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 August 1, 1999
                               --------------
       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. (DEBTOR-IN-POSSESSION)
       ------------------------------------------------------------------
             (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.)

           498 Seventh Avenue, New York, New York          10018
           --------------------------------------         -------
          (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 September 15,1999 there was 4,422,844 shares of Common Stock outstanding.
 .

<PAGE>



PART I -- FINANCIAL INFORMATION
Item 1.  Financial Statements

               FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
         FOR THE THIRTEEN WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
       AND THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
                                  (unaudited)


<TABLE>

                              Thirteen      Thirteen       Thirty-Nine    Thirty-Nine
                             Weeks Ended   Weeks Ended     Weeks Ended    Weeks Ended
                               August 1,     August 2,       August 1,      August 2,
                                1999          1998            1999           1998
                                ----          ----            ----           ----

<S>                          <C>            <C>            <C>          <C>
Net sales                    $23,390,000    $38,996,000    $68,930,000  $ 117,638,000

Cost of goods sold            22,558,000     37,021,000     66,203,000    104,444,000
                              ----------     ----------     ----------    -----------

Gross profit                     832,000      1,975,000      2,727,000     13,194,000

Selling, general and
   administrative expenses     2,206,000      3,167,000      8,390,000      9,933,000

Provision for uncollectible
   accounts                      169,000         67,000        469,000        638,000

Restructuring items            2,788,000      1,254,000      3,344,000      1,566,000
                               ---------      ---------      ---------      ---------

Operating (loss) income       (4,331,000)    (2,513,000)    (9,476,000)     1,057,000

Interest expense               1,517,000      1,764,000      4,311,000      4,915,000
                               ---------      ---------      ---------      ---------

Loss before reorganization
   items, income taxes
   and extraordinary gain     (5,848,000)    (4,277,000)   (13,787,000)    (3,858,000)

Reorganization items           1,346,000         25,000      1,400,000         80,000
                               ---------         ------      ---------         ------

Loss before income taxes
   and extraordinary gain     (7,194,000)    (4,302,000)   (15,187,000)    (3,938,000)

Income tax benefit                    --       (142,000)            --             --
                               ---------      ----------    ----------      ----------

Loss before extraordinary
   gain                       (7,194,000)    (4,160,000)   (15,187,000)    (3,938,000)

Extraordinary item - gain
   on debt discharge                  --             --        314,000             --
                             -----------    -----------   ------------    ------------

Net loss                     $(7,194,000)   $(4,160,000   $(14,873,000    $(3,938,000)
                             ===========    ===========   ============    ===========
</TABLE>




                            (continued on next page)
<PAGE>


FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>


                                    Thirteen     Thirteen    Thirty-Nine   Thirty-Nine
                                   Weeks Ended  Weeks Ended  Weeks Ended   Weeks Ended
                                    August 1,    August 2,    August 1,     August 2,
                                      1999         1998         1999          1998
                                      ----         ----         ----          ----

<S>                                 <C>          <C>          <C>            <C>

Per share and share information:
   Loss before extraordinary
    gain per common share
     - basic and diluted ......      $ (1.63)     $ (.95)     $ (3.45)       $ (.90)

   Extraordinary gain
     per common share
      - basic and diluted ......          --          --      $   .07             --
                                     -------       ------      -------       -------
   Loss per common share
    - basic and diluted .......      $ (1.63)     $ (.95)     $ (3.38)      $  (.90)

  Weighted average common
      shares outstanding, basic
      and diluted .............    4,418,887    4,386,390    4,399,388    4,385,087
                                   =========    =========    =========    =========

</TABLE>


See notes to condensed consolidated financial statements











<PAGE>


                FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                      AUGUST 1, 1999 AND NOVEMBER 1, 1998
                                  (unaudited)
<TABLE>

                                                      August 1,       November 1,
                                                        1999            1998
                                                        ----            ----
ASSETS
Current Assets:
<S>                                                 <C>              <C>
  Cash                                              $   204,000      $   143,000
  Cash restricted for settlement of unpaid claims            --          327,000
  Accounts receivable, net of allowance of
     $1,778,000 and $1,309,000                       27,551,000       31,434,000
  Inventories                                        23,499,000       38,818,000
  Current deferred tax assets                                --               --
  Other current assets                                  604,000          281,000
  Property, plant and equipment
    held for sale                                     2,649,000               --
                                                    -----------      -----------
      Total current assets                           54,507,000       71,003,000

Property, plant and equipment, net                   14,476,000       22,235,000
Other assets                                          1,920,000        2,005,000
      Total                                         $70,903,000      $95,243,000
                                                    ===========      ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term debt              $43,318,000      $ 7,619,000
  Accounts payable                                      191,000        3,151,000
  Accrued liabilities                                 4,022,000        9,238,000
                                                    -----------        ---------
    Total current liabilities                        47,531,000       20,008,000

Long-term debt                                          265,000       43,565,000
Deferred tax liabilities                                     --               --
                                                    -----------      -----------
    Total liabilities not subject
       to compromise                                 47,796,000       63,573,000

Liabilities subject to compromise                     6,284,000               --

Shareholders' Equity:
  Preferred stock, $0.01 per value, 1,000,000
    shares authorized, nil outstanding                       --               --
  Common stock, $.01 par value, 35,000,000
    shares authorized, 4,422,844
      and 4,387,819 shares
    issued and outstanding                               44,228           43,878
  Additional paid-in capital                         50,348,772       50,323,122
  Retained deficit since July 23, 1997              (33,570,000)     (18,697,000)
                                                    -----------      -----------
    Total shareholders' equity                       16,823,000       31,670,000
                                                    -----------      -----------
    Total                                           $70,903,000      $95,243,000
                                                    ===========      ===========

See notes to condensed consolidated financial statements.
</TABLE>

<PAGE>

                           FORSTMANN & COMPANY, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       FOR THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
                                  (unaudited)

<TABLE>

                                                              August 1,      August 2,
                                                                1999           1998
                                                                ----           ----

<S>                                                        <C>             <C>
Net loss ...............................................   $(14,873,000)   $ (3,938,000)
                                                           ------------    ------------
  Adjustments to reconcile
  net loss to net cash provided (used) by
  operating activities:
    Depreciation and amortization ......................      3,162,000       4,081,000
    Write-off of deferred financing costs ..............        782,000            --
    Provision for uncollectible accounts ...............        469,000         638,000
    Increase (decrease) in inventory
       market reserves .................................       (521,000)      2,650,000
    Loss from disposal, abandonment
      and impairment of machinery
      and equipment and other assets ...................      2,747,000         720,000
    Gain associated with NY office lease
       surrender .......................................             --        (987,000)
    Gain associated with restructuring
        lease liability ................................       (647,000)             --
    Extraordinary gain on discharge of debt ............       (314,000)             --
    Other ..............................................        549,000              --
    Changes in current assets
       and current liabilities:
        Accounts receivable ............................      3,414,000      (4,603,000)
        Inventories ....................................     15,317,000      (7,712,000)
        Other current assets ...........................       (323,000)        494,000
        Accounts payable ...............................     (2,960,000)        566,000
        Accrued liabilities ............................     (4,565,000)     (2,371,000)
        Deferred income taxes ..........................             --          13,000
Operating liabilities subject
      to compromise ....................................      5,791,000              --
                                                              ---------      ----------

  Total adjustments ....................................     22,901,000      (6,511,000)
                                                             ----------      ----------
    Net cash provided (used) by
      operating activities .............................      8,028,000     (10,449,000)
                                                             ----------      ----------
</TABLE>

                            (continued on next page)


