================================================================================

                           FORM 10-Q QUARTERLY REPORT

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


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

For the quarterly period ended AUGUST 28, 2004 _

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

For the transition period from                      to
                               ------------------------------------------------

Commission file number                             1-5901
                      ---------------------------------------------------------


                             FAB INDUSTRIES, INC. _
             (Exact name of registrant as specified in its charter)


          DELAWARE                                            13-2581181
--------------------------------------------------------------------------------
(State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                           Identification No.)


  200 MADISON AVENUE, NEW YORK, N.Y.                              10016
--------------------------------------------------------------------------------
(Address of principal executive office)                         (Zip Code)


                                 (212) 592-2700
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                       N/A
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year;
                         if changed since last report)


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

Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_]    No  [X]

As of October 12, 2004, 5,215,031 shares of the registrant's common stock,
$0.20 par value, were outstanding.


<PAGE>

                      FAB INDUSTRIES INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS


PART 1 - FINANCIAL INFORMATION                                              PAGE

      Item 1.  Financial Statements

      Condensed Consolidated Statements of Operations
      13 Weeks ended August 28, 2004 and August 30, 2003 (unaudited) ..........2

      Condensed Consolidated Statements of Operations
      39 Weeks ended August 28, 2004 and August 30, 2003 (unaudited) ..........3

      Condensed Consolidated  Balance Sheets
      August 28, 2004 (unaudited) and November 29, 2003 .......................4

      Condensed Consolidated Statements of Stockholders' Equity
      39 Weeks ended August 28, 2004 (unaudited) 6

      Condensed Consolidated Statements of Cash Flows
      39 Weeks ended August 28, 2004 and August 30, 2003 (unaudited) ..........7

      Notes to Condensed Consolidated Financial Statements (unaudited) ........8

      Item 2. Management Discussion and Analysis of Financial Condition
                     And Results of Operations ...............................18

      Item 3. Quantitative and Qualitative Disclosures about Market Risk .....22

      Item 4.  Controls and Procedures .......................................23


PART II - OTHER INFORMATION

      Item 6. Exhibits and Reports on Form 8-K ...............................23


SIGNATURES ...................................................................25



                                       (1)
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                FOR THE 13 WKS ENDED
                                                                 ------------------------------------------------------
                                                                     August 28, 2004              August 30, 2003
                                                                 ------------------------------------------------------
                                                                       (unaudited)                  (unaudited)
<S>                                                                    <C>                         <C>
Net sales                                                              $ 11,741,000                $ 13,357,000
Cost of goods sold                                                       11,249,000                  12,355,000
                                                                     ---------------           ----------------
Gross profit                                                                492,000                   1,002,000

Operating Expenses:
  Selling, general and administrative expenses                            1,377,000                   1,748,000
  Asset impairment (Note13)                                                      --                     685,000
  Other expense (Note 11)                                                        --                   1,441,000
  Gain on sale of fixed assets                                                   --                    (117,000)
                                                                     ---------------           ----------------
Total operating expenses                                                  1,377,000                   3,757,000
                                                                     ---------------           ----------------
Operating loss                                                             (885,000)                 (2,755,000)
                                                                     ---------------           ----------------
Other income:
  Interest and dividend income                                               65,000                     355,000
  Net gain on investment securities                                          42,000                     798,000
                                                                     ---------------           ----------------
Total other income                                                          107,000                   1,153,000
                                                                     ---------------           ----------------
Loss before taxes                                                          (778,000)                 (1,602,000)

Income tax benefit                                                         (270,000)                   (350,000)
                                                                     ---------------           ----------------

Net loss                                                               $   (508,000)               $ (1,252,000)
                                                                     ===============           ================

Loss per share: (Note 5)

      Basic                                                            $      (0.10)               $      (0.24)
      Diluted                                                          $      (0.10)               $      (0.24)

Cash dividends declared per share                                      $         --                $       4.00
</TABLE>


           See notes to condensed consolidated financial statements.

                                       (2)
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                      FOR THE 13 WKS ENDED
                                                       ------------------------------------------------------
                                                           August 28, 2004              August 30, 2003
                                                       ------------------------------------------------------
                                                             (unaudited)                  (unaudited)
<S>                                                          <C>                         <C>
Net sales                                                    $ 36,478,000                $ 38,590,000
Cost of goods sold                                             33,246,000                  35,494,000
                                                           --------------              --------------
Gross profit                                                    3,232,000                   3,096,000

Operating Expenses:
  Selling, general and administrative expenses                  5,046,000                   4,955,000
  Asset impairment (Note 13)                                           --                     685,000
  Other expense (Notes 11 and 12)                                 250,000                   1,441,000
  Gain on sale of fixed assets                                 (1,007,000)                   (433,000)
                                                           --------------              --------------
Total operating expenses                                        4,289,000                   6,648,000
                                                           --------------              --------------
Operating loss                                                 (1,057,000)                 (3,552,000)
                                                           --------------              --------------
Other income:
  Interest and dividend income                                    395,000                   1,049,000
  Net gain on investment securities                               644,000                   1,001,000
                                                           --------------              --------------
Total other income                                              1,039,000                   2,050,000
                                                           --------------              --------------
Loss before taxes                                                 (18,000)                 (1,502,000)

Income tax expense (benefit)                                       15,000                    (300,000)
                                                           --------------              --------------
Net loss                                                     $    (33,000)               $ (1,202,000)

Loss per share: (Note 5)

      Basic                                                  $      (0.01)               $      (0.23)
      Diluted                                                $      (0.01)               $      (0.23)

Cash dividends declared per share                            $       3.00                $       4.00
</TABLE>


           See notes to condensed consolidated financial statements.

                                       (3)

<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS



        A S S E T S

<TABLE>
<CAPTION>
                                                                                   As Of
                                                              ---------------------------------------------
                                                                   August 28, 2004      November 29, 2003
                                                              ---------------------------------------------
                                                                     (unaudited)     (restated - see Note 1)
<S>                                                              <C>                    <C>
Current Assets:

 Cash and cash equivalents (Note 2)                              $     1,590,000        $   3,397,000
 Investment securities available-for-sale (Note 3)                    18,186,000           29,004,000
 Accounts receivable-net of allowance of
 $1,000,000 and  $900,000 for doubtful accounts                        6,892,000            7,171,000
 Inventories (Note 4)                                                  5,487,000            5,531,000
 Deferred tax asset                                                      606,000              506,000
 Other current assets                                                    521,000              701,000
                                                                 ---------------        -------------
   Total current assets                                               33,282,000           46,310,000
                                                                 ---------------        -------------

Property, plant and equipment - at cost                               31,386,000           33,495,000
Less: Accumulated depreciation                                        24,100,000           24,303,000
                                                                 ---------------        -------------
                                                                       7,286,000            9,192,000

Other assets                                                           2,345,000            2,281,000
                                                                 ---------------        -------------
                                                                 $    42,913,000        $  57,783,000
</TABLE>


           See notes to condensed consolidated financial statements.

