<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-Q
                                        
 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
                                        
For the quarterly period ended  April 3, 1998
                                ------------------------

                                        
    ( ) 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                333-38951
                      -------------------------

                              GFSI HOLDINGS, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)

                   Delaware                            74-2810744
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation      (I.R.S. Employer 
     or organization)                               Identification No.)    

                             9700 Commerce Parkway
                             Lenexa, Kansas 66219
                    (address of principal executive offices)

        Registrant's telephone number, including area code (913) 888-0445
                                                           --------------

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.

     (1)  Yes  (X)    No     (   )
     (2)  Yes  (X)    No     (   )

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
 
Common stock, $0.01 par value per share - 2,000 shares issued and outstanding as
of May 1, 1998


 
<PAGE>
 
                       GFSI HOLDINGS, INC. AND SUBSIDIARY
                         QUARTERLY REPORT ON FORM 10-Q
                      FOR THE QUARTER ENDED APRIL 3, 1998
                                     INDEX
                                        

                                                             Page
                                                             ----
PART I - FINANCIAL INFORMATION
 
     ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
     Consolidated Balance Sheets                               3
     Consolidated Statements of Income                         4
     Consolidated Statements of Cash Flows                     5
     Notes to Consolidated Financial Statements                6
 
 
     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS                                               9
 
PART II - OTHER INFORMATION                                   15
 
SIGNATURE PAGE                                                16
 

                                     Page 2
<PAGE>
 
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
(In thousands, except share data)
                                                    June 27,   April 3,
                                                      1997       1998
                                                    --------  ---------
Assets                                                        
Current assets:                                               
  Cash & cash equivalents                          $  1,117   $  1,122
  Accounts receivable, net                           23,706     31,274
  Inventories, net                                   37,562     34,755
  Prepaid expenses and other current assets           1,286      1,035
  Deferred income taxes                                 926        887
                                                   ---------  ---------
Total current assets                                 64,597     69,073
                                                              
Property, plant and equipment, net                   21,548     20,992
                                                              
Other assets:                                                 
  Deferred financing costs, net                      10,004      9,093
  Other                                                   4          6
                                                   ---------  ---------
Total assets                                       $ 96,153   $ 99,164
                                                   =========  =========
                                                              
Liabilities and stockholders' equity (deficit)                
Current liabilities:                                          
  Accounts payable                                 $ 12,199   $ 11,263
  Accrued interest expense                            4,719      1,496
  Accrued expenses                                    5,543      7,580
  Income taxes payable                                  200         72
  Current portion of long-term debt                   3,375      4,875
                                                   ---------  ---------
Total current liabilities                            26,036     25,286
                                                              
Deferred income taxes                                 1,177      1,242
Revolving credit agreement                            3,000       ---
Other long-term obligations                             450        300
Long-term debt, less current portion                211,625    234,555
                                                              
Redeemable preferred stock                           28,080      4,303
                                                              
Stockholders' equity (deficit):                               
  Common stock, $.01 par value, 2,000                  ---        ---
    shares authorized, issued and outstanding                 
    at April 3, 1998 and June 27, 1997                        
  Additional paid-in capital                            200        200
  Notes receivable from stockholders                   (788)      ---
  Accumulated deficit                              (173,627)  (166,722)
                                                   ---------  ---------
Total stockholders' deficit                        (174,215)  (166,522)
                                                   ---------  ---------
Total liabilities and stockholders' deficit        $ 96,153   $ 99,164
                                                   =========  =========

NOTE: The balance sheet at June 27, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to consolidated financial statements.

                                     Page 3
<PAGE>
 
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
(In thousands)
<TABLE> 
<CAPTION> 
                                                                 Quarter Ended          Nine Months Ended
                                                               March 28,  April 3,    March 28,    April 3,
                                                                 1997       1998        1997         1998
                                                               --------  ----------  ----------   ----------
<S>                                                            <C>         <C>         <C>          <C> 
Net sales                                                      $39,371     $48,574     $144,182     $165,477
Cost of sales                                                   20,664       6,441       80,122       92,728
                                                               --------    --------    ---------    ---------
Gross profit                                                    18,707       2,133       64,060       72,749
                                                                                                    
Operating expenses:                                                                                 
  Selling                                                        4,248       6,230       14,654       18,076
  General and administrative                                     6,353       8,072       19,181       22,412
                                                               --------    --------    ---------    ---------
                                                                10,601       4,302       33,835       40,488
                                                               --------    --------    ---------    ---------
Operating income                                                 8,106       7,831       30,225       32,261
                                                                                                    