<PAGE>


                FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
       FOR THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
                                  (unaudited)

<TABLE>

                                                              August 1,        August 2,
                                                                1999             1998
                                                                ----             ----
<S>                                                         <C>             <C>
Cash flows used in investing activities:
  Capital expenditures ................................     (1,782,000)     (2,421,000)
  Investment in other assets, primarily
     computer information systems .....................       (620,000)     (1,784,000)
  Net proceeds from disposal of
    property, plant and equipment .....................      1,798,000           6,000
                                                           -----------           -----

    Net cash used in investing activities .............       (604,000)     (4,199,000)
                                                           -----------       ---------

Cash flows from financing activities:
   Net borrowings under the
       Revolving Loan Facility ........................      5,052,000      24,240,000
   Repayment of Term Loan Facility ....................    (10,842,000)     (7,736,000)
   Repayment of Deferred Interest Rate Notes ..........             --      (1,571,000)
   Repayment of other financing arrangements(1,008,000)       (619,000)
   Deferred financing costs ...........................       (892,000)        (34,000)
                                                           -----------       ---------

    Net cash (used) provided by
      financing activities ............................     (7,690,000)     14,280,000
                                                           -----------     -----------

Net decrease in cash ..................................       (266,000)       (368,000)

Cash and restricted cash at beginning of period .......        470,000       1,051,000

Cash and restricted cash at end of period$ ............        204,000     $   683,000

Supplemental  disclosure  of  cash-flow  information
   relating to the Chapter 11 proceedings:
   Cash paid during the period for
      professional fees ...............................    $   525,000     $   379,000
                                                           ===========     ===========

</TABLE>


See notes to condensed consolidated financial statements

<PAGE>


                  FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
                  CONDENSED CONSOLIDATED STATEMENT OF CHANGES
                            IN SHAREHOLDERS' EQUITY
                 FOR THE THIRTY-NINE WEEKS ENDED AUGUST 1, 1999
                                  (unaudited)
<TABLE>



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

<S>                                   <C>        <C>           <C>               <C>
Balance, November 1, 1998             $43,878    $50,323,122   $(18,697,000)     $31,670,000

Director shares awarded                   350         25,650             --           26,000

Net loss                                   --             --    (14,873,000)     (14,873,000)
                                      -------    -----------   ------------      -----------
Balance, August 1, 1999               $44,228    $50,348,772   $(33,570,000)     $16,823,000
                                      =======    ===========   ============      ===========
</TABLE>


See notes to condensed consolidated financial statements.


<PAGE>


                  FORSTMANN & COMPANY, INC. (DEBTOR-IN-POSSESSION)
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                 AUGUST 1, 1999
                                    (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 and gaming tables,  sports caps and school  uniforms.  The
      apparel industry represents the majority of the Company's customers.

2.    As described in Note 1 to the Consolidated Financial Statements
      contained in the Company's Annual Report on Form 10-K for the fiscal
      year ended November 1, 1998 (the "1998 Form 10-K"), the Company incurred
      net losses of $19.0 million, $7.0 million and $17.8 million in fiscal
      years 1998, 1997 and 1996, respectively.  Net sales declined from $199.0
      million in fiscal year 1997 to $149.6 million in fiscal year 1998.
      Management responded to these losses, the decline in sales and the
      resulting adverse impact on the Company's liquidity by implementing a
      business plan designed to align the Company's manufacturing capacity and
      overhead with expected market demand.  In October 1998, the Company's
      Board of Directors approved the closing of its Louisville, Georgia
      plant, realignment of the Company's remaining manufacturing facilities
      located in Georgia and further reductions of its selling, styling and
      administrative costs (the "1999 Realignment").  Implementation of the
      1999 Realignment was substantially complete as of January 31, 1999.

      The  operating  results  for  fiscal  year  1998,  the  effect of the 1998
      Restructuring  (see  Note  1  to  the  Consolidated  Financial  Statements
      contained  in the  1998  Form  10-K)  and  the  1999  Realignment  and the
      formation of Forstmann  Apparel,  Inc. ("FAI"),  including the purchase of
      substantially  all of the assets of Arenzano  Trading  Company,  Inc. (see
      Note 4 to the Consolidated Financial Statements contained in the 1998 Form
      10-K),  negatively impacted the Company's borrowing availability under its
      Revolving Loan Facility (herein defined). The Company's availability under
      its Revolving  Loan Facility was exhausted in mid-July 1999 as compared to
      $17.3  million  at August 2,  1998.  As a result,  on July 23,  1999,  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
      Bankruptcy  Filing was effected to  facilitate a possible  merger,  equity
      investment  or sale of the  Company.  The Company has been in  discussions
      with  several  interested  parties to  acquire  or invest in the  Company.
      However,  there  can be no  assurance  that  the  Company  will be able to
      consummate  a  merger,   equity   investment   or  sale  of  the  Company.
      Additionally,  as of August  29,  1999  borrowing  availability  under the
      Revolving  Loan  Facility  was $0.6  million.  The  Company's  ability  to
      maintain adequate availability to meet its operating needs is dependent on
      achieving  future sales  consistent  with  management's  expectations  for
      fiscal year 1999 and successful implementation of its cost reductions. The
      majority of the Company's  customers are in the domestic  apparel industry
      which has  continued  to suffer an economic  decline as a result of higher
      levels of imports and changing  fashion  trends.  Expected  cash flow from
      operations is dependent upon achieving  sales  expectations  during fiscal
      year 1999, which are influenced by market  conditions,  including  apparel
      sales at retail, that are beyond the control of the Company.  Further, the
      collectibility of accounts  receivable is dependent in large part upon the
      financial condition of the apparel industry.  Also,  continuing refinement
      of the Company's  strategies in response to evolving  circumstances  could
      materially change the Company's  working capital and capital  expenditures
      requirements.  There can be no assurance  that the Company will be able to
      achieve  an  adequate  level  of  sales   consistent   with   management's
      expectations  for  fiscal  year 1999 to enable  the  Company  to  generate
      sufficient  funds  to  meet  its  operating  needs.  These  factors  raise
      substantial  doubt  about the  Company's  ability to  continue  as a going
      concern.  The  financial  statements do not include any  adjustments  that
      might result from the outcome of these uncertainties.

      The Company's  financial  statements have been prepared in accordance with
      the  American  Institute  of Certified  Public  Accountants'  Statement of
      Position 90-7,  "Financial  Reporting of Entities in Reorganization  Under
      the Bankruptcy  Code".  The  accompanying  financial  statements have been
      prepared on a going concern  basis which assumes  continuity of operations
      and  realization of assets and  liquidation of liabilities in the ordinary
      course of  business.  As a result of the  reorganization  proceeding,  the
      Company may have to sell or otherwise  dispose of assets and  liquidate or
      settle  liabilities  for  amounts  other  than  those  reflected  in these
      Condensed  Consolidated Financial Statements.  Further,  resolution of the
      Company's liquidity problems could materially change the amounts currently
      recorded in the financial statements. The financial statements do not give
      effect to all adjustments to the carrying value of the assets,  or amounts
      and reclassification of liabilities that might be necessary as a result of
      the bankruptcy proceeding.