                                       (4)

<PAGE>


                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


          L I A B I L I T I E S  and
          --------------------------
     S T O C K H O L D E R S'   E Q U I T Y
     --------------------------------------

<TABLE>
<CAPTION>
                                                                               AS OF
                                                         --------------------------------------------------
                                                             August 28, 2004           November 29, 2003
                                                         --------------------------------------------------
                                                               (unaudited)          (restated - see Note 1)
<S>                                                       <C>                          <C>
Current liabilities:

 Accounts payable                                               2,817,000                   $ 1,913,000
 Corporate income and other taxes                                 614,000                       861,000
 Accrued payroll and related expenses                             840,000                       763,000
 Other current liabilities 2,376,000                            1,106,000
                                                          ---------------               ---------------
   Total current liabilities                                    6,647,000                     4,643,000
                                                          ---------------               ---------------

Deferred income taxes                                                  --                         52,000
Other noncurrent liabilities                                    3,457,000                     4,451,000
                                                          ---------------               ---------------
    Total liabilities                                          10,104,000                     9,146,000
                                                          ---------------               ---------------
Stockholders' equity                                           32,809,000                    48,637,000
                                                          ---------------               ---------------
                                                              $42,913,000                   $57,783,000
</TABLE>


           See notes to condensed consolidated financial statements.


                                       (5)
<PAGE>


FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE 39 WEEKS ENDED AUGUST 28, 2004  (unaudited)

<TABLE>
<CAPTION>
                                                   COMMON STOCK *                        ACCUMULATED            TREASURY STOCK
                                              =======================                       OTHER         ==========================
                                              NUMBER OF                   RETAINED      COMPREHENSIVE     NUMBER OF
                                 TOTAL         SHARES        AMOUNT       EARNINGS      INCOME (LOSS)       SHARES          COST
                             -------------------------------------------------------------------------------------------------------
<S>                          <C>              <C>          <C>          <C>               <C>            <C>           <C>
Balance at
November 29, 2003,
as previously reported       $48,929,000      6,724,944    $1,345,000   $ 85,225,000      $(186,000)     (1,509,913)   $(37,455,000)

Restatement adjustment
 (Note 1)                       (292,000)                                   (292,000)
------------------------------------------------------------------------------------------------------------------------------------

Balance at
November 29, 2003,
as restated                   48,637,000      6,724,944    $1,345,000   $ 84,933,000      $(186,000)     (1,509,913)   $(37,455,000)

Net loss                         (33,000)                                    (33,000)

Change in net

unrealized holding

loss on investment
securities available-for-
sale, net of taxes of
$99,000                         (150,000)                                                  (150,000)

Total comprehensive loss        (183,000)

Cash dividends               (15,645,000)                                (15,645,000)
                            --------------------------------------------------------------------------------------------------------
Balance at
August 28, 2004              $32,809,000      6,724,944     $1,345,000  $ 69,255,000      $(336,000)     (1,509,913)   $(37,455,000)
(Unaudited)                 ========================================================================================================
</TABLE>

*  Common stock $0.20 par value - 15,000,000 shares authorized.
   Preferred stock $1.00 par value - 2,000,000 shares authorized, none issued.

            See notes to condensed consolidated financial statements.

                                       (6)

<PAGE>

FAB INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 FOR THE 39 WKS ENDED
                                                                ------------------------------------------------
                                                                  August 28, 2004              August 30, 2003
                                                                ------------------------------------------------
                                                                   (unaudited)                   (unaudited)
<S>                                                             <C>                            <C>
OPERATING ACTIVITIES:
  Net loss                                                      $    (33,000)                  $ (1,202,000)

  Adjustments to reconcile net loss to net cash
  provided by operating activities:
   Provision for doubtful accounts                                   450,000                        300,000
   Depreciation and amortization                                   1,215,000                      1,439,000
   Deferred income taxes                                             (52,000)                      (410,000)
   Non-cash asset impairment                                              --                        685,000
   Net gain on investment securities                                (644,000)                    (1,001,000)
   Gain on disposition of fixed assets                            (1,007,000)                      (433,000)
   Decrease (increase) in:
   Accounts receivable                                              (171,000)                      (403,000)
   Inventories                                                        44,000                      1,737,000
   Other current assets                                              180,000                        146,000
   Other assets                                                      (64,000)                       717,000
   (Decrease) increase in:
   Accounts payable                                                  904,000                       (347,000)
   Accruals and other liabilities                                    106,000                        417,000
                                                                ------------                   ------------
   Net cash provided by
   operating activities                                              928,000                      1,645,000
                                                                ------------                   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                       (40,000)                      (138,000)
    Proceeds from dispositions of property and equipment           1,738,000                        480,000
    Proceeds from sales of investment securities                  11,212,000                     17,651,000
                                                                ------------                   ------------
    Net cash provided by
    investing activities                                          12,910,000                     17,993,000
                                                                ------------                   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Purchase of treasury stock                                            --                       (218,000)
    Dividends                                                    (15,645,000)                   (20,860,000)
    Repayment of loan from stockholders                                   --                        221,000
                                                                ------------                   ------------
    Net cash used in financing activities                        (15,645,000)                   (20,857,000)
                                                                ------------                   ------------
    Decrease in cash and cash equivalents                         (1,807,000)                    (1,219,000)

    Cash and cash equivalents, beginning of period                 3,397,000                      3,146,000
                                                                ------------                   ------------
    Cash and cash equivalents, end of period                    $  1,590,000                   $  1,927,000
                                                                ============                   ============
</TABLE>

    See notes to condensed consolidated financial statements.

                                       (7)

<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   Basis of presentation:

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
39 weeks ended August 28, 2004 are not necessarily indicative of the results
that may be expected for the entire fiscal year ending November 27, 2004. The
balance sheet at November 29, 2003 has been derived from the audited balance
sheet at that date. The financial information included in the quarterly report
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal year ended
November 29, 2003.

