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

                                    FORM 10-Q

(Mark One)
(X)      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1998
                                       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: 1-9474

                            FORSTMANN & COMPANY, INC.
             (Exact name of registrant as specified in its charter)

                   GEORGIA                                  58-1651326
      (State or other jurisdiction of                    (I.R.S. Employer
       incorporation or organization)                     Identification No.)

              1155 Avenue of the Americas, New York, New York 10036
               (Address of principal executive offices) (Zip Code)

       (Registrant's telephone number, including area code) (212) 642-6900


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.     X   Yes            No

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.       X   Yes            No

As of June 16, 1998 there was 4,386,390 shares of Common Stock outstanding.

Total number of pages: 41 pages.

<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1.  Financial Statements

                            FORSTMANN & COMPANY, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
            FOR THE THIRTEEN WEEKS ENDED MAY 3, 1998 AND MAY 4, 1997
           AND THE TWENTY-SIX WEEKS ENDED MAY 3, 1998 AND MAY 4, 1997
                                (unaudited)
<TABLE>
<CAPTION>

                                                         Reorganized          Predecessor        Reorganized           Predecessor
                                                           Company               Company            Company               Company
                                                           Thirteen             Thirteen           Twenty-Six           Twenty-Six
                                                          Weeks Ended          Weeks Ended        Weeks Ended           Weeks Ended
                                                             May 3,               May 4,             May 3,                May 4,
                                                             1998                 1997                1998                 1997
                                                             ----                 ----                ----                 ----
<S>                                                        <C>                 <C>                 <C>                 <C>
Net sales                                                  $ 49,625,000        $ 64,786,000        $ 78,642,000        $ 96,004,000

Cost of goods sold                                           41,718,000          52,860,000          67,423,000          81,235,000
                                                           ------------        ------------        ------------        ------------
Gross profit                                                  7,907,000          11,926,000          11,219,000          14,769,000

Selling, general and
   administrative expenses                                    3,176,000           3,727,000           6,766,000           7,981,000

Provision for uncollectible
   accounts                                                     347,000             258,000             571,000             429,000

Restructuring items                                             312,000                --               312,000                --
                                                           ------------        ------------        ------------        ------------
Operating income                                              4,072,000           7,941,000           3,570,000           6,359,000

Interest expense (contractual
   interest of $3,943,000 and
   $7,680,000 for 1997)                                       1,611,000           1,727,000           3,151,000           3,312,000
                                                           ------------        ------------        ------------        ------------
Income before reorganization
   items and income taxes                                     2,461,000           6,214,000             419,000           3,047,000

Reorganization items                                             35,000           4,174,000              55,000           8,325,000
                                                           ------------        ------------        ------------        ------------
Income (loss) before
   income taxes                                               2,426,000           2,040,000             364,000          (5,278,000)

Income tax provision                                            946,000                --               142,000                --
                                                           ------------        ------------        ------------        ------------

Net income (loss)                                          $  1,480,000        $  2,040,000        $    222,000        $ (5,278,000)
                                                           ============        ============        ============        ============

Per share and share information:
  Income per common
     share - basic and diluted                             $        .34                            $        .05
                                                           ============                            ============
  Weighted average common
      shares outstanding-basic                                4,384,436                               4,384,436
                                                           ============                            ============

  Weighted average common
     shares outstanding-diluted                               4,398,489                               4,389,255
                                                           ============                            ============

See notes to financial statements.
</TABLE>
<PAGE>
                            FORSTMANN & COMPANY, INC.
                            CONDENSED BALANCE SHEETS
                        MAY 3, 1998 AND NOVEMBER 2, 1997
                                   (unaudited)
<TABLE>
<CAPTION>

                                                         May 3,      November 2,
                                                          1998          1997
                                                          ----          ----
<S>                                                 <C>            <C>
ASSETS
Current Assets:
  Cash                                              $     47,000   $    493,000
  Cash restricted for settlement of unpaid claims        563,000        558,000
  Accounts receivable, net of allowance of
    $1,029,000 and $458,000                           49,345,000     42,005,000
  Inventories                                         51,490,000     43,210,000
  Current deferred tax assets                               --             --
  Other current assets                                   701,000        926,000
                                                    ------------   ------------
    Total current assets                             102,146,000     87,192,000

Property, plant and equipment, net                    22,796,000     24,779,000
Other assets                                           1,694,000      1,670,000
                                                    ------------   ------------
    Total                                           $126,636,000   $113,641,000
                                                    ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt              $  5,876,000   $  5,756,000
  Accounts payable                                     2,906,000      3,335,000
  Accrued liabilities                                  8,568,000     11,371,000
                                                    ------------   ------------
    Total current liabilities                         17,350,000     20,462,000

Long-term debt                                        58,433,000     42,548,000
Deferred tax liabilities                                    --             --
                                                    ------------   ------------
    Total liabilities                                 75,783,000     63,010,000

Commitments and contingencies

Shareholders' Equity:
Common stock, $.01 par value, 10,000,000
    shares authorized, 4,384,436 shares issued
    and outstanding                                       43,844         43,844
Additional paid-in capital                            50,297,156     50,297,156
Retained earnings since July 23, 1997                    512,000        290,000
                                                    ------------   ------------
Total shareholders' equity                            50,853,000     50,631,000
                                                    ------------   ------------

      Total                                         $126,636,000   $113,641,000
                                                    ============   ============

See notes to financial statements.
</TABLE>
<PAGE>
                            FORSTMANN & COMPANY, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
           FOR THE TWENTY-SIX WEEKS ENDED MAY 3, 1998 AND MAY 4, 1997
                                   (unaudited)
<TABLE>
<CAPTION>
                                                          Reorganized      Predecessor
                                                            Company          Company
                                                             May 3,           May 4,
                                                              1998             1997
                                                              ----             ----
<S>                                                      <C>             <C>
Net  income (loss)                                       $    222,000    $ (5,278,000)
                                                          -----------      ----------
Adjustments  to  reconcile  net  income  
  (loss)  to net cash  used by  operating
  activities:
    Depreciation and amortization                           2,633,000       6,209,000
    Income tax provision                                      142,000            --
    Income tax payments                                        (5,000)       (108,000)
    Provision for uncollectible accounts                      571,000         429,000
    Increase (decrease) in market reserves                  1,080,000      (3,340,000)
    Loss from disposal, abandonment and
      impairment of machinery and equipment
      and other assets                                          2,000       3,356,000
    Gain associated with NY office lease surrender           (987,000)           --
    Changes in current assets and current liabilities:
        Accounts receivable                                (7,911,000)    (17,937,000)
        Inventories                                        (9,360,000)      3,235,000
        Other current assets                                  230,000        (148,000)
        Accounts payable                                     (429,000)      1,239,000
        Accrued liabilities                                  (876,000)      3,990,000
        Accrued interest payable                               44,000        (189,000)
        Operating liabilities subject to compromise              --            (2,000)
                                                          -----------      ----------

  Total adjustments                                       (14,866,000)     (3,266,000)
                                                          -----------      ----------

    Net cash used by operations                           (14,644,000)     (8,544,000)
                                                          -----------      ----------

</TABLE>
                            (continued on next page)
<PAGE>
                            FORSTMANN & COMPANY, INC.
                 CONDENSED STATEMENTS OF CASH FLOWS (continued)
           FOR THE TWENTY-SIX WEEKS ENDED MAY 3, 1998 AND MAY 4, 1997
                                   (unaudited)
<TABLE>
                                                      Reorganized       Predecessor
                                                        Company           Company
                                                         May 3,            May 4,
                                                          1998              1997
                                                          ----              ----
<S>                                                    <C>               <C>
Cash flows used by investing activities:
  Capital expenditures                                 (1,425,000)       (540,000)
  Investment in other assets, primarily
     computer information systems                        (355,000)       (205,000)
  Net proceeds from disposal of machinery
    and equipment                                           1,000         124,000
                                                     ------------    ------------
    Net cash used by investing activities              (1,779,000)       (621,000)
                                                     ------------    ------------
Cash flows from financing activities:
  Net borrowings under the Revolving Loan Facility     24,566,000            --
  Net borrowings under the DIP Facility                      --        10,283,000
  Repayment of Term Loan Facility                      (6,612,000)           --
  Repayment of Deferred Interest Rate Notes            (1,571,000)           --
  Repayment of other financing arrangements              (378,000)       (480,000)
  Deferred financing costs                                (23,000)       (638,000)
                                                     ------------    ------------
    Net cash provided by financing activities          15,982,000       9,165,000
                                                     ------------    ------------
Net decrease in cash                                     (441,000)           --

Cash and restricted cash at beginning of period         1,051,000          48,000
                                                     ------------    ------------

Cash and restricted cash at end of period            $    610,000    $     48,000
                                                     ============    ============
</TABLE>
See notes to financial statements.
<PAGE>
                            FORSTMANN & COMPANY, INC.
             CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                   FOR THE TWENTY-SIX WEEKS ENDED MAY 3, 1998
                                   (unaudited)
<TABLE>
<CAPTION>

                                                    Additional                          Total
                                     Common          Paid-In          Retained       Shareholders'
                                     Stock           Capital          Earnings          Equity
                                     -----           -------          --------          ------

<S>                                <C>             <C>                <C>             <C>
Balance, November 2, 1997          $ 43,844        $50,297,156        $290,000        $50,631,000

Net income                               --                 --         222,000            222,000
                                   --------        -----------        --------        -----------

Balance, May 3, 1998               $ 43,844        $50,297,156        $512,000        $50,853,000
                                   ========        ===========        ========        ===========


See notes to financial statements.
</TABLE>
<PAGE>
                            FORSTMANN & COMPANY, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   MAY 3, 1998
                                   (unaudited)

1.     Forstmann & Company, Inc. ("the Company") is a leading designer, marketer
       and  manufacturer of innovative,  high quality woolen,  worsted and other
       fabrics which are used  primarily in the  production  of  brand-name  and
       private label apparel for men and women, as well as specialty fabrics for
       use in  billiard  tables,  sports caps and school  uniforms.  The apparel
       industry represents the majority of the Company's customers.

       As  described  in Note 1 to the  Financial  Statements  contained  in the
       Company's  Annual Report on Form 10-K for the fiscal year ended  November
       2, 1997 (the "1997 Form 10-K"),  on September 22, 1995, the Company filed
       a  petition  for  protection  under  Chapter  11  of  the  United  States
       Bankruptcy Code (the  "Bankruptcy  Code") with the U.S.  Bankruptcy Court
       for the  Southern  District of New York (the  "Bankruptcy  Filing").  The
       Company emerged from Bankruptcy pursuant to a Plan of Reorganization (the
       "Plan of Reorganization") on July 23, 1997 (the "Effective Date").

       As described in Note 2 to the Financial  Statements contained in the 1997
       Form 10-K, in accordance with the American  Institute of Certified Public
       Accountants' Statement of Position 90-7, "Financial Reporting by Entities
       in  Reorganization  Under the Bankruptcy Code" ("SOP 90-7"),  the Company
       established its reorganization value and adopted "fresh start" accounting
       as of July 22, 1997.