      Under Chapter 11, absent authorization of the Bankruptcy Court, efforts to
      collect on claims against the Company in existence prior to the Bankruptcy
      Filing are stayed while the Company  continues  business  operations  as a
      debtor-in-possession.  Unsecured  claims  against the Company in existence
      prior to the Bankruptcy  Filing are reflected as  "Liabilities  Subject to
      Compromise".  See Note 12 to the these  Condensed  Consolidated  Financial
      Statements.  Additional  claims  (Liabilities  Subject to Compromise)  may
      arise or  become  fixed  subsequent  to the  filing  date  resulting  from
      rejection of executory contracts, including leases, from the determination
      by the Court (or agreed to by parties in interest)  of allowed  claims for
      contingencies  and other  disputed and  unliquidated  amounts and from the
      determination of unsecured  deficiency claims in respect of claims secured
      by the Company's  assets ("Secured  Claims").  Resolution of the Company's
      liquidity   problems  may  require  certain   compromises  of  liabilities
      (including  Secured Claims) that, as of August 1, 1999, are not classified
      as  "Liabilities   Subject  to  Compromise".   The  Company's  ability  to
      compromise  Secured Claims without the consent of the holder is subject to
      greater restrictions than in the case of unsecured claims. As of August 1,
      1999,  the Company  estimates  that the amount of  Liabilities  Subject to
      Compromise approximates $6.3 million.  Parties holding Secured Claims have
      the right to move the court for relief from the stay,  which relief may be
      granted  upon  satisfaction  of certain  statutory  requirements.  Secured
      Claims  are  collateralized  by  substantially  all of the  assets  of the
      Company, including,  accounts receivable,  inventories and property, plant
      and equipment.



<PAGE>


      During the thirteen weeks ended August 1, 1999 (the "1999 Third Quarter"),
      the Company wrote off deferred  financing cost of $0.8 million  associated
      with the Loan and Security  Agreement  (herein  defined) and incurred $0.3
      million  in   severance   expense.   These   items  were   recognized   as
      reorganization  items during the 1999 Third Quarter.  Any additional asset
      impairment or costs directly related to the reorganization proceeding will
      be reflected  as  reorganization  items in the period the Company  becomes
      committed to plans which impair the valuation of the  Company's  assets or
      incurs a reorganization liability.

      As a result of the 1999  Realignment,  the  Company  wrote down  property,
      plant and  equipment by $2.7 million  during the 1999 Third  Quarter based
      upon appraised  values.  This item was recognized as a restructuring  item
      during  the  1999  Third  Quarter.   Additionally,  the  Company  incurred
      approximately  $1.2 million in severance expense which was recognized as a
      restructuring  item  during the  thirteen  weeks ended  January 31,  1999.
      During the thirteen weeks ended May 2, 1999, the Company recognized a gain
      of $0.6  million  associated  with the  reduction of the  operating  lease
      cancellation  liability  previously  established  during fiscal year 1998.
      Such gain  resulted  from an  agreement  reached with a lessor to exchange
      certain idle  equipment  covered under a lease  agreement for equipment in
      operation and owned by the Company and was  recognized as a  restructuring
      item during the thirteen weeks ended May 2, 1999.  This agreement  allowed
      the Company to sell such idle  equipment.  Further,  the Company  incurred
      costs of  approximately  $0.1 million during the  thirty-nine  week period
      ended  August 1, 1999 (the "1999  Period")  related to the  relocation  of
      certain machinery and equipment.  Such costs were charged to cost of goods
      sold during the 1999 Period.

3.    On April 30, 1999 the Company entered into a letter of intent with Newco
      Holdings LLC ("Newco") which provided for the sale of the ladies suit
      business and certain assets, and the assumption of certain liabilities, of
      FAI by Newco.  Consummation of the sale was expected to occur in June
      1999.  However, the letter of intent expired without Newco fulfilling its
      obligations under the letter of intent in order for a sale to be
      consummated.  The Company has also filed for Chapter 11 bankruptcy
      protection for FAI and has ceased its operations.

4.    One of the Company's customers accounted for approximately 9% of the
      Company's revenues for the 1999 Period and another customer accounted for
      approximately 8% of gross accounts receivable at August 1, 1999.  No other
      customer represented more than 8% of revenues for the 1999 Period or 7% of
      gross accounts receivable at August 1, 1999.  One of the Company's major
      customers has significantly reduced the amount of its orders to the
      Company during the 1999 Period due to general, adverse trends in the
      apparel industry.


<PAGE>


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

                                                 August 1,           November 1,
                                                   1999                 1998
                                                   ----                 ----

             Raw materials and supplies         $ 3,411              $10,218
             Work in process                     14,925               19,390
             Finished products                    7,763               12,331
             Less market reserves                (2,600)              (3,121)
             Total                               23,499               38,818
             Difference between LIFO
               carrying value and current
               replacement cost                      --                   --
                                                -------              -------
             Current replacement cost           $23,499              $38,818

6.   The Company had property, plant and equipment held for sale of $2.6 million
     as of August 1, 1999 which related to assets previously idled in connection
     with the 1998  Restructuring  and 1999  Realignment  (see Note 1 to the the
     Consolidated  Financial Statements contained in the 1998 Form 10-K and Note
     2 to these Condensed Consolidated  Financial  Statements).  Such assets are
     stated at fair value,  based on appraisals,  and will not be depreciated in
     future periods.

7. Other assets consist of (in thousands):
                                                       August 1,     November 1,
                                                         1999           1998
                                                         ----           ----
             Computer information systems,
               net of accumulated amortization
               of $356 and $93                         $1,248         $  909
             Deferred financing costs, net of
               accumulated amortization of
               $39 and  $744                              648          1,086
             Other, net                                    24             10
                                                       ------         ------
             Total                                     $1,920         $2,005
                                                       ======         ======



<PAGE>


8. Accrued liabilities consist of (in thousands):
<TABLE>

                                                         August 1,     November 1,
                                                           1999           1998
                                                           ----           ----
<S>                                                      <C>             <C>


             Salaries, wages and related
               payroll taxes                             $  488          $  606
             Incentive compensation                          99             290
             Vacation and holiday                           417           1,243
             Interest on long-term debt                     179             143
             Medical insurance premiums                   1,416           1,416
             Professional fees                               94             105
             Environmental remediation                      151             292
             Loss on open wool purchase
               commitments                                  469           1,537
             Restructuring items                             --           1,796
             Other                                          709           1,810
                                                         ------          ------
             Total                                       $4,022          $9,238
                                                         ======          ======
</TABLE>

9. Long-term debt consists of (in thousands):
<TABLE>
                                                     August 1,         November 1,
                                                       1999               1998
                                                       ----               ----

<S>                                                   <C>                <C>
           Revolving Loan Facility                    $32,960            $27,908
           Term Loan Facility                           9,500             20,343
           Other note                                      71                374
           Capital lease obligations                    1,052              1,890
           Licensing agreement                            493                669
           Total debt                                  44,076             51,184
           Current portion of long-term debt          (43,318)            (7,619)
           Licensing agreement included in
             liabilitiessubject to compromise            (493)                --
                                                      -------            -------
           Total long-term debt                       $   265            $43,565
                                                      =======            =======
</TABLE>


     The  Company  is in  default of  substantially  all of its debt  agreements
     (other than the Loan and Security  Agreement).  All  outstanding  unsecured
     debt of the  Company has been  presented  in these  Condensed  Consolidated
     Financial Statements as "Liabilities Subject to Compromise".

