substitute
     for net income as an indicator of the Company's  operating  performance  or
     cash flow as a measure of liquidity.

(f)  Working capital  represents  consolidated  current assets less consolidated
     current liabilities.

(g)  The Company's  fiscal 1994 balance sheet includes  indebtedness of Holdings
     which has been  accounted  for as  indebtedness  of the  Company  under the
     "push-down"  method of  accounting.  This debt was paid off on December 13,
     1995.  The  "push-down"  method  requires that debt of Holdings,  which was
     guaranteed and collateralized by the assets of the Company,  be treated for
     accounting purposes as debt of the Company.  See Note 1 to the Consolidated
     Financial Statements.


                                       11
<PAGE>


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

Overview

     The  Company's  net sales grew from $93.8  million in fiscal 1995 to $146.9
million in fiscal 1997  primarily as a result of rapidly  growing demand for the
Company's  performance-oriented  pile  fabrics,  which were first  introduced in
1993.  This demand has been driven by a growing  emphasis on outdoor  activities
and  styling  related  to outdoor  activities.  The  Company  has  responded  by
developing a line of performance-oriented micro-fiber fabrics, which the Company
believes offer superior  performance  characteristics in comparison to competing
fleece  fabrics.  The  Company has also  invested  heavily to upgrade its fabric
manufacturing  facilities and increase capacity.  In September 1995, the Company
increased manufacturing capacity by 140,000 square feet with the addition of the
Jacksboro,  Tennessee  facility  acquired  in the Borg  Acquisition,  which  the
Company upgraded and converted to produce higher margin micro-fiber products. In
addition,  effective  August 30,  1997 the  Company,  through  its  wholly-owned
subsidiary,  Glenoit Corporation of Canada ("GCC"),  acquired certain assets and
liabilities of Collins & Aikman Canada, Inc.

Results of Operations

     The following table sets forth selected results of operations  expressed in
millions  of dollars  and as a  percentage  of total net sales for fiscal  years
1995, 1996 and 1997.

<TABLE>
<CAPTION>
                                                           Fiscal Year
                                                           -----------
                                             1995               1996             1997
                                             -----             -----             ----
<S>                                      <C>      <C>      <C>      <C>     <C>       <C>  
Net sales:
  Fabric Division ..................     $50.2    53.5%    $79.4    65.2%   $107.1    72.9%
  Consumer Products Division .......      43.6    46.5      42.3    34.8      39.8    27.1
                                         -----    ----     -----    ----    ------    ---- 
    Total net sales ................      93.8   100.0     121.7   100.0     146.9   100.0
Cost of sales ......................      67.2    71.7      86.5    71.1      98.1    66.8
                                         -----    ----     -----    ----    ------    ---- 
  Gross profit .....................      26.6    28.3      35.2    28.9      48.8    33.2
Operating expenses .................      16.2    17.3      18.0    14.8      22.9    15.6
                                         -----    ----     -----    ----    ------    ---- 
  Income from operations ...........      10.4    11.0      17.2    14.1      25.9    17.6
Interest expense, net ..............       3.7     4.0       9.1     7.5      10.9     7.4
Other expense ......................       0.2     0.1       0.6     0.5        .7     0.5
Income tax expense .................       3.1     3.3       3.4     2.7       5.4     3.7
                                         -----    ----     -----    ----    ------    ---- 
Income before extraordinary loss ...       3.4     3.6       4.1     3.4       8.9     6.0
Extraordinary loss .................       2.4     2.6        --      --       2.9     2.0
                                         -----    ----     -----    ----    ------    ---- 
    Net income .....................      $1.0     1.0%     $4.1     3.4%     $6.0     4.0%
                                         ====-    ====     ====-    ====    ======    ==== 
</TABLE>

Fiscal 1997 compared to Fiscal 1996

     Net sales for fiscal 1997  increased to $146.9 million or 20.7% compared to
$121.7 million for fiscal 1996. Fabric Division sales increased $27.7 million or
34.9%  over  prior  year due to both  increased  unit  volume  in the  Company's
performance-oriented fabrics in sportswear and outerwear and an improved average
selling price which reflects an improved sales mix over the prior year. Sales in
the Fabric Division were also positively impacted by the acquisition made by GCC
which generated sales of $4.2 million from the acquisition  date through January
3,  1998.  Fabric  Division  sales  offset a  decline  in sales in the  Consumer
Products Division which occurred  primarily in the second quarter as a result of
a unit volume  shortfall as well as a promotional mix in the third quarter which
yielded lower selling prices.

     Gross  profit  for  fiscal  1997 was  $48.8  million  or 33.2% of net sales
compared  with  $35.2  million  or 28.9% of net sales for the prior  year.  This
increase  of $13.6  million or 38.7%  resulted  from  increased  unit volume and
higher average selling prices in the Fabric  Division.  The improved  results in
the Fabric  Division  were  partially  offset by the  margin  effect of a second
quarter  decline in sales volume and the third  quarter  promotional  mix in the
Consumer Products Division.

     Operating expenses for fiscal 1997 were $22.9 million or 15.6% of net sales
compared  to $18.0  million  or 14.8% of net  sales in the  prior  year.  Dollar
increases over the prior year were primarily in sales related categories such as
commissions  and credit  collection  expense as well as the  acquisition  by GCC
which  reported  operating  expenses  of  $.3  million.  Accruals  for  pension,
professional  fees, and profit  related  compensation  plans  increased over the
prior year.

     Operating  income was $25.9  million  for  fiscal  1997  compared  to $17.2
million in the prior year. This increase,  resulting from the factors  described
above, represents an increase of $8.7 million or 50.9%.


                                       12
<PAGE>


     Interest  expense in fiscal 1997 was $10.9 million compared to $9.1 million
for the same period last year.  Interest  expense  has  increased  due to higher
levels of debt and a higher effective borrowing rate as a result of the issuance
of the $100 million 11% Senior Subordinated Notes ("the Initial Offering").

     Net income for fiscal  1997 was $6.0  million  (including  the effect of an
extraordinary  loss on early  extinguishment of debt of $2.9 million,  net of an
income tax benefit,  related to the refinancing of the company's debt which took
place at April 1, 1997) compared to $4.1 million for fiscal 1996.

Fiscal Year 1996 Compared to Fiscal Year 1995

     Net sales for fiscal 1996 were $121.7 million, an increase of $27.9 million
or 29.7% over 1995.  This sales  growth  resulted  from  increased  sales in the
Fabric  Division  which was  partially  offset by a small  sales  decline in the
Consumer Products Division. Fabric Division sales increased by $29.2 million, or
58.2%,   primarily   driven   by   increased   unit   sales  of  the   Company's
performance-oriented  fabrics in  sportswear,  outerwear,  accessories  and home
textile  products,  as well as increased  unit sales of faux fur fabrics for the
women's and children's coat markets. In addition,  the Fabric Division's average
sales price  increased  as  higher-priced  performance  fabrics  became a larger
portion of the sales mix. The addition of the Jacksboro facility for a full year
provided the Company with the capacity for an additional $18.4 million of fabric
sales over 1995. In the Consumer Products Division,  unit volume remained stable
but unit average  sales  prices  declined  slightly  due to  increased  sales of
promotional items by certain of the Company's major customers.

     Gross profit for fiscal 1996 was $35.2 million, an increase of $8.6 million
or 32.5% over 1995. As a percent of net sales,  gross profit was 28.9%  compared
with  28.3% in the prior  year.  The  Company  derived  benefits  from lower raw
material prices and increased sales volume. Additionally, the Company's purchase
of a facility in  Tarboro,  North  Carolina  (which was  formerly  leased from a
related  party) in connection  with the  Recapitalization  resulted in net lease
cost savings of  approximately  $0.4 million in fiscal 1996.  These factors more
than  offset the costs of  integrating  the  Jacksboro  facility  and moving the
operations  of the  Consumer  Products  Division  into a  separate  facility  in
Tarboro. The cost of this move was approximately $0.3 million.

     Operating expenses for fiscal 1996 were $18.0 million,  an increase of $1.8
million or 11.1% over fiscal 1995.  Operating expenses as a percent of net sales
declined from 17.3% in fiscal 1995 to 14.8% in fiscal 1996. The dollar  increase
in operating expenses resulted from growth in sales-related  expenses (primarily
commissions),  increased  research and development  expenditures in the Consumer
Products  Division,  and costs of  approximately  $1.0  million  for  consulting
services. Operating expenses declined as a percent of net sales primarily due to
the  reduction of certain  costs  following  the  Recapitalization.  These costs
primarily  consisted of management  fees and consulting  fees to related parties
and associated travel and other expenses of approximately $1.4 million in fiscal
1995 which were not incurred in fiscal 1996.

     Income from  operations for fiscal 1996 was $17.2  million,  an increase of
$6.8 million over fiscal 1995.  Income from operations as a percent of net sales
was 14.1% in fiscal 1996  compared  with 11.0% in fiscal  1995.  The increase in
operating  income as a percent  of net sales  was  attributable  to the  factors
resulting in the increase in gross margin and the decrease in operating expenses
as a percent of net sales discussed above.

     Net interest  expense for fiscal 1996 was $9.1 million  compared  with $3.7
million in fiscal 1995.  The increase of $5.4 million  resulted  from  increased
borrowing incurred in connection with the Recapitalization.

     Net income for fiscal 1996 was $4.1  million,  an increase of $3.2  million
over fiscal  1995.  Net income in 1995 was reduced by an  extraordinary  loss of
$2.4 million, net of taxes, related to early extinguishment of debt as a part of
the Recapitalization.

Fiscal Year 1995 Compared to Fiscal Year 1994

     Net sales for fiscal 1995 were $93.8 million,  an increase of $21.4 million
or 29.5% over fiscal 1994.  The  majority of the  increase  came from the Fabric
Division  where sales  increased  by $17.9  million or 55.4%.  Fabric sales grew
primarily  as a result of increased  unit sales and average  sales price for the
Company's  higher-priced  performance-oriented  fabrics.  The  addition  of  the
Jacksboro  facility for the last three  months of the year  provided the Company
with the capacity for an additional  $5.7 million of fabric sales.  Sales in the
Consumer Products Division increased by $3.4 million due to increased unit sales
of both kitchen rugs and welcome mats with stable average unit prices.

     Gross profit for fiscal 1995 was $26.6 million, an increase of $3.7 million
or 16.2% over the prior year. As a percent of net sales,  gross profit in fiscal
1995 was 28.3%  compared to 31.6% for fiscal 1994.  The decrease in gross margin
resulted from  significant raw material price increases for polyester fiber and,
to a lesser  extent,  acrylic  fiber,  which was partially  offset by production
efficiencies associated with increased sales.


                                       13
<PAGE>


     Operating expenses for fiscal 1995 were $16.2 million,  an increase of $3.7
million or 29.4%  over the prior  year.  As a percent  of net  sales,  operating
expenses  were 17.3% in fiscal 1995 which was  unchanged  from fiscal 1994.  The
dollar  increases  in  operating  expenses  resulted  mainly from  sales-related
expenditures, primarily commissions.

     Income from operations for fiscal 1995 was $10.4 million, a slight increase
over the prior year. As a percent of net sales, income from operations in fiscal
1995 was 11.0%  compared to 14.3% in fiscal  1994.  The  decrease  in  operating
income as a percent of net sales was  attributable  to the factors  resulting in
the decrease in gross margin discussed above.

     Interest  expense for fiscal 1995 was $3.7 million compared to $2.2 million
for  fiscal  1994.  The  increase  in  interest  expense  was due  primarily  to
additional  borrowings in support of increased working capital requirements as a
result of the higher level of sales, as well as significant capital expenditures
to upgrade the Jacksboro facility acquired in the Borg Acquisition.

     Net income for fiscal 1995 was $1.0  million,  a decrease  of $4.2  million
compared  to  fiscal  1994.  Net  income  in  fiscal  1995  was  reduced  by  an
extraordinary   loss  of  $2.4   million,   net  of  taxes,   related  to  early
extinguishment of debt as part of the Recapitalization.

Liquidity and Capital Resources

     The  Company  relies on  internally  generated  cash flow from  operations,
supplemented by borrowings under its senior credit facility and vendor financing
to meet its debt service requirements,  capital expenditures and working capital
needs. The Company is highly leveraged.

     On April 1, 1997,  the Company  issued $100 million of senior  subordinated
notes (the "Notes"). Concurrently with the Initial Offering, the Company entered
into a $70 million  senior credit  facility ("the New Credit  Facility")  with a
syndicate  of  lenders  led by BNP,  pursuant  to  which  the  Company  obtained
available  credit  (i) up to $45.0  million  for  working  capital  and  general
corporate  purposes (the "Working Capital  Commitment"),  subject to a Borrowing
Base,  and  (ii)  up  to  $25.0  million  for  acquisitions   (the  "Acquisition
Commitment").  The Company also prepaid all outstanding  indebtedness  under the
Old Credit  Facility.  At January 3, 1998, there were borrowings of $2.0 million
under the Working Capital  Commitment and approximately  $16.8 million available
to borrow under the Working  Capital  Commitment and up to $25 million under the
Acquisition  Commitment.  A more detailed description of the senior subordinated
notes and the senior credit  agreement may be found in the notes to consolidated
financial statements.

     Principal and interest  payments in respect of the Notes and the New Credit
Facility will represent significant  liquidity  requirements for the Company. In
addition,  the Company will be  permitted  (but will not be  obligated)  to make
certain payments to Holdings, including payments (i) in respect of principal and
interest of the Seller Notes, (ii) to cover certain administrative and operating
expenses of Holdings and (iii) to cover certain tax liabilities allocable to the
Company,  subject in each case to certain  conditions  as described in the Notes
and the New Credit Facility.