       Under the principles of "fresh start" accounting, the Company's total net
       assets were recorded at its established  reorganization  value, which was
       then  allocated to  identifiable  tangible and  intangible  assets on the
       basis of their  estimated  fair value.  In accordance  with "fresh start"
       accounting,  the difference between the assumed  reorganization value and
       the  aggregate  fair value of the  identifiable  tangible and  intangible
       assets  resulted in a reduction in the value assigned to property,  plant
       and  equipment.  In  addition,  the  Company's  accumulated  deficit  was
       eliminated.

2.     On May 11, 1998, the Company  announced that it had agreed to acquire the
       business  and  substantially  all of the assets of Arenzano  Trading Co.,
       Inc.  ("Arenzano"),  a manufacturer  of women's suits primarily under the
       "Oleg  Cassini"  label.  Arenzano  had  instituted  voluntary  bankruptcy
       proceedings in April 1998. The Company's purchase was made pursuant to an
       order signed by United States  Bankruptcy Judge Burton R. Lifland,  dated
       May 8, 1998, in the cases entitled,  In re Arenzano Trading Company, Inc.
       and In re B&B Corporation, Case Nos. 98 B 42508 and 98 B 42520 (BRL). The
       transaction  was  completed  on May 13, 1998 at a purchase  price of $2.0
       million.  However, the Company, as an unsecured creditor of Arenzano,  is
       expected  to receive a  distribution  from the  bankruptcy  estate in the
       approximate  amount of  $275,000  out of the proceeds to the estate from
       the purchase.  The  acquisition  allows the Company to expand its fabrics
       business into the apparel manufacturing  business. The Company expects to
       benefit  from  Arenzano's  expertise  in  manufacturing  apparel  in  the
       Caribbean,  as well as its ability in sourcing  complete apparel packages
       internationally.  The Company will  operate the new apparel  venture as a
       wholly-owned  subsidiary under the name Forstmann  Apparel,  Inc. The new
       venture  is  expected  to provide an  enhanced  outlet for the  Company's
       fabrics while  providing  growth  opportunities  outside of the Company's
       core business.  The working capital and capital expenditure  requirements

<PAGE>

       of Forstmann Apparel, Inc. for the next twelve months will be funded from
       borrowings  under the Revolving Loan Facility.  The Company believes that
       availability  under its Revolving  Loan Facility will be adequate to fund
       the working capital and capital  expenditure  requirements of the Company
       and  Forstmann  Apparel,  Inc. for the next twelve  months.  Arenzano had
       sales of approximately $17 million for its most recent fiscal year.

       On March 6, 1998,  the Company  announced  that, as part of its long-term
       strategy,  it will  discontinue the production of top dye worsted fabrics
       used to  manufacture  men's  suits and  government  uniforms  (the  "1998
       Restructuring")  after completing  orders for its fall season.  In fiscal
       year 1997, top dye worsteds  accounted for  approximately  $18 million in
       men's suiting fabric and $10 million in government  uniform fabric sales.
       This  decision  will  result  in  the  Company's   overall  workforce  of
       approximately 2,500 people being reduced by approximately 730 people.

       Implementation  of the 1998  Restructuring  has  resulted  in the Company
       incurring  certain  costs,   including,   among  other  costs,   salaried
       severance,  special  one-time  hourly  "stay put"  bonuses and  equipment
       relocation costs. Additionally, certain of the Company's inventories have
       been  impaired or rendered  obsolete.  Accordingly,  during the  thirteen
       weeks  ended  May 3,  1998  (the  "1998  Second  Quarter"),  the  Company
       recognized  severance  expense of  approximately  $0.8  million,  accrued
       approximately  $0.2 million for stay put bonuses and increased  inventory
       market   reserves   by  $1.1   million  in   connection   with  the  1998
       Restructuring. Severance expense and expense associated with the stay put
       bonuses were  recognized  as  restructuring  items during the 1998 Second
       Quarter. Inventory market reserves associated with the 1998 Restructuring
       were included in cost of goods sold during the 1998 Second  Quarter.  The
       Company  estimates  that an  additional  expense  of  approximately  $0.2
       million  associated  with the stay put bonuses  will be accrued  over the
       affected  employees  remaining  service periods as a  restructuring  item
       during the  remainder of the  Company's  fiscal year 1998.  Certain other
       adjustments  relating  to certain  other  employee  benefit  costs may be
       incurred in connection with the implementation of the 1998 Restructuring,
       which will be recognized as a restructuring item in the period such costs
       can be reasonably  estimated.  Any  additional  impairment of inventories
       will be  included  in cost of goods  sold in the  periods  in  which  the
       impairment can be reasonably  estimated.  The Company currently estimates
       that there is no impairment in property,  plant and equipment as a result
       of the 1998 Restructuring. However, changes in future business conditions
       could result in an impairment  in property,  plant and equipment and will
       be  recognized  as a  restructuring  item in the  periods  in  which  the
       impairment  can be  reasonably  estimated.  Costs  incurred  to  relocate
       certain  machinery and equipment will be charged to cost of goods sold in
       the periods  incurred.  See Note 10 to these  Financial  Statements for a
       description of restructuring  items recognized  during the thirteen weeks
       ended May 3, 1998.

       The Company and the landlord of its corporate and marketing  offices have
       agreed in principle to a lease  surrender  agreement  whereby the Company
       will vacate such premises on or before  January 1, 1999.  Pursuant to the
       agreement,  the Company will waive any and all existing and future claims
       against the landlord  arising out of, or in connection  with the takeover
       agreement,  effective August 1, 1995, whereby the landlord had previously
       agreed  to take  over  the  Company's  remaining  obligations  under  the
       Company's  previous  lease.  The Company also waives the right to collect
       contributions due the Company from the landlord for leasehold

<PAGE>

       improvements and related fees and expenses the Company had incurred.  The
       Company had fully  reserved such claims  against the landlord  during its
       fiscal year 1997. In  anticipation  of entering into the lease  surrender
       agreement,  the Company has written-down property, plant and equipment by
       approximately  $1.1 million  associated  with the future  abandonment  of
       leasehold  improvements  and  furniture  and  fixtures,   wrote-down  the
       estimated  deferred  rent  liability at January 1, 1999 by  approximately
       $2.1  million  and  accrued   approximately  $0.3  million  for  broker's
       commission.  These  items  resulted  in a $0.7  million  gain  which  was
       recorded as a  restructuring  item during the 1998  Second  Quarter.  The
       Company  is  currently  considering  alternative  new  locations  for its
       corporate and marketing offices, and it is expected that the Company will
       reduce the amount of space it occupies and the associated rent expense.

3.     One of the Company's  customers  accounted for  approximately  23% of the
       Company's  revenues for the twenty-six weeks ended May 3, 1998 and 14% of
       gross accounts  receivable at May 3, 1998. No other customer  represented
       more than 6% of revenues or 6% of gross accounts receivable.

4.     Inventories  are stated at the lower of cost,  determined  principally by
       the LIFO method, or market and consist of (in thousands):

                                                 May 3,       November 2,
                                                  1998           1997
                                                  ----           ----
             Raw materials and supplies        $ 11,443       $  8,303
             Work-in-process                     28,922         27,459
             Finished products                   13,840          8,169
             Less market reserves                (2,715)          (721)
                                               --------       --------
             Total                               51,490         43,210
             Difference between LIFO
               carrying value and current
               replacement cost                     613           --
                                               --------       --------

             Current replacement cost          $ 52,103       $ 43,210
                                               ========       ========

       The  Company  increased  market  reserves by $1.1  million for  inventory
       related  to the  top dye  worsted  fabrics  product  line  which  will be
       discontinued  as part of the  1998  Restructuring  (see  Note 2 to  these
       Financial  Statements).  This  expense  was charged to cost of goods sold
       during the thirteen weeks ended May 3, 1998.
<PAGE>

5. Other assets consist of (in thousands):

                                                 May 3,      November 2,
                                                  1998          1997
                                                  ----          ----
             Computer information systems,
               net of accumulated
               amortization of $2 and $0       $    450       $     94
             Deferred financing costs, net of
               accumulated amortization of
               $443 and $164                      1,232          1,520
             Other, net                              12             56
                                               --------       --------
             Total                             $  1,694       $  1,670
                                               ========       ========

6. Accrued liabilities consist of (in thousands):

                                                 May 3,       November 2,
                                                  1998           1997
                                                  ----           ----
             Salaries, wages and related
               payroll taxes                   $  1,609       $    978
             Incentive compensation                 511          2,082
             Vacation and holiday                 2,316          1,729
             Interest on long-term debt             106             62
             Medical insurance claims             1,327          1,327
             Professional fees                      176            355
             Environmental remediation              341            361
             Deferred rental and other lease
               obligations                           32          2,186
             Other                                2,150          2,291
                                               --------       --------
             Total                             $  8,568       $ 11,371
                                               ========       ========

       The Company  reduced  its  deferred  rent  liability  by $2.1  million in
       anticipation of entering into the lease surrender agreement as more fully
       described in Note 2 to these Financial Statements.

7. Long-term debt consists of (in thousands):
                                                May 3,       November 2,
                                                 1998            1997
                                                 ----            ----
             Revolving Loan Facility           $ 37,955       $ 13,389
             Term Loan Facility                  23,715         30,327
             Deferred Interest Rate Notes          --            1,571
             Other note                             515            603
             Capital lease obligations            2,124          2,414
                                               --------       --------
             Total debt                          64,309         48,304
             Current portion of long-term debt   (5,876)        (5,756)
                                               --------       --------
             Total long-term debt              $ 58,433       $ 42,548
                                               ========       ========

<PAGE>

       On July 23,  1997,  the  Company  entered  into  the  Loan  and  Security
       Agreement  with a syndicate of financial  institutions  led by BABC.  The
       Loan and  Security  Agreement  provides  for a  revolving  line of credit
       (including  a $10.0  million  letter of credit  facility),  subject  to a
       borrowing  base  formula,  of up to  $85  million  (the  "Revolving  Loan
       Facility") and term loans of approximately  $31.5 million (the "Term Loan
       Facility").

       At May 3, 1998,  the Company's loan  availability  as defined in the Loan
       and Security Agreement,  in excess of outstanding advances and letters of
       credit, was approximately $25.5 million.

       In accordance with section 4.5(c) of the Loan and Security  Agreement,  a
       Term Loan  Facility  payment equal to 50% of any Excess Cash Flow for any
       fiscal year must be made by April 30 following the end of the fiscal year
       in which such Excess  Cash Flow  arose.  Excess Cash Flow for fiscal year
       1997 was  calculated as $2.7 million,  and on April 27, 1998, the Company
       repaid the Term Loan  Facility  by  approximately  $1.4  million  through
       borrowings under the Revolving Loan Facility.