     Reference is made to Note 9 to the Consolidated Financial Statements
     contained in the 1998 Form 10-K.  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 was amended on
     July 23, 1999 to provide the Company debtor-in-possession financing.  The
     Loan and  Security  Agreement,  as  subsequently  amended,  provides  for a
     revolving  line of  credit  (including  a $3.0  million  letter  of  credit
     facility),  subject to a borrowing base formula,  of up to $40 million (the
     "Revolving  Loan Facility") and a term loan of $9.5 million (the "Term Loan
     Facility").  In  connection  with the  amendment,  the  Company  agreed  to
     commence  monthly  Term Loan  Facility  principal  payments  of $500,000 on
     November 1, 1999 with the balance due on July 31, 2000.  Additionally,  the
     Company  and its  lenders  agreed to reduce  the  Revolving  Loan  Facility
     commitment  to $19 million from  November 1, 1999  through  January 1, 2000
     with a seasonal increase to $40 million thereafter.  The amendment sets new
     financial covenants for fiscal year 1999 and thereafter. However, there can
     be no assurance that the Company will be able to comply with such financial
     covenants.  The Loan  and  Security  Agreement,  as  subsequently  amended,
     expires on July 31, 2000. In connection with entering into the amendment to
     the Loan and  Security  Agreement,  the Company  agreed to pay BABC for the
     benefit of the lenders,  $650,000 due on the earlier of October 31, 1999 or
     upon sale of the Company.

     At August 1, 1999, the Company's loan  availability  as defined in the Loan
     and Security  Agreement,  in excess of outstanding  advances and letters of
     credit, was approximately $1.1 million.

     Secured Claims are collateralized by substantially all of the assets of the
     Company including accounts receivable,  inventories and property, plant and
     equipment.  The Company  has  continued  to accrue  interest on most of its
     secured debt  obligations  as  management  believes  that in most cases the
     collateral securing the secured debt obligations is sufficient to cover the
     principal  and  interest  portions of scheduled  payments on the  Company's
     pre-petition secured debt obligations.

     On March 22, 1999 the Company  entered  into a 9% Senior  Secured Note with
     ABB Industrial  Systems,  Inc. ("ABB") for the principal amount of $290,000
     in settlement of ABB's secured claim in the Company's  previous  bankruptcy
     (see Note 9 to the Consolidated  Financial Statements contained in the 1998
     Form 10-K). The note is payable in 60 consecutive  monthly  installments in
     the amount of  $6,019.91  commencing  on April 1, 1999.  Additionally,  the
     Company paid $60,000 in respect of ABB's  secured  claim and issued  common
     stock  based  on  the  formula   set  forth  in  the   Company's   Plan  of
     Reorganization  in respect of ABB's  unsecured  claim  during the  thirteen
     weeks ended May 2, 1999. The Company  recognized an  extraordinary  gain on
     debt  discharge  of  $314,000  during  the 1999  Period  relating  to ABB's
     unsecured claim.

10.  Statements of Financial  Accounting  Standards No. 128,  "Earnings Per
     Share,   "became  effective  during  fiscal  year  1998  and  requires  two
     presentations of earnings per share -"basic" and "diluted".  Basic earnings
     per share is computed by dividing income  available to common  stockholders
     (the  numerator)  by the  weighted  average  number of common  shares  (the
     denominator) for the period.  The computation of diluted earnings per share
     is similar to basic  earnings  per share,  except that the  denominator  is
     increased to include the number of additional common shares that would have
     been outstanding if the potentially dilutive common shares had been issued.

     The numerator in calculating  both basic and diluted earnings per share for
     each period is the reported net loss. The  denominator  used in calculating
     both basic and diluted is the weighted average common shares outstanding as
     there were no potentially dilutive shares for either period.



<PAGE>


11.  As discussed in Note 13 to the Consolidated  Financial Statements contained
     in the 1998 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.  Stevens submitted a CSR for the
     Burn Area site.  During  fiscal  year 1998,  EPD and  Stevens  corresponded
     regarding the Stevens CSR. On August 6, 1999 EPD notified  Stevens that EPD
     concurred  with the CSR  certification  that  the  Former  Burn  Area is in
     compliance  with  the Type 4 risk  reduction  standards.  Stevens  has been
     requested to submit a plan which outlines the activities needed to maintain
     compliance  with Type 4 risk  reduction  standards.  Upon  submittal  of an
     approved  plan,  the Site will be  reclassified  to a Class III and removed
     from the Hazardous Sites Inventory.

     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 revised Corrective Action Plan ("CAP") on October 31, 1997 which has been
     approved  by EPD.  The  revised CAP 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. The Company has completed installation of the
     recovery well and the  groundwater  collection  trench.  In addition to the
     installation  of these two systems,  the CAP requires the  submission of an
     Annual  Corrective  Action Status Report to EPD. The Company  submitted the
     report to EPD on July 28, 1999.


<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.

     By letter dated  December 21, 1998, EPD requested that the Company submit a
     CSR for the site by June 21, 1999.  EPD indicated that it had sent Burlen a
     similar  request.  The Company  submitted  the CSR on June 21, 1999,  which
     certifies  compliance with a Risk Reduction Standard.  EPD is reviewing the
     CSR and has not responded to the submittal as of August 9, 1999.

     At August 1, 1999,  the  Company had $0.2  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'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 August
     1, 1999 is adequate.

12.  Liabilities  subject to  compromise  consist of the  following at August 1,
     1999 (in thousands):

                                                        1999
                                                        ----
     Trade accounts payable                            $3,613
     Priority tax claim                                    54
     Accrued severance                                    278
     Deferred rental and other
       lease obligations                                1,298
     Licensing Agreement                                  493
     Other                                                548
                                                       ------
         Total                                         $6,284
                                                       ======


<PAGE>


     Unsecured  claims against the Company in existence  prior to the Bankruptcy
     Filing are  included in  "Liabilities  Subject to  Compromise".  Additional
     claims  (Liabilities  Subject  to  Compromise)  may arise or  become  fixed
     subsequent  to the  filing  date  resulting  from  rejection  of  executory
     contracts, including leases, from the determination by the Court (or agreed
     to by parties in interest) of allowed  claims for  contingencies  and other
     disputed and unliquidated  amounts and from the  determination of unsecured
     deficiency  claims in respect of claims  secured  by the  Company's  assets
     ("Secured Claims").  Consequently, the amount included in the balance sheet
     as Liabilities Subject to Compromise may be subject to further adjustments.
     A plan of  reorganization  may require  certain  compromise of  liabilities
     that, as of August 1, 1999, are not  classified as  Liabilities  Subject to
     Compromise.  The Company's ability to compromise Secured Claims without the
     consent of the holder is subject to greater  restrictions  than in the case
     of unsecured claims.  Parties holding Secured Claims have the right to move
     the court for  relief  from the stay,  which  relief  may be  granted  upon
     satisfaction  of  certain  statutory   requirements.   Secured  Claims  are
     collateralized   by  substantially  all  of  the  assets  of  the  Company,
     including,  accounts  receivable,   inventories  and  property,  plant  and
     equipment.

13.  Restructuring  items related to the Company's 1998  Restructuring  and 1999
     Realignment have been segregated and included in normal  operations  during
     the thirteen and thirty-nine  weeks ended August 1, 1999 and August 2, 1998
     and consist of (in thousands):

<TABLE>
                                                       Thirteen Weeks Ended
                                                       --------------------
                                                       August 1,  August 2,
                                                         1999       1998
                                                         ----       ----
<S>                                                   <C>         <C>
     Severance and "stay-put" bonus expense
        and related employee benefits                     25       $  205
     Loss associated with New York office
        lease surrender                                   --          283
     Professional fees                                    16           47
     Loss on impairment of machinery and
        equipment and other assets                     2,747          719
                                                      ------       ------
          Total                                       $2,788       $1,245
                                                      ======       ======

</TABLE>

<TABLE>
                                                    Thirty-Nine Weeks Ended
                                                    -----------------------
                                                      August 1,   August 2,
                                                        1999        1998
                                                        ----        ----
<S>                                                   <C>          <C>

     Gain associated with reduction of operating
        lease cancellation liability                  $ (647)      $   --
     Severance and "stay-put" bonus expense
        and related employee benefits                  1,220        1,172
     Gain associated with New York office
        lease surrender                                   --         (375)
     Professional fees                                    24           50
     Loss on impairment of machinery and
        equipment and other assets                     2,747          719
                                                      ------       ------
          Total                                       $3,344       $1,566
                                                      ======       ======
</TABLE>

<PAGE>


     During the thirteen  weeks ended August 1, 1999,  certain of the  Company's
     property,  plant and equipment was rendered further  impaired.  The Company
     currently  estimates  that the fair value of such equipment is $2.7 million
     below its current net book value based upon appraised  values. As a result,
     the  Company  recognized  a  loss  on  impairment  of  $2.7  million  as  a
     restructuring item during the thirteen weeks ended August 1, 1999.