The Company's Board of Directors has determined that it is in the best interests
of its stockholders to sell the Company's textile business as a going concern.
In order to maximize stockholder value, the Board of Directors adopted
resolutions dated March 1, 2002, which authorized, subject to stockholder
approval, the sale of the Company's business pursuant to a Plan of Liquidation
and Dissolution (the "Plan"). The Company's stockholders approved the Plan at
the Company's annual meeting on May 30, 2002. The Plan provides the Company's
officers and directors will continue to operate the Company's textile business
in its current fashion and pursue a sale of the business as a going concern. The
Company's Board of Directors has approved the engagement of McFarland Dewey &
Co., LLC financial advisors in November 2002 to assist with the sale of the
business. The accompanying financial statements have been prepared on a going
concern basis. There can be no assurance, however, that the Company will be
successful in selling it's business or if it does sell the business, that it
will be able to recover full value of it's assets, particularly it's property,
plant and equipment. On February 18, 2004, August 1, 2003 and May 30, 2002, the
Company's Board of Directors declared a liquidating distribution of $3.00 per
share, $4.00 per share and $10.00 per share, respectively, which resulted in a
payment to stockholders of $15,645,000, $20,860,000 and $52,380,000 in March
2004, August 2003 and June 2002, respectively. Of the total June 2002
liquidating dividend, $6,641,000 was deducted from additional paid in capital
until the paid in capital account was eliminated and represents a return of
capital. The remaining liquidating dividend of $45,739,000 was deducted from
retained earnings.On August 11, 2004, the Company has announced that it has
suspended its formal auction process because it failed to receive a binding
offer to purchase the Company's business as a going concern.

The Company's plan of liquidation provides the Company's officers and directors
will continue to operate the Company's textile business in its current fashion
and pursue the sale of the business as a going concern. If the Company is not
sold by May 2005, all assets will be transferred to a liquidating trust. The
liquidating trust would then succeed to all our remaining assets, liabilities
and obligations.

The Company is currently in compliance with the 40% limitation on holding
investment securities set forth in the Investment Company Act of 1940 and
intends to remain in compliance with such requirement in the future.


                                       (8)

<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Restatement

The consolidated financial statements for the year ended November 29, 2003 have
been restated to correct an error relating to the fact that the Company has not
depreciated certain improvements to its land, mainly consisting of two parking
lots constructed in 1984 and 1989 with a cost totaling approximately $292,000.

The restatement adjustments have resulted in a reduction of approximately
$292,000 in fixed assets and retained earnings as of November 29, 2003, from the
amounts previously reported. This adjustment does not effect the statements of
operations for any period presented, as these fixed assets would have been
depreciated over an estimated useful life of 15 years.

Derivative Instruments and Hedging Activities

The Company is party to equity option contract as part of its investing
activities. Option contracts are contractual agreements that give the purchaser
the right, but not the obligation, to purchase or sell a financial instrument at
a predetermined exercise price. In return for this right, the purchaser pays a
premium to the seller of the option. By selling or writing options, the Company
receives a premium and becomes obligated during the term of the option to
purchase or sell a financial instrument at a predetermined exercise price if the
option is exercised, and assumes the risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist.

In accordance with SFAS No. 133, the Company's policy is to recognize all
derivatives instruments as either assets or liabilities on the balance sheet at
fair value. Changes in fair value are recognized in the income statement in the
period in which they occur. Derivatives are not used for trading purposes.
Derivatives are used to hedge against fluctuations in the market value of equity
securities.

Accounting for Stock-based Compensation

The Company's stock option plans were terminated subsequent to the fiscal year
ended November 30, 2002 and there has been no stock compensation expense under
the disclosure-only provision of SFAS No.123 subsequent thereto.

Cost of Goods Sold

Cost of goods sold includes labor, purchases, inbound freight charges, receiving
costs, warehousing costs and the change in inventory during the period. Excess
fixed production costs are not inventoried and are expensed in the period
incurred.

Selling, General and Administrative Expense

Selling, general and administrative expenses primarily include costs relating to
administrative and salespersons salaries and benefits, bad debt expense,
professional and consulting fees, insurance expense and rent for the New York
office.

Revenue Recognition

The Company recognizes its revenues upon shipment of the related goods. Shipping
terms are FOB shipping point pursuant to the Company's sales agreements. Risk of
loss transfers to the Company's customers at the time the goods are transferred
to a common carrier, per the Company's sales agreements. The acceptance of goods
by customers is not subject to inspection. Allowances for estimated returns are
provided when sales are recorded.


                                       (9)
<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded as revenue. The
costs associated with shipping goods to customers are recorded as cost of goods
sold. The majority of the shipping costs are paid directly by the Company's
customers to independent trucking companies.

Reclassifications

Certain accounts in 2003 financial statements have been reclassified with the
2004 presentations for comparative purposes.


2.  Cash and cash equivalents consist of the following (in thousands):

                                     August 28, 2004          November 29, 2003
                                     ---------------          -----------------
Cash                                     $    32                     $   549
Taxable and tax-free
short-term debt instruments                1,558                       2,848
                                     ---------------          -----------------
                                         $ 1,590                     $ 3,397


3.  Investment Securities:

At August 28, 2004 and November 29, 2003, investment securities
available-for-sale consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                             Gross                  Gross
                                                          Unrealized              Unrealized
                                                           Holding                  Holding           Fair
August 28, 2004 (unaudited)                Cost              Gain                    Loss            Value
---------------------------             ---------         ----------              ----------       ---------
<S>                                      <C>              <C>                     <C>              <C>
Equities                                 $  6,372            $   339               $ (155)         $  6,556
U.S. Treasury obligations                      50                  0                    0                50
Corporate bonds                               250                  0                 (248)                2
Money market                               11,578                  0                    0            11,578
                                        ---------         ----------              ----------       ---------
                                         $ 18,250            $   339               $ (403)         $ 18,186
                                        =========         ==========              ==========       =========

<CAPTION>
                                                             Gross                  Gross
                                                          Unrealized              Unrealized
                                                           Holding                  Holding           Fair
November 29, 2003                          Cost              Gain                    Loss            Value
---------------------------             ---------         ----------              ----------       ---------
<S>                                      <C>              <C>                     <C>              <C>
Equities                                 $    750            $   17                $    0           $    767
U.S. Treasury obligations                  27,519               418                     0             27,937
Corporate bonds                               253                 0                  (250)                 3
Money Market                                  297                 0                     0                297
                                        ---------         ----------              ----------       ---------
                                         $ 28,819            $  435                 ($250)          $ 29,004
                                        =========         ==========              ==========       =========
</TABLE>


                                      (10)
<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


3.  Investment Securities (continued):

During the nine months ended August 28, 2004, the Company invested a portion of
it's investment securities in equity consisting of a portfolio of Standard and
Poor's 100 ("S&P 100") common stocks, the fair value of which varies
consistently with changes in the S&P 100 index. To hedge against fluctuations in
the market value of the portfolio, the Company has purchased short-term S & P
100 index put options and sold short-term S & P 100 index call options. Although
the Company uses these instruments to hedge against fluctuations in the market
value of the securities, the Company has not elected to use hedge accounting.
All gains and losses from the use of these instruments are included in the
income statement in the period that they occur. Included in the Company's equity
investment securities at August 28, 2004 are short term S & P 100 index put
options with a fair value of $ 49,050 and short term S & P 100 index call
options sold, not yet purchased with a fair value of $ 58,860. At November 29,
2003, the Company had no such investments.