     The Company  believes that cash  generated from  operations,  together with
vendor financing and amounts  available under the New Credit  Facility,  will be
adequate to meet its debt service requirements, capital expenditures and working
capital needs for the foreseeable future,  although no assurance can be given in
this regard.  The Company's future operating  performance and ability to service
or refinance the Notes and to extend or refinance its other indebtedness will be
subject to future  economic  conditions  and to  financial,  business  and other
factors beyond the Company's control.

     Holdings is a holding company and as a result does not have any substantive
assets or operations that generate revenues or cashflows.  Accordingly, Holdings
relies on the  Company's  distribution  of  dividends  to meet its  obligations,
including interest and principal  payments.  As of January 3, 1998, Holdings has
obligations  with a face  amount of $26.9  million,  bearing  interest at stated
rates between 5% to 12.5%, to shareholders  with principal due in 2004 and 2005.
For further discussion see Note 11 of the Consolidated Financial Statements.

     On March 5, 1997, the Company  declared a dividend and issued a note in the
amount of  approximately  $5.8 million (the "Note") to a shareholder of Holdings
in satisfaction of a contingent  earnout  obligation of Holdings  related to the
Recapitalization   discussed   in   the   consolidated   financial   statements.
Additionally,  on June 14,  1997,  the Company  paid a dividend in the amount of
$1.6 million to enable its parent to exercise an option to repurchase  stock and
to  retire a  related  note due to the  shareholder  from  whom  the  stock  was
repurchased.   This   transaction   took   place   pursuant   to   a   leveraged
recapitalization  agreement  consummated in December 1995 and was anticipated in
both the bond indenture and the senior credit agreement now in effect.

     During  fiscal 1997,  net cash provided by operating  activities  was $23.7
million. Accounts and other receivables decreased by $ 1.0 million,  inventories
and  other  current  assets  decreased  by  $2.1  million.  Accrued  liabilities
increased by $3.2 million, due


                                       14
<PAGE>


primarily to accrued  interest on senior  subordinated  notes and the previously
mentioned profit related compensation plans.  Accounts payable increased by $2.1
million and "Due to Parent"  increased $.9 million  related  to accrued  federal
taxes.

     During fiscal 1996, cash provided by operating activities was $6.4 million.
Changes in  operating  assets  resulted in a use of $0.5  million.  Increases in
receivables  and a decrease in payables  required $2.3 million and $3.0 million,
respectively.  Cash was provided by changes in accrued expenses of $1.3 million,
changes in inventories and prepaid  expenses  totaling $1.0 million and a change
in the amount due to/from parent of $2.6 million.

     During  fiscal 1995 net cash  provided  by  operating  activities  was $0.2
million.  Changes in operating  assets  resulted in a use of $6.6 million  which
consisted of increases in inventory of $2.1 million, increases in receivables of
$3.2 million,  and increases in prepaid expenses and receivables due from parent
of $2.4 million.  These were offset by increases in accounts payable and accrued
expenses of $1.1 million.

     Capital Improvements

     Capital expenditures for the year ended January 3, 1998 were $19.6 million.
These  additions were primarily in the Fabric Division for additions of knitting
and  blending  equipment  to increase  capacity as well as a plant  expansion in
Tarboro,   N.  C.  Expenditures  were  also  made  for  upgrades  to  management
information  systems.  During  fiscal  1995  and  1996,  the  Company's  capital
expenditures were $5.2 million and $1.7 million,  respectively.  These additions
included  upgrading  equipment in the Fabric Division  (including the Jacksboro,
Tennessee  facility  acquired in the Borg Acquisition) to accommodate the growth
in  micro-fiber  products,  as well as  upgrading  plant  and  equipment  in the
Consumer Products Division.

Seasonality

     The Company's business is seasonal in nature. Generally, there is increased
retail  demand  for  garments  and rugs  during  the fall  (back-to-school)  and
December  holiday  selling  seasons.  Consequently,  demand  for  the  Company's
products  is  generally  higher  during the  Company's  second and third  fiscal
quarters when such products are produced for these selling seasons.

Inflation

     The Company  believes that  inflation has not had a material  impact on its
results of  operations  for the three fiscal years ended  January 3, 1998 due to
the relatively low rates of inflation during this period.

Forward-Looking Statements

     This Form 10-K contains certain  forward-looking  statements concerning the
Company's operations, economic performance and financial condition, including in
particular,  the likelihood of the Company's success in developing and expanding
its  business.  These  statements  are based  upon a number of  assumptions  and
estimates  which  are  inherently  subject  to  significant   uncertainties  and
contingencies,  many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize,  and unanticipated events will occur which will
affect the Company's  results.  The forward looking statements in this Form 10-K
are intended to be subject to the safe harbor protection provided by Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 (the
"Safe Harbor Acts").

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the  Consolidated  Financial  Statements  of  Glenoit  Corporation  and
Subsidiaries  included  herein  and listed on the  indices  to the  Consolidated
Financial Statements and Financial Statement Schedule as set forth in Item 14 of
this Form 10-K.

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

     None


                                       15
<PAGE>


                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the names, ages as of January 3, 1998, and a
brief account of the business  experience of each director and executive officer
of the Company.  Under the terms of the Stockholders Agreement (as defined), the
board of directors of Holdings will be the same as the board of directors of the
Company.  See  "Certain  Relationships  and  Related  Transactions--Stockholders
Agreement." The Company's By-laws,  provide that each director shall hold office
for a term  of one  (1)  year or  until  his or her  successor  is  elected  and
qualified.

        Name                           Age            Position
        ----                           ---            --------
Thomas J. O'Gorman..................   63    President, Chief Executive Officer 
                                             and Director                       
Larry Levine........................   64    President and Chief Operating 
                                             Officer--Fabric Division       
Robert B. Dale(1)...................   49    President and Chief Operating      
                                             Officer--Consumer Products Division
Lester D. Sears.....................   48    Executive Vice President and Chief
                                             Financial Officer                 
John Mowbray O'Mara.................   69    Director
Saleem Muqaddam.....................   50    Director
Isaac Schapira......................   44    Director
Joseph M. Silvestri.................   35    Director

(1)  Mr. Dale resigned from the Company effective as of July 1, 1997.

     Thomas  J.  O'Gorman.  Mr.  O'Gorman  has  served as the  President,  Chief
Executive  Officer and a Director of the Company  since 1991.  Mr.  O'Gorman has
been in the textile industry since 1956 and has served as the General Manager of
the Menswear Business of Milliken & Co.;  President of Knit-Away;  and President
of the Denim,  Corduroy and Blended Fabrics Divisions of Burlington  Industries,
Inc., and Burlington's  International Denim operations  headquartered in London.
Subsequently,  Mr.  O'Gorman was the President and a Director of Greenwood Mills
Marketing  Company,  Inc. Mr. O'Gorman has served on the Market Committee of the
American  Textile  Manufacturers  Institute  and as a  member  of  the  Steering
Committee of Crafted With Pride in the U.S.A. Council.

     Larry Levine.  Mr.  Levine joined the Company in 1991 as Vice  President of
Marketing for the Company's Fabric Division and was promoted to President of the
Fabric Division in 1996. Mr. Levine previously served as the President of Fabric
View Ltd.,  a textile and  marketing  company,  and was a Vice  President  and a
founder of Monterey Mills, Inc.

     Robert B. Dale.  Prior to joining the  Company in August 1995 as  President
and Chief Operating Officer of the Consumer Products  Division,  Mr. Dale served
25  years  in  the   textile   industry   in   various   capacities,   including
President/Corporate  Officer of the Bedding  Division at  Fieldcrest  Canon Inc.
("Fieldcrest");  President of Fieldcrest's St. Mary's Brand Division;  Executive
Vice President of Fieldcrest's Karastan Bigelow Carpet Division;  and Fieldcrest
Brand National Sales Manager. Mr. Dale is currently on the Board of Directors of
the Home  Products  Fashion  Association.  Mr.  Dale  resigned  from the Company
effective as of July 1, 1997.

     Lester D. Sears.  Mr. Sears  joined the Company in 1996 as  Executive  Vice
President  and Chief  Financial  Officer.  From 1989 to 1996,  Mr. Sears was the
Executive Vice President, Chief Financial Officer and an equity owner of Perfect
Fit  Industries,  Inc., a privately  held company.  Prior to 1989, Mr. Sears was
employed in various  positions  including as Controller of the Consumer Products
Division of Springs  Industries,  Inc.;  Vice  President and  Controller of Mill
Fabrics,  Inc.; and as a certified public  accountant for Deloitte,  Haskins and
Sells.

     John  Mowbray  O'Mara.  Mr.  O'Mara has been a  management  consultant  and
private  investor  since January 1990.  From July 1990 to May 1993, he served as
Chairman of the Executive Committee of Quality Care Systems, Inc., a provider of
computer-based  "expert"  medical  cost  containment  systems.  From August 1988
through  December  1989,  Mr.  O'Mara  served as Chairman of the Board and Chief
Executive Officer of Global Natural Resources, Inc. Prior to serving as Chairman
of Global  Natural  Resources,  Inc., Mr. O'Mara spent 22 years as an investment
banker,  serving most recently as Managing Director for Chase Securities Inc., a
subsidiary of The Chase  Manhattan  Bank.  Mr. O'Mara is a director of Baldwin &
Lyons, Inc., Plantronics, Inc. and The Midland Company.

     Saleem Muqaddam. Mr. Muqaddam has served as a Vice President of CVC and its
affiliated  investment  companies since 1989.  Previously he spent 15 years with
Citibank,  N.A. and its affiliates in senior management positions.  Mr. Muqaddam
is a director of Pamida  Holdings  Corporation,  Plantronics,  Inc.,  Chromcraft
Remington Inc. and Fairwood Corporation.


                                       16
<PAGE>


     Isaac  Schapira.  Mr.  Schapira  has  served  as  a  director  of  Stirling
Investment Holdings,  Inc. since December 1994. In addition, Mr. Schapira is the
President of Glenoit (U.K.)  Limited,  and has been in this position for over 15
years.

     Joseph M. Silvestri. Mr. Silvestri has been a director of the Company since
his  appointment  by CVC in 1994.  Mr.  Silvestri has been employed by CVC since
1990 and has been a Vice President since 1995. Mr. Silvestri served as Assistant
Vice  President of CVC from 1990 to 1995. Mr.  Silvestri  serves on the Board of
Directors of International Media Group, Triumph Group, Polyfibron  Technologies,
Inc., Frozen Specialties, Inc. and Euramax International, Inc.

Compensation of Directors

     The Company's Board of Directors  receive no compensation for their service
as  directors.  Directors are  reimbursed  for their  out-of-pocket  expenses in
connection  with their  travel to and  attendance  at  meetings  of the Board of
Directors or committees thereof.

ITEM 11: EXECUTIVE COMPENSATION

     The  following  table sets forth  certain  information  for the fiscal year
ended January 3, 1998,  concerning cash and non-cash  compensation earned by the
Chief Executive  Officer and the three other most highly  compensated  executive
officers of the Company whose combined salary and bonus exceeded $100,000 during
such year.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                                                    Long Term      Other Annual
                                                                                                    ---------      ------------
                                                                   Annual Compensation             Compensation    Compensation
                                                                   -------------------             ------------    ------------
                                                                   Fiscal                           Restricted           
        Name                  Principal Position                    Year    Salary($)   Bonus($)   Stock Award ($)     ($)
        ----                  ------------------                   ------   ---------   --------  ---------------      ---
<S>                         <C>                                      <C>    <C>         <C>        <C>             <C>
Thomas J. O'Gorman........  Chief Executive Officer                  1997   $400,000    $800,000   $182,787(5)     $    --
                                                                     1996    406,250     615,271                    106,250(1)
Larry Levine..............  President & Chief Operating              1997    203,077     332,423                        --
                            Officer - Fabric Division                1996    204,846     213,100
Robert B. Dale(4).........  President & Chief Operating              1997    300,000      37,500                        --
                            Officer - Consumer Products Div.         1996    305,769      37,120
Lester D. Sears(2)........  Executive Vice President &               1997    172,932     141,077
                            Chief Financial Officer                  1996     69,808      50,000                     35,000(3)
</TABLE>

     (1) Amount  shown  reflects  deferred  compensation  from 1992 through 1995
which Mr. O'Gorman elected to receive in 1996.

     (2) Employed as of August 5, 1996.

     (3) Amount shown  reflects a signing bonus under the  employment  agreement
with Mr. Sears. See "--Employment Agreements."

     (4) Mr. Dale resigned from the Company effective as of July 1, 1997.

     (5) In  August  1997,  Mr.  O'Gorman  was  granted  1,286.211  options  for
restricted  shares of  Holdings'  Class A common  stock at an exercise  price of
$37,500. Mr. O'Gorman exercised the shares immediately. At the time of exercise,
the Company estimated fair market value for the shares to be $220,287. See "Item
12: Security  Ownership of Certain  Beneficial  Owners and Management" for total
shares owned by Mr. O'Gorman.

Defined Benefit Plan

     The  Company's  retirement  benefit  provides  a  maximum  monthly  benefit
regardless of the employees  compensation level of $2,000. The normal retirement
benefit is 45% of the average final  compensation  of the employee,  reduced pro
rata for each year of service less than 25 years.