         During the thirteen weeks ended January 31, 1999, the Company  incurred
     approximately  $1.2  million in  severance  expense as a result of the 1999
     Realignment  (see  Note  2  to  these  Condensed   Consolidated   Financial
     Statements)  which  was  recognized  as a  restructuring  item  during  the
     thirteen weeks ended January 31, 1999.  During the thirteen weeks ended May
     2, 1999, the Company  recognized a gain of $0.6 million associated with the
     reduction  of  the  operating  lease  cancellation   liability   previously
     established  during fiscal year 1998.  Such gain resulted from an agreement
     reached with a lessor to exchange  certain idle  equipment  covered under a
     lease  agreement for equipment in operation and owned by the Company.  This
     agreement  allowed the Company to sell such idle  equipment.  This item was
     recognized as a  restructuring  item during the thirteen weeks ended May 2,
     1999.

     During  the 1998 Third  Quarter,  certain of the  Company's  machinery  and
     equipment was rendered impaired.  The Company estimated that the fair value
     of such  equipment was $0.7 million below its net book value.  Accordingly,
     the  Company  recognized  a  loss  on  impairment  of  $0.7  million  as  a
     restructuring item during the 1998 Third Quarter.

     During the thirty-nine  weeks ended August 2, 1998, the Company  recognized
     as restructuring  items severance expense of approximately $0.8 million and
     expense of  approximately  $0.4 million for stay put bonuses related to the
     1998  Restructuring  (see Note 1 to the  Consolidated  Financial  Statement
     contained in the 1998 Form 10-K).

     In connection with entering into the lease surrender agreement (see Note 13
     to the Consolidated  Financial Statements contained in the 1998 Form 10-K),
     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,  accrued $0.5
     million for broker's commission and accrued  approximately $0.1 million for
     lease cancellation  liability.  These items resulted in a $0.4 million gain
     which was recorded as a  restructuring  item during the  thirty-nine  weeks
     ended August 2, 1998.


<PAGE>


14.      In accordance with SOP 90-7,  professional  fees, asset impairments and
     reorganization charges directly related to the current and prior Bankruptcy
     Filing and related  reorganization  proceedings  have been  segregated from
     normal operations during the thirteen and thirty-nine weeks ended August 1,
     1999 and August 2, 1998 and consist of (in thousands):




                                                    Thirteen  Weeks Ended
                                                    ---------------------
                                                     August 1,  August 2,
                                                       1999       1998
                                                       ----       ----


     Write-off of deferred financing costs           $  782       $ --
     Professional fees                                  243         19
     Severance expense                                  297         --
     Other                                               24          6
                                                     ------       ----
       Total                                         $1,346       $ 25
                                                     ======       ====


                                                  Thirty-Nine Weeks Ended
                                                  -----------------------
                                                   August 1,    August 2,
                                                     1999          1998
                                                     ----          ----

     Write-off of deferred financing costs           $  782       $ --
     Professional fees                                  297         45
     Severance expense                                  297         --
     Other                                               24         35
                                                    -------       ----
       Total                                         $1,400       $ 80
                                                     ======       ====


<PAGE>


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

Reference is made to Item 7 - AManagement=s Discussion and Analysis of Financial
Condition  and  Results  of  Operations@  contained  in the 1998 Form 10-K for a
discussion  of  the  Company=s  financial  condition  as of  November  1,  1998,
including  a  discussion  of the  Company=s  anticipated  liquidity  and working
capital requirements during its 1999 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:  The  Company's  Bankruptcy  proceeding,  demand for the  Company=s
products,  competition,  the Company's production needs, wool market conditions,
foreign  currency   exchange  rates,  the  adequacy  of  the  Company's  current
financing,  any unexpected  financing  requirements,  and changes in the general
economic climate.

Recent Events

1999 Realignment and Bankruptcy Filing

As described in Note 1 to the Consolidated Financial Statements contained in the
Company's  Annual Report on Form 10-K for the fiscal year ended November 1, 1998
(the "1998 Form 10-K"),  the Company incurred net losses of $19.0 million,  $7.0
million and $17.8 million in fiscal years 1998, 1997 and 1996, respectively. Net
sales  declined  from $199.0  million in fiscal  year 1997 to $149.6  million in
fiscal year 1998. Management responded to these losses, the decline in sales and
the  resulting  adverse  impact on the  Company's  liquidity by  implementing  a
business  plan  designed  to align  the  Company's  manufacturing  capacity  and
overhead with expected  market demand.  In October 1998, the Company's  Board of
Directors approved the closing of its Louisville,  Georgia plant, realignment of
the Company's remaining manufacturing  facilities located in Georgia and further
reductions  of  its  selling,   styling  and  administrative  costs  (the  "1999
Realignment"). Implementation of the 1999 Realignment was substantially complete
as of January 31, 1999.

The operating results for fiscal year 1998, the effect of the 1998 Restructuring
(see Note 1 to the Consolidated  Financial Statements contained in the 1998 Form
10-K) and the 1999  Realignment  and the  formation of Forstmann  Apparel,  Inc.
("FAI"),  including the purchase of substantially  all of the assets of Arenzano
Trading  Company,  Inc.  (see Note 4 to the  Consolidated  Financial  Statements
contained in the 1998 Form 10-K),  negatively  impacted the Company's  borrowing
availability  under its Revolving Loan Facility (herein defined).  The Company's
availability under its Revolving Loan Facility was exhausted in mid-July 1999 as
compared to $17.3 million at August 2, 1998. As a result,  on July 23, 1999, 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 Bankruptcy Filing
was effected to facilitate a possible merger,  equity  investment or sale of the
Company.  The Company has been in discussions with several interested parties to
acquire or invest in the Company.  However,  there can be no assurance  that the
Company will be able to  consummate a merger,  equity  investment or sale of the
Company.  Additionally,  as of August 29, 1999 borrowing  availability under the
Revolving  Loan  Facility was $0.6 million.  The  Company's  ability to maintain
adequate  availability  to meet its  operating  needs is  dependent on achieving
future sales consistent with management's  expectations for fiscal year 1999 and
successful implementation of its cost reductions.  The majority of the Company's
customers are in the domestic  apparel industry which has continued to suffer an
economic  decline as a result of higher  levels of imports and changing  fashion
trends.  Expected cash flow from  operations is dependent upon  achieving  sales
expectations during fiscal year 1999, which are influenced by market conditions,
including  apparel sales at retail,  that are beyond the control of the Company.
Further,  the  collectibility of accounts  receivable is dependent in large part
upon  the  financial  condition  of  the  apparel  industry.   Also,  continuing
refinement  of the Company's  strategies  in response to evolving  circumstances
could materially change the Company's  working capital and capital  expenditures
requirements. There can be no assurance that the Company will be able to achieve
an adequate level of sales consistent with management's  expectations for fiscal
year  1999 to  enable  the  Company  to  generate  sufficient  funds to meet its
operating  needs.  These  factors  raise  substantial  doubt about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.