The Company has agreements with various brokerage firms to carry its account as
a customer. The brokers have custody of the Company's securities and, from time
to time, cash balances, which may be due from these brokers. These securities
and/or cash positions serve as collateral for any amounts due to brokers or as
collateral for securities sold short or securities purchased on margin. The
securities and/or cash positions also serve as collateral for potential defaults
of the Company.

The Company is subject to credit risk if the brokers are unable to repay
balances due or deliver securities in their custody. It is the policy of the
Company to limit the amount of credit exposure to any one financial institution.
The Company has received confirmation indicating that, with respect to
investment securities, each custodian with the exception of one custodian
maintains appropriate insurance coverage. During fiscal 2003 and the nine months
ended August 28, 2004, that custodian had an average balance of approximately
$9.6 million, and $6.4 million, respectively, of the Company's cash under
investment, which from time to time during such periods was invested entirely in
equity securities. At August 28, 2004, that custodian had approximately $5.8
million of the Company's cash under investments, with a majority invested in
equities. The Company's investment policy currently permits up to 50% of the
Company's portfolio to be held by the custodian.

4.  Inventories:

The Company's inventories are valued at the lower of cost or market. Cost is
determined principally by the last-in, first-out (LIFO) method with the
remainder being determined by the first-in, first-out (FIFO) method. Because the
inventory valuation under the LIFO method is based upon an annual determination
of inventory levels and costs as of the fiscal year-end, the interim LIFO
calculations are based on management's estimates of expected year-end inventory
levels and costs.

                                August 28, 2004             November 29, 2003
                                ----------------            -----------------
Raw materials                    $  2,025,000                 $  1,446,000
Work in process                     1,715,000                    1,867,000
Finished goods                      1,747,000                    2,218,000
                                ---------------             ---------------
         Total                   $  5,487,000                 $  5,531,000
                                ===============             ===============


                                      (11)

<PAGE>


                    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


4.  Inventories continued:

                                       August 28, 2004       November 29, 2003
                                       ---------------       -----------------
     Approximate percentage of
        inventories valued
        under LIFO valuation                    63%                      61%
                                       ------------             -----------
     Excess of FIFO valuation
        over LIFO valuation            $  1,500,000             $ 1,007,000
                                       ============             ===========


Inventories accounted for under the LIFO method are goods manufactured for the
Apparel segment. Inventories accounted for under the FIFO method are goods
manufactured for the Home Furnishing and Accessories and the Other segments.
Both methods are not used for similar types of goods. The Company reviews
inventory values on a quarterly basis for items requiring markdowns to lower of
cost or market value or due to obsolescence.


5.   Loss Per Share:

Basic and diluted loss per share for the 13 weeks ended August 28, 2004 and
August 30, 2003 are calculated as follows:

<TABLE>
<CAPTION>
                                                                                               WEIGHTED
                                                           NET              AVERAGE           PER-SHARE
                                                          LOSS              SHARES             AMOUNT
                                                      -----------         ----------        ------------
<S>                                                   <C>                 <C>               <C>
     For the 13 weeks ended August 28, 2004:          $  (508,000)         5,215,031           $(0.10)
                                                      -----------         ----------        ------------

     For the 13 weeks ended August 30, 2003:          $(1,252,000)         5,216,546           $(0.24)
                                                      -----------         ----------        ------------
</TABLE>

     Basic and diluted loss per share for the 39 weeks ended August 28, 2004
     and August 30, 2003 are calculated as follows:

<TABLE>
<CAPTION>
                                                                                               WEIGHTED
                                                           NET              AVERAGE           PER-SHARE
                                                          LOSS              SHARES             AMOUNT
                                                      -----------         ----------        ------------
<S>                                                   <C>                 <C>               <C>
     For the 39 weeks ended August 28, 2004:          $   (33,000)         5,215,031          $ (0.01)
                                                      -----------         ----------        ------------

     For the 39 weeks ended August 30, 2003:          $(1,202,000)         5,230,859          $ (0.23)
                                                      -----------         ----------        ------------
</TABLE>

    There were no options outstanding during the 39 weeks ended August 28, 2004
    and August 30,2003, respectively. During fiscal 2002, all outstanding
    options were either exercised or cancelled.


6.  Comprehensive Loss:

Accumulated other comprehensive loss is comprised of unrealized holding gains
(losses) related to available-for-sale securities. Comprehensive loss was
$(183,000) and $(1,411,000) for the 39 weeks ended August 28, 2004 and August
30, 2003, respectively, and $(408,000) and $(1,810,000) for the 13 weeks ended
August 28, 2004 and August 30, 2003 respectively.


                                      (12)

<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


7.  Litigation:

On November 10, 2003, a class action suit was filed against the Company in
Delaware Chancery Court. The complaint asserts claims against the Company and
certain of its officers and directors based on the management buy-out proposal
at a price allegedly lower than the cash value and book value of the Company's
shares and which was an allegedly interested transaction, the amendment to Mr.
Bitensky's employment contract, the Company's failure to seek stockholder
approval for the management buyout and the Company's failure to file a
certificate of dissolution with the Delaware Secretary of State. The complaint
alleges such actions constitute violations of defendant's fiduciary duties as
well as the provisions of the Delaware General Corporation.

The complaint does not seek a specific amount of damages, and seeks to enjoin
defendants from effectuating the planned management buyout. The company served
an answer to the complainant on December 11, 2003. On each of November 21 and
November 26, 2003 class action lawsuits were initiated against the Company in
Delaware Chancery Court asserting substantially the same allegations as those
described above.

The Company believes that each of the claims described above is without merit.
Further, certain of the claims described above have been rendered moot by the
withdrawal of preliminary offer by management-led buyout to acquire the Company.

A number of claims and lawsuits seeking unspecified damages and other relief are
pending against the Company. It is impossible at this time for the Company to
predict with any certainty the outcome of such litigation. However, management
is of the opinion based upon information presently available, that it is
unlikely that any liability would be material in relation to the Company's
consolidated financial position and results of operations.