       The  Company  and its  lenders  as of  March  24,  1998  entered  into an
       amendment  to the Loan and  Security  Agreement  modifying,  among  other
       things,  the  definition  of  earnings  before  interest,  income  taxes,
       depreciation,  amortization  and  reorganization  items  ("EBITDAR")  and
       Adjusted  Tangible Net Worth, and modifying  certain loan covenants so as
       to increase  permitted  capital  expenditures and lower the minimum fixed
       charge coverage ratio.  Such  modifications  were made in anticipation of
       the effects of the Company's 1998  Restructuring  as more fully described
       in Note 2 to the Financial  Statements  contained  herein.  In accordance
       with the  amendment,  the Company  prepaid  $3.0 million of the Term Loan
       Facility  through  borrowings  under the Revolving Loan Facility on 
       April 29, 1998.

       The Company's lenders waived certain covenants  contained in the Loan and
       Security Agreement to permit the Company's purchase of Arenzano (see Note
       2 to these  Financial  Statements).  As a result  of such  purchase,  the
       Company and its lenders are currently negotiating an amended and restated
       Loan and Security Agreement to include Forstmann Apparel, Inc.

       As  described  more  thoroughly  in  Note 8 to the  Financial  Statements
       contained in the 1997 Form 10-K,  on the  Effective  Date,  in accordance
       with the Plan of Reorganization, the Company issued subordinated floating
       rate notes (the  "Deferred  Interest  Rate  Notes") in respect of certain
       accrued but unpaid interest (approximately $1.6 million). On December 22,
       1997,  the Company  repaid the Deferred  Interest  Rate Notes and accrued
       interest  due  thereon  through   borrowings  under  the  Revolving  Loan
       Facility.

8.     The Company  adopted  Financial  Accounting  Standards  ("SFAS") No. 128,
       Earnings Per Share as required in the first  quarter of fiscal year 1998.
       Income  (loss)  per  common  share - basic is  computed  based on the net
       income (loss) divided by the weighted average common shares  outstanding.
       On a  diluted  basis,  the  income  per share - diluted  is  computed  by
       dividing the net income by the weighted  average common shares during the
       period plus  incremental  shares that would have been  outstanding  under
       option plans.  Weighted average diluted shares  outstanding  differs from
       weighted  average basic shares  outstanding  primarily from the effect of
       diluted  stock  options.  Computation  of  per  share  earnings  for  the

<PAGE>

       predecessor  company for all periods presented in the Condensed Statement
       of Operations  has been omitted as such  information  is not deemed to be
       meaningful.

9.     As  discussed  in Note 14 to the  Financial  Statements  in the 1997 Form
       10-K, the Company has accrued certain  estimated costs for  environmental
       matters.

       Dublin,   Georgia.  On  December  29,  1995,  the  Georgia  Environmental
       Protection  Division ("EPD") issued separate  administrative  orders (the
       "Administrative  Orders") to the Company and to J.P.  Stevens & Co., Inc.
       ("Stevens")  which  relate to three sites on the Georgia  Hazardous  Site
       Inventory - the "TCE site",  the "1,1-DCA site" and another site known as
       the  "Burn  Area"  - at  the  Company's  Dublin,  Georgia  facility.  The
       Administrative  Orders  required  the  Company  and  Stevens  to submit a
       compliance  status  report  ("CSR") for these  sites that would  include,
       among other things,  a description  of the release,  including its nature
       and extent,  and suspected or known  source,  the quantity of the release
       and the  date of the  release.  The CSR  would  also  have to  include  a
       determination of cleanup  standards  (called "risk reduction  standards")
       for the sites and a certification  that the sites were in compliance with
       those  standards;  alternatively,  the  party  submitting  the CSR  could
       acknowledge  that  the  site is not in  compliance  with  risk  reduction
       standards.  Pursuant to the  Administrative  Orders,  if a site is not in
       compliance with the risk reduction  standards,  then a Corrective  Action
       Plan (a "Corrective  Action Plan") for remediating the release would have
       to be submitted to EPD.

       Since both the Company and Stevens had been  required to perform the same
       work at all three of these  sites,  the  Company  and  Stevens  agreed to
       allocate  responsibilities  between  themselves  pursuant to an Agreement
       Concerning  Performance of Work ("Agreement") dated January 24, 1997. The
       Agreement  required  the Company to prepare and submit to EPD the CSR for
       the TCE and 1,1-DCA sites,  while requiring Stevens to prepare and submit
       to EPD a CSR for the Burn Area site. The Agreement does not commit either
       party to perform  corrective  action at these sites.  On January 27, 1998
       EPD  provided  comments to the CSR  previously  submitted  by Stevens and
       requested  clarification  of the Stevens  CSR.  By letter  dated March 5,
       1998,  Stevens submitted a "draft" response to EPD and by letter of 
       April 6, 1998, a final response. It is the Company's understanding that
       Stevens is waiting for a response to this letter from EPD.

       The  Company  submitted  a CSR  for  the TCE  and  1,1-DCA  sites,  which
       certified  compliance with risk reduction  standards for both sites.  EPD
       indicated that it did not agree to the certification  with respect to the
       TCE site. After extensive  discussions with EPD concerning the issue, the
       Company  submitted  a  Corrective  Action Plan for the TCE site by letter
       dated May 15, 1997. By letter dated  September 29, 1997, EPD responded to
       the  Corrective  Action  Plan with  notice  of  deficiency.  The  Company
       submitted  a revised  Corrective  Action Plan on October  31,  1997.  The
       revised  Corrective  Action  Plan calls for  continued  operation  of the
       Company's existing groundwater recovery system, as well as one additional
       groundwater  recovery well and a groundwater  collection  trench near the
       former dry cleaning basement. On April 1, 1998, EPD indicated that it was
       conditionally  approving the revised  Corrective  Action Plan and that it
       would  provide  a  final  approval  upon  receipt  of  certain  requested
       information.  The Company  provided EPD such  information by letter dated
       April 23, 1998 and is awaiting EPD's response.
<PAGE>

       Tifton, Georgia. In January 1997, the Company was notified by a potential
       buyer of the Company's Tifton facility that soil and groundwater  samples
       had been obtained from that  facility and that certain  contaminants  had
       been identified.  Subsequently, through sampling and testing performed by
       the  Company's  environmental  consultants,  the  Company  confirmed  the
       presence of  contaminants  in  groundwater  samples taken at the site. On
       February 28, 1997,  the Company  notified EPD of such  findings,  and the
       site was placed on the Georgia Hazardous Site Inventory.

       The Company subsequently  consummated its sale of the Tifton facility. As
       part of that  transaction,  the  Company,  the  Tift  County  Development
       Authority  as  purchaser  ("TCDA")  and Burlen  Corporation  as  operator
       ("Burlen")  entered  into an  Environmental  Cost  Sharing and  Indemnity
       Agreement ("Cost Sharing  Agreement").  Under the Cost Sharing Agreement,
       the   Company   retained    responsibility   for   remediating    certain
       contamination,  to the extent required by law, that  originated  prior to
       Burlen's  occupancy of the premises.  Likewise,  the Company  assumed the
       obligation to indemnify  TCDA and Burlen in regard to such  contamination
       to the  extent  that a claim is made by an  unaffiliated  third  party or
       governmental agency. In exchange, Burlen agreed to pay to the Company the
       lesser of (1)  $150,000  minus any  payments  already made to the Company
       (certain   expenses   had  already   been   shared)  to  respond  to  the
       contamination  or (2)  one-half  of the costs  incurred by the Company in
       response to such contamination.  EPD has not yet requested any additional
       response to conditions at this site.

       At May 3, 1998,  the  Company  had $0.3  million  accrued for costs to be
       incurred  in  connection  with  the  TCE,  1,1-DCA  and  Tifton  facility
       environmental  matters.  The Company,  subject to EPD concurring with the
       Company's  Corrective  Action Plan relating to the TCE and 1,1-DCA sites,
       EPD's  response  to  J.P.  Stevens  revised  CSR  and  compliance  status
       certification and EPD's response to the Tifton site, believes the accrual
       for environmental costs at May 3, 1998 is adequate.

10.    Restructuring items related to the Company's 1998 Restructuring have been
       segregated  and included in normal  operations  during the thirteen weeks
       ended May 3, 1998 and consist of (in thousands):

                                                          Reorganized Company
                                                          Thirteen Weeks Ended
                                                              May 3, 1998
                                                              -----------

          Severance and "stay-put" bonus expense                  $ 967
          Gain associated with N.Y. office lease
             surrender                                             (658)
          Other                                                       3
                                                                  -----
          Total                                                   $ 312
                                                                  =====

       During the thirteen  weeks ended May 3, 1998,  the Company  recognized as
       restructuring  items severance expense of approximately  $0.8 million and
       expense of approximately $0.2 million for stay put bonuses (see Note 2 to
       these Financial Statements).
<PAGE>

       In anticipation of entering into the lease surrender  agreement (see Note
       2 to these Financial Statements),  the Company wrote-down property, plant
       and equipment by  approximately  $1.1 million  associated with the future
       abandonment  of  leasehold   improvements  and  furniture  and  fixtures,
       wrote-down  the estimated  deferred rent  liability at January 1, 1999 by
       approximately  $2.1  million and accrued  approximately  $0.3 million for
       broker's  commission.  These items  resulted in a $0.7 million gain which
       was recorded as a restructuring  item during the thirteen weeks ended May
       3, 1998.

11.    In accordance with SOP 90-7,  professional  fees,  asset  impairments and
       reorganization  charges  directly  related to the  Bankruptcy  Filing and
       related  reorganization  proceedings  have been  segregated  from  normal
       operations during the thirteen and twenty-six weeks ended May 3, 1998 and
       May 4, 1997 and consist of (in thousands):

                                                    Reorganized     Predecessor
                                                      Company        Company
                                                      Thirteen       Thirteen
                                                    Weeks Ended     Weeks Ended
                                                        May 3,        May 4,
                                                         1998          1997
                                                         ----          ----
   Professional fees                                     $10        $  852
   Impairment of assets                                   --         1,236
   Expense incurred due to the rejection and
      amendment of executory contracts                    --         2,400
   Default interest expense and
      professional fees associated with the
      Senior Secured Notes                                --          (750)
   Other                                                   25          436
                                                          ---       ------
   Total                                                  $35       $4,174
                                                          ===       ======

                                                    Reorganized    Predecessor
                                                      Company        Company
                                                     Twenty-Six     Twenty-Six
                                                     Weeks Ended   Weeks Ended
                                                        May 3,        May 4,
                                                         1998          1997
                                                         ----          ----

   Professional fees                                      $26       $1,829
   Impairment of assets                                   --         4,275
   Expense incurred due to the rejection and
      amendment of executory contracts                    --         2,400
   Default interest expense and
      professional fees associated with the
      Senior Secured Notes                                --          (573)
   Other                                                   29          394
                                                          ---       ------
   Total                                                  $55       $8,325
                                                          ===       ======

<PAGE>

       During the thirteen weeks ended May 4, 1997, the Company increased market
       reserves by $0.9 million for inventory related to the converting  fabrics
       product  line  which  had  been  discontinued  as  part  of  the  product
       rationalization  effort  undertaken in fiscal year 1996. Such reserve was
       necessary as a result of selling price markdowns  anticipated to sell off
       the remaining  converting  fabrics inventory on hand.  Additionally,  the
       Company wrote off the remaining barter credits of $0.2 million based upon
       analysis  of planned  barter  credit use and  increased  its  accrual for
       environmental remediation by $0.1 million to cover its expected costs for
       environmental  remediation  at  the  Tifton  facility  (net  of  expected
       reimbursement  from the tenant).  These items  resulted in a $1.2 million
       charge to  reorganization  items during the  thirteen  weeks ended May 4,
       1997.