Employment Agreements

     Mr. O'Gorman has an employment  agreement (the "O'Gorman  Agreement")  with
the Company dated as of October 28, 1997,  as amended,  which expires on January
1, 2001. The O'Gorman Agreement provides for Mr. O'Gorman's  employment as


                                       17
<PAGE>


Chief Executive  Officer and President or Chairman,  if so elected,  of Holdings
and the  Company  at an  annual  salary  of  $400,000  and a bonus  based on the
financial   performance  of  the  Company.  Mr.  O'Gorman's  employment  may  be
terminated by him on 12-months' notice to the Company.  In the event the Company
were to terminate Mr. O'Gorman for other than "Cause" (as defined therein),  Mr.
O'Gorman  would be  entitled to  severance  payments  consisting  of a pro-rated
portion of his annual bonus for the year of  termination  and his annual  salary
and other  benefits for 12 months  following the date of such  termination.  The
O'Gorman  Agreement  also  provides  that he will not  compete  with the Company
during the employment term and for a period of 18 months following termination.

     Mr. Sears has an employment  agreement (the "Sears  Agreement") dated as of
August 5, 1996 which expires on December 31, 1999,  subject to one year renewals
thereafter  unless either party elects not to renew at least six months prior to
the termination date. The Sears Agreement  provides for Mr. Sears' employment as
Executive Vice President and Chief Financial Officer of the Company at an annual
salary of $165,000 and a bonus of $50,000 for the year ended  December 31, 1996.
The salary is subject to a minimum  increase each year of 5% and future  minimum
bonus payments will be the lesser of (x) 66.7% of Mr. Sear's base salary and (y)
a fixed percentage of the Company's  EBITDA.  The fixed percentage is calculated
by dividing  $50,000 by the Company's EBITDA for the fiscal year ending December
31, 1995. In addition to the payments  provided  therein,  Mr. Sears received an
initial cash payment of $35,000.  Mr. Sears' employment may be terminated by him
or the Company at any time.  In the event Mr.  Sears'  employment  is terminated
other  than for  "Cause"  (as  defined  therein)  or Mr.  Sears  terminates  his
employment for "Good Reason" (as defined  therein),  Mr. Sears will receive as a
severance  payment a cash lump sum in the  amount of (A) the base  salary at its
then current  annual rate and (B) the highest annual bonus paid to or accrued by
the Company for the term of the agreement.


                                       18
<PAGE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Holdings owns 100% of the Company's  common stock. The following table sets
forth, as of January 3, 1998, certain  information with respect to each class of
Holdings  Common Stock (as defined)  beneficially  owned by each director of the
Company,  all officers and directors of the Company as a group,  and each person
known to the Company to own  beneficially  more than 5% of Holdings Common Stock
of any such class.  Unless otherwise noted, the individuals have sole voting and
investment  power.  As  described  under   "Description  of  Capital  Stock  and
Indebtedness  of  Holdings,"  certain  classes  of  Holdings  Common  Stock  are
convertible into other classes of Holdings Common Stock.  Except as noted in the
footnotes to the table, the information in the table assumes no such conversion.

<TABLE>
<CAPTION>
                                          Class A               Class B             Class C            Class D           Class E
                                          --------             --------             -------           --------           -------
          Name and Address            Shares       %     Shares         %      Shares       %      Shares      %      Shares    %
          ----------------            ------      ---    ------        ---     ------      ---     ------     ---     ------   ---
<S>                                   <C>         <C>    <C>           <C>    <C>         <C>        <C>      <C>   <C>        <C>
Citicorp Venture Capital, Ltd. .....  5,649       46.5%  17,026        78.5%     --        --        --       --       --       --
  399 Park Avenue                                        
  New York, New York 10043                               
Isaac Schapira(a) ..................  1,826       15.0       --               3,579       100%       --       --       --       --
  c/o Gratch Jacobs & Brozman                            
  950 Third Avenue                                       
  New York, New York 10022                               
Thomas J. O'Gorman .................  3,112       25.6       --        --        --        --        --       --       --       --
  111 West 40th Street                                   
  New York, New York 10018                               
The Equitable Life Assurance                             
Society of the .....................  2,412(b)    16.6       --        --        --        --        --       --    2,412(b)   100%
  United States                                          
  c/o Alliance Corporate Finance                         
  Group Incorporated                                     
  1345 Avenue of the Americas                            
  New York, New York 10105                               
Banque Nationale de Paris ..........  1,715(c)    12.4    1,715(c)      7.3      --        --        --       --       --       --
  499 Park Avenue                                        
  New York, New York 10022-1245                          
CCT Partners II, L.P.(d) ...........    997        8.2    3,005        13.8      --        --        --       --       --       --
  399 Park Avenue                                        
  New York, New York 10043                               
Saleem Muqaddam(e) .................     55        *        167         *        --        --        --       --       --       --
  c/o Citicorp Venture Capital, Ltd.                     
  399 Park Avenue                                        
  New York, New York 10043                               
Joseph Silvestri(e) ................      1        *          3         *        --        --        --       --       --       --
  c/o Citicorp Venture Capital, Ltd.                     
  399 Park Avenue                                        
  New York, New York 10043                               
John Mowbray O'Mara ................     --       --         --        --        --        --        20      100       --       --
  623 Lake Avenue                                        
  Greenwich, Connecticut 06830                           
All officers and directors as a                          
group(e) (8 persons) ...............  4,994       41.1      170         *     3,579       100        20      100       --       --
</TABLE>
                                                        
*    Represents less than 1%

(a)  Includes  shares  held by Stirling  Investment  Holdings,  Inc.,  a British
     Virgin  Islands  corporation  (the  "Seller").  Under Rule 13d-3  under the
     Exchange Act, Mr. Schapira is deemed to beneficially own shares held by the
     Seller.

(b)  Includes a warrant  to  purchase  2,412  shares of Class A or Class E Stock
     with an  exercise  price of  $0.01  per  share  and an  expiration  date of
     December 14, 2003.

(c)  Includes a warrant  to  purchase  1,715  shares of Class A or Class B Stock
     with an  exercise  price of  $0.01  per  share  and an  expiration  date of
     December 14, 2003.

(d)  CCT  Partners  II,  L.P.  is a Delaware  limited  partnership,  the limited
     partners of which are employees of CVC. 

(e)  Does not include  shares held by CVC or CCT Partners  II, L.P.  that may be
     deemed to be beneficially owned by Messrs. Muqaddam and Silvestri.  Messrs.
     Muqaddam and Silvestri disclaim beneficial  ownership of shares held by CVC
     and CCT Partners II, L.P.

     Certain  stockholders  of the Company have  entered  into the  Stockholders
Agreement,  which contains certain agreements relating to the composition of the
board of directors of Holdings and its subsidiaries.  See "Certain Relationships
and Related Transactions--Stockholders Agreement."


                                       19
<PAGE>


ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Indebtedness of Management

     In connection with the O'Gorman Agreement,  Mr. O'Gorman received a loan in
the amount of $300,000 from the Company. Pursuant to the O'Gorman Agreement, the
loan bears a simple interest rate equal to the lowest rate in effect pursuant to
the  Treasury  Regulations  so as to  preclude  the loan  from  bearing  imputed
interest.  The loan  shall be due on the last day of the  Employment  Period (as
defined  therein) or shall be forgiven if Mr.  O'Gorman is still employed by the
Company on December 31, 2003.

Stockholders Agreement

     Holdings is a party to a  stockholders  agreement  dated  December 14, 1995
(the "Stockholders  Agreement") by and among Holdings,  CVC, John Mowbray O'Mara
("O'Mara"),  BNP, The  Equitable  Life  Assurance  Society of the United  States
("Equitable"),  the Seller,  Soannes  Investment  Corp.  ("Soannes"),  Thomas J.
O'Gorman and certain other parties thereto  (collectively,  the "Stockholders"),
which  contains  certain  agreements  among  the  Stockholders  relating  to the
composition  of the board of  directors  of Holdings  and its  subsidiaries  and
limiting  the  manner and terms by which the  Stockholders  may  transfer  their
shares of Holdings Common Stock or warrants to purchase Holdings Common Stock.

     Pursuant to the Stockholders Agreement,  the Board of Directors of Holdings
will be composed at all times of five directors as follows:  the Chief Executive
Officer of Holdings;  two directors  appointed by CVC; one director appointed by
O'Mara or the party that then holds the Holdings Common Stock owned by O'Mara on
the date of the execution of the Stockholders Agreement;  one director appointed
by the Seller  until such time as the Seller and Soannes  together own less than
9.9% of the  outstanding  Holdings  Common  Stock,  at which time the  remaining
director  shall be  appointed  by the  holders  of a  majority  of the shares of
Holdings  Common  Stock  owned  by the  original  parties  to  the  Stockholders
Agreement.  The  composition  of the boards of  directors of the Company and its
subsidiaries  shall be the same as the  composition of the board of directors of
Holdings.

     Rights Offering.  The Stockholders Agreement provides the stockholders with
the right to participate  ratably, in accordance with their fully-diluted common
equity  ownership,  in all  additional  offerings  of Holdings  Common  Stock or
preferred  stock,  if  any,  or  of  securities   exercisable,   convertible  or
exchangeable  for or into  Holdings  Common Stock (other than certain  offerings
permitted by the Stockholders  Agreement  relating primarily to then outstanding
options and  warrants and a public  offering of Holdings  Common Stock having an
aggregate value of at least $20 million).

     Right of First  Offer.  If a  Stockholder  wishes to transfer  any Holdings
Common Stock or if BNP or Equitable  wish to transfer their  warrants,  Holdings
must first be given the  opportunity to purchase all of Holdings Common Stock or
warrants offered (but not less than all) at the same price and on the same terms
as those proposed by the  Stockholder  transferee.  Each other  Stockholder  may
elect to  purchase  its pro rata  share  (but not less  than all of its pro rata
share) of  Holdings  Common  Stock or warrants at the same price and on the same
terms,  but only in the  event  that  Holdings  does not  exercise  its right to
purchase such Common Stock or warrants.

     Tag Along Rights.  In the event that CVC proposes to sell  Holdings  Common
Stock  which  would  result  in CVC,  O'Gorman  and  certain  related  investors
collectively owning less than 50% of the then outstanding  Holdings Common Stock
(other than in a registered public offering or other permitted transaction), the
other  Stockholders  will have the option to participate in the proposed sale on
the same terms and conditions as CVC, with the  participating  Stockholders each
selling a pro rata number of shares.

     Sale of  Holdings.  If the board of  directors of Holdings and holders of a
majority  of the  Holdings  Common  Stock then  outstanding  approve the sale of
Holdings (an "Approved  Sale"),  each  Stockholder  has agreed to (i) consent to
such sale and raise no objections  against it, (ii) waive any dissenter's rights
and other  similar  rights and (iii) if such  Approved Sale includes the sale of
Holdings  Common Stock,  each  Stockholder  will sell all of such  Stockholder's
Holdings  Common  Stock on the terms  and  conditions  approved  by the board of
directors of Holdings  and holders of the majority of the Holdings  Common Stock
then outstanding.


                                       20
<PAGE>


Registration Rights Agreement

     Holdings  is a party to a  registration  rights  agreement  (the  "Holdings
Registration  Rights  Agreement")  by and among  Holdings and the  Stockholders.
Pursuant to the terms of the Holdings Registration Rights Agreement CVC, BNP and
Equitable  have the right to require  Holdings,  at the sole expense of Holdings
and subject to certain limitations,  to register under the Securities Act all or
part of the shares of Holdings Common Stock (the "Registrable  Securities") held
by them. CVC is entitled to demand three long-form  registrations  and unlimited
short-form  registrations,  while BNP and  Equitable  are entitled to demand one
long-form  registration  and  unlimited  short-form   registrations;   provided,
however, that no registration may be demanded within six months of the effective
date of a previous demand registration.  Additionally, CVC is entitled to demand
one shelf registration.

     All  Stockholders  are  entitled  to an  unlimited  number  of  "piggyback"
registrations,  with  Holdings  paying all  expenses of the  offering,  whenever
Holdings  proposes to register its Common Stock under the Securities Act (except
in the case of an initial public offering).

     Pursuant to the Holdings Registration Rights Agreement, Holdings has agreed
to indemnify all holders of Registrable  Securities against certain liabilities,
including liabilities under the Securities Act.

Tax Sharing Agreement

     Holdings,  the Company and GAC will be included in the consolidated  United
States federal income tax return of Holdings. Holdings, the Company and GAC have
entered  into a Tax  Sharing  Agreement  whereby  the  Company  and GAC will pay
Holdings  their  respective  pro  rata  share  of  the  total  consolidated  tax
liability,  as set forth in the Tax  Sharing  Agreement.  Under the Tax  Sharing
Agreement the Company and GAC are treated as separate tax groups for purposes of
the agreement. The Tax Sharing Agreement provides that if the Company or GAC has
losses that are absorbed by the rest of the consolidated tax group, the Company,
as the case may be,  cannot carry those losses  forward to offset its own future
taxable income.  In the event that the Company and its subsidiaries are included
in a joint, combined, consolidated or unitary state or local income or franchise
tax return with Holdings, the Company will make payments to Holdings in a manner
consistent  with  that  described  above for  federal  tax  purposes.  Under the
Indenture,  the Company will be permitted to make payments to Holdings under the
Tax Sharing  Agreement;  provided,  however,  that certain amendments to the Tax
Sharing Agreement will be required if more than a nominal amount of gross income
is generated by Holdings or any subsidiary of Holdings (other than Mills).

Importance of B&D License Agreement; CVC's Interest in B&D; Possible Sale of B&D

     A  substantial  majority  of the  products  sold by the  Consumer  Products
Division are manufactured, marketed and sold under a license agreement with B&D.
See  "Business--Licenses  and Trademarks." Although the Company has the right to
perpetually renew the license  agreement for successive  one-year terms (subject
to certain  conditions),  the loss of this license or a  deterioration  in B&D's
business  could  have a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations.