8.  Effect of recently Issued Accounting Standards:

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
This interpretation requires certain variable interest entities ("VIEs"),
commonly referred to as special purpose entities, to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 was
effective for all new VIEs created or acquired after January 31, 2003. During
December 2003, the FASB issued a revision to FIN 46 ("FIN 46R"). Under the new
provisions, public entities were required to apply the guidance if the entity
has interests in VIEs for the periods ending after December 15, 2003.
Application of this guidance by public companies was required for all other
types of entities for periods ending after March 15, 2004. The Company's
adoption of FIN 46R did not have an effect on its consolidated financial
statements.


                                      (13)
<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


9.  Derivative Financial Instruments Held or Issued:

The Company is party to equity option contracts as part of its investing
activities. Option contracts are contractual agreements that give the purchaser
the right, but not the obligation, to purchase or sell a financial instrument at
a predetermined exercise price. In return for this right, the purchaser pays a
premium to the seller of the option. By selling or writing options, the Company
receives a premium and becomes obligated during the term of the option to
purchase or sell a financial instrument at a predetermined exercise price if the
option is exercised, and assumes the risk of not being able to enter into a
closing transaction if a liquid secondary market does not exist. At August 28,
2004, included in the Company's equity investment securities are short term S &
P 100 index put options with a fair value of $49,050 and short term S & P 100
index call options sold, not yet purchased with a fair value of $58,860.


10. Segment Information:

The Company adopted SFAS No. 131 "Disclosure About Segments of an Enterprise and
Related Information" in fiscal 1999. SFAS No. 131 requires companies to report
information on segments using the way management organizes segments within the
company for making operating decisions and assessing financial performance.

The Company's chief operating decision-maker is considered to be the Chief
Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories and Other.

Apparel Fabrics: The Company is a major manufacturer of warp and circular knit
fabrics and raschel laces. The Company's textile fabrics are sold to a wide
variety of manufacturers of ready-to-wear and intimate apparel for men, women,
and children, including dresses and sportswear, children's sleepwear,
activewear, swimwear, and recreational apparel.

Home Fashions and Accessories: While sales are primarily to manufacturers of
home furnishings, the Company also uses its our own textile fabrics internally
to produce flannel and satin sheets, blanket products, comforters, and other
bedding products, which the Company sells to specialty stores, catalogue and
mail order companies, and airlines.

Other: The Company produces a line of ultrasonically, hot melt adhesive, flame
and adhesive bonded products for apparel, environmental, health care, industrial
and consumer markets. The Company's textile fabrics are sold to manufacturers
servicing the residential and contract markets. The Company also sells fabrics
in the over the counter markets.


                                      (14)
<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


10. Segment Information (continued):

The Company neither allocates to the segments nor bases segment decisions on the
following:

                   -   Interest and dividend income
                   -   Interest and other expense
                   -   Net gain on investment securities
                   -   Income tax expense or benefit

Many of the Company's assets are used by multiple segments. While certain assets
such as Inventory and Property, Plant and Equipment are identifiable by segment,
an allocation of the substantial remaining assets is not meaningful.

The 39 weeks and the 13 weeks ended August 28, 2004 and August 30, 2003,
includes gain on the sale of fixed assets of $1,007,000, and $0, and $433,000
and $117,000, respectively. Of this, $441,000 in the 39 weeks ended August 28,
2004 belongs to the Other Segment and the balance applied to the Apparel
Segment. The fixed assets, which were sold in the first quarter of 2004 relating
to the Other Segment, were sold to a customer, which previously owned 50% of the
equipment. The proceeds from this sale amounted to $1,100,000. As a result, the
customer, at an undeterminable future date will be doing the production on its
own. In addition, for the 39 weeks ended August 28, 2004 the Apparel Segment
includes a $250,000 reserve for environmental costs (See Note 12). The financial
statements for the 39 weeks and the 13 weeks ended August 30, 2003 includes
other expenses in the amount of $1,441,000 which represents agreements with
Chief Executive Officer (See Note 11). This amount was allocated between
segments with the majority included in the Apparel Segment. In addition, asset
impairment applies to the Apparel Segment (See Note 13).

<TABLE>
<CAPTION>

                                                   (in thousands)

                                                         HOME
39 WEEKS ENDED 08/28/04                               FASHIONS AND
(UNAUDITED)                            APPAREL        ACCESSORIES            OTHER             TOTAL
-------------------------            ----------       ------------         --------          --------
<S>                                  <C>              <C>                  <C>               <C>
External sales                         $26,439           $3,698            $ 6,341           $ 36,478
Intersegment sales                       2,731               29                194              2,954
Operating income/(loss)                 (2,318)              81              1,180             (1,057)
Segment assets                          10,598              729              1,426             12,753

<CAPTION>
                                                   (in thousands)

                                                         HOME
39 WEEKS ENDED 08/30/04                               FASHIONS AND
(UNAUDITED)                            APPAREL        ACCESSORIES            OTHER             TOTAL
-------------------------            ----------       ------------         --------          --------
<S>                                  <C>              <C>                  <C>               <C>
External sales                         $29,974           $2,861            $ 5,755           $ 38,590
Intersegment sales                       2,592               30                249              2,871
Operating income/(loss)                 (3,669)            (216)               333             (3,552)
Segment assets                          12,963              797              2,532             16,292
</TABLE>


                                      (15)
<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                                     39 WEEKS ENDED
                                                     --------------

PROFIT OR LOSS (UNAUDITED)                  AUGUST 28, 2004     AUGUST 30, 2003
--------------------------                  ---------------     ---------------
Total operating loss for segments              $(1,057)            $  (3,552)
Total other income                               1,039                 2,050
                                              --------             ---------
Loss before income tax expense or benefit      $   (18)            $  (1,502)
                                              ========             =========

<TABLE>
<CAPTION>
                                                        HOME
13 WEEKS ENDED 08/28/04                              FASHIONS AND
(UNAUDITED)                            APPAREL       ACCESSORIES           OTHER             TOTAL
-------------------------            ----------      ------------        --------          --------
<S>                                  <C>              <C>                <C>               <C>
External sales                         $ 8,715           $1,103            $1,923           $11,741
Intersegment sales                       1,074                4                98             1,176
Operating income (loss)                   (840)            (105)               60              (885)

<CAPTION>
                                                        HOME
13 WEEKS ENDED 08/28/03                              FASHIONS AND
(UNAUDITED)                            APPAREL       ACCESSORIES           OTHER             TOTAL
-------------------------            ----------      ------------        --------          --------
<S>                                  <C>              <C>                <C>               <C>
External sales                         $10,266           $1,087            $2,004           $13,357
Intersegment sales                         840                9                81               930
Operating loss                          (2,613)            (124)              (18)           (2,755)
</TABLE>