During the thirteen weeks ended August 1, 1999 (the "1999 Third  Quarter"),  the
Company wrote off deferred  financing cost of $0.8 million  associated  with the
Loan and  Security  Agreement  (herein  defined)  and  incurred  $0.3 million in
severance  expense.  These items were recognized as reorganization  items during
the 1999 Third  Quarter.  Any  additional  asset  impairment  or costs  directly
related to the  reorganization  proceeding  will be reflected as  reorganization
items in the period the Company  becomes  committed  to plans  which  impair the
valuation of the Company's assets or incurs a reorganization liability.

As a result of the 1999 Realignment,  the Company wrote down property, plant and
equipment by $2.7 million  during the 1999 Third  Quarter  based upon  appraised
values.  This item was recognized as a restructuring  item during the 1999 Third
Quarter.  Additionally,  the  Company  incurred  approximately  $1.2  million in
severance  expense  which was  recognized  as a  restructuring  item  during the
thirteen  weeks ended January 31, 1999.  During the thirteen  weeks ended May 2,
1999,  the  Company  recognized  a gain  of $0.6  million  associated  with  the
reduction of the operating lease cancellation  liability previously  established
during fiscal year 1998.  Such gain  resulted  from an agreement  reached with a
lessor to exchange  certain idle equipment  covered under a lease  agreement for
equipment  in  operation  and  owned  by the  Company  and was  recognized  as a
restructuring  item during the thirteen weeks ended May 2, 1999.  This agreement
allowed the Company to sell such idle equipment.  Further,  the Company incurred
costs of  approximately  $0.1 million during the  thirty-nine  week period ended
August 1,  1999  (the  "1999  Period")  related  to the  relocation  of  certain
machinery  and  equipment.  Such costs were charged to cost of goods sold during
the 1999 Period.


<PAGE>


Sale of FAI

On April  30,  1999 the  Company  entered  into a letter of  intent  with  Newco
Holdings LLC ("Newco")  which  provided for the sale of the ladies suit business
and certain assets, and the assumption of certain liabilities,  of FAI by Newco.
Consummation of the sale was expected to occur in June 1999. However, the letter
of intent expired without Newco  fulfilling its obligations  under the letter of
intent in order for a sale to be  consummated.  The  Company  has also filed for
Chapter 11 bankruptcy protection for FAI and has ceased its operations.

Financial Condition and Liquidity

The Company is in default of  substantially  all of its debt  agreements  (other
than the Loan and Security  Agreement).  All  outstanding  unsecured debt of the
Company has been presented in these Condensed  Consolidated Financial Statements
as "Liabilities Subject to Compromise".

Reference is made to Note 9 to the Consolidated  Financial  Statements contained
in the 1998 Form 10-K. 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 was amended on July 23, 1999 to provide the Company
debtor-in-possession financing. The Loan and Security Agreement, as subsequently
amended,  provides  for a revolving  line of credit  (including  a $3.0  million
letter of credit  facility),  subject to a borrowing base formula,  of up to $40
million (the  "Revolving  Loan  Facility")  and a term loan of $9.5 million (the
"Term Loan Facility").  In connection with the amendment,  the Company agreed to
commence monthly Term Loan Facility  principal  payments of $500,000 on November
1, 1999 with the  balance  due at  maturity.  Additionally,  the Company and its
lenders agreed to reduce the Revolving  Loan Facility  commitment to $19 million
from  November 1, 1999 through  January 1, 2000 with a seasonal  increase to $40
million  thereafter.  The amendment sets new financial covenants for fiscal year
1999 and thereafter. However, there can be no assurance that the Company will be
able to comply with such financial  covenants.  The Loan and Security Agreement,
as subsequently  amended,  expires on July 31, 2000. In connection with entering
into the amendment to the Loan and Security Agreement, the Company agreed to pay
BABC for the benefit of the  lenders,  $650,000  due on October 31, 1999 or upon
sale of the Company.

At August 1, 1999,  the Company's loan  availability  as defined in the Loan and
Security Agreement, in excess of outstanding advances and letters of credit, was
approximately $1.1 million.

Secured  Claims are  collateralized  by  substantially  all of the assets of the
Company  including  accounts  receivable,  inventories  and property,  plant and
equipment.  The Company has continued to accrue  interest on most of its secured
debt  obligations  as  management  believes  that in most  cases the  collateral
securing the secured debt  obligations  is sufficient to cover the principal and
interest portions of scheduled  payments on the Company's  pre-petition  secured
debt obligations.


<PAGE>


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 results in increased
working capital  requirements in the Company's first fiscal quarter  relating to
the  manufacture  of  certain  components  of  inventory  which  are sold in the
Company's  second and third fiscal quarter.  Further,  the industry  practice of
providing  coating fabric customers with favorable billing terms (referred to as
Adating@)  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.

During  the  thirty-nine  weeks  ended  August  1,  1999  (the  A1999  Period@),
operations  provided  $8.0 million of cash,  whereas  $10.4  million was used by
operations  during  the  thirty-nine  weeks  ended  August 2,  1998  (the  A1998
Period@). This $18.5 million increase in cash provided by operations in the 1999
Period was  primarily due to a $23.0  million  decrease in inventory  during the
1999 Period as compared to the 1998 Period. The decrease in inventory during the
1999 Period as compared to the 1998 Period resulted from the Company  curtailing
its  manufacturing  operations  during the 1999 Period.  This was in response to
significantly  lower receipt of customer  sales orders during the 1999 Period as
compared to the 1998 Period for product to be delivered in the Company's  second
and third fiscal  quarters,  as well as, the Company's  decision to exit certain
product lines in connection with the 1998  Restructuring (see Note 1 to the 1998
Form 10-K ) and reduced worsted  manufacturing  capacity resulting from the 1999
Realignment (see Note 2 to these Condensed  Consolidated  Financial Statements).
Accounts  receivable  declined by $3.4 million  during the 1999 Period,  whereas
accounts  receivable  increased  by $4.6  million  during the 1998  Period.  The
decrease in accounts receivable  primarily relates to a decrease in sales during
the 1999 Period when  compared to the 1998  Period.  Combined,  the  decrease in
inventory  and  accounts  receivable  during the 1999  Period  resulted in $18.7
million being provided during the 1999 Period as compared to $12.3 million being
used during the 1998 Period.  This $31.0  million  increase in cash provided was
somewhat  offset by a $10.9 million  higher net loss during the 1999 Period when
compared to the 1998 Period.

Investing  activities  used $0.6  million in the 1999 Period as compared to $4.2
million  in  the  1998  Period.   The  Company  expects   spending  for  capital
expenditures,  principally  plant  and  equipment,  in  fiscal  year  1999 to be
significantly  lower than fiscal year 1998 due to caps  contained in the amended
Loan and Security Agreement.

As a result of the foregoing,  during the 1999 Period,  $7.7 million was used by
financing  activities  whereas during the 1998 Period $14.3 million was provided
by financing activities.