     CVC, the Company's largest shareholder,  has an interest in B&D as a result
of  CVC's   purchase  in  1991  of  certain  notes  of  Papercraft   Corporation
("Papercraft"), the then-parent company of B&D, while Papercraft was the subject
of a bankruptcy  proceeding in the Western District of Pennsylvania.  During the
bankruptcy proceeding, a committee of certain other creditors of Papercraft (the
"Committee") sought to have CVC's claim equitably  subordinated to the claims of
other  creditors.  In October 1995, the bankruptcy  court denied the Committee's
request for  equitable  subordination,  but limited  CVC's claim to the purchase
price of the Papercraft notes (resulting in CVC receiving an 11% interest in the
reorganized entity, which emerged from bankruptcy as BDK Holdings Inc. ("BDK")),
rather than the face value of the notes (which  would result in CVC  receiving a
41%  interest  in  BDK).  CVC has  appealed  the  bankruptcy  court's  decision,
asserting that the court erred in establishing and applying a new and previously
unrecognized  rule which  prohibited CVC from purchasing the notes without first
disclosing to the sellers and the other  creditors  that it intended to purchase
the  notes  and  that  it had a  representative  on the  Papercraft  board.  The
Committee has also filed an appeal  contesting the bankruptcy  court's  decision
not to equitably  subordinate  CVC's claim.  In addition,  CVC believes that the
board of  directors  of BDK may be seeking to sell the  company  and has filed a
complaint with the bankruptcy court seeking to prohibit any sale of the disputed
interest in BDK until all appeals of the bankruptcy  court's  decision have been
exhausted.

     The Company believes that its relationship with B&D is excellent and has no
reason to believe that the matters relating to CVC's interest in BDK or any sale
of BDK will have a material adverse effect on the Company's business,  financial
condition or results of operations.


                                       21
<PAGE>


                                    PART IV:

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

     (a)  Financial Statements

          The  financial   statements  listed  in  the  accompanying   Index  to
          Consolidated  Financial  Statements  are filed as part of this  Annual
          Report on Form 10-K.

     (b)  Reports on Form 8-K

          None

     (c)  Exhibits

     3.1    Certificate of Incorporation of Glenoit Corporation is hereby
            incorporated by reference to Exhibit 3.1 to Glenoit Corporation's
            Registration Statement on Form S-4 (Registration No. 333-42411)
            filed on December 16, 1997.

     3.2    By-Laws of Glenoit Corporation are hereby incorporated by reference
            to Exhibit 3.2 to Glenoit Corporation's Registration Statement on
            Form S-4 (Registration No. 333-42411) filed on December 16, 1997.

     3.3    Certificate of Incorporation of Glenoit Asset Corporation is hereby
            incorporated by reference to Exhibit 3.3 of Amendment No. 1 to
            Glenoit Asset Corporation's Registration Statement of Form S-4
            (Registration No. 333-42411-01) filed February 4, 1998.

     3.4    By-Laws of Glenoit Asset Corporation are hereby incorporated by
            reference to Exhibit 3.4 of Amendment No. 1 to Glenoit Asset
            Corporation's Registration Statement of Form S-4 (Registration No.
            333-42411-01) filed February 4, 1998.

     4.1    Indenture dated as of April 1, 1997 between Glenoit Corporation, the
            Subsidiary Guarantors (as defined therein) and United States Trust
            Company of New York is hereby incorporated by reference to Exhibit
            4.1 to Glenoit Corporation's Registration Statement on Form S-4
            (Registration No. 333-42411) filed on December 16, 1997.

     4.2    Purchase Agreement dated as of March 26, 1997 among Glenoit
            Corporation, the Subsidiary Guarantors (as defined therein), Salomon
            Brothers Inc. and CIBC Wood Gundy Securities Corp. is hereby
            incorporated by reference to Exhibit 4.2 to Glenoit Corporation's
            Registration Statement on Form S-4 (Registration No. 333-42411)
            filed on December 16, 1997.

     4.3    Registration Agreement dated as of March 26, 1997 among Glenoit
            Corporation, the Subsidiary Guarantors (as defined therein), Salomon
            Brothers Inc. and CIBC Wood Gundy Securities Corp. is hereby
            incorporated by reference to Exhibit 4.3 to Glenoit Corporation's
            Registration Statement on Form S-4 (Registration No. 333-42411)
            filed on December 16, 1997.

     10.1   Second Amended and Restated Credit Agreement dated as of April 1,
            1997 among Glenoit Corporation, the banks, financial institutions
            and other institutional lenders listed on the signature pages
            thereto as the Restatement Lenders, the Banque Nationale de Paris,
            as Administrative Agent for the Lender Parties (as defined therein)
            is hereby incorporated by reference to Exhibit 10.1 to Glenoit
            Corporation's Registration Statement on Form S-4 (Registration No.
            333-42411) filed on December 16, 1997.

     10.2   Supply Agreement dated February 1, 1997 by and between the Company
            and Sterling Fibers, Inc. is hereby incorporated by reference to
            Exhibit 10.2 of Amendment No. 1 to Glenoit Corporation's
            Registration Statement on Form S-4 (Registration No. 333-42411)
            filed on February 4, 1998.

     10.3   Employment Agreement dated October 28, 1997 by and among the
            Company, Glenoit Universal, Inc. and Thomas J. O'Gorman is hereby
            incorporated to reference to Exhibit 10.3 of Amendment No. 1 to
            Glenoit Corporation's Registration Statement on Form S-4
            (Registration No. 333-42411) filed on February 4, 1998.

     10.4   Employment Agreement dated August 5, 1996 by and between the Company
            and Lester D. Sears is hereby incorporated by reference to Exhibit
            10.4 of Amendment No. 1 to Glenoit Corporation's Registration
            Statement on Form S-4 (Registration No. 333-42411) filed on February
            4, 1998.

     10.5   Stockholders Agreement dated as of December 14, 1995 by and among
            Glenoit Universal, Inc., Citicorp Venture Capital, John Mowbray
            O'Mara, Banque Nationale de Paris, The Equitable Life Assurance
            Society of the United States, the Seller, Soannes Investment
            Corporation, Thomas J. O'Gorman and certain other parties thereto to
            is hereby incorporated by reference to Exhibit 10.5 of Amendment No.
            1 to Glenoit Corporation's Registration Statement on Form S-4
            (Registration No. 333-42411) filed on February 4, 1998.


                                       22
<PAGE>


     21.1   Subsidiaries of Glenoit Corporation is hereby incorporated by
            reference to Exhibit 21.1 to Glenoit Corporation's Registration
            Statement on Form S-4 (Registration No. 333-42411) filed on December
            16, 1997.

     27.1   Financial Data Schedule.


     (d)  Schedules

          Not applicable.


                                       23
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  in the city of New
York, state of New York, on March 5, 1998.

                            GLENOIT CORPORATION


                            By /s/ THOMAS J. O'GORMAN
                               -----------------------------------------------
                               Thomas J. O'Gorman
                               President, Chief Executive Officer and Director
                               (principal executive officer)

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints Thomas J. O'Gorman and Lester D. Sears his true
and lawful  attorney-in-fact  and agent,  with full  power of  substitution  and
resubstitution,  for  him  and in his  name,  place  and  stead,  in any and all
capacities  (including  his  capacity  as a director  and/or  officer of Glenoit
Corporation to sign any and all amendments (including post-effective amendments)
to this  report,  and to file the same,  with all  exhibits  thereto,  and other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said attorney-in-fact and done in and about the premises, as fully
to all intents and purposes as he might or could do in person,  hereby ratifying
and  confirming  all that said  attorney-in-fact  and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1934, this report and
power of  attorney  have been signed by the  following  persons on behalf of the
registrant on March 5, 1998 in the capacities indicated:


                                      By  /s/ THOMAS J. O'GORMAN
                                          ---------------------------------
                                          Thomas J. O'Gorman
                                          President, Chief Executive 
                                           Officer and Director
                                          (principal executive officer)


                                      By  /s/ LESTER D. SEARS
                                          ---------------------------------
                                          Lester D. Sears
                                          Executive Vice President and Chief 
                                          Financial Officer (principal
                                          financial and accounting officer)


                                      By  /s/ JOHN MOWBRAY O'MARA
                                          ---------------------------------
                                          John Mowbray O'Mara
                                          Director


                                      By  /s/ SALEEM MUQADDAM
                                          ---------------------------------
                                          Saleem Muqaddam
                                          Director


                                      By  /s/ ISAAC SCHAPIRA
                                          ---------------------------------
                                          Isaac Schapira
                                          Director


                                      By /s/ JOSEPH M. SILVESTRI
                                          ---------------------------------
                                         Joseph M. Silvestri
                                         Director


                                       24
<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the 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,  in the city of New
York, state of New York, on March 5, 1998.

                                       GLENOIT ASSET CORPORATION


                                       By  /s/ THOMAS J. O'GORMAN
                                          ---------------------------------
                                          Thomas J. O'Gorman
                                          President, Chief Executive Officer 
                                          and Director (principal executive
                                          officer)


                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints Thomas J. O'Gorman and Lester D. Sears his true
and lawful  attorney-in-fact  and agent,  with full  power of  substitution  and
resubstitution,  for  him  and in his  name,  place  and  stead,  in any and all
capacities  (including  his  capacity  as a director  and/or  officer of Glenoit
Corporation to sign any and all amendments (including post-effective amendments)
to this  report,  and to file the same,  with all  exhibits  thereto,  and other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said attorney-in-fact and done in and about the premises, as fully
to all intents and purposes as he might or could do in person,  hereby ratifying
and  confirming  all that said  attorney-in-fact  and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the  requirements  of the Securities  Act of 1934,  this Annual
Report and power of attorney have been signed by the following persons on behalf
of the registrant on March 5, 1998 in the capacities indicated:


                                       By  /s/ THOMAS J. O'GORMAN
                                          ---------------------------------
                                          Thomas J. O'Gorman
                                          President, Chief Executive Officer 
                                          and Director (principal
                                          executive officer)


                                       By    /s/ LESTER D. SEARS
                                          ---------------------------------
                                          Lester D. Sears
                                          Executive Vice President, Assistant
                                          Secretary (principal
                                          financial and accounting officer)


                                       By /s/ PETER J. WINNINGTON
                                          ---------------------------------
                                          Peter J. Winnington
                                          Secretary and Vice President


                                       By /s/ THOMAS L. HARRELL
                                          ---------------------------------
                                          Thomas L. Harrell
                                          Assistant Treasurer


                                       25
<PAGE>



                      GLENOIT CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Accountants .................................   F-2

Consolidated Balance Sheets as of January 4, 1997
   and January 3, 1998 ............................................   F-3

Consolidated Statements of Income for the years ended
   December 30, 1995, January 4, 1997 and January 3, 1998 .........   F-5

Consolidated Statements of Stockholder's Deficit
   for the years ended December 30, 1995,
   January 4, 1997, and January 3, 1998 ...........................   F-6

Consolidated  Statements of Cash Flows for the
   years ended  December  30, 1995, January 4, 1997
   and January 3, 1998 ............................................   F-7

Notes to Consolidated Financial Statements ........................   F-8


                                      F-1
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Glenoit Corporation

     We have audited the  accompanying  consolidated  balance  sheets of Glenoit
Corporation and subsidiary (the "Company"), a wholly-owned subsidiary of Glenoit
Universal,  Ltd.,  as of January 4, 1997 and  January 3, 1998,  and the  related
consolidated statements of income, stockholder's deficit, and cash flows for the
years  ended  December  30,  1995,  January 4, 1997 and  January 3, 1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Glenoit
Corporation  and  subsidiary as of January 4, 1997 and January 3, 1998,  and the
consolidated  results  of their  operations  and their  cash flows for the years
ended December 30, 1995, January 4, 1997 and January 3, 1998, in conformity with
generally accepted accounting principles.


                                               COOPERS & LYBRAND L.L.P.


Raleigh, North Carolina
February 3, 1998


                                      F-2
<PAGE>



                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               January 4,      January 3,
                                                                 1997             1998
                                                             ------------    ------------
<S>                                                            <C>             <C>       
Assets
Current Assets:
     Cash and cash equivalents ...........................        $48,817      $1,072,280
     Receivables:
          Trade accounts receivable, net of allowance of
             $470,000 and $543,000 as of January 4, 1997
             and January 3, 1998, respectively ...........     18,615,029      21,216,104
          Other receivables ..............................        349,980         174,561
      Inventories ........................................      7,535,920       6,932,272
      Deferred tax asset .................................        300,824         776,560
      Prepaid expenses and other current assets ..........        750,340         379,201
                                                             ------------    ------------
               Total current assets ......................     27,600,910      30,550,978
                                                             ------------    ------------

Property, plant and equipment:
     Land ................................................        340,923         720,511
     Buildings and improvements ..........................      6,717,146       8,482,548
     Machinery and equipment .............................     21,632,224      32,802,578
     Computer equipment ..................................        711,220       1,258,476
     Furniture and fixtures ..............................        681,327         817,495
     Leasehold improvements ..............................        397,884         411,276
     Equipment under capital leases ......................      1,636,246       1,636,246
     Construction-in-progress ............................                      9,356,955
                                                             ------------    ------------

               Total .....................................     32,116,970      55,486,085
     Less accumulated depreciation and amortization ......    (17,687,558)    (20,344,981)
                                                             ------------    ------------
               Net property, plant and equipment .........     14,429,412      35,141,104
                                                             ------------    ------------
Other assets:
     Notes receivable from related party .................        211,500         187,500
     Intangible assets, net of accumulated amortization of
        $1,015,755 and $1,251,002 as of
        January 4, 1997 and January 3, 1998,
        respectively .....................................      4,246,737       4,420,319
     Deferred loan costs and other, net of accumulated
        amortization of $660,673 and $523,743
        as of January 4, 1997 and January 3, 1998,
        respectively .....................................      3,008,762       4,929,666
                                                             ------------    ------------
               Total assets ..............................    $49,497,321     $75,229,567
                                                             ============    ============
</TABLE>


                 The accompanying notes are an integral part of
                     the consolidated financial statements.