                                                     39 WEEKS ENDED
                                                     --------------

PROFIT OR LOSS (UNAUDITED)                  AUGUST 28, 2004     AUGUST 30, 2003
--------------------------                  ---------------     ---------------
Total operating loss for segments              $  (885)           $  (2,755)
Total other income                                 107                1,153
Loss before income tax benefit                 $  (778)           $  (1,602)

11.  Commitments:

On July 25, 2003, the Company and Mr. Bitensky amended the employment agreement
between the Company and Mr. Bitensky dated as of March 1, 1993 to provide that
at such time as the Company is sold or liquidated pursuant to the Plan, in lieu
of the annual consulting fees due under such an agreement over the five year
consulting period provided therein, Mr. Bitensky will receive a lump sum payment
equal to the aggregate net present value of each payment due under such
agreement, such present value to be determined utilizing the prevailing prime
rate at the time of the payment, as determined by the Board. Accordingly, the
Company recorded a charge of $846,000, which was included in other expense for
the 13 weeks and 39 weeks ended August 30, 2003.

Such amendment to the Employment Agreement also provides that Mr. Bitensky
relinquishes his right under the terms of the original agreement to require the
Company to purchase upon his death approximately $10,000,000 of shares of Common
Stock from his estate. In consideration of Mr. Bitensky's relinquishing such
right, the Company agreed to transfer to Mr. Bitensky ownership of the three
life insurance policies on Mr. Bitensky's life owned by the Company. The Company
transferred two such policies during the third quarter August 30, 2003 having an
aggregate cash surrender value of approximately $595,000. Accordingly, the
Company recorded a charge of $595,000, which was included in other expenses for
the 13 and 39 weeks ended August 30, 2003.

                                      (16)

<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


11. Commitments (continued):

Other

The Company has a letter of credit with its insurance provider for $400,000.


12. Other Expense:

The Company recorded an accrual of $250,000 for environmental costs in the
quarter ending February 28, 2004, at which time the related costs could be
reasonably estimated. The accrual represents the estimated costs associated with
a lagoon cleaning process as per North Carolina State requirements to eliminate
odors in a lagoon which is located next to one of our plants. As of August
28,2004, approximately $188,000 of this accrual was included in other current
liabilities. The lagoon cleaning process has been completed and all costs
associated with this process have been paid as of September 2004.


13. Asset Impairment:

During the third quarter ended August 30, 2003, the Company reviewed assets held
for sale and determined an additional charge of $685,000 was required.


14. Benefit Plans:

During the first quarter of fiscal 2004, the Company adopted the interim
disclosure provisions of SFAS No. 132 (revised 2003), "Employers' Disclosure
about Pensions and Other Postretirement Benefits, an Amendment of FASB
Statements No. 87, 88 and 106 and a Revision of FASB Statement No. 132." This
statement revises employers' disclosures about pension plans and other post
retirement benefit plans. The following table summarizes the components of net
periodic benefit cost for the Company (In thousands):

<TABLE>
<CAPTION>
                                                Three Months Ended                  Nine Months Ended
                                                ------------------                  -----------------
                                             Aug. 28,         Aug. 30,            Aug. 28,     Aug. 30,
                                               2004             2003               2004         2003
                                             --------         --------            --------     --------
<S>                                          <C>              <C>                 <C>          <C>
Service cost                                  $  40            $  41              $ 120        $ 122
Interest cost                                    54               54                161          163
Expected return on assets                       (36)             (48)              (108)        (144)
Net loss recognized                               8               --                 23           --
Amortization of prior service cost                9                9                 28           28
Net periodic benefit cost                     $  75            $  56              $ 224        $ 169
</TABLE>

The Company contributed $240,000 during the period, December 1, 2003 through
August 28, 2004. The Company is expected to contribute $50,000 during the
period, September l, 2004 through November 30, 2004.


                                      (17)

<PAGE>


ITEM 2.   MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS

The domestic textile industry has been negatively affected by a flow of low cost
foreign imports and market conditions since 1998.

The Company's Board of Directors has determined that it is in the best interests
of its stockholders to sell the Company's textile business as a going concern.
In order to maximize stockholder value, the Board of Directors adopted
resolutions dated March 1, 2002, which authorized, subject to stockholder
approval, the sale of the Company's business pursuant to a Plan of Liquidation
and Dissolution (the "Plan"). The Company's stockholders approved the Plan at
the Company's annual meeting on May 30, 2002. The Plan provides the Company's
officers and directors will continue to operate the Company's textile business
in its current fashion and pursue a sale of the business as a going concern. The
Company's Board of Directors has approved the engagement of McFarland Dewey &
Co., LLC financial advisors in November 2002 to assist with the sale of the
business. The accompanying financial statements have been prepared on a going
concern basis. There can be no assurance, however, that the Company will be
successful in selling it's business or if it does sell the business, that it
will be able to recover full value of it's assets, particularly it's property,
plant and equipment. On February 18, 2004, August 1, 2003 and May 30, 2002, the
Company's Board of Directors declared a liquidating distribution of $3.00 per
share, $4.00 per share and $10.00 per share, respectively, which resulted in a
payment to stockholders of $15,645,000, $20,860,000 and $52,380,000 in March
2004, August 2003 and June 2002, respectively. Of the total June 2002
liquidating dividend, $6,641,000 was deducted from additional paid in capital
until the paid in capital account was eliminated and represents a return of
capital. The remaining liquidating dividend of $45,739,000 was deducted from
retained earnings. On August 11, 2004, the Company has announced that it has
suspended its formal auction process because it failed to receive a binding
offer to purchase the Company's business as a going concern.

The Company's plan of liquidation provides the Company's officers and directors
will continue to operate the Company's textile business in its current fashion
and pursue the sale of the business as a going concern. If the Company is not
sold by May 2005, all assets will be transferred to a liquidating trust. The
liquidating trust would then succeed to all our remaining assets, liabilities
and obligations.

The Company is currently in compliance with the 40% limitation on holding
investment securities set forth in the Investment Company Act of 1940 and
intends to remain in compliance with such requirement in the future.

RESULTS OF OPERATIONS
Third Quarter and Nine Months
FISCAL 2004 COMPARED TO FISCAL 2003

Net sales for the third quarter of fiscal 2004 were $11,741,000 as compared to
$13,357,000 in the similar 2003 period, a decrease of $1,616,000 or 12.1%. The
domestic textile industry has been and continues to be negatively affected by a
flow of low cost foreign imports and market conditions since 1998. Apparel
segment in the current quarter decreased $1,551,000 or 15.1% to $8,715,000 as
compared to last year's third quarter. There was a slight decrease in other
segment and a slight increase in Home Fashions and Accessories sales. For the 39
weeks ended August 28, 2004, net sales were $36,478,000, a decline of
$2,112,000, or 5.5% from 2003. Apparel segment decreased $3,535,000 or 11.8% to
$26,439,000 from 2003.