       During the  thirteen  weeks  ended May 4,  1997,  the  Company  increased
       pre-petition  unsecured  liabilities  by  $3.3  million  associated  with
       contract rejection damages relating to the Company's former  headquarters
       and marketing offices lease ($1.7 million), the termination of a contract
       to purchase certain  equipment ($0.9 million) and two rejected  contracts
       relating  to the former  Carpini  joint  venture  ($0.7  million).  These
       charges were recognized as reorganization items during the thirteen weeks
       ended  May 4,  1997.  The  Company  partially  offset  these  charges  by
       recognizing  a $0.9 million net  receivable  from the  Company's  current
       landlord  related to its assumption of a portion of the Company's  former
       headquarters lease.

       As of May 4, 1997,  $4.2  million  was  included in  property,  plant and
       equipment  relating to certain unerected  equipment located at the Tifton
       facility.  Such  equipment  was not  included  in the sale of the  Tifton
       facility.  Based upon  negotiations  for the sale of such equipment,  the
       Company  anticipated  a selling price that was $3.0 million below the net
       book value for the related  equipment.  Accordingly,  during the thirteen
       weeks ended February 2, 1997, the Company accrued as reorganization items
       an  expected  loss of  $3.0  million  associated  with  the  sale of such
       equipment.
<PAGE>

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

Reference is made to Item 7 - "Management's Discussion and Analysis of Financial
Condition  and  Results  of  Operations"  contained  in the 1997 Form 10-K for a
discussion  of  the  Company's  financial  condition  as of  November  2,  1997,
including  a  discussion  of the  Company's  anticipated  liquidity  and working
capital requirements during its 1998 fiscal year.

Forward Looking Statements
--------------------------

Certain  matters  discussed  in this  Quarterly  Report under Item 2 are forward
looking  statements  which reflect the  Company's  current views with respect to
future events and financial  performance.  These forward-looking  statements are
subject to certain risks and  uncertainties  which could cause actual results to
differ  materially from  historical  results or those  anticipated.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.  The Company  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information,  future  events or  otherwise.  The  following  factors could cause
actual  results  to  differ   materially  from   historical   results  or  those
anticipated:  demand for the  Company's  products,  competition,  the  Company's
production needs, wool market conditions, any unexpected financing requirements,
and changes in the general economic climate.

Recent Events
-------------

ACQUISITION

On May 11,  1998,  the  Company  announced  that it had  agreed to  acquire  the
business  and  substantially  all of the assets of Arenzano  Trading  Co.,  Inc.
("Arenzano"), a manufacturer of women's suits primarily under the "Oleg Cassini"
label.  Arenzano had instituted voluntary bankruptcy  proceedings in April 1998.
The  Company's  purchase was made  pursuant to an order signed by United  States
Bankruptcy Judge Burton R. Lifland, dated May 8, 1998, in the cases entitled, In
re Arenzano  Trading  Company,  Inc. and In re B&B  Corporation,  Case Nos. 98 B
42508 and 98 B 42520 (BRL).  The  transaction was completed on May 13, 1998 at a
purchase price of $2.0 million.  However,  the Company, as an unsecured creditor
of Arenzano, is expected to receive a distribution from the bankruptcy estate in
the  approximate  amount of $275,000  out of the proceeds to the estate from the
purchase. The acquisition allows the Company to expand its fabrics business into
the  apparel  manufacturing  business.  The  Company  expects  to  benefit  from
Arenzano's expertise in manufacturing  apparel in the Caribbean,  as well as its
ability in sourcing complete apparel packages internationally.  The Company will
operate  the new apparel  venture as a  wholly-owned  subsidiary  under the name
Forstmann  Apparel,  Inc.  The new  venture is  expected  to provide an enhanced
outlet for the Company's fabrics while providing growth opportunities outside of
the Company's core business. Arenzano had sales of approximately $17 million for
its most recent fiscal year.

The working capital and capital  expenditure  requirements of Forstmann Apparel,
Inc.  for the next  twelve  months  will be  funded  from  borrowings  under the
Revolving  Loan  Facility.  The Company  believes  that  availability  under its
Revolving Loan Facility will be adequate to fund the working capital and capital
expenditure requirements of the Company and Forstmann Apparel, Inc. for the next
twelve months.
 <PAGE>

1998 RESTRUCTURING

On March 6, 1998, the Company announced that, as part of its long-term strategy,
it  will  discontinue  the  production  of  top  dye  worsted  fabrics  used  to
manufacture men's suits and government uniforms (the "1998 Restructuring") after
completing  orders for its fall  season.  In fiscal year 1997,  top dye worsteds
accounted for  approximately  $18 million in men's suiting  fabric sales and $10
million in government  uniform  fabric  sales.  This decision will result in the
Company's  overall  workforce of  approximately  2,500  people being  reduced by
approximately  730  people.  The top dye  worsted  fabrics  business  has been a
relatively small part of the Company's overall business. However, the complexity
of manufacturing top dyes makes it extremely labor intensive and unprofitable at
its  current  level.  By  discontinuing  top dye  worsted  fabrics,  the Company
believes it can focus all of its resources on its strengths in men's and women's
woolen and worsted sportswear, coating and niche specialty markets.

Implementation  of the 1998  Restructuring has resulted in the Company incurring
certain  costs,  including,  among  other  costs,  salaried  severance,  special
one-time hourly "stay put" bonuses and equipment relocation costs. Additionally,
certain of the Company's  inventories  have been impaired or rendered  obsolete.
Accordingly,  during the  thirteen  weeks  ended May 3, 1998 (the  "1998  Second
Quarter"),  the  Company  recognized  severance  expense of  approximately  $0.8
million,  accrued  approximately $0.2 million for stay put bonuses and increased
inventory   market  reserves  by  $1.1  million  in  connection  with  the  1998
Restructuring.  Severance  expense  and  expense  associated  with  the stay put
bonuses were recognized as  restructuring  items during the 1998 Second Quarter.
Inventory market reserves  associated with the 1998  Restructuring were included
in cost of goods sold during the 1998 Second Quarter. The Company estimates that
an additional expense of approximately $0.2 million associated with the stay put
bonuses will be accrued over the affected employees remaining service periods as
a  restructuring  item during the remainder of the  Company's  fiscal year 1998.
Certain other  adjustments  relating to certain other employee benefit costs may
be incurred in connection  with the  implementation  of the 1998  Restructuring,
which will be recognized as a restructuring expense in the period such costs can
be  reasonably  estimated.  Any  additional  impairment of  inventories  will be
included  in cost of goods sold in the  periods in which the  impairment  can be
reasonably  estimated.   The  Company  currently  estimates  that  there  is  no
impairment   in  property,   plant  and  equipment  as  a  result  of  the  1998
Restructuring. However, changes in future business conditions could result in an
impairment  in  property,  plant  and  equipment  and  will be  recognized  as a
restructuring  item in the  periods in which the  impairment  can be  reasonably
estimated.  Costs incurred to relocate  certain  machinery and equipment will be
charged  to cost of goods  sold in the  periods  incurred.  See Note 10 to these
Financial  Statements for a description of restructuring items recognized during
the thirteen weeks ended May 3, 1998.

<PAGE>
Financial Condition and Liquidity
---------------------------------

The Company's business is seasonal,  with the vast majority of orders for woolen
fabrics placed from December through April for apparel  manufacturers to produce
apparel  for retail sale during the fall and winter  months.  This  results in a
seasonal sales order and billing  pattern which  historically  generates  higher
sales  during the  Company's  second and third fiscal  quarters  compared to the
Company's first and fourth fiscal  quarters.  This sales pattern places seasonal
constraints on the Company's  manufacturing  operations which,  during the first
fiscal quarter, the Company has traditionally lessened by manufacturing certain
components of inventory in advance of actual sales orders. Further, the industry
practice of providing  coating fabric  customers  with  favorable  billing terms
(referred to as "dating")  which permit  payment 60 (sixty) days from July 1 for
invoices billed in January through June encourages such coating fabric customers
to place  orders in advance of their  actual  need.  This enables the Company to
manufacture and bill certain coating fabric customers during the Company's first
fiscal  quarter.  Accounts  receivable at May 3, 1998 included  $16.1 million of
accounts  receivable with dating terms, an increase of $2.0 million  compared to
May 4, 1997.

During the twenty-six  weeks ended May 3, 1998 (the "1998  Period"),  operations
used $14.6 million of cash,  whereas $8.5 million was used by operations  during
the twenty-six  weeks ended May 4, 1997 (the "1997  Period").  This $6.1 million
increase in cash used by  operations  in the 1998 Period was  primarily due to a
$12.6  million  increase  in cash used by  inventory  during the 1998  Period as
compared to the 1997 Period.  This was  primarily a result of an increase in raw
material and work in process inventory caused by normal seasonal,  first quarter
purchases to replenish  year-end  inventories to meet expected  second and third
quarter demand.  However,  there was also a significant  reduction in receipt of
customer  orders  during the 1998  Period as compared  to the 1997  Period.  The
increase in raw wool is  primarily  due to the  Company's  forward raw  material
purchase  commitments.  The Company  subsequently was unable to fully adjust its
receipt of raw wool to match sales order demand.  Accounts  receivable used $7.9
million  during the 1998  Period,  whereas  $17.9  million  was used by accounts
receivable during the 1997 Period. Such decrease primarily relates to a decrease
in sales during the 1998 Second  Quarter when compared to the second  quarter of
fiscal year 1997.  Combined,  the increase in inventory and accounts  receivable
during the 1998 Period  resulted in $17.3  million being used in the 1998 Period
as  compared  to $14.7  million  being  used in the 1997  Period.  Additionally,
accrued liabilities used $4.9 million more in the 1998 Period as compared to the
1997 Period,  and accounts  payable used $1.7 million more in the 1998 Period as
compared to the 1997 Period.  As a result of the foregoing and the  refinancing,
reinstatement or restructuring of the Company's secured indebtedness pursuant to
the Plan of Reorganization,  working capital at May 3, 1998 was $84.8 million as
compared to $20.9 million at May 4, 1997.  Net income was $5.5 million higher in
the 1998 Period compared to the 1997 Period,  and market  reserves  increased by
$4.4  million  more in the 1998  Period  compared to the 1997  Period.  Further,
depreciation  and amortization was $3.6 million lower in the 1998 Period than in
the 1997 Period  primarily  due to the effect of "fresh start"  accounting  (see
Note 1 to these Financial Statements),  and the loss from disposal,  abandonment
and  impairment  of machinery  and  equipment  and other assets was $3.4 million
lower in the 1998 Period when compared to the 1997 Period.