            The sales order backlog at August 29, 1999 was $13.5 million whereas
at the comparable time a year earlier the sales order backlog was $42.1 million.
The  composition of the sales order backlog at August 29, 1999 reflects a weaker
order position in all product lines. Of the approximate $28.6 million decline in
the sales order backlog at August 29, 1999 as compared to the comparable  time a
year earlier,  approximately  $20.2 million relates to womenswear  fabrics.  The
decline in the backlog of sales orders for women's fabrics is twofold. First, an
over capacity of woolen flannel  manufacturing  coupled with  excessive  women's
wool flannel apparel inventory at retail has lead to a decline in demand for the
Company's women's wool flannel fabrics.  Second,  the reduction in the Company's
worsted fabrics manufacturing  capacity has caused the Company to limit somewhat
its women's worsted product offerings. The menswear fabric and government fabric
sales  order  backlog at August  29,  1999  declined  by $4.6  million  over the
comparable  time a year  earlier.  Approximately  $4.2  million of this  decline
relates to the Company's decision to exit men's suits and government businesses.
Menswear  fabrics further  declined  primarily due to an over capacity in global
worsted wool  manufacturing  and fashion trends.  The order position for coating
fabrics at August 29, 1999 has declined by $2.0 million over the comparable time
a year earlier.  The decrease in coating fabric sales order backlog is primarily
due to the unseasonably warm winter  experienced  throughout much of the U.S. in
1997-1998.  As a result,  initial  coating  fabric  orders have been  delayed by
retailers,  which has delayed orders from apparel  manufacturers.  The specialty
fabric sales order  backlog at August 29, 1999 declined by $1.8 million over the
comparable  time a year  earlier due to a decrease in orders for fabrics used in
baseball caps.

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 1999  Period  and the  Company=s  forward  purchase
commitments,  the Company  expects wool costs to decrease  approximately  11% in
fiscal year 1999 as compared to fiscal year 1998.

Year 2000 Matters

Many computer systems  experience  problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain  functional.  The  Company is in the process of
updating or replacing its  computerized  systems to ensure its systems are "Year
2000" compliant and to improve the Company's overall manufacturing, planning and
inventory  related systems.  The Company is utilizing both internal and external
resources  to  upgrade or  replace  its  existing  computerized  systems.  Costs
associated with upgrading  existing systems to address the Year 2000 matter will
be  expensed  in  the  period  incurred,   whereas  costs  associated  with  the
replacement  of existing  systems will be  capitalized  in the period  incurred.
During the 1999 Period, the Company capitalized $0.6 million in costs associated
with the replacement of existing systems.

The Company  expects its Year 2000 upgrade  project and the  replacement  of its
manufacturing  and inventory  related systems to be completed  during the fourth
quarter of calendar  year 1999.  In the third quarter of calendar year 1999 over
80% of the completed Company software application systems were rigorously tested
and proven Year 2000 compliant in a Year 2000 date range  computer  environment.
While the Company is confident the remaining Year 2000 upgrade tasks



<PAGE>


will be completed and tested in the fourth quarter of calendar year 1999,  there
can be no  assurance  that  there  will not be a delay  in, or  increased  costs
associated with the  implementation of such changes.  Any inability to implement
such changes could have a material adverse effect on the Company.

The Company has not completed its assessment of the Year 2000  compliance of its
vendors and customers,  nor of the possible  consequences  to the Company of the
failure  of one or more  of its  vendors  and  customers  to  become  Year  2000
compliant on a timely basis.  The Company  expects to complete  such  assessment
before the end of the third  quarter of calendar  year 1999. It is possible that
if a substantial  number of the Company's  customers fail to implement Year 2000
compliant billing or payment systems, for example, their payments to the Company
might be disrupted  which might  adversely  affect the Company's  cash flow. The
Company will discuss these matters with its key vendors and customers during the
remainder  of 1999 to attempt  to  ascertain  whether  and to what  extent  such
problems are likely to occur.  It is not clear,  however,  what, if any measures
the Company could take to deal with such  eventualities  while still maintaining
customer  and vendor  relationships.  The Company  does not believe  that it has
other  relationships with vendors and suppliers which, if disrupted,  due to the
failure of such  vendors and  suppliers to deal  adequately  with their own Year
2000 compliance issues, would have a material adverse effect on the Company.

     The Company has completed an assessment of its manufacturing processes, and
all mill equipment from DCS/SCADA systems to field devices had been inventoried.
All critical items have been tested and 98% are compliant. The remaining 2% (one
item of equipment)is scheduled for Year 2000 upgrade by early December 1999. The
assessment of non-critical items is 85% complete, with 100% Year 2000 compliance
and will be completed by the calendar year end.

Results of Operations

The Thirty-Nine Weeks Ended August 1, 1999 ("1999 Period") Compared to
The Thirty-Nine Weeks Ended August 2, 1998 ("1998 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
1999 Period were $68.9 million, a decrease of 41.4% from the 1998 Period.  Total
yards of fabric sold decreased 42.7% from the 1998 Period to the 1999 Period and
the average per yard  selling  price  decreased to $7.41 per yard from $7.57 per
yard due to shifts in product mix and sales price decline. The decrease in sales
was  primarily  due to womenswear  fabric sales which were  approximately  $29.0
million  lower in the 1999 Period as  compared  to the 1998 Period and  menswear
fabric sales which were approximately  $18.2 million lower in the 1999 Period as
compared  to  the  1998  Period.   Additionally,   coating   fabric  sales  were
approximately  $2.4 million lower during the 1999 Period as compared to the 1998
Period and specialty fabric sales were  approximately  $1.2 million lower during
the 1999 Period as compared to the 1998 Period.  These  decreases were nominally
offset by an increase in government fabric sales of $0.2 million during the 1999
Period as compared  to the 1998  Period.  Additionally,  sales for FAI were $3.9
million  during the 1999  Period as  compared  to $1.6  million  during the 1998
Period.  Menswear fabric sales declined due, in part, to the Company's  decision
made in March  1998 to exit the  men's  top dyed  suit  business.  Overall,  the
Company  expects  men's  woolen  fabric sales to be lower in fiscal year 1999 as
compared to fiscal  year 1998 due to fashion  trends and  increased  competition
from  imports.  Women's  woolen and worsted  fabric sales were lower in the 1999
Period as compared to the 1998 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  significantly  lower in fiscal year 1999 as compared to fiscal year 1998.
Currently,  the Company  expects  coating fabric sales in fiscal year 1999 to be
slightly lower than in fiscal year 1998.

Cost of goods sold  decreased  $38.2  million to $66.2  million  during the 1999
Period  primarily as a result of the decline in sales and change in product mix.
Gross profit  decreased  $10.5  million from $13.2 million in the 1998 Period to
$2.7 million in the 1999 Period, and gross profit margin for the 1999 Period was
4.0%  compared to 11.2% for the 1998  Period.  This  decline in the gross profit
margin  is  due to  fixed  manufacturing  costs  which  are  not  absorbed  when
manufacturing operations are running at volumes below full capacity. As a result
of operating below full capacity, $7.9 million in fixed manufacturing costs were
unabsorbed  during the 1999 Period as compared to $2.8  million  during the 1998
Period.

Selling,  general and  administrative  expenses,  excluding  the  provision  for
uncollectible  accounts,  decreased  15.5% to $8.4  million  in the 1999  Period
compared  to $9.9  million in the 1998  Period.  However,  included  in selling,
general  and  administrative  expenses  during the 1999  Period is $2.0  million
related to FAI as compared to $0.8 million during the 1998 Period.  The majority
of the decrease in selling, general and administrative expenses exclusive of FAI
during the 1999 Period was primarily due to a decrease in human resource related
expenses as the  Company  reduced  its  overhead  in  response  to lower  sales.
Additionally, expense associated with professional services was lower during the
1999 Period when compared to the 1998 Period.