                                      F-3
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   January 4,       January 3,
                                                                      1997             1998
                                                                  -------------    -------------
<S>                                                                  <C>              <C>       
                      Liabilities and Stockholder's Deficit
Current liabilities:
     Accounts payable .........................................      $2,994,133       $5,961,475
     Accrued expenses .........................................         777,554        1,635,657
     Accrued compensation .....................................       1,464,622        2,105,825
     Accrued interest .........................................         403,128        2,323,700
     Current maturities of long-term debt .....................       6,316,239               --
     Current maturities of capital lease obligations ..........         571,037          697,934
     Due to Holdings ..........................................       1,734,023        2,678,587
                                                                  -------------    -------------
               Total current liabilities ......................      14,260,736       15,403,178

Long-term debt--less current maturities .......................      75,683,761      102,000,000
Capital lease obligations--less current maturities ............         814,403           61,685
Deferred income taxes .........................................       1,536,739        1,930,694
                                                                  -------------    -------------
               Total liabilities ..............................      92,295,639      119,395,557
                                                                  -------------    -------------

Commitments and contingencies

Stockholder's deficit:
     Common  stock, $.01  par  value,  1,000 shares authorized,
        issued  and outstanding as January 4, 1997
        and January 3, 1998 ...................................              10               10
     Additional paid-in capital ...............................       1,161,713        1,361,713
     Accumulated deficit ......................................     (43,960,041)     (45,295,099)
     Currency translation adjustment ..........................                         (232,614)
                                                                  -------------    -------------

               Total stockholder's deficit ....................     (42,798,318)     (44,165,990)
                                                                  -------------    -------------
               Total liabilities and stockholder's deficit ....     $49,497,321      $75,229,567
                                                                  =============    =============
</TABLE>

                 The accompanying notes are an integral part of
                     the consolidated financial statements.


                                      F-4
<PAGE>



                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                            Years Ended
                                                            -----------
                                            December 30,      January 4,       January 3,
                                                1995             1997             1998
                                           -------------    -------------    -------------
<S>                                          <C>             <C>              <C>         
Net sales ..............................     $93,840,334     $121,750,833     $146,920,759
Cost of sales ..........................      67,249,156       86,525,495       98,061,440
                                           -------------    -------------    -------------
          Gross profit .................      26,591,178       35,225,338       48,859,319
                                           -------------    -------------    -------------
Operating expenses:
     Selling ...........................       8,872,334       10,262,349       12,309,451
     Administrative ....................       5,488,617        5,635,692        8,780,595
     Research and development ..........       1,874,306        2,146,627        1,842,639
                                           -------------    -------------    -------------
          Total operating expenses .....      16,235,257       18,044,668       22,932,685
                                           -------------    -------------    -------------
Income from operations .................      10,355,921       17,180,670       25,926,634
                                           -------------    -------------    -------------
Other income (expense):
     Interest expense, net .............      (3,744,810)      (9,124,655)     (10,938,341)
     Amortization of deferred financing
        costs ..........................        (225,429)        (641,806)        (645,621)
     Other .............................          59,085           52,932          (86,853)
                                           -------------    -------------    -------------
          Total other expense ..........      (3,911,154)      (9,713,529)     (11,670,815)
                                           -------------    -------------    -------------
Income before income taxes and
   extraordinary loss ..................       6,444,767        7,467,141       14,255,819
Income tax expense .....................       3,082,934        3,354,504        5,390,412
                                           -------------    -------------    -------------
Income before extraordinary loss .......       3,361,833        4,112,637        8,865,407
Extraordinary loss on early
   extinguishment of debt, net of tax
   benefit of $1,240,000 for the year
   ended December 30, 1995 and
   $1,527,000 for the year ended
   January 3, 1998 .....................       2,407,006                         2,856,884
                                           -------------    -------------    -------------
Net income .............................        $954,827       $4,112,637       $6,008,523
                                           =============    =============    =============
Basic and diluted income per share:
     Income before extraordinary loss ..          $3,362           $4,113           $8,865
     Extraordinary loss on early
          extinguishment of debt .......          (2,407)                           (2,856)
                                           -------------    -------------    -------------
     Net income ........................            $955           $4,113           $6,009
                                           =============    =============    =============
     Weighted average shares outstanding           1,000            1,000            1,000
                                           =============    =============    =============
</TABLE>


                 The accompanying notes are an integral part of
                     the consolidated financial statements.


                                      F-5
<PAGE>



                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
                     for the years ended December 30, 1995,
                       January 4, 1997 and January 3, 1998

<TABLE>
<CAPTION>
                                                                                        Retained
                                          Shares of                      Additional      Earnings        Currency
                                           Common         Common          Paid-in      (Accumulated    Translation
                                            Stock          Stock          Capital        Deficit)       Adjustment         Total
                                        ------------    ------------    ------------   ------------    ------------    ------------
<S>                                       <C>           <C>             <C>            <C>             <C>             <C>
Balance as of December 31,
   1994 .............................          1,000    $         10    $    139,990   $ (6,370,703)                   $ (6,230,703)
Combination of Tarboro
   Properties, Ltd. .................                                      1,021,723                                      1,021,723
Net income ..........................                                                      954,827                          954,827
Property dividends ..................                                                   (2,170,541)                      (2,170,541)
Cash dividends ......................                                                   (40,486,261)                    (40,486,261)
                                        ------------    ------------    ------------   ------------    ------------    ------------
Balance as of December 30,
   1995 .............................          1,000              10       1,161,713    (48,072,678)                    (46,910,955)

Net income ..........................                                                     4,112,637                       4,112,637
                                        ------------    ------------    ------------   ------------    ------------    ------------
Balance as of January 4, 1997 .......          1,000              10       1,161,713    (43,960,041)                    (42,798,318)
Net income ..........................                                                     6,008,523                       6,008,523
Dividends ...........................                                                    (7,343,581)                     (7,343,581)
Stock compensation ..................                                        200,000                                        200,000
Currency translation adjustment .....                                                                      (232,614)       (232,614)
                                        ------------    ------------    ------------   ------------    ------------    ------------
Balance as of January 3, 1998 .......          1,000    $         10    $  1,361,713   $(45,295,099)   $   (232,614)   $(44,165,990)
                                        ============    ============    ============   ============    ============    ============
</TABLE>

                 The accompanying notes are an integral part of
                     the consolidated financial statements.


                                      F-6
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               Years Ended
                                                                                               -----------
                                                                           December 30,           January 4,             January 3,
                                                                               1995                 1997                   1998
                                                                          -------------         -------------         -------------
<S>                                                                          <C>                      <C>                <C>       
Cash flows from operating activities:
  Net income .....................................................             $954,827            $4,112,637            $6,008,523
    Adjustments to reconcile net income to net cash
      provided by operating activities:
      Loss on early extinguishment of debt .......................            3,647,006                                   4,383,884
      Deferred income taxes ......................................              264,311              (278,396)              (81,781)
      Depreciation and amortization ..............................            1,946,085             3,096,902             3,861,613
      Loss (gain) on sale of property and equipment ..............                                    (22,311)              234,020
      Stock compensation .........................................                                                          200,000
      Effect of foreign currency exchange rate ...................                                                         (232,614)
      Changes in operating assets and liabilities, net of
        acquired operating assets and liabilities:
        Trade and other receivables ..............................           (3,210,376)           (2,329,232)            1,025,410
        Inventories ..............................................           (2,124,194)              315,796             1,678,022
        Prepaid expenses and other ...............................             (800,049)              660,715               443,589
        Due to/from parent .......................................           (1,639,029)            2,555,722               944,564
        Accounts payable .........................................              836,296            (2,957,528)            2,079,009
        Accrued expenses and other liabilities ...................              306,277             1,274,230             3,161,820
                                                                          -------------         -------------         -------------
          Net cash provided by operating
            activities ...........................................              181,154             6,428,535            23,706,059
                                                                          -------------         -------------         -------------
Cash flows from investing activities:
  Purchases of acquired businesses ...............................           (7,836,137)                                 (8,209,333)
  Purchases of and additions to property, plant and
    equipment ....................................................           (5,239,490)           (1,704,631)          (19,605,752)
  Proceeds from sale of property and equipment and
    refunds of deposits ..........................................                                    316,400               52,300
                                                                          -------------         -------------         -------------
          Net cash used in investing activities ..................          (13,075,627)           (1,388,231)          (27,762,785)
                                                                          -------------         -------------         -------------
Cash flows from financing activities:
  Advances on notes receivable-related parties ...................           (1,297,787)
  Collections of notes receivable-related parties ................              888,328
  Combination of Tarboro Properties, Ltd. ........................              303,574
  Payments on capital lease obligations ..........................             (155,806)             (362,668)             (625,821)
  Proceeds from line of credit and issuance of debt ..............           93,281,453             8,200,000           124,600,000
  Payments on line of credit and debt ............................          (27,137,681)          (14,633,768)         (104,600,000)
  Payments for financing costs ...................................           (6,283,760)              (35,137)           (6,950,409)
  Net change in advances from factor on accounts
    receivable ...................................................           (5,578,598)
  Increase in due to parent ......................................                                    817,330
  Dividends paid .................................................          (40,486,261)                                 (1,600,000)
  Payment of note payable to related party .......................                                                       (5,743,581)
                                                                          -------------         -------------         -------------

          Net cash provided by (used in) financing
            activities ...........................................           13,533,462            (6,014,243)            5,080,189
                                                                          -------------         -------------         -------------
          Net increase (decrease) in cash and cash
            equivalents ..........................................              638,989              (973,939)            1,023,463
Cash and cash equivalents at beginning of year ...................              383,767             1,022,756                48,817
                                                                          -------------         -------------         -------------
Cash and cash equivalents at end of year .........................           $1,022,756               $48,817            $1,072,280
                                                                          =============         =============         =============
</TABLE>



               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-7
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

   Description of Business

     On December  13,  1995,  Glenoit  Universal,  Ltd.,  ("Holdings")  formed a
wholly-owned  subsidiary,  Glenoit Corporation,  formerly Glenoit  Intermediate,
Inc.,  and exchanged all of the issued and  outstanding  stock of Glenoit Mills,
Inc. and subsidiary  ("Mills") for all of the issued and  outstanding  shares of
common stock of Glenoit  Corporation.  Accordingly,  the accompanying  financial
statements of Glenoit  Corporation and subsidiaries (the "Company")  reflect the
historical  results of Mills prior to December 13, 1995.  The Company is engaged
primarily in the manufacture of fabric and household rugs with plants in eastern
North Carolina, eastern Tennessee and Ontario, Canada. The Company offers a wide
variety of textile products to customers in the retail,  apparel, and automotive
industries throughout the United States.

   Basis of Presentation

     On December 13, 1995,  Holdings  acquired all of the issued and outstanding
stock of Tarboro Properties,  Ltd. ("Tarboro"), a company related through common
ownership.  Tarboro formerly owned the Company's plants located in eastern North
Carolina.    Holdings    accounted   for   the   acquisition    similar   to   a
pooling-of-interests  and, accordingly,  has restated all financial data for the
year ended December 30, 1995 as of January 1, 1995.

     On  December  13,  1995,  Holdings   contributed  all  of  the  issued  and
outstanding  stock of Tarboro,  with a  carryover  basis of  $1,021,723,  to the
Company. In accordance with the accounting followed by Holdings, the Company has
recorded the contribution as of January 1, 1995 at Tarboro's basis. Further, the
results of  operations  of Tarboro  have been  included  with the Company  since
January 1, 1995.

     In  September  1997,  Glenoit   Corporation's   newly  formed  wholly-owned
subsidiary,  Glenoit Corporation of Canada ("Glenoit Canada"),  acquired certain
assets  and  liabilities  of  Collins  & Aikman  Canada,  Inc.  (see Note 3). In
addition,  Glenoit  Corporation  merged with Glenoit Mills,  Inc. and Tarboro in
September 1997.  Accordingly,  as of January 3, 1998, the consolidated financial
statements  presented  include  the  amounts  of  Glenoit  Corporation  and  its
wholly-owned subsidiaries Glenoit Canada and Glenoit Asset Corporation.

      As of December,  1994, the Company  guaranteed and its assets were primary
collateral  under  certain  obligations  of  Holdings.  This debt was  reflected
("pushed down") as debt of the Company.  Accordingly,  the Company has reflected
the  related  interest  expense,  amortization  of  the  debt  issue  costs  and
extraordinary  losses from early  extinguishment  of this debt in its  financial
statements.  As described in Note 6, the  obligations  were paid off by Holdings
during 1995.

   Principles of Consolidation

     All material  intercompany  accounts and transactions  are eliminated.  The
Company reports its operations on a fifty-two/fifty-three week fiscal year.

   Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets 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.

   Cash Flow Statements

     The Company  considers  all highly  liquid  investments  with a maturity of
three months or less when  purchased to be cash  equivalents.  During 1996,  the
Company entered into a capital lease of $1,636,246, which is a noncash investing
and financing activity.

   Inventories

     Inventories  are valued at the lower of cost or market.  Cost is determined
by the first-in, first-out (FIFO) method.