Investing  activities  used $1.8  million in the 1998 Period as compared to $0.6
million  in  the  1997  Period.   The  Company  expects   spending  for  capital
expenditures, principally plant and equipment, in fiscal year 1998 to be greater
than fiscal year 1997 due to renewals or  betterments of plant and equipment and
compliance with environmental regulations.

<PAGE>

As a result of the foregoing, during the 1998 Period, $16.0 million was provided
by financing activities whereas during the 1997 Period $9.2 million was provided
by financing activities.

The Company  believes that cash generated from  operations and borrowings  under
the Revolving  Loan Facility will be sufficient to fund its working  capital and
capital  expenditure  requirements,  including  such  requirements  of Forstmann
Apparel,  Inc.,  for the next twelve months.  However,  expected cash flows from
operations  are dependent  upon  achieving  sales  expectations  during the next
twelve months which are influenced by market conditions, including apparel sales
at retail,  that are beyond the  control  of the  Company.  Due to the  seasonal
nature  of the  Company's  core  woolen  and  worsted  business,  the  Company's
borrowings  under its Revolving  Loan Facility will tend to increase  during the
first three  quarters  of the  Company's  fiscal year until the fourth  quarter,
when, at year-end,  borrowings tend to be the lowest. However, borrowings at the
end of fiscal year 1998 may be higher than at the beginning of fiscal year 1998
or higher during various times within fiscal year 1998 than  comparable  periods
within fiscal year 1997.

The sales  order  backlog  at May 31,  1998 was  $58.0  million  whereas  at the
comparable  time a year earlier the sales order backlog was $65.3  million.  The
composition  of the sales order  backlog at May 31, 1998 reflects a weaker order
position in all product  lines except  specialty  and  womenswear  fabrics which
increased by $3.0 million and $0.7  million,  respectively,  when  compared to a
year earlier. However, included in womenswear fabrics sales order backlog at May
31, 1998 is a substantial  flannel sales order booked at average  selling prices
which are below the selling  prices of a year ago due  primarily to import price
pressure from Mexico. Of the approximate $7.3 million decline in the sales order
backlog at May 31,  1998 as  compared  to the  comparable  time a year  earlier,
approximately   $5.9  million   related  to  worsted  spun  fabrics,   including
approximately $4.1 million in government  top-dyed fabrics.  The overall decline
in worsted fabrics is believed to be due, in part, to an over capacity in global
worsted wool  manufacturing  and fashion trends.  The order position for coating
fabrics at May 31, 1998 has declined by $3.9 million over the comparable  time a
year  earlier.  The decrease in coating  fabric  sales order  backlog is due, in
part, to an  unseasonably  warm fall and winter  season which  resulted in lower
than anticipated women's coats selling at retail. Additionally,  the sales order
backlog for menswear fabrics at May 31, 1998 was $2.5 million lower than at June
1, 1997. The decline in menswear  fabric sales order backlog is due, in part, to
increased competitive pressures (primarily imports).

The  Company  purchases  a  significant  amount of its raw wool  inventory  from
Australia.  Since all of the Company's forward purchase commitments for raw wool
are  denominated  in U.S.  dollars,  there is no  actual  currency  exposure  on
outstanding  contracts.  However,  future changes in the relative exchange rates
between  the United  States and  Australian  dollars can  materially  affect the
Company's results of operations for financial reporting purposes.  Based on wool
costs  incurred  during  the 1998  Period  and the  Company's  forward  purchase
commitments,  the company  expects  wool costs to be  approximately  the same in
fiscal year 1998 as compared to fiscal year 1997.

<PAGE>

Results of Operations
---------------------

THE  TWENTY-SIX  WEEKS  ENDED  MAY  3,  1998  ("1998  PERIOD")  COMPARED  TO THE
TWENTY-SIX WEEKS ENDED MAY 4, 1997 ("1997 PERIOD")

         The  Company's  business is  seasonal,  accordingly,  results for these
interim  periods are not indicative of results for a full fiscal year. Net sales
for the 1998  Period  were  $78.6  million,  a  decrease  of 18.1% from the 1997
Period.  Total yards of fabric sold decreased  21.6% from the 1997 Period to the
1998 Period.  However, the average per yard selling price increased to $7.55 per
yard from $7.23 per yard due to shifts in product  mix.  Sales  declined  in all
major product lines except for  specialty  fabric sales which  increased by $1.2
million  during the 1998 Period when  compared  to the 1997  Period.  Womenswear
woolen  sales  were  approximately  $4.5  million  lower in the 1998  Period  as
compared to the 1997  Period,  and  womenswear  worsted  fabric  sales were $3.7
million  lower in the 1998  Period  as  compared  to the 1997  Period.  Based on
current  backlog of sales orders for women's  woolen and worsted  sales,  market
trends and increased competitive pressures,  the Company expects overall women's
woolen and worsted  fabric  sales to be lower in fiscal year 1998 as compared to
fiscal year 1997. Menswear woolen fabric sales were $3.9 million lower in the
1998 Period as compared to the 1997 Period.  The decline in men's woolen  fabric
sales is due, in part, to increased  competitive  pressures (primarily imports).
Overall,  the Company  expects  men's woolen  fabric sales to be lower in fiscal
year 1998 as compared to fiscal year 1997.  Product  lines  discontinued  during
fiscal year 1996  (converting,  career  uniform and Carpini)  realized  sales of
approximately $2.8 million in the 1997 Period as compared to $0.3 million in the
1998 Period.  Coating fabric sales were  approximately $1.6 million lower in the
1998 Period as compared to the 1997 Period. The decrease in coating fabric sales
is due, in part, to an  unseasonably  warm fall and winter season which resulted
in lower than anticipated  women's coats selling at retail. This has resulted in
delayed  fabric  shipment and order  assortment by the Company's  coating fabric
customers.  Government uniform fabric sales decreased by $1.5 million during the
1998 Period as compared to the 1997 Period.

         Based on these trends  (increased  competitive  pressures in the woolen
and  worsted  markets,  the  decline in  backlog  of  orders,  and the effect of
discontinued product lines and the decision to discontinue the production of top
dyed worsted  fabrics used to manufacture  men's suits and government  uniforms)
the Company  expects  sales  revenue for fabric  sales in fiscal year 1998 to be
approximately  20%  lower  than in  fiscal  year  1997,  exclusive  of sales for
Forstmann Apparel, Inc. in the Company's third and fourth quarter of fiscal year
1998. Accordingly,  on March 6, 1998, the Company announced that, as part of its
long-term  strategy,  it will  discontinue  the  production  of top dye  worsted
fabrics used to manufacture men's suits and government uniforms after completing
orders for its fall season. In fiscal year 1997, top dyed worsteds accounted for
approximately  $18  million in men's  suiting  fabric  sales and $10  million in
government uniform fabric sales.  Further, in addition to exiting the production
of top-dyed worsted fabrics, the Company is consolidating  certain manufacturing
operations  and  implementing  other plans  designed  to align its costs  during
fiscal year 1998 with the decline in sales  anticipated in fiscal year 1998. The
top dye  worsted  fabrics  business  has  been a  relatively  small  part of the
Company's  overall business.  However,  the complexity of manufacturing top dyes
makes it extremely  labor  intensive and  unprofitable  at its current level. By
discontinuing top dye worsted fabrics,  the Company believes it can focus all of
its  resources  on its  strengths  in  men's  and  women's  woolen  and  worsted
sportswear,  coating  and  niche  specialty  markets.  However,  there can be no

<PAGE>

assurance as to the level of sales that will actually be attained in fiscal year
1998, as sales are dependent on market  conditions  and other factors beyond the
Company's control,  nor can there be assurance that the Company's cost reduction
will be implemented  successfully.  Sales during the Company's  third and fourth
quarter of fiscal year 1998 will reflect sales for Forstmann Apparel,  Inc. (See
Note 2 to these Financial Statements).

         Cost of goods sold decreased  $13.8 million to $67.4 million during the
1998 Period  primarily as a result of the decline in sales and change in product
mix  and a  $2.9  million  decline  in  depreciation  and  amortization  expense
primarily due to the effect of "fresh  start"  accounting  previously  discussed
herein.  Gross profit  decreased  $3.6 million or 24.0% to $11.2  million in the
1998 Period,  and gross profit margin for the 1998 Period was 14.3%  compared to
15.4% for the 1997 Period. Included in cost of goods sold during the 1998 Period
is a $1.1 million charge  relating to increased  market  reserves  recorded as a
result of the 1998  Restructuring  (see Note 2 to these  Financial  Statements).
Manufacturing overhead excluding depreciation and amortization was approximately
$0.6  million  higher in the 1998 Period as compared  to the 1997  Period.  This
increase was  primarily  due to higher group  medical  costs under the Company's
self-insured plan. 

         Selling, general and administrative  expenses,  excluding the provision
for uncollectible  accounts,  decreased 15.2% to $6.8 million in the 1998 Period
compared to $8.0 million in the 1997 Period. The majority of the decrease in the
1998 Period is due to lower incentive  compensation  expense,  depreciation  and
amortization expense and human resource related expenses. Incentive compensation
expense in the 1998  Period was lower than in the 1997  Period due to a one-time
special  bonus plan in fiscal  year 1997 for certain  key  employees,  which was
triggered  by  the  Company's   emergence  from   Bankruptcy.   The  decline  in
depreciation and  amortization  expense is primarily due to the effect of "fresh
start" accounting  previously  discussed herein. Human resource related expenses
decreased as a result of the Company's continuing efforts to reduce its overhead
in response to reduced sales.  Somewhat  offsetting these declines was increased
professional expenses.

         The provision for uncollectible  accounts  increased to $0.6 million in
the 1998 Period as compared to $0.4  million in the 1997  Period.  See Note 3 to
the Financial Statements contained in the 1997 Form 10-K for a discussion of the
Company's  accounting  policies regarding the establishment of its allowance for
uncollectible accounts.

         Restructuring items were $0.3 million in the 1998 Period.  Reference is
made to Note 10 to these Financial  Statements for a discussion of restructuring
items incurred during the 1998 Period.

         Interest  expense for the 1998  Period was $3.2  million as compared to
$3.3 million in the 1997 Period. This decrease is attributable to lower interest
rates in effect under the Loan and Security  Agreement during the 1998 Period as
compared to interest rates in effect in the 1997 Period.