The provision for uncollectible  accounts  decreased to $0.5 million in the 1999
Period  as  compared  to $0.6  million  in the  1998  Period.  See Note 3 to the
Consolidated  Financial  Statements  contained  in  the  1998  Form  10-K  for a
discussion of the Company's  accounting  policies regarding the establishment of
its allowance for uncollectible accounts.

Interest  expense  for the 1999  Period  was $4.3  million as  compared  to $4.9
million in the 1998  Period.  The decrease in interest  expense  during the 1999
Period is mainly  attributable  to a lower Term Loan Facility  balance which was
somewhat  offset by a higher average  Revolving  Loan Facility  balance and $0.2
million higher  interest  expense  associated with FAI during the 1999 Period as
compared to the 1998 Period.

As a result of the foregoing,  a loss before  reorganization  and  restructuring
items,  income taxes and extraordinary gain of $10.4 million was realized in the
1999  Period  as  compared  to $2.3  million  in the 1998  Period.  Loss  before
depreciation and amortization,  reorganization and restructuring items, interest
expense,  income  taxes and  extraordinary  gain during the 1999 Period was $3.0
million  as   compared  to  income   before   depreciation   and   amortization,
reorganization  and  restructuring  items,  interest expense and income taxes of
$6.3 million during the 1998 Period.

Restructuring  items were $3.3  million  during the 1999 Period and $1.6 million
during the 1998 Period (see Note 13 to these  Condensed  Consolidated  Financial
Statements).

Reorganization  items were $1.4 million  during the 1999 Period and $0.1 million
during the 1998 Period (see Note 14 to these  Condensed  Consolidated  Financial
Statements).

During  fiscal year 1995,  the Company  fully  utilized its net  operating  loss
carrybacks as permitted by the Internal  Revenue  Code.  For the 1999 Period and
the 1998 Period,  no income tax benefit was recognized from the realization of a
net operating loss.

An  extraordinary  gain on debt discharge of $0.3 million was recognized  during
the 1999  Period  as a result  of the  settlement  reached  with ABB  Industrial
Systems,  Inc.  regarding its  bankruptcy  claim (see Note 9 to these  Condensed
Consolidated Financial Statements).

As a result of the foregoing,  net loss for the 1999 Period was $14.9 million as
compared to $3.9 million in the 1998 Period.

The Thirteen Weeks Ended August 1, 1999 (the "1999 Third Quarter") Compared to
The Thirteen Weeks Ended August 2, 1998 (the "1998 Third Quarter")

Net sales for the 1999 Third  Quarter  were $23.4  million,  a decrease of 40.0%
from the 1998 Third Quarter.  Total yards of fabric sold decreased  34.0% during
the 1999 Third  Quarter.  The average per yard selling price  decreased to $7.24
per yard  from  $7.62  per yard due to shifts  in  product  mix and sales  price
decline.  Sales declined in all major product  lines.  The decrease in net sales
during the 1999 Third Quarter is attributable to the reasons  discussed above in
the 1999 Period compared to the 1998 Period.

Cost of goods sold  decreased  $14.5  million to $22.6  million  during the 1999
Third Quarter primarily as a result of lower sales.  Gross profit decreased $1.1
million or 57.9% to $0.8  million in the 1999 Third  Quarter,  and gross  profit
margin for the 1999 Third  Quarter was 3.6%  compared to 5.1% for the 1998 Third
Quarter.  The decrease in gross profit  margin  during the 1999 Third Quarter is
attributable  to the reasons  discussed above in the 1999 Period compared to the
1998 Period.

Selling,  general and  administrative  expenses,  excluding  the  provision  for
uncollectible  accounts,  decreased  30.3% to $2.2  million  in the  1999  Third
Quarter compared to $3.2 million in the 1998 Third Quarter. Included in selling,
general  and  administrative  expenses  during  the 1999  Third  Quarter is $0.3
million  related  to FAI as  compared  to $0.8  million  during  the 1998  Third
Quarter.  The reduction in selling,  general and administrative  expenses during
the 1999 Third Quarter exclusive of FAI is primarily  attributable to a decrease
in human  resource  related  expenses  as the Company  reduced  its  overhead in
response to lower sales.

The provision for uncollectible  accounts was $0.2 million during the 1999 Third
Quarter when compared to $0.1 million during the 1998 Third Quarter.


<PAGE>


Interest  expense for the 1999 Third  Quarter was $1.5  million or $0.2  million
lower than the 1998 Third Quarter. This decrease is attributable to a lower Term
Loan  Facility  balance  during the 1999 Third  Quarter as  compared to the 1998
Third Quarter.

As a result of the foregoing,  a loss before  reorganization  and  restructuring
items,  income taxes and extraordinary  gain of $3.1 million was realized in the
1999 Third Quarter as compared to $3.0 million in the 1998 Third  Quarter.  Loss
before  depreciation and amortization,  reorganization and restructuring  items,
interest  expense,  income  taxes and  extraordinary  gain during the 1999 Third
Quarter  was  $0.3  million  as  compared  to  income  before  depreciation  and
amortization,  reorganization  and  restructuring  items,  interest  expense and
income taxes of less than $0.1 million during the 1998 Third Quarter.

Restructuring  items of $2.8 million was recognized in the 1999 Third Quarter as
compared to $1.3 million in the 1998 Third Quarter. Reference is made to Note 13
to  these  Condensed  Consolidated  Financial  Statements  for a  discussion  of
restructuring  items  incurred  during the 1999 Third Quarter and the 1998 Third
Quarter.

Reorganization items were $1.3 million during the 1999 Third Quarter as compared
to  $25,000  during  the 1998  Third  Quarter  (see  Note 14 to these  Condensed
Consolidated Financial Statements).

During  fiscal year 1995,  the Company  fully  utilized its net  operating  loss
carrybacks as permitted by the Internal Revenue Code. Accordingly,  for the 1999
Third Quarter,  no income tax benefit was recognized from the realization of net
operating  losses.  During the 1998 Third  Quarter,  the Company  recognized  an
income  tax  benefit  of $0.1  million  which  related  to the  reversal  of the
provision recorded during the twenty-six weeks ended May 3, 1998.

As a result of the  foregoing,  a net loss of $7.2 million was recognized in the
1999 Third Quarter compared to $4.2 million in the 1998 Third Quarter.



<PAGE>


      PART II -- OTHER INFORMATION

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


(a)  Exhibits

        4.1 Amendment No. 2 to Amended and Restated Loan and Security
            Agreement (DIP Financing Amendment) dated as of July 23, 1999.

      11.1  Statement re  computation of per share earnings - not required since
            such  computation  can  be  clearly  determined  from  the  material
            contained herein.

      15.1  Independent Accountants' Review Report, dated September 3, 1999
            from
            Deloitte & Touche LLP to Forstmann & Company, Inc.

      99.1  Press release re Chapter 11 Filing dated as of July 23, 1999.

(b)  Current Reports on Form 8-K

          None






<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/Gary E. Schafer
                                         ---------------------------------
                                         Gary E. Schafer
                                         Chief Financial Officer
September 15, 1999
------------------
     Date




<PAGE>



EXHIBIT INDEX




Exhibit                                                              Sequential
  No.         Description                                              Page No.


 4.1      Amendment No. 2 to Amended and Restated                        33
          Loan and Security Agreement (DIP Financing
          Amendment) dated as of July 23, 1999.

11.1      Statement re computation of per share earnings not
          required since such computation  can be clearly
          determined  from the  material  contained
          herein.

15.1      Independent Accountants' Review Report,                        56
          dated  September  3, 1999 from  Deloitte &
          Touche LLP to  Forstmann & Company, Inc.

99.1      Press release re Chapter 11 Filing dated as                    57
          of July 23, 1999.