                                      (18)

<PAGE>


Home Fashions and Accessories segment increased by $837,000 or 29.3% to
$3,698,000 and other segment increased by $586,000 or 10.2% to $6,341,000 from
2003.

Gross margins as a percentage of sales for the third quarter of fiscal 2004
decreased to 4.2% from 7.5% as compared to the similar 2003 period. Lower sales
volume reduced operating schedules at production facilities, although, gross
margins decreased as a result of fixed operating costs in addition to the LIFO
adjustment discussed below. For the nine months ended August 28, 2004, gross
margins increased to 8.9% compared to 8.0% in the similar period. For the nine
months and three months ended August 28, 2004, an increase in LIFO reserves of
$493,000 and $193,000, respectively were recorded. For the nine months ended
August 30, 2003, an increase in LIFO reserves of $300,000 was recorded. This was
due to higher average FIFO prices. Additionally, gross margin has increased and
as a result of a decrease in depreciation expense of approximately $224,000 for
the nine months ended August 28, 2004 compared to the prior comparable period.
This decrease in depreciation expense is a result of the sale of fixed assets
and fixed assets that have become fully depreciated over the past year.

Selling, general and administrative expenses for the 13 weeks ended August 28,
2004, decreased by $371,000 or 21.2% as compared to last year's third quarter.
The decrease results primarily from a reduction in payroll of $142,000, as a
result of employee terminations over the past year and a decrease in
professional fees of $216,000 as a result of increased costs of litigation in
the third quarter of 2003. For the 39 weeks ended August 28, 2004, selling,
general and administrative expenses remained relatively constant in comparison
to the prior comparable period, but as a percentage of sales increased to 13.8%
from 12.8% due to lower sales volume. Selling, general and administrative
expenses for the 39 weeks ended August 28, 2004 remained relatively constant in
comparison to the prior comparable period primarily due to a decrease in payroll
totaling $423,000, as a result of employee terminations over the past year,
offset by an increase in professional fees totaling $299,000, mainly incurred in
the first two quarters of 2004, relating to legal fees incurred in connection
with the class action lawsuits filed in November of 2003 (See note 7 to the
Condensed Consolidated Financial Statements) and an increase bad debt expense
totaling $150,000 as a result of several customers who filed for bankruptcy or
have been unable to make their required payments due in the current year.

Other expenses for the 39 weeks ended August 28, 2004 include an accrual for
environmental costs totaling $250,000, which was recorded in the quarter ending
February 28, 2004, at which time the costs related could be reasonably
estimated. The accrual represents the estimated costs associated with a lagoon
cleaning process as per North Carolina State requirements to eliminate odors in
a lagoon, which is located next to one of our plants. As of August 28, 2004,
approximately $188,000 of this accrual was included in other liabilities. The
lagoon cleaning process has been completed and all costs associated with this
process have been paid as of September 2004. For the 13 weeks and 39 weeks ended
August 30, 2003 a charge of $1,441,000 was recorded which represents certain
amendments with the Chief Executive Officer. See note 11 to the Condensed
Consolidated Financial Statements.

For the 13 weeks ended August 28, 2004, there were no sales of fixed assets
compared to a $117,000 gain on sales of fixed assets in the third quarter of
2003. For the 39 weeks ended August 28, 2004, the Company had a gain on the sale
of fixed assets of $1,007,000 compared to $433,000 in last year's comparable
period. Of this, $441,000 in the 39 weeks ended August 28, 2004 belongs to the
Other Segment and the balance applied to the Apparel Segment. The fixed assets,
which were sold in the first quarter of 2004 relating to the Other Segment, were
sold to a customer, which previously owned 50% of the equipment. The proceeds
from this sale amounted to $1,100,000. As a result, the customer, at an
undeterminable future date will be doing the production on its own. During the
third quarter ended August 30, 2003, the Company reviewed assets held for sale
and determined an additional charge of $685,000 was required.


                                      (19)
<PAGE>


Interest and dividend income for the 13 and 39 weeks ended August 28, 2004,
decreased $290,000 and $654,000, respectively from the similar 2003 period. On
March 10, 2004, the Company distributed its third liquidating distribution of
$3.00 per share, or $15,645,000 and on August 22, 2003 the Company distributed
its second liquidating distribution of $4.00 per share or $20,860,000.
Accordingly, the Company had lower invested balances for the three and nine
months ended August 28, 2004. In the current quarter, the Company realized gains
from the sale of investment securities of $42,000 compared to $798,000 in the
comparable third quarter 2003. For the nine months ended August 28, 2004, the
Company realized gains from the sale of investment securities of $644,000
compared to $1,001,000 in last year's comparable nine months.

The Company has realized a tax benefit for the current quarter which had an
effective tax rate of 34.7% as compared to a tax benefit of 21.8% last year's
third quarter. For the 39 weeks ended August 28, 2004, the Company had an income
tax expense of $15,000 compared to a tax benefit of $300,000 or 20.0%. The
income tax expense of $15,000 represents a minimum State and Franchise Tax
offset by deferred taxes.

As a result of these factors, the Company had a net loss of $508,000 or $0.10
basic and diluted loss per share and $33,000 or $0.01 basic and diluted loss per
share for the 13 weeks and 39 weeks ended August 28, 2004. For the 13 and 39
weeks ended August 30, 2003, the Company had a net loss of $1,252,000 or $0.24
basic and diluted loss per share and $1,202,000 or $0.23 basic and diluted loss
per share

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for the 39 weeks ended August 28, 2004
amounted to $928,000 due to an increase in operating cash flows from a decrease
in net loss and an increase in accounts payable partially offset by an increase
in inventories.

Net proceeds from sales of investment securities were $11,212,000 for the 39
weeks ended August 28, 2004, compared to net proceeds from sales of investment
securities of $17,651,000 in the comparative 2003 period. The Company mainly
used the proceeds from sales of investment securities during the 39 weeks ended
August 28, 2004 for the liquidating distribution of $3.00 per share or
$15,645,000 on March 10, 2004. For the 39 weeks ended August 30, 2003, the
Company mainly used the proceeds for sales of investment securities for the
second liquidating distribution of $4.00 per share or $20,860,000 on August 22,
2003.