Other income (expense):                                                                             
  Interest expense                                              (2,118)     (6,046)      (3,583)     (18,079)
  Other, net                                                        21           6           64          (11)
                                                               --------     -------    ---------    ---------
                                                                (2,097)     (6,040)      (3,519)     (18,090)
                                                               --------     -------    ---------    ---------
Income before income taxes & extraordinary item                  6,009       1,791       26,706       14,171
                                                                                                    
Provision for income taxes                                       1,223         760        1,223        5,839
                                                               --------     -------    ---------    ---------
                                                                                                    
Income before extraordinary item                                 4,786       1,031       25,483        8,332
                                                                                                    
Extraordinary item, net of tax benefit of $989                                                      
  and $135, respectively                                         1,484                    1,484          203
                                                               --------     -------    ---------    ---------
                                                                                                    
Net income                                                       3,302       1,031       23,999        8,129
Preferred stock dividends                                         ---         (106)          ---      (1,224)
                                                               --------     -------    ---------    ---------
                                                                                                    
Net income attributable to common shareholders                  $3,302      $  925      $23,999       $6,905
                                                               ========     =======    =========    =========
</TABLE> 


See notes to consolidated financial statements.

                                     Page 4
<PAGE>
 
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
<TABLE> 
<CAPTION> 
(In thousands)                                                   Nine Months Ended
                                                               March 28,  April 3,
                                                                 1997       1998
                                                               ---------  --------
<S>                                                            <C>        <C> 
Cash flows from operating activities:
Net income                                                     $ 23,999   $ 8,129
Adjustments to reconcile net income to net cash                           
  provided by operating activities:                                       
    Depreciation and amortization                                 2,452     2,185
    Amortization of deferred financing costs                        100       889
    (Gain) loss on sale or disposal  of property,                         
      plant and equipment                                           (25)       15
    Deferred income taxes                                           328       104
    Increase in cash value of life insurance                       (920)  
    Amortization of discount on long-term debt                              2,805
    Extraordinary loss on early extinguishment of debt            2,473       338
Changes in operating assets and liabilities:                              
      Accounts receivable, net                                   (2,629)   (7,568)
      Inventories, net                                             (104)    2,808
      Prepaid expenses, other current assets and other assets      (307)      249
      Income taxes payable                                                   (128)
      Accounts payable, accrued expenses and other                        
        long-term obligations                                       808    (2,273)
                                                               ---------  --------
Net cash provided by operating activities                        26,175     7,553
                                                                          
Cash flows from investing activities:                                     
  Proceeds from sales of property, plant and equipment              946       323
  Purchases of property, plant and equipment                     (2,512)   (1,968)
                                                               ---------  --------
Net cash used in investing activities                            (1,566)   (1,645)
                                                                          
Cash flows from financing activities:                                     
  Net changes to short-term borrowings and                                
    revolving credit agreement                                   (4,000)   (3,000)
  Proceeds from long-term debt                                  217,000   
  Payments on long-term debt                                    (24,276)   (3,375)
  Cash paid for penalties related to                                      
    early extinguishment of debt                                 (2,390)  
  Distributions to Winning Ways Inc. shareholders               (48,407)  
  Proceeds from sale of treasury stock                            1,402   
  Cash paid for financing costs                                 (10,304)     (317)
  Issuance of GFSI Holdings, Inc. common stock                   (1,274)  
  Distribtuion and recapitalization of Winning Ways, Inc.      (173,143)  
  Issuance of redeemable preferred stock                         26,212   
  Redemption of note receivable from sale of stock                            789
                                                               ---------  --------
Net cash used in financing activities                           (19,180)   (5,903)
                                                               ---------  --------
Net increase in cash and cash equivalents                         5,429         5
                                                                          
Cash and cash equivalents at beginning of period                    140     1,117
                                                               ---------  --------
                                                                          
Cash and cash equivalents at end of period                     $  5,569   $ 1,122
                                                               =========  ========
                                                                          
Supplemental cash flow information:                                       
  Interest paid                                                $  2,207   $17,645
                                                               =========  ========
  Income taxes paid                                               -       $ 5,694
                                                               =========  ========
                                                                          
Supplemental schedule of non-cash financing activities:                   
  Accrual of preferred stock dividends                         $    270   $ 1,224
                                                               =========  ========
  Exchange of subordinated notes and preferred stock                      
    for discount notes                                            -       $50,000
                                                               =========  ========
                                                               
                                                               
  Distributions payable to Winning Ways, Inc. stockholders     $ 10,022
                                                               =========
                                                               
  Notes receivable from sale of stock                          $    789
                                                               =========
</TABLE> 

See notes to consolidated financial statements.