         As a result of the foregoing,  income before  reorganization  items and
income  taxes of $0.4  million  was  realized  in the 1998 Period as compared to
income before  reorganization items and income taxes of $3.0 million in the 1997
Period.   Income  before  depreciation  and  amortization,   reorganization  and
restructuring  items,  interest  expense and income taxes during the 1998 Period
was $6.2 million as compared to $12.0 million during the 1997 Period.

<PAGE>

         Reorganization  items were $8.3  million in the 1997 Period as compared
to $0.1  million  in the  1998  Period.  Reference  is made to Note 11 to  these
Financial  Statements for a discussion of  reorganization  items incurred during
the 1997 Period and 1998 Period.

         During fiscal year 1995,  the Company fully  utilized its net operating
loss carrybacks as permitted by the Internal Revenue Code. Accordingly,  for the
1997 Period,  no income tax benefit was recognized  from the  realization of net
operating losses.  During the 1998 Period,  the Company recognized an income tax
provision of $0.1 million at an effective income tax rate of 39%.

         As a result of the  foregoing,  net income for the 1998 Period was $0.2
million as compared to a net loss of $5.3 million in the 1997 Period.

<PAGE>

THE THIRTEEN WEEKS ENDED MAY 3, 1998 (THE "1998 SECOND QUARTER") COMPARED TO THE
THIRTEEN WEEKS ENDED MAY 4, 1997 (THE "1997 SECOND QUARTER").

         Net sales for the 1998 Second Quarter were $49.6 million, a decrease of
23.4% from the 1997 Second  Quarter.  Total yards of fabric sold decreased 26.8%
during the 1998 Second  Quarter.  However,  the average per yard  selling  price
increased  to $7.62 per yard from $7.28 per yard due to shifts in  product  mix.
Sales  declined in all major product  lines except for  specialty  fabric sales.
Such  decrease  is  attributable  to the  reasons  discussed  in the 1998 Period
compared to the 1997 Period.

         Cost of goods sold decreased  $11.1 million to $41.7 million during the
1998 Second Quarter primarily as a result of lower sales. Gross profit decreased
$4.0  million or 33.7% to $7.9  million in the 1998  Second  Quarter,  and gross
profit  margin for the 1998 Second  Quarter was 15.9%  compared to 18.4% for the
1997  Second  Quarter.  Included  in cost of goods sold  during the 1998  Second
Quarter is a $1.1 million charge relating to increased market reserves  recorded
as  a  result  of  the  1998  Restructuring  (see  Note  2  to  these  Financial
Statements).

         Selling, general and administrative  expenses,  excluding the provision
for uncollectible  accounts,  decreased 14.8% to $3.2 million in the 1998 Second
Quarter compared to $3.7 million in the 1997 Second Quarter. The majority of the
decrease  in the 1998  Second  Quarter is due to lower  human  resource  related
expenses and lower  depreciation and amortization  which was partially offset by
increased professional expenses.  Such reduction is attributable for the reasons
discussed in the 1998 Period compared to the 1997 Period.

         The provision for  uncollectible  accounts was  approximately  the same
during the 1998 Second Quarter when compared to the 1997 Second Quarter.

         Restructuring  items  were $0.3  million  in the 1998  Second  Quarter.
Reference is made to Note 10 to these  Financial  Statements for a discussion of
restructuring items incurred during the 1998 Second Quarter.

         Interest  expense for the 1998 Second  Quarter was $1.6 million or $0.1
million lower than the 1997 Second  Quarter.  This decrease is  attributable  to
lower interest rates in effect under the Loan and Security  Agreement during the
1998 Second  Quarter as compared to interest  rates in effect in the 1997 Second
Quarter.

         As a result of the foregoing,  income before  reorganization  items and
income taxes of $2.5 million was realized in the 1998 Second Quarter as compared
to income  before  reorganization  items and income taxes of $6.2 million in the
1997 Second Quarter. Income before depreciation and amortization, reorganization
and  restructuring  items,  interest  expense and income  taxes  during the 1998
Second  Quarter was $5.5  million as compared to $10.8  million  during the 1997
Second Quarter.

         Reorganization  items were $4.2  million in the 1997 Second  Quarter as
compared to less than $0.1 million during the 1998 Second Quarter.  Reference is
made to Note 11 to these Financial Statements for a discussion of reorganization
items incurred during the 1997 Second Quarter and 1998 Second Quarter.

         During fiscal year 1995,  the Company fully  utilized its net operating
loss carrybacks as permitted by the Internal Revenue Code. Accordingly,  for the
1997 Second  Quarter and the 1997 Period,  no income tax benefit was  recognized
from the  realization of net operating  losses.  During the 1998 Second Quarter,
the Company  recognized  an income tax provision of $0.9 million at an effective
income tax rate of 39%. 
<PAGE>

         As a result of the  foregoing,  net income was $1.5 million in the 1998
Second Quarter compared to $2.0 million in the 1997 Second Quarter.

<PAGE>


PART II -- OTHER INFORMATION

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

(a)  Exhibits

     4.1      Amendment No. 1 to Loan and Security Agreement dated as of
              March 13, 1998.

     4.2      Amendment No. 2 to Loan and Security Agreement dated as of
              March 24, 1998.

     15       Independent  Accountants'  Review  Report,  dated  May  28,  1998
              from Deloitte & Touche LLP to Forstmann & Company, Inc.

(b)     Current Reports on Form 8-K

               Since  the end of the first  quarter  of fiscal  year  1998,  the
               Company  filed a Current  Report on Form 8-K dated May 26,  1998,
               reporting on Item 5.

<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.




                                                   FORSTMANN & COMPANY, INC.
                                                   -------------------------
                                                   (Registrant)




                                                    /s/ Rodney Peckham
                                                    ------------------
                                                    Rodney Peckham
                                                    Executive Vice President
                                                    Finance, Administration and
                                                    Strategic Planning

  June 16, 1998
  ---------------
      Date

<PAGE>
                                  EXHIBIT INDEX




Exhibit                                                              Sequential
  No.          Description                                             Page No.
  ---          -----------                                             --------

4.1            Amendment No. 1 to Loan and Security Agreement             27
               dated as of March 13, 1998.

4.2            Amendment No. 2 to Loan and Security Agreement             33
               dated as of March 24, 1998.

15             Independent Accountants' Review Report, dated              41
               May 28, 1998, from Deloitte & Touche
               LLP to Forstmann & Company, Inc.


<PAGE>
                                                                     Exhibit 4.1
                 AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT


                  AMENDMENT  NO. 1 IN  RESPECT OF LOAN AND  SECURITY  AGREEMENT,
dated as of March 13, 1998 (this "Amendment"),  among the financial institutions
listed on the signature pages hereof (such financial institutions, together with
their  respective  successors  and  assigns,  are referred to  hereinafter  each
individually  as a "Lender"  and  collectively  as the  "Lenders"),  BankAmerica
Business Credit,  Inc., a Delaware  corporation,  with an office at 40 East 52nd
Street,  New York, New York 10022,  as agent for the Lenders (in its capacity as
agent, the "Agent"), and Forstmann & Company, Inc., a Georgia corporation,  with
offices  at  1155  Avenue  of the  Americas,  New  York,  New  York  10036  (the
"Borrower").


                              W I T N E S S E T H :

         WHEREAS,  the Lenders, the Agent and the Borrower are parties to a Loan
and Security Agreement dated as of July 23, 1997 (the "Loan Agreement"); and

         WHEREAS,  the  Borrower  wishes  to  enter  into  the  Credit  Approved
Receivables   Purchasing   Agreement   (the  "CIT   Agreement")   with  The  CIT
Group/Commercial  Services,  Inc.  ("CIT"),  in substantially  the form attached
hereto as Exhibit A, pursuant to which CIT will purchase those of the Borrower's
accounts receivable which CIT has previously credit approved and perform certain
other services in connection therewith, in each case on the terms and subject to
the conditions contained in the CIT Agreement;

         WHEREAS, Mr. Robert N. Dangremond has resigned as Chief
Executive Officer of the Borrower and has been replaced by Mr.
Brian A. Moorstein and Mr. Rodney J. Peckham as President and as
Executive Vice President, Finance, Administration, and Strategic
Planning, respectively (such replacement to be hereinafter referred
to as a "Change in Control");

         WHEREAS,  the Majority Lenders are willing to amend certain  provisions
of the Loan Agreement in order to permit the  transactions  contemplated  by the
CIT Agreement and to make certain revisions to the Loan Agreement to give effect
to the Change in Control, all on the terms and conditions herein set forth.

         NOW,  THEREFORE,  in consideration  of the mutual  covenants  contained
herein and for other good and valuable  consideration,  the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:

     1. Definitions.  Capitalized terms used herein and not defined herein shall
have the respective meanings given to such terms in the Loan Agreement.

     2.  Amendment to Section 6.4.  Section 6.4 of the Loan  Agreement  shall be
amended to read in its entirety as follows:
<PAGE>

                  "6.4 Title to, Liens on, and Sale and Use of  Collateral.  The
         Borrower  represents  and  warrants  to the Agent and the  Lenders  and
         agrees with the Agent and the Lenders that:  (a) all of the  Collateral
         is and will  continue to be owned by the Borrower free and clear of all
         Liens whatsoever,  except for Permitted Liens; (b) the Agent's Liens in
         the Collateral will not be subject to any prior Lien,  except Permitted
         Liens,  described in clause (i) of the definition of "Permitted  Liens"
         and  Permitted  Liens if and to the extent  that such  Permitted  Liens
         constitute  prior Liens under any Requirement of Law or, in the case of
         Real Estate, Permitted Liens described in clause (vi) of the definition
         of "Permitted  Liens";  (c) the Borrower will use, store,  and maintain
         the Collateral  with all reasonable  care and will use such  Collateral
         for lawful  purposes only;  and (d) the Borrower will not,  without the
         Agent's prior written approval,  sell, or dispose of or permit the sale
         or disposition  of any of the Collateral  except for sales of Inventory
         in the ordinary  course of business and sales of Equipment as permitted
         by Section 6.11 and sales of Accounts,  which are not Eligible Accounts
         as a result of being past due,  to The CIT  Group/Commercial  Services,
         Inc.  ("CIT")  pursuant  to the  certain  Credit  Approved  Receivables
         Purchasing  Agreement dated as of March 13, 1998,  between the Borrower
         and CIT, as amended by First Amendment to Credit  Approved  Receivables
         Purchasing   Agreement   and  Second   Amendment  to  Credit   Approved
         Receivables  Purchasing Agreement,  each dated as of March 13, 1998, as
         such  Agreement  is in effect on March 13, 1998 (the "CIT  Agreement").
         The  inclusion  of  proceeds in the  Collateral  shall not be deemed to
         constitute  the  Agent's or any  Lender's  consent to any sale or other
         disposition of the Collateral except as expressly permitted herein."