Stockholders' equity was $32,809,000 ($6.29 book value per share) at August 28,
2004 as compared to $48,637,000 ($9.33 book value per share) at the previous
year- end November 29, 2003 and $49,011,000 ($9.40 book value per share) at
August 30, 2003. The reduction in stockholders' equity from August 30, 2003 was
primarily due to the third liquidating distribution of $3.00 per share or
$15,645,000 paid on March 10, 2004.

Management believes that the Company's current financial position is adequate to
satisfying working capital requirements and to internally fund any future
expenditures to maintain its manufacturing facilities for the next twelve
months.


                                      (20)

<PAGE>


Commitments:

On July 25, 2003, the Company and Mr. Bitensky amended the Employment Agreement
between the Company and Mr. Bitensky dated as of March 1, 1993 to provide that
at such time as the Company is sold or liquidated pursuant to the Plan, in lieu
of the annual consulting fees due under such an agreement over the five year
consulting period provided therein, Mr. Bitensky will receive a lump sum payment
equal to the aggregate net present value of each payment due under such
agreement, such present value to be determined utilizing the prevailing prime
rate at the time of the payment, as determined by the Board. Accordingly, the
Company recorded a charge of $846,000, which was included in other expense for
the 13 weeks and 39 weeks ended August 30, 2003.

Such amendment to the Employment Agreement also provides that Mr. Bitensky
relinquishes his right under the terms of the original agreement to require the
Company to purchase upon his death approximately $10,000,000 of shares of Common
Stock from his estate. In consideration of Mr. Bitensky's relinquishing such
right, the Company agreed to transfer to Mr. Bitensky ownership of the three
life insurance policies on Mr. Bitensky's life owned by the Company. The Company
transferred two such policies during the third quarter August 30, 2003 having
aggregate cash surrender value of approximately $595,000. Accordingly, the
Company recorded a charge of $595,000, which was included in other expense for
the 13 and 39 weeks ended August 30, 2003.

CRITICAL ACCOUNTING POLICIES

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 period. The critical
accounting policies that affect the Company's more complex judgments and
estimates are described in the Company's Annual Report on Form 10-K for the
fiscal year ended November 29, 2003.

FORWARD-LOOKING INFORMATION

Certain statements in this report are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies, and expectations, are generally identifiable by the use of
words "may", "will", "should", "expect", "anticipate", "estimate" "believe"
"intend" or "project" or the negative of them or other variations of them or
comparable terminology.


                                      (21)
<PAGE>


Factors that could have a material adverse effect on our operations and future
prospects include, but are not limited to: our ability to find qualified buyers
for our assets; overall economic and business conditions; our continuing ability
to support the demand for our goods and services; competitive factors in the
industries in which we compete; changes in government regulation; changes in tax
requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; material contingencies
provided for in a sale of our assets; de-listing of our common stock from the
American Stock Exchange; our ability to retain key employees through any wind
down period; and any litigation arising as a result of our plan to wind down our
operations. These risks and uncertainties should be considered in evaluating any
forward-looking statements contained in this quarterly report on Form 10-Q.

We undertake no obligation to update or revise a forward-looking statement,
whether as a result of new information, future events, or otherwise, other than
required by law.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to risk of fluctuations in the market value of equity
securities. To manage this exposure, the Company uses derivatives to hedge
against fluctuations in the market value of equity securities. The Company's
policy is to recognize all derivative instruments as either assets or
liabilities on the balance sheet at fair value. Changes in the fair value are
recognized in the income statement in the period in which they occur.
Derivatives are not used for trading purposes. At August 28, 2004, included in
the Company's equity investment securities are short term S & P 100 index put
options with a fair value of $49,050 and short term S & P 100 index call options
sold, not yet purchased with a fair value of $58,860. At November 29, 2003, the
Company had no such investments.




                                      (22)
<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES

    (a)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: Our Chief Executive
         Officer and Chief Financial Officer, having concluded, based on their
         evaluation, as of the end of the period covered by this report, that
         our disclosure controls and procedures (as defined in the Securities
         and Exchange Act of 1934 Rules 13a-15(e) and 15-15(e)) are (1)
         effective to ensure that material information required to be disclosed
         by us in reports filed or submitted by us under the Securities Exchange
         Act of 1934, as amended, is recorded, processed, summarized, and
         reported within the time periods specified in the SEC's rules and
         forms, and (2) designed to ensure the material information required to
         be disclosed by us in such reports is accumulated, organized and
         communicated to our management, including our Chief Executive Officer
         and Chief Financial Officer, as appropriated, to allow timely decisions
         regarding required disclosure.

    (b)  INTERNAL CONTROL OVER FINANCIAL REPORTING: There were no changes in the
         Company's internal control over financial reporting (as defined in
         Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of
         1934, as amended) that occurred during the Company's most recent
         quarter that has materially affected, or is reasonably likely to
         materially affect, the Company's internal control over financial
         reporting.

         It should be noted that any system of controls, however well designed
         and operated, can provide only reasonable, and not absolute assurance
         that the objectives of the system will be met. In addition, the design
         of any control system is based in part upon certain assumptions about
         the likelihood of future events. Because of these and other inherent
         limitations of control systems, there is only reasonable assurance that
         our controls will succeed in achieving their stated goals under all
         potential future conditions.

PART II.  OTHER INFORMATION

         Item 6. Exhibits and Reports on Form 8-K

    a)   Exhibits:

         31.1     Certification by Samson Bitensky pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

         31.2     Certification by David A. Miller pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

         32.1     Certification by Samson Bitensky pursuant to 18 U.S.C. Section
                  1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.

         32.2     Certification by David A. Miller pursuant to 18 U.S.C. Section
                  1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.


                                      (23)

<PAGE>



    b)   Reports on Form 8-K:

         The Company furnished on July 13, 2004, a report on Form 8-K
         announcing, under Item 12 of such form, its earnings for the 26 weeks
         and 13 weeks ended May 29, 2004.

         The Company furnished on July 15, 2004, a report on Form 8-K announcing
         under Item 12 of such form the sources of its results of operations for
         the quarter ended May 29, 2004.

         The Company filed on August 11, 2004, a report announcing under Item 5
         and 7 of such form, that it has suspended its formal auction process
         because it failed to receive a binding offer to purchase the Company's
         business as a going concern.


                                      (24)

<PAGE>


                                   SIGNATURES


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



Dated: October 12, 2004                    FAB INDUSTRIES, INC.



                                           By: /s/ Samson Bitensky
                                               --------------------------------
                                               Samson Bitensky
                                               Chairman of the Board
                                               And Chief Executive Officer



                                           By: /s/ David A. Miller
                                               --------------------------------
                                               David A. Miller
                                               Vice President-Finance, Treasurer
                                               and Chief Financial Officer
                                               (Principal Financial and
                                               Accounting Officer)



                                      (25)