                                      F-8
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies (Continued)

   Property, Plant and Equipment

     Property,  plant  and  equipment  is stated  at cost;  property,  plant and
equipment obtained through purchase business combinations is stated at estimated
fair value as of the date of  acquisition.  Property and equipment under capital
leases are  initially  recorded at the lower of the present  value of the future
minimum lease payments or the fair value of the related equipment.

     Depreciation  (which includes the amortization of capital leased assets) is
computed  using the  straight-line  method  over the related  asset's  estimated
useful life as follows:

     Buildings and improvements............................    20 to 40 years
     Machinery and equipment...............................     5 to 12 years
     Computer equipment....................................           5 years
     Furniture and equipment...............................     5 to 12 years

   Deferred Loan Costs

     Deferred loan costs, primarily composed of loan origination costs and legal
fees,  are  amortized  over the term of the  related  loan  agreement  using the
straight-line method.

   Intangible Assets

     Intangible  assets  principally  represent the amount by which the costs of
acquired net assets exceeded their related fair value  (goodwill) as of the date
of acquisition.  Goodwill is being amortized on a straight-line basis over lives
of twenty and forty years.  The carrying  value of goodwill  will be reviewed if
the  facts  and  circumstances  suggest  that it is  impaired.  If  this  review
indicates  that goodwill  will not be  recoverable  as  determined  based on the
undiscounted  cash flows of the entity acquired over the remaining  amortization
period, the Company will adjust the carrying value of goodwill.

   Net Sales

     The Company recognizes a sale when title passes to the customer (usually at
the date of shipment).  Amounts which are  determined  to be  uncollectible  are
charged to operating expense.  Sales returns and allowances are recorded against
sales based on management's estimates of sales returns. Net sales from customers
in excess of 10% of consolidated net sales in the respective year is as follows:

                                            December 30, 1995    January 4, 1997
                                            -----------------    ---------------
     Customer A.........................          10%                11%
     Customer B.........................          11%                 9%

No single  customer  accounted  for greater than 10% of  consolidated  net sales
during the year ended January 3, 1998.

     Research and Development Costs

     Research and development costs are charged to expense as incurred.


                                      F-9
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Summary of Significant Accounting Policies (Continued)

   Income Taxes

     The Company follows the asset and liability method of accounting for income
taxes  pursuant  to  Statement  of  Financial   Accounting   Standards  No.  109
"Accounting  for Income  Taxes".  Under  this  method,  deferred  tax assets and
liabilities are determined based on differences  between the financial reporting
and tax basis of assets and  liabilities  and are measured using the enacted tax
rates and laws  that will be in effect  when the  differences  are  expected  to
reverse.

   Net Income Per Share

     The Company adopted  Statement of Financial  Accounting  Standards No. 128,
"Earnings  per  Share",  as of January 3, 1998,  which  requires  the Company to
present  both basic and diluted  earnings per share.  Basic  earnings per common
share is based upon the weighted average number of common shares  outstanding in
the  respective  year.  Diluted  earnings  per share is based upon the  weighted
average  number  of  common  shares   outstanding   and  dilutive  common  stock
equivalents in the respective year. There is no difference between the Company's
basic and diluted  earnings  per share as the  Company  does not have any common
stock equivalents outstanding.

   Concentration of Credit Risk

     The  Company's  principal   financial   instruments  subject  to  potential
concentration  of credit risk are cash and cash  equivalents  and trade accounts
receivable.  The Company places cash deposits with federally  insured  financial
institutions;  however,  at times deposits have exceeded the amounts  insured by
the Federal Deposit Insurance Corporation. The concentration of credit risk with
respect  to trade  accounts  receivable  is limited  due to the large  number of
customers and their dispersion across different geographic  locations.  Although
the Company does not require collateral for unpaid balances,  credit losses have
been within management's expectations.

   Fair Values of Financial Instruments

     On January 1, 1995,  the Company  adopted the  provisions  of  Statement of
Financial  Accounting  Standards  No.  107,  "Disclosures  about  Fair  Value of
Financial   Instruments"  ("FAS  No.  107").  The  Company's  primary  financial
instruments  subject to the provisions of FAS No. 107 are debt instruments.  The
fair  values of these  instruments  are based on market  quotations  for similar
instruments and present value calculations using market interest rates. Based on
the  Company's  calculation  of fair value,  the Company  believes  there was no
material  difference  between  the  carrying  value  and  fair  value  of  these
instruments at January 4, 1997. As of January 3, 1998, the Company estimates the
fair value of its debt instruments to be approximately $108,000,000.

   Foreign Currency

     Foreign  currency  activity is reported in  accordance  with  Statement  of
Financial Accounting Standards No. 52, "Foreign Currency  Translation" ("FAS No.
52"). FAS No. 52 generally  provides that the assets and  liabilities of foreign
operations  be  translated  at the  current  exchange  rate as of the end of the
accounting  period and that  revenues and expenses be  translated  using average
exchange  rates.  The  resulting  translation  adjustments  arising from foreign
currency  translations are accumulated as a separate  component of stockholder's
deficit.  Gains and losses  resulting  from foreign  currency  transactions  are
recognized in income.

   Adoption of New Accounting Pronouncements

     The  Company  will  adopt   Statement  of  Financial   Standards   No.  131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") for its 1998  fiscal  year.  SFAS No. 131  requires  the Company to report
selected information about operating segments in its financial reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas, and major customers. This statement is
not expected to have a material impact on the Company's financial statements.


                                      F-10
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Summary of Significant Accounting Policies (Continued)

     The Company will adopt Statement of Financial  Standards No. 130 "Reporting
Comprehensive  Income"  ("SFAS No. 130") for its 1998 fiscal year.  SFAS No. 130
requires the Company to display an amount  representing the total  comprehensive
income for the period in a financial  statement which is displayed with the same
prominence as other financial statements.  Upon adoption,  all prior period data
presented  will be restated to conform to the  provisions  of SFAS No. 130. This
statement is not expected to have a material  impact on the Company's  financial
statements.

2. Recapitalization

     On December 13, 1995,  Holdings completed a series of transactions in order
to consummate a leveraged recapitalization (the "Recapitalization"). The Company
obtained two new financing  arrangements:  an $80 million credit facility from a
financial institution and a $15 million note from another financial institution.
The  Company  used the  proceeds  from  these  borrowings  to pay off all of the
Company's  outstanding  debt as of  December  13,  1995 (see Note 6 for  further
discussion of this financing and payoff of the Company's  debt) and to terminate
the Company's  factor  agreement  (see Note 4). In addition,  the Company paid a
cash dividend of $40,486,261 to Holdings.

3. Acquisitions

     On  September  9, 1995,  the Company,  through a  wholly-owned  subsidiary,
acquired certain assets and liabilities of Borg Textiles Corporation ("Borg"), a
manufacturer  of  textile  goods  in  Jacksboro,  Tennessee,  in  a  transaction
accounted  for as a purchase  business  combination  for cash  consideration  of
approximately   $7.8  million.   The  purchase   price   allocation   attributed
approximately  $1.8 million to net working  capital  items,  approximately  $2.7
million to property,  plant and  equipment  and $3.3  million to  goodwill.  The
goodwill is being  amortized  over a twenty year life. The results of operations
of the  acquired  business  have been  included  in the  consolidated  financial
statements since the acquisition date.

     The  following  unaudited  pro forma  summary  of  consolidated  results of
operations has been prepared as if Borg had been acquired as of January 1, 1995.

                                                                    Year ended
                                                                    ----------
                                                                    December 30,
                                                                       1995
                                                                  --------------
Net sales .....................................................    $108,161,000
                                                                  =============
Income before extraordinary loss ..............................      $2,205,000
                                                                  =============
Net loss ......................................................       $(202,000)
                                                                  =============
Basic and diluted income per share before extraordinary loss ..          $2,205
                                                                  =============
Basic and diluted net loss per share ..........................           $(202)
                                                                  =============

     The pro forma  results do not purport to be  indicative of the results that
would have  actually  been  obtained if Borg had been  acquired as of January 1,
1995.

     Effective  August 30, 1997,  Glenoit  Corporation  through  Glenoit Canada,
acquired certain assets and certain liabilities of Collins & Aikman Canada, Inc.
for cash consideration of approximately  $8.2 million.  The acquisition has been
accounted  for as a purchase  and,  accordingly,  the  operating  results of the
acquired  business  have been  included in the results of  operations  since the
acquisition date. The purchase price allocation  attributed  approximately  $3.4
million to net working  capital items,  approximately  $4.4 million to property,
plant and equipment and  approximately  $ .4 million to goodwill.  For the years
ended December 28, 1996 and December 23, 1995,  the acquired  business had sales
of approximately  $11.6 million and $9.6 million,  respectively.  Net income and
basic and diluted income per share for the periods presented in the accompanying
consolidated  statements of income would not differ significantly on a pro forma
basis adjusted for this acquisition.


                                      F-11
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Factor Receivables

     On December 13, 1995,  the Company  terminated  its agreement with a factor
for total cash consideration of approximately $9,160,000. The consideration paid
included  the  repayment  of  $4,283,000  to the factor for advances and related
interest  previously   borrowed,   the  repurchase  of  $4,727,000  of  accounts
receivable  previously  sold to the  factor  under the factor  agreement,  and a
termination fee of $150,000.  The Company has accounted for this termination fee
as an extraordinary loss on the early extinguishment of debt.

     Prior to December 13, 1995, the Company's  factor  agreement called for the
factor to purchase  substantially all trade  receivables  without recourse up to
maximums  established  by the  factor  for each  customer  account.  Receivables
purchased in excess of these  limitations  were subject to recourse in the event
of  nonpayment  by the customer.  The factor  agreement,  as amended on June 14,
1994,  allowed for advances up to 95% of the factored  receivables with interest
charged on the net advances at 1% over the prime rate.

5. Inventories

     Inventories are summarized as follows:

                                                    January 4,        January 3,
                                                      1997               1998
                                                   ----------         ----------
Raw materials ............................         $2,567,060         $2,082,516
Work-in-progress .........................          1,432,577          1,516,899
Finished goods ...........................          3,536,283          3,332,857
                                                   ----------         ----------
     Total Inventories ...................         $7,535,920         $6,932,272
                                                   ==========         ==========

6. Long-Term Debt

     At January 4, 1997 and January 3, 1998,  long-term  debt  consisted  of the
following:

                                                    January 4,      January 3,
                                                      1997             1998
                                                   -----------      ------------
Senior credit facilities:
   Term A Note Payable ......................      $28,000,000                --
   Term B Note Payable ......................       25,000,000                --
   Revolving credit facility ................       14,000,000        $2,000,000
                                                   -----------      ------------
     Total senior credit facilities .........       67,000,000         2,000,000
Senior Subordinated Note Payable at 12.5% ...       15,000,000                --
Senior Subordinated Notes at 11% ............                        100,000,000
                                                   -----------      ------------

     Total ..................................       82,000,000       102,000,000
Less: current maturities ....................       (6,316,239)
                                                   -----------      ------------

     Total long-term debt ...................      $75,683,761      $102,000,000
                                                   ===========      ============

     On April 1, 1997, the Company issued  $100,000,000  of senior  subordinated
notes (the "Senior  Subordinated  Notes") in a private  placement bond offering.
The  Senior  Subordinated  Notes  bear  interest  at a fixed rate of 11% and are
redeemable on April 15, 2007. The Company at its option,  can prepay these notes
at a price of 105.5% of the original  principal  amount,  beginning on April 15,
2002. The premium declines by 1.833%  thereafter each year beginning on April 15
until reduced to the original principal amount. Additionally, prior to April 15,
2000,  the  Company  may  redeem  in the  aggregate  up to  25% of the  original
aggregate  principal  amount  with the  proceeds  of one or more  Public  Equity
Offerings,  as defined in the Indenture governing the Senior Subordinated Notes,
at a redemption price of 110% of the original principal amount. Upon a Change of
Control of the


                                      F-12
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Long-Term Debt (Continued)

Company,  as defined in the Indenture  governing the Senior  Subordinated Notes,
the holder of a Senior  Subordinated  Note may require the Company to redeem the
note  at  a  price  of  101%  of  the  principal  amount.  Interest  is  payable
semi-annually, and began on October 15, 1997.

     On April 1, 1997, the Company also entered into a $70 million senior credit
facility (the "Facility") with a financial institution.  Of the total commitment
of $70 million under the Facility,  $25 million is designated as an  Acquisition
Commitment and $45 million as a Working Capital Commitment, which is a revolving
credit  facility  limited to the Borrowing Base as defined in the Facility.  The
Company may borrow under the Acquisition Facility through December 31, 1999. The
bank also  extended  up to a total of $5  million  in  letters  of credit to the
Company;  however,  the amount is  limited  to the amount of the unused  Working
Capital Commitment. At January 3, 1998, the Company had $2.0 million outstanding
under the Working Capital Commitment, had approximately $ 16.8 million available
under the Working Capital  Commitment and up to $25 million  available under the
Acquisition Commitment.

     At the option of the Company,  the Company may designate advances under the
Facility to bear interest at the Base Rate, as defined in the Facility, plus .5%
for an Acquisition  Commitment  Advance and 1% for a Working Capital  Commitment
Advance or the Eurodollar Rate plus 2% for an Acquisition  Commitment Advance or
2.5% for a Working Capital Commitment Advance. The Company must pay a commitment
fee equal to five  eighths of one  percent  per year of the  unused  Acquisition
Commitment  and one half of one percent per year of the unused  Working  Capital
Commitment.  Additionally,  the  Company  must pay a letter of credit fee of two
percent per year of the average available amount under the letters of credit for
each quarter such letters of credit are outstanding.