     3.  Amendment to Section 6.8.  Section 6.8 of the Loan  Agreement  shall be
amended to read in its entirety as follows:

                  "6.8 Accounts. (a) The Borrower hereby represents and warrants
         to the Agent and the Lenders,  with respect to the Accounts,  that: (i)
         each  existing  Account  represents,   and  each  future  Account  will
         represent,  a bona  fide  sale or lease  and  delivery  of goods by the
         Borrower,  or  rendition of services by the  Borrower,  in the ordinary
         course of the Borrower's  business;  (ii) each existing Account is, and
         each future  Account  will be, for a liquidated  amount  payable by the
         Account Debtor  thereon on the terms set forth in the invoice  therefor
         or in the schedule thereof delivered to the Agent,  without any offset,
         deduction,  defense, or counterclaim except those properly reflected on
         a Borrowing  Base  Certificate;  (iii) no payment will be received with
         respect to any  Account,  and no credit,  discount,  or  extension,  or
         agreement  therefor will be granted on any Account,  except as reported
         to the Agent and the  Lenders  in  accordance  with this  Agreement  or
         except  pursuant to the terms of the CIT  Agreement ; (iv) each copy of
         an invoice  delivered  to the Agent by the  Borrower  will be a genuine
         copy of the original  invoice sent to the Account Debtor named therein;
         (v) except in the case of invoices  relating to Bill and Hold Accounts,
         all goods  described in any invoice  representing  a sale of goods will
         have been  delivered  to the  Account  Debtor and all  services  of the
         
<PAGE>

         Borrower  described in each invoice will have been performed;  and (vi)
         in the case of invoices  relating to Eligible  Bill and Hold  Accounts,
         all goods  described in any such invoice will be shipped and  delivered
         within (A) the later of (I) the season in which the invoice is rendered
         or (II) six months  after the date on which the  invoice is rendered or
         (B) the time specified in the invoice."

     4.  Amendment to Section 9.9.  Section 9.9 of the Loan  Agreement  shall be
amended to read in its entirety as follows:

                  "9.9 Mergers,  Consolidations  or Sales.  Except in accordance
         with the Plan of Reorganization,  the Borrower shall not enter into any
         transaction of merger, reorganization,  or consolidation,  or transfer,
         sell,  assign,  lease,  or otherwise  dispose of all or any part of its
         property,  or wind up, liquidate or dissolve, or agree to do any of the
         foregoing,  except for (i) sales of Inventory in the ordinary course of
         its  business,  (ii) sales or other  dispositions  of  Equipment in the
         ordinary  course of business that are obsolete or no longer  useable by
         Borrower in its  business as  permitted by Section 6.11 and (iii) sales
         of Accounts,  which are not Eligible Accounts as a result of being past
         due, to CIT pursuant to the CIT Agreement."

     5.  Amendment to Section  11.1(s).  Section  11.1(s) of the Loan  Agreement
shall be amended to read in its entirety as follows:

                  "(s) there  shall occur (i) one or more  sales,  transfers  or
         other  dispositions  of Capital  Stock of the  Borrower,  or securities
         convertible  into or exchangeable  for such Capital Stock, or rights to
         acquire such Capital  Stock,  to one or more  purchasers,  or any other
         event, such that after, or as a direct result of, such sale,  transfer,
         disposition,  or event (A) any  "person" or related  "group" of persons
         (within the meaning of Sections  13(d)(3)  and 14(d)(2) of the Exchange
         Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
         Exchange  Act) of more than 50% of the total  voting  power of the then
         outstanding  Capital  Stock  of the  Borrower  (calculated  on a  fully
         diluted basis in  accordance  with GAAP) or (B) any "person" or related
         "group" of persons  (within the meaning of Sections  13(d)(3) and 14(2)
         of the Exchange Act) acquires directly or indirectly the power to elect
         a  majority  of the  directors  onto  the  board  of  directors  of the
         Borrower,  or  (ii)  a  change  in  the  President  or  Executive  Vice
         President,  Finance,  Administration,  and  Strategic  Planning  of the
         Borrower,  which change shall not be  satisfactory  to the Agent or the
         Majority Lenders;"

     6.  Representations  and  Warranties.  The Borrower  hereby  represents and
warrants  to the  Agent  and the  Lenders  as of the  date  hereof  that (i) the
execution,  delivery and performance of this Amendment,  and the other documents
and  instruments  to be executed and delivered in connection  herewith,  and the
execution, delivery and performance by the Borrower of the CIT Agreement and the
consummation  of the Change of Control are within its corporate  powers and have
been  duly  authorized  by all  necessary  corporate  action;  (ii) no  consent,
approval or authorization  of any Governmental  Authority or any other Person is
required in connection  with the  execution,  delivery and  performance  of this
Amendment and the other  documents and  instruments to be executed and delivered
<PAGE>

in  connection  herewith  by  the  Borrower,  or  the  execution,  delivery  and
performance  by the  Borrower of the CIT  Agreement or the  consummation  of the
Change of Control,  except for this  Amendment  and those  others  already  duly
obtained;  (iii) no declaration,  filing or registration  with any  Governmental
Authority   (including,   without   limitation,   the  Securities  and  Exchange
Commission)  is  required  in  connection  with  the  execution,   delivery  and
performance  of this  Amendment and the other  documents and  instruments  to be
executed and delivered in connection herewith by the Borrower, or the execution,
delivery and  performance by the Borrower of the CIT Agreement and  consummation
of the Change of  Control;  (iv) this  Amendment  has been duly  executed by the
Borrower  and  constitutes  the  legal,  valid  and  binding  obligation  of the
Borrower,  enforceable  against  it  in  accordance  with  its  terms;  (v)  the
execution,  delivery and  performance  by the Borrower of this Amendment and the
other  documents  and  instruments  to be executed and  delivered in  connection
herewith by the  Borrower,  do not and will not conflict  with,  or constitute a
violation or breach of, or constitute a default under, or result in the creation
or  imposition  of any Lien upon the  property of the  Borrower by reason of the
terms of (a) any contract,  mortgage,  Lien,  lease,  agreement,  indenture,  or
instrument to which the Borrower is a party or which is binding upon it, (b) any
requirement of law applicable to the Borrower or (c) the Certificate or Articles
of Incorporation or By- Laws of the Borrower ; and (v) no event has occurred and
is continuing which constitutes a Default or an Event of Default.

     7. Conditions to Effectiveness. This Amendment shall be effective as of the
date  first  above  written  upon  satisfaction  of  the  following   conditions
precedent:

                  7.1.  Execution  of  this  Amendment.  The  Agent  shall  have
         received a copy of this  Amendment  duly executed by the Borrower,  the
         Agent and the Lenders constituting the Majority Lenders;

                  7.2. No  Defaults.  No Default or Event of Default  shall have
         occurred  and be  existing  before  this  Amendment  shall have  become
         effective,  and no Default or Event of Default shall  result,  occur or
         exist immediately after this Amendment shall have become effective.

     8. Limited  Effect.  This Amendment  shall be limited solely to the matters
expressly set forth herein and shall not (a)  constitute an amendment or consent
with  respect  to any  other  term or  condition  of the Loan  Agreement  or any
instrument or agreement referred to therein or (b) prejudice any right or rights
which the Agent or the Lenders  may now have or may have in the future  under or
in connection with the Loan Agreement or any instrument or agreement referred to
therein.  Except as  expressly  amended  and  consented  to  herein,  all of the
covenants and  provisions of the Loan  Agreement are and shall continue to be in
full force and effect.

     9. Execution in Counterparts; Telecopies. This Amendment may be executed in
any  number  of  counterparts  and  by  different  parties  hereto  in  separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken  together  shall  constitute one and the same
instrument.  Transmission  by a party hereto of an executed  counterpart of this
Amendment  to the Agent by  telecopier  shall be deemed  to  constitute  due and
sufficient delivery of such counterpart by such party,  provided that such party
counterpart  shall,  promptly after such delivery,  deliver the original of such
executed counterpart to the Agent. 

<PAGE>

     10.  Governing Law. THIS AMENDMENT  SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     11.  Headings.  Section headings in this Amendment are includ ed herein for
convenience of reference only and shall not constitute a part of this Amendment
or be given any substantive effect.


                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Amendment to be duly executed and delivered by their respective  proper and duly
authorized officers as of the day and year first above written.

                                       Borrower

                                       FORSTMANN & COMPANY, INC.


                                       By:_____________________________
                                       Name:
                                       Title:





                                        Agent

                                        BANKAMERICA BUSINESS CREDIT, INC.


                                        By:_____________________________
                                        Name:
                                        Title:





                                         Lenders

                                         BANKAMERICA BUSINESS CREDIT, INC.


                                         By:_____________________________
                                         Name:
                                         Title:



                                         AT&T COMMERCIAL FINANCE CORPORATION


                                         By:_____________________________
                                         Name:
                                         Title:

<PAGE>



                                         THE CIT GROUP/COMMERCIAL SERVICES, INC.


                                         By: _____________________________
                                         Name:
                                         Title:




                                        IBJ SCHRODER BUSINESS CREDIT CORPORATION


                                        By:_____________________________
                                        Name:
                                        Title:




                                        LA SALLE BUSINESS CREDIT, INC.


                                        By:_____________________________
                                        Name:
                                        Title:




                                        PNC BANK, NATIONAL ASSOCIATION


                                        By:_____________________________
                                        Name:
                                        Title:

<PAGE>

                                                                     Exhibit 4.2

                 AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT


                  AMENDMENT  NO. 2 IN  RESPECT OF LOAN AND  SECURITY  AGREEMENT,
dated as of March 24, 1998 (this "Amendment"),  among the financial institutions
listed on the signature pages hereof (such financial institutions, together with
their  respective  successors  and  assigns,  are referred to  hereinafter  each
individually  as a "Lender"  and  collectively  as the  "Lenders"),  BankAmerica
Business Credit,  Inc., a Delaware  corporation,  with an office at 40 East 52nd
Street,  New York, New York 10022,  as agent for the Lenders (in its capacity as
agent, the "Agent"), and Forstmann & Company, Inc., a Georgia corporation,  with
offices  at  1155  Avenue  of the  Americas,  New  York,  New  York  10036  (the
"Borrower").


                               W I T N E S S E T H

         WHEREAS,  the Lenders, the Agent and the Borrower are parties to a Loan
and Security Agreement dated as of July 23, 1997 and Amendment No. 1 to Loan and
Security  Agreement  dated  as of  March  13,  1998 (as so  amended,  the  "Loan
Agreement"); and

         WHEREAS,  the  Borrower is making  certain  changes to its  businesses,
including  exiting,  reducing  its  involvement  in  and/or  relocating  certain
businesses, that will require the Borrower to incur costs and writedown obsolete
inventories; and

         WHEREAS,  the Majority Lenders are willing to amend certain  provisions
of the Loan  Agreement  to  reflect  the costs and  writedowns  incurred  by the
Borrower in connection with the changes to its businesses.

         NOW,  THEREFORE,  in consideration  of the mutual  covenants  contained
herein and for other good and valuable  consideration,  the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:

         1.  Definitions.  Capitalized  terms used herein and not defined herein
shall have the respective meanings given to such terms in the Loan Agreement.

         2. Amendment to Section 1.1. Section 1.1 of the Loan Agreement shall be
amended as follows:

                  (a) The  definition of "Adjusted  Tangible Net Worth" shall be
amended  by  inserting  after  the  words  "Effective  Date"  therein  the words
"provided  further,  however,  that any  calculation  of 'Adjusted  Tangible Net
Worth'  pursuant to this  Agreement  shall exclude the  1998-1999  Extraordinary
Charges";

                  (b) The  definition of "EBITDA"  shall be amended by inserting
after the words  "Reorganization  Charges"  in clause (i)  thereof the words "or
1998-1999 Extraordinary Charges"; and

 <PAGE>

                  (c) The  following  definition  shall be inserted  immediately
after the definition of "Net Amount of Eligible Accounts":

                  "1998-1999  Extraordinary  Charges" means any of the following
         items, to the extent that such item would be treated as a restructuring
         expense or an operating expense in accordance with GAAP:

                           (i)  writedowns or other  adjustments to the value of
                  the Borrower's assets caused by (A) the discontinuation by the
                  Borrower of its top dye worsted operations, (B) the relocation
                  by  the   Borrower  of  its  package   dye   operations   from
                  Milledgeville,  Georgia to Dublin, Georgia, (C) the relocation
                  by the  Borrower of certain of its  finishing  equipment  from
                  Dublin,  Georgia to Louisville,  Georgia and (D) the reduction
                  by the Borrower of its worsted operations;

                           (ii) writedowns or other  adjustments to the value of
                  the Borrower's  Inventory relating to its worsted  operations,
                  including  such  writedowns or other  adjustments to Inventory
                  consisting  of yarn caused by the reduction by the Borrower of
                  its worsted operations;

                           (iii) costs  incurred by the  Borrower in  connection
                  with moving  from  Milledgeville,  Georgia to Dublin,  Georgia
                  certain of its yarn dyeing and warp preparation  equipment and
                  moving from Dublin, Georgia to Louisville,  Georgia certain of
                  its finishing equipment; and

                           (iv)  severance  and "stay put"  payments made by the
                  Borrower to its  salaried and hourly  employees in  connection
                  with the  actions  described  in clauses  (i),  (ii) and (iii)
                  above and payments  made and charges  taken by the Borrower in
                  connection  with the  partial  termination  of its ERISA  Plan
                  related to such salaried and hourly employees;

         provided  that:  (a) such items arise,  in each case above,  during the
         Fiscal Year ending in 1998 and, in the case of clauses  (i)(B),  (i)(C)
         and (iii) above, during the Fiscal Year ending in 1998 or 1999; and (b)
         such items do not  exceed,  in the case of clauses  (i)(B),  (i)(C) and
         (iii) above, $1,000,000 in the aggregate.

         3. Amendment to Section 9.22.  Section 9.22 of the Loan Agreement shall
be amended by deleting  subsection  (a) thereof in its entirety and inserting in
its place the following:

<PAGE>
                          (a) The  Borrower  shall not make or incur any Capital
         Expenditure  if, after giving effect thereto,  the aggregate  amount of
         all Capital  Expenditures  by the Borrower would exceed (i) $6,000,0000
         during the Fiscal Year ending on  November  2, 1998,  (ii)  $8,000,0000
         during the Fiscal Year ending on November 2, 1999 or (iii)  $5,000,0000
         during any other Fiscal Year; provided, however, that in the event that
         all or any part of such permitted  aggregate  amount is not utilized by
         the Borrower  during any Fiscal  Year,  such  unutilized  amount may be
         added to the limit in respect of any subsequent year or years.

         4. Amendment to Section 9.26.  Section 9.26 of the Loan Agreement shall
be amended by deleting the table  therein in its  entirety and  inserting in its
place the following:


        Fiscal Quarter Ending              Ratio
        July 1997                           1.0
        October 1997                        1.0
        January 1998                        0.7
        April 1998                          0.9
        July 1998                           0.75
        October 1998                        0.65
        January 1999                        0.7
        April 1999                          0.8
        July 1999                           0.75
        October 1999                        0.65
        January 2000 (and any fiscal
        quarter thereafter)                 1.1

         5.  Representations and Warranties.  The Borrower hereby represents and
warrants  to the  Agent  and the  Lenders  as of the  date  hereof  that (i) the
execution,  delivery and performance of this Amendment,  and the other documents
and  instruments to be executed and delivered in connection  herewith are within
its corporate  powers and have been duly  authorized by all necessary  corporate
action; (ii) no consent, approval or authorization of any Governmental Authority
or any other Person is required in connection  with the execution,  delivery and
performance  of this  Amendment and the other  documents and  instruments  to be
executed  and  delivered  in  connection  herewith  by the  Borrower;  (iii)  no
declaration,  filing or registration with any Governmental Authority (including,
without  limitation,  the  Securities  and Exchange  Commission)  is required in
connection  with the execution,  delivery and  performance of this Amendment and
the other  documents and  instruments to be executed and delivered in connection
herewith by the  Borrower;  (iv) this  Amendment  has been duly  executed by the
Borrower  and  constitutes  the  legal,  valid  and  binding  obligation  of the
Borrower,  enforceable  against  it  in  accordance  with  its  terms;  (v)  the
execution,  delivery and  performance  by the Borrower of this Amendment and the
other  documents  and  instruments  to be executed and  delivered in  connection
herewith by the  Borrower,  do not and will not conflict  with,  or constitute a
violation or breach of, or constitute a default under, or result in the creation
or  imposition  of any Lien upon the  property of the  Borrower by reason of the
terms of (a) any contract,  mortgage, Lien, lease, agreement,  

<PAGE> 

indenture,  or  instrument  to which the Borrower is a party or which is binding
upon it,  (b) any  requirement  of law  applicable  to the  Borrower  or (c) the
Certificate or Articles of Incorporation or ByLaws of the Borrower;  and (vi) no
event has occurred and is continuing which  constitutes a Default or an Event of
Default.

         6. Conditions to Effectiveness. This Amendment shall be effective as of
the date first above  written  upon  satisfaction  of the  following  conditions
precedent:

                  6.1.  Prepayment of Term Loans.  On or before the date hereof,
         the Borrower shall have repaid the outstanding  principal amount of the
         Term Loans, in accordance with Section 4.4 of the Loan Agreement, in an
         amount equal to $3,000,000;

                  6.2.  Execution  of  this  Amendment.  The  Agent  shall  have
         received a copy of this  Amendment  duly executed by the Borrower,  the
         Agent and the Lenders constituting the Majority Lenders; and

                  6.3. No  Defaults.  No Default or Event of Default  shall have
         occurred  and be  existing  before  this  Amendment  shall have  become
         effective,  and no Default or Event of Default shall  result,  occur or
         exist immediately after this Amendment shall have become effective.

         7.  Limited  Effect.  This  Amendment  shall be  limited  solely to the
matters  expressly set forth herein and shall not (a) constitute an amendment or
consent with respect to any other term or condition of the Loan Agreement or any
instrument or agreement referred to therein or (b) prejudice any right or rights
which the Agent or the Lenders  may now have or may have in the future  under or
in connection with the Loan Agreement or any instrument or agreement referred to
therein.  Except as  expressly  amended  and  consented  to  herein,  all of the
covenants and  provisions of the Loan  Agreement are and shall continue to be in
full force and effect.

         8.  Execution  in  Counterparts;  Telecopies.  This  Amendment  may  be
executed  in any  number of  counterparts  and by  different  parties  hereto in
separate  counterparts,  each of which when so executed and  delivered  shall be
deemed to be an original and all of which taken  together  shall  constitute one
and  the  same  instrument.  Transmission  by a  party  hereto  of  an  executed
counterpart  of this  Amendment  to the Agent by  telecopier  shall be deemed to
constitute  due and  sufficient  delivery  of such  counterpart  by such  party,
provided  that such party  counterpart  shall,  promptly  after  such  delivery,
deliver the original of such executed counterpart to the Agent.

         9.       Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.

         10.  Headings.  Section  headings in this Amendment are included herein
for  convenience  of  reference  only and shall not  constitute a part of this
Amendment or be given any substantive effect.

<PAGE>

                 IN  WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Amendment to be duly executed and delivered by their respective  proper and duly
authorized officers as of the day and year first above written.

                                            Borrower

                                            FORSTMANN & COMPANY, INC.


                                            By:_____________________________
                                            Name:
                                            Title:


                                            Agent

                                            BANKAMERICA BUSINESS CREDIT, INC.


                                            By:_____________________________
                                            Name:
                                            Title:




                                            Lenders

                                            BANKAMERICA BUSINESS CREDIT, INC.


                                            By:_____________________________
                                            Name:
                                            Title:


                                            AT&T COMMERCIAL FINANCE CORPORATION


                                            By:_____________________________
                                            Name:
                                            Title:


                                            THE CIT GROUP/COMMERCIAL SERVICES,
                                               INC.


                                            By:_____________________________
                                            Name:
                                            Title:

<PAGE>
                                            IBJ SCHRODER BUSINESS CREDIT
                                               CORPORATION


                                            By:_____________________________
                                            Name:
                                            Title:


                                            LA SALLE BUSINESS CREDIT, INC.


                                            By:_____________________________
                                            Name:
                                            Title:


                                            PNC BANK, NATIONAL ASSOCIATION


                                            By:_____________________________
                                            Name:
                                            Title:


<PAGE>

                                                                     Exhibit 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Board of Directors and Shareholders
Forstmann & Company, Inc.:

We have  reviewed  the  accompanying  condensed  balance  sheet of  Forstmann  &
Company,  Inc.  (the  "Company")  as of May 3,  1998 and the  related  condensed
statements of operations for the thirteen and twenty-six weeks ended May 3, 1998
(Reorganized  Company)  and May 4, 1997  (Predecessor  Company),  the  condensed
statements of cash flows for the twenty-six weeks ended May 3, 1998 (Reorganized
Company) and May 4, 1997  (Predecessor  Company) and the condensed  statement of
changes in  shareholders'  equity for the  twenty-six  weeks  ended May 3, 1998.
These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data, and making  inquiries of persons  responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to such condensed financial statements for them to be in conformity with
generally accepted accounting principles.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the  balance  sheet of the  Company as of  November  2, 1997 and the
related statements of operations,  shareholders'  equity, and cash flows for the
period from November 4, 1996 to July 22, 1997 of the Predecessor Company and the
period from July 23, 1997 to November 2, 1997 of the  Reorganized  Company  (not
presented  herein);  and in our report dated  December 19, 1997, we expressed an
unqualified  opinion  on  those  financial  statements.   In  our  opinion,  the
information set forth in the accompanying condensed balance sheet as of 
November 2, 1997 is fairly stated, in all material  respects,  in relation to 
the balance sheet from which it has been derived.


Deloitte & Touche LLP
Atlanta, Georgia
May 28, 1998