     All interest,  commitment fees and letter of credit fees under the Facility
are payable  quarterly and began on June 30, 1997. The principal  balance of the
Acquisition  Commitment is repayable  quarterly  commencing on March 31, 2000 in
amounts  equal  to  one-twentieth  of  the  aggregate   principal  balance  then
outstanding,  with the balance due on December  31,  2001.  The Working  Capital
commitment is due on December 31, 2001.  Prior to December 31, 1999, the Company
may be  required  to prepay  the  Acquisition  Commitment  and  Working  Capital
Commitment  in  amounts  equal to the Net Cash  Proceeds  of the sale of assets,
stock,  debt  securities  or any  other Net Cash  Proceeds,  as  defined  by the
Facility.  The  Acquisition  and  Working  Capital  Commitments  would  then  be
permanently reduced by such payment.

     The Facility and Senior  Subordinated  Notes have  various  covenants  that
require  the Company to:  maintain  key  financial  ratios,  restrict  corporate
borrowings,  limit the Company's  ability to pay  dividends,  limit the type and
amount of certain investments which may be undertaken by the Company,  limit the
Company's  disposition  of  assets,  limit the  Company's  ability to enter into
operating and capital leases, and restrict the Company's ability to issue shares
of its stock.

     Substantially  all of the Company's  assets and  operations  are pledged as
collateral  for the  Facility.  Holdings  and  Glenoit  Asset  Corporation  have
guaranteed the Company's  obligations  under the Facility.  Holdings and Glenoit
Asset  Corporation  have no  substantive  assets or  operations  and rely on the
Company to fund their obligations.

     The Senior Subordinated Notes are fully and unconditionally  guaranteed, on
a  joint  and  several  basis,  by  Glenoit  Asset  Corporation.  Glenoit  Asset
Corporation's  operations consist solely of leasing certain trademarks and other
intangibles to Glenoit  Corporation.  Accordingly,  Glenoit Asset  Corporation's
assets and operations  consist  primarily of intercompany  assets and operations
with  Glenoit  Corporation.   Glenoit  Canada  has  not  guaranteed  the  Senior
Subordinated  Notes.  Prior to the formation of Glenoit Canada in June 1997, all
of Glenoit  Corporation's  wholly-owned  subsidiaries fully and  unconditionally
guaranteed the Senior  Subordinated Notes. For periods prior to the formation of
Glenoit Canada,  the Company had no independent  operations or assets other than
its investment in its subsidiaries.  The financial information of the subsudiary
guarantors for these periods has been excluded because management  believes that
this information is not material to investors.

     The  following  tables  present  summarized  balance sheet  information  of
Glenoit Corporation, Glenoit Asset Corporation, and Glenoit Canada as of January
3, 1998 and the related summarized  operating  statement and cash flow statement
information  for the  year  then  ended.  The  Company  believes  that  separate
financial statements and other disclosures  regarding Glenoit Asset Corporation,
the sole subsidiary guarantor of the Senior Subordinated Notes, are not material
to investors.  Summarized balance sheet information, in thousands, as of January
3, 1998 is as follows:


                                      F-13
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Long-Term Debt (Continued)



<TABLE>
<CAPTION>
                                                                               Consolidated
                                            Glenoit Glenoit Asset                  Domestic     Glenoit
                                        Corporation   Corporation  Eliminations  Operations      Canada  Eliminations  Consolidated
                                        -----------   -----------  ------------  ----------      ------  ------------  ------------
<S>                                         <C>            <C>          <C>         <C>           <C>          <C>          <C>
Cash and cash equivalents .............         651            76                       727         345                       1,072
Accounts and other receivables, net ...      19,046                                  19,046       2,345                      21,391
Inventories ...........................       6,259                                   6,259         673                       6,932
Other current assets ..................       1,119                                   1,119          37                       1,156
                                            -------        ------       -------     -------       -----        ------       -------
     Total current assets .............      27,075            76                    27,151       3,400                      30,551
Property,  plant and equipment, net ...      29,490                                  29,490       5,651                      35,141
Other assets ..........................      43,844        26,054       (52,183)     17,715         428        (8,605)        9,538
                                            -------        ------       -------     -------       -----        ------       -------
     Total assets .....................     100,409        26,130       (52,183)     74,356       9,479        (8,605)       75,230
                                            =======        ======       =======     =======       =====        ======       =======

Accounts payable ......................       5,337             1                     5,338         623                       5,961
Accrued expenses ......................       8,958           651          (651)      8,958         484                       9,442
                                            -------        ------       -------     -------       -----        ------       -------
     Total current liabilities ........      14,295           652          (651)     14,296       1,107                      15,403
Long-term debt ........................     102,000                                 102,000                                 102,000
Other long-term liabilities ...........      28,047                     (26,054)      1,993                                   1,993
Stockholders equity (deficit) .........     (43,933)       25,478       (25,478)    (43,933)      8,372        (8,605)      (44,166)
     Total liabilities and equity           -------        ------       -------     -------       -----        ------       -------
        (deficit) .....................     100,409        26,130       (52,183)     74,356       9,479        (8,605)       75,230
                                            =======        ======       =======     =======       =====        ======       =======
</TABLE>

     Summarized operating  statements  information,  in thousands,  for the year
ended January 3, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                               Consolidated
                                            Glenoit Glenoit Asset                  Domestic     Glenoit
                                        Corporation   Corporation  Eliminations  Operations      Canada  Eliminations  Consolidated
                                        -----------   -----------  ------------  ----------      ------  ------------  ------------
<S>                                         <C>            <C>          <C>         <C>           <C>            <C>         <C>
Net sales .............................     142,689                                 142,689       4,232                     146,921
Cost of sales .........................      94,668                                  94,668       3,394                      98,062
                                            -------        ------        ------     -------      ------          ----       -------
Gross profit ..........................      48,021                                  48,021         838                      48,859
Operating expenses ....................      22,586            12                    22,598         334                      22,932
Royalty income (expense) ..............      (7,610)        7,610
                                            -------        ------        ------     -------      ------          ----       -------
Income from operations ................      17,825         7,598                    25,423         504                      25,927
Interest expense (income) .............      12,757        (1,817)                   10,940          (2)                     10,938
Other expense (income) ................      (5,707)                      6,120         413         (11)           331          733
Income taxes ..........................       1,909         3,295                     5,204         186                       5,390
Extraordinary loss, net ...............       2,857                                   2,857                                   2,857
                                            -------        ------        ------     -------      ------          ----       -------
     Net income .......................       6,009         6,120        (6,120)      6,009         331          (331)        6,009
                                            =======        ======        ======     =======      ======          ====       =======
</TABLE>


     Summarized cashflow statement information, in thousands, for the year ended
January 3, 1998 is as follows:


<TABLE>
<CAPTION>
                                                                               Consolidated
                                            Glenoit Glenoit Asset                  Domestic     Glenoit
                                        Corporation   Corporation  Eliminations  Operations      Canada  Eliminations  Consolidated
                                        -----------   -----------  ------------  ----------      ------  ------------  ------------
<S>                                         <C>          <C>              <C>      <C>            <C>             <C>       <C>
Cashflows from operating activities ...      15,874       6,078                     21,952         1,754                     23,706
Cashflows used in investing
     activities .......................     (26,354)                               (26,354)       (1,409)                   (27,763)
Cashflows from financing activities ...      11,172      (6,092)                     5,080                                    5,080
                                             ------      ------         ---        -------        ------        ---         -------
Net increase (decrease) in cash .......         692         (14)                       678           345                      1,023
Cash at beginning of period ...........         (41)         90                         49                                       49
                                             ------      ------         ---        -------        ------        ---         -------
Cash at end of period .................         651          76                        727           345                      1,072
                                             ======      ======         ===        =======        ======        ===         =======
</TABLE>


                                      F-15
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Long-Term Debt (Continued)

     On April 1, 1997,  the Company  utilized the  proceeds  from the 11% Senior
Subordinated  Notes  to  retire  the  Company's  existing  debt  with  financial
institutions,  which  included  the  balance  of an $80  million  senior  credit
facility  (the Term A and B Notes and the working  capital  line of credit) (the
"Old  Facility") and a $15 million 12.5% Senior  Subordinated  Note payable (the
$15 Million  Senior  Subordinated  Note")  Additionally,  on April 1, 1997,  the
Company  retired  a  note  to  a  shareholder  of  Holdings  in  the  amount  of
approximately $5.8 million (see Note 10). As a result of the Company's payoff of
these  obligations,  the Company charged to earnings  $2,884,000 of net deferred
loan costs and a $1,500,000 prepayment penalty related to the $15 million Senior
Subordinated  Note.  The Company has recognized an  extraordinary  loss from the
early  extinguishment  of debt of  $2,857,000,  which is net of a tax benefit of
$1,527,000 related to these changes.

     At the option of the Company,  the Company  could  designate the Term A and
Term B portions of the Old Facility to bear  interest at the Base Rate (which is
defined as the higher of the bank's prime rate or one-half of one percent  above
the Federal  Funds Rate) plus 1.75% and 2.25%,  respectively,  or the LIBOR rate
plus 3.25% and 3.75%,  respectively.  The working capital line of credit portion
of the Old Facility  bore  interest at the Base Rate plus 1.5% or the LIBOR rate
plus 3%. The $15 Million Senior Subordinated Note bore interest at 12.5%.

     On December  13,  1995,  the Company  utilized  the  proceeds  from the Old
Facility and the $15 Million Senior  Subordinated  Note to pay off the Company's
then existing debt with financial  institutions,  including $4.8 million of debt
issued in connection with the 1995 acquisition  described in Note 3. As a result
of the  Company's  payoff  of these  debts,  the  Company  charged  to  earnings
$1,218,000  of net  deferred  loan  costs and  $2,279,000  paid as a  prepayment
penalty   related  to  the  then  existing  debt.  The  Company   recognized  an
extraordinary  loss from the early  extinguishment of debt of $3,497,000 related
to these charges in 1995.

     During the years ended  December 30, 1995,  January 4, 1997, and January 3,
1998 the Company paid $3,870,000,  $8,730,000,  and $9,017,000 respectively,  in
cash for interest.

7. Leases

     The Company leases certain  equipment and facilities under operating leases
that expire through December 2005. Rent expense was $2,797,000, $3,640,000 and $
4,075,000 during the years ended December 30, 1995, January 4, 1997, and January
3, 1998 respectively.

     On January 1, 1995, the Company entered into a lease with a company, whose
shareholders  are  indirectly  shareholders  of  Holdings,  for a  warehouse  in
Tarboro,  North  Carolina.  On  December  13,  1995,  the  Company  through  its
wholly-owned  subsidiary  Mills,  acquired the warehouse from this company for a
purchase price of approximately $1,263,000,  which approximated its net carrying
value. As a result,  the Company was released from  obligation  under this lease
effective  December 13, 1995.  Rent expense related to this facility during 1995
was $458,000.

     As of January 3, 1998  future net  minimum  lease  payments  under  capital
leases and future minimum rental payments  required under operating  leases that
have  initial  or  remaining  noncancelable  terms in  excess of one year are as
follows:

<TABLE>
<CAPTION>
                                                                               Capital       Operating
                                                                               Leases         Leases
                                                                            -----------    -----------
<S>                                                                            <C>         <C>
  1998                                                                       $ 747,000     $ 3,552,000
  1999                                                                          62,250       3,543,000
  2000                                                                                       3,537,000
  2001                                                                                       2,934,000
  2002                                                                                       2,067,000
  Thereafter..............................................................                   3,965,000
                                                                            -----------    -----------
    Total minimum lease payments.......................................        809,250     $19,598,000
                                                                                           ===========
    Less amounts representing interest, calculated at the Company's
       incremental borrowing rate......................................
                                                                                49,631
                                                                            ----------
Present value of net minimum lease payments.............................       759,619
Current maturities of capital lease obligations.........................      (697,934)
                                                                            ----------
Capital lease obligations--less current obligations......................   $   61,685
                                                                            ==========
</TABLE>


                                      F-15
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Income Taxes

     The provision, including tax benefits on extraordinary losses, for federal,
state and foreign income taxes consist of the following components:

                                 December 30,      January 4,         January 3,
                                    1995             1997               1998
                                -----------       -----------       -----------
Current:
     Federal .............      $ 1,455,623       $ 3,260,957       $ 2,867,333
     State ...............          123,000           371,943           891,521
     Foreign .............                                              186,339
                                -----------       -----------       -----------
                                  1,578,623         3,632,900         3,945,193
                                -----------       -----------       -----------
Deferred:
     Federal .............          339,551          (263,662)          730,402
     State ...............          (75,240)          (14,734)         (812,183)
                                -----------       -----------       -----------
                                    264,311          (278,396)          (81,781)
                                -----------       -----------       -----------
          Total ..........      $ 1,842,934       $ 3,354,504       $ 3,863,412
                                ===========       ===========       ===========

     The 1995 and 1997  provisions  for federal and state  income taxes has been
allocated  to  income  before  income  taxes  and  extraordinary  loss,  and the
extraordinary loss on early extinguishment of debt.

     A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:

<TABLE>
<CAPTION>
                                                December 30,  January 4,  January 3,
                                                   1995         1997         1998
                                                ----------   ----------   ----------
<S>                                              <C>        <C>          <C>
Statutory federal income tax expense ........     $951,000   $2,539,000   $3,356,000
State income taxes, net of federal benefit ..      107,000      275,000      191,000
Contingencies and nondeductible expenses ....      709,000      475,000      307,000
Other ......................................        75,934       65,504        9,412
                                                ----------   ----------   ----------
Income tax expense ..........................   $1,842,934   $3,354,504   $3,863,412
                                                ==========   ==========   ==========
</TABLE>

     Undistributed  earnings of the  Company's  foreign  subsidiary  amounted to
approximately  $330,000 at January 3, 1998.  These earnings are considered to be
indefinitely  reinvested  and,  accordingly,  no U. S.  federal and state income
taxes have been  provided.  Upon  distribution  of these earnings in the form of
dividends or otherwise, the Company would be subject to additional income taxes.


                                      F-16
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8.  Income Taxes (Continued)

     Deferred  income taxes reflect the tax effects of  differences  between the
carrying  amounts of assets and liabilities  for financial  reporting and income
tax purposes.  The significant  components of the Company's  deferred tax assets
and liabilities at January 4, 1997 and January 3, 1998 are as follows:

                                                     January 4,      January 3,
                                                       1997            1998
                                                   -----------      -----------
Deferred tax assets:
Capital loss carry forwards ..................        $416,440         $416,440
Accrued liabilities ..........................         141,366          305,778
Asset valuation allowances ...................         138,473          179,500
State net operating losses ...................              --          561,430
Other ........................................          20,985          139,554
                                                   -----------      -----------
Gross deferred assets ........................         717,264        1,602,702
Valuation allowance ..........................        (416,440)        (416,440)
                                                   -----------      -----------
Deferred tax assets ..........................        $300,824       $1,186,262
Less:  Noncurrent portion ....................                         (409,702)
                                                   -----------      -----------
Current deferred tax assets ..................         300,824          776,560
                                                   -----------      -----------
Deferred tax liabilities:
Depreciation and amortization ................      $1,515,248       $2,248,599
Other ........................................          21,491           91,797
                                                   -----------      -----------
Deferred tax liabilities .....................       1,536,739        2,340,396
Less:  Noncurrent deferred tax asset .........                         (409,702)
                                                   -----------      -----------

Noncurrent deferred tax liability ............      $1,536,739       $1,930,694
                                                   ===========      ===========

     A deferred  tax asset is required to be  recognized  for the tax benefit of
deductible  temporary  differences  and  net  operating  loss  carryforwards.  A
valuation allowance is recognized if it is more likely than not that some or all
of the deferred  tax asset will not be realized.  The  valuation  allowance  was
provided for the  charge-off  of an  investment  in 1993 which is a capital loss
realizable as an offset against capital gains in future  periods.  Subsequent to
the mergers in September 1997  discussed in Note 1, the Company  generated a net
operating loss of approximately $11.3 million at the state level.

     The Company and Holdings have entered into a Tax Sharing  Agreement whereby
the Company will pay Holdings its respective pro rata share of the total federal
consolidated tax liability or receive its respective pro rata share of the total
consolidated  federal  tax refund,  as set forth in the Tax  Sharing  Agreement.
Under the Tax  Sharing  Agreement,  the  Company  and  Holdings  are  treated as
separate tax groups.

     The Company's and Holdings'  federal income tax returns for January 1, 1994
and December  31,  1994,  have been  examined by the  Internal  Revenue  Service
("IRS").  The IRS has assessed  taxes,  penalties  and interest  relating to the
deductibility  of certain  expenses  claimed as deductions  by the Company.  The
Company is currently in the process of  responding to the IRS. In the opinion of
management,  adequate  provision  has been  made in the  accompanying  financial
statements  for its  income tax  obligations;  however,  should  the  Company be
responsible  for all taxes,  penalties  and  interest  assessed by the IRS,  the
Company  would be required to pay an  additional  amount of  approximately  $1.6
million over amounts currently  accrued.  The Company believes that the proposed
adjustments by the IRS are inappropriate and intends to vigorously contest these
assessments.  It is reasonably  possible that the Company's  current estimate of
its obligations related to the IRS assessment will change in the near term.

     The Company's  state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of Finance.
In April 1997, the New York Department of Finance assessed taxes and interest in
the amount of approximately $130,000. The Company is currently in the process of
responding to the New York Department of Finance.  The Company believes that the
proposed   adjustments   made  by  the  New  York   Department  of  Finance  are
inappropriate and intends to vigorously contest these assessments.


                                      F-17
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8.  Income Taxes (Continued)

     Holdings has an  indemnification  agreement with a shareholder with respect
to certain tax obligations.  While tax obligations are the expense and liability
of the Company and  Holdings,  the  indemnification  agreement  provides  for an
additional  contribution  of  capital  to  Holdings  from this  shareholder  via
reductions of long-term obligations due the shareholder from Holdings.

     During the years ended  December 30, 1995,  January 4, 1997, and January 3,
1998 the Company paid $3,486,000,  $2,952,000, and $ 2,033,000  respectively,
in cash for taxes.

9. Employee Benefit Plans

     The Company has non-contributory  pension plans covering  substantially all
of its employees.  The benefits are based on years of service and the employee's
compensation during the years of credited service.  The Company's funding policy
is to  contribute  annually the maximum  amount that can be deducted for federal
income tax purposes. Assets of the plan are managed by a trustee and invested in
marketable securities, money market instruments, and mutual funds. The following
sets forth the plans'  status based on  actuarial  studies as of January 4, 1997
and January 3, 1998:

<TABLE>
<CAPTION>
                                                                           January 4,       January 3,
                                                                              1997            1998
                                                                           ------------    ------------
Actuarial present value of benefit obligations:
     Accumulated benefit obligation, including vested benefits of
        $7,878,842 and $9,987,225 , respectively .......................     $8,362,919     $10,209,432
                                                                           ============    ============
     Projected benefit obligation for service rendered to date .........     $9,905,860     $11,716,828
     Plan assets at fair value .........................................      9,242,634      12,043,836
                                                                           ------------    ------------
     Plan assets in excess of projected benefit obligation (projected
        benefit obligation in excess of plan assets) ...................       (663,226)        327,008
     Unrecognized prior service cost ...................................        474,714         322,825
     Unrecognized net asset being amortized over 12 years (salaried) and
        9 years (non-salaried) .........................................       (325,462)       (210,983)
     Unrecognized (gain) loss ..........................................        364,639        (433,353)
                                                                           ------------    ------------
     Prepaid pension cost (accrued pension) included in other current
        assets (accrued expenses) ......................................      $(149,335)         $5,497
                                                                           ============    ============
<CAPTION>
                                                                            December 30,      January 4,       January 3,
                                                                               1995              1997             1998
                                                                           -----------       -----------       -----------
<S>                                                                           <C>               <C>               <C>     
Net pension cost includes the following components:                        
     Service cost--benefits earned during the period ................         $432,085         $530,689          $499,795
     Interest cost on projected benefit obligations .................          556,019          666,149           734,657
     Actual return on plan assets ...................................       (1,452,735)        (972,441)       (1,541,513)
     Net amortization and deferral of unrecognized net                     
        gain (loss) .................................................          952,598          344,316           842,319
                                                                           -----------       -----------       -----------
     Net periodic pension expense for year ..........................         $487,967         $568,713          $535,258
                                                                           ===========      ===========       ===========
                                                                         
</TABLE>

     A weighted  average  discount  rate of 7.5% and a 4.5% rate of  increase in
future  compensation  levels was used in determining the actuarial present value
of the  projected  benefit  obligations  for both  1996 and 1997.  The  expected
long-term rate of return of pension plan assets was 8% for both 1996 and 1997.


                                      F-18
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9.  Employee Benefit Plans (Continued)

     In 1995, the Company  established a defined  contribution plan (the "Plan")
for all  hourly  employees  in  Tennessee.  Under the  Plan,  the  Company  must
contribute 2.5% of employee  salaries to the Plan each plan year.  Contributions
were  approximately  $20,000 and $65,000  during the years ended January 4, 1997
and January 3, 1998,  respectively.  In 1997, the Company  established a defined
contribution plan (the "1997 Plan") for all other domestic employees not covered
by the Plan. Under the 1997 Plan, the Company matches  contributions made by the
employees at 50% up to a maximum of 3% of the employees earnings.  Contributions
made by the Company were approximately $240,000 during 1997. Amounts contributed
under  the Plan and the 1997 Plan are  invested  by a  trustee  in a variety  of
investment options, including marketable securities and mutual funds.

10. Related Party Transactions

     The Company has an unsecured 4% note receivable from an officer with a face
amount of  $300,000.  The note will be  forgiven by the  Company  under  certain
circumstances and, accordingly,  the Company is recognizing compensation expense
over the term of the note,  which is  expected  to be  December  31,  2005.  The
unamortized  balance  at January 4, 1997 and  January 3, 1998 was  $211,500  and
$187,500 respectively.

     During  1995,  the  Company  loaned a  shareholder  of  Holdings a total of
$1,297,787  in the form of notes  receivable  bearing  interest at rates ranging
from 4% to 9%. During 1995, the  shareholder  repaid $888,328 of these notes. On
December 13, 1995,  the Company  distributed a noncash  dividend of  $2,170,541,
which  represented  the  balance  of these  notes at the  distribution  date and
certain other receivables and assets to Holdings.

     During the year ended  December  30, 1995,  the Company sold  approximately
$645,000 in  merchandise  to a company  owned  indirectly  by a  shareholder  of
Holdings.  During the years ended  December  30,  1995 and January 4, 1997,  the
Company paid a total of approximately  $650,000 and $175,000,  respectively,  to
companies  under  common  ownership  and  related  parties  for  management  and
consulting fees.

     Included  in other  receivables  at  January  4,  1997 are  receivables  of
approximately  $297,000 from  companies  indirectly  owned by a  shareholder  of
Holdings.

     All  expenses of the Company are  reflected in the  Consolidated  Financial
Statements.  No costs are  incurred  by Holdings  on behalf of the  Company.  As
discussed  in Note 8, the  Company  has a tax sharing  agreement  with  Holdings
whereby the Company will pay Holdings its respective  prorata share of the total
federal  consolidated  tax liability or receive its respective  prorata share of
the total federal consolidated tax refund. The impact to the Company is recorded
in the "Due from Parent" or "Due to Parent" accounts.

     On March 5, 1997, the Company  declared a dividend and issued a note in the
amount  of   approximately   $5.8  million  to  a  shareholder  of  Holdings  in
satisfaction  of a  contingent  earnout  obligation  of Holdings  related to the
Recapitalization discussed in Note 2. This note contained a mandatory prepayment
provision which required the Company to retire the Note and accrued  interest as
of the date of a bond  offering of the  Company.  On April 1, 1997,  the Company
retired the Note with proceeds from the bond offering described in Note 6.

     On June 14,  1997,  the  Company  declared a dividend in the amount of $1.6
million  to enable  Holdings  to  exercise  an option  to  repurchase  shares of
Holdings'  common  stock and to repay a note due to a  shareholder  of Holdings.
This  transaction  was  related  to the  Recapitalization  discussed  in Note 2.
Additionally,  as  part  of the  same  transaction  the  Company  made a loan of
$931,263 to an officer at an interest  rate of prime plus .5%. The principal and
interest were repaid in full on August 12, 1997.

     In August  1997,  Holdings  granted  an officer  of the  Company  1,286.211
options for shares of  Holdings'  Class A common  stock at an exercise  price of
$37,500  in the  aggregate.  The  officer  exercised  the  options  immediately;
however, the stock is restricted and subject to certain vesting requirements. On
December 30, 1997,  Holdings  removed all vesting  requirements  and the Company
recorded  non-cash  compensation  expense of  approximately  $200,000 during the
fourth quarter of 1997.




                                      F-19
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly owned subsidiary of Glenoit Universal, Ltd.)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




11. Commitments and Contingencies

     Holdings is a holding company and as a result does not have any substantive
assets or operations that generate revenues or cash flows. Accordingly, Holdings
relies  on the  Company's  distribution  of  dividends  in  order  to  fund  its
operations  and meet its  obligations,  including  its  interest  and  principal
payments.

     As of January 3,  1998,  Holdings  has  obligations  with a face  amount of
approximately  $26.9  million,  bearing  interest at stated rates  between 5% to
12.5%,  to  shareholders  ("Shareholder  Notes") with  principal due in 2004 and
2005. These obligations are not reflected in the Company's  accompanying balance
sheets or income statements. Subject to existing debt restrictions,  Shareholder
Notes  with  a  face  amount  of  approximately  $9.7  million  contain  certain
acceleration  clauses.  They  include the sale of stock in a  registered  public
offering, certain mergers and certain changes of existing shareholder ownership.
At the option of Holdings,  subject to the Company's  existing debt restrictions
(Note 6), the  interest may be paid by the  issuance of  additional  notes or in
cash. However,  Holdings must pay interest in cash on certain of the Shareholder
Notes if defined  levels of  consolidated  cash flows of Holdings are  attained.
Annual interest payments during the next five years are approximately $2 million
in 1998, and approximately $2.6 million per year thereafter,  excluding interest
on notes that may be issued to pay interest. Assuming Holdings pays all interest
payments related to the Shareholder  Notes with additional  notes, the Company's
ultimate  distribution of dividends in order for Holdings to meet its existing
debt obligations is expected to be approximately  $63 million beginning December
2004 through  December  2005.  However,  the Company may be required to declare
dividends in order for Holdings to fund certain of its  obligations  in cash as
discussed above. Such amounts could approximate  $3 million in the aggregate
and are due through December 2004, if the  defined  levels of consolidated cash
flow of Holdings are met.

     From time to time,  the Company is involved in  litigation  which arises in
the ordinary course of business. Management believes the ultimate disposition of
these  matters  will  not  have a  material  adverse  effect  on  the  Company's
consolidated financial position or results of operations.



                                      F-20