                                     Page 5
<PAGE>
 
                       GFSI HOLDINGS, INC. AND SUBSIDIARY
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                 APRIL 3, 1998
                                        
1.  Basis of Presentation
    ---------------------

  The accompanying unaudited consolidated financial statements of GFSI Holdings,
Inc. ("Holdings" or the "Company") include the accounts of the Company and the
accounts of its wholly owned subsidiary, GFSI, Inc. ("GFSI").  All intercompany
balances and transactions have been eliminated.  The unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the
Securities and Exchange Commission.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for annual financial statement reporting purposes.  In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the financial position and operations of
the Company have been included.  Operating results for the interim periods are
not necessarily indicative of the results that may be expected for the entire
fiscal year.  For further information, refer to the financial statements and
footnotes thereto for the year ended June 27, 1997 included in the Company's
Form S-4 Registration Statement filed with the Securities and Exchange
Commission on December 17, 1997.

  Effective January 29, 1998, GFSI established a wholly owned subsidiary, Event
1, Inc., the results of which are included in the accompanying financial
statements.

2.  Recapitalization Transaction
    ----------------------------

  On October 31, 1996, the Board of Directors of Winning Ways, Inc. (''Winning
Ways'') executed a letter of intent to enter into a transaction with The Jordan
Company. The Transaction included the formation of Holdings, and GFSI, a wholly
owned subsidiary of Holdings, to effect the acquisition of Winning Ways. On
February 27, 1997, pursuant to the acquisition agreement, Holdings and GFSI
acquired all of the issued and outstanding capital stock of Winning Ways, and
immediately thereafter merged Winning Ways with and into GFSI with GFSI as the
surviving entity. All of the capital stock of Winning Ways acquired by Holdings
in connection with the acquisition was contributed to GFSI along with the
balance of the Equity Contribution, as described below.

  The aggregate purchase price for Winning Ways was $242.3 million, consisting
of $173.1 million in cash at closing, a post closing payment at April 30, 1997
of $10.0 million and the repayment of $59.2 million of Winning Ways' existing
indebtedness. To finance the Acquisition, including approximately $11.5 million
of related fees and expenses: (i) The Jordan Company, its affiliates and MCIT
PLC (collectively the ''Jordan Investors'') and certain members of management
(the ''Management Investors'') invested $52.2 million in Holdings and Holdings
contributed $51.4 million of this amount to the GFSI (the ''Equity
Contribution''); (ii) GFSI entered into a credit agreement (the ''New Credit
Agreement'') which provides for borrowings of up to $115.0 million, of which
approximately $68.0 million was outstanding at closing and approximately $22.9
million was utilized to cover outstanding letters of credit at closing; and
(iii) GFSI issued $125.0 million of Senior Subordinated Notes (the ''Senior
Subordinated Notes'') which were purchased by institutional investors through a
Rule 144A private placement. The Equity Contribution was comprised of (i) a
contribution of $13.6 million from the Jordan Investors to Holdings in exchange
for Holdings Preferred Stock and approximately 50% of the Common Stock of
Holdings; (ii) a contribution of $13.6 million from the Management Investors to
Holdings in exchange for Holdings Preferred Stock and approximately 50% of the
Common Stock of Holdings, and (iii) a contribution of $25.0 million from a
Jordan Investor to 

                                     Page 6
<PAGE>
 
Holdings in exchange for subordinated notes of Holdings (the "Holdings
Subordinated Notes"). Approximately $0.8 million of the contribution from the
Management Investors was financed by loans from Holdings.

  The transactions are reflected in the accompanying unaudited financial
statements of the Company as of and for the quarter ended April 3, 1998 as a
leveraged recapitalization under which the existing basis of accounting for
Winning Ways was continued for financial accounting and reporting purposes. The
historical financial information presented herein includes the operations and
activities of Winning Ways through February 27, 1997 and the merged entity, GFSI
Holdings, Inc., subsequent thereto as a result of the merger and the leveraged
recapitalization.

  Subsequent to the recapitalization transactions described above, GFSI became a
wholly owned subsidiary of Holdings.  Holdings is dependent upon the cash flows
of the GFSI to provide funds to enable Holdings to pay consolidated income
taxes, fees payable under a consulting agreement and certain other ordinary
course expenses incurred on behalf of GFSI.  On September 17, 1997, certain
holders of Holding's Subordinated Notes and Holding's Preferred Stock sold $50.0
million of units (the "Units") which were purchased by institutional investors
through a Rule 144A private placement (the "Offering").  The Units consisted of
11.375% Subordinated Discount Notes (the "Subordinated Discount Notes") due 2009
and 11.375% Series D Preferred Stock due 2009 (the "Preferred Stock") which were
exchangeable at the option of the Company any time on or after September 29,
1997 into a like amount of 11.375% Series A Senior Discount Notes due 2009 (the
"Old Notes").  On October 23, 1997, the Units were exchanged for the Old Notes
(the "Old Exchange").  The Company did not receive any proceeds from either the
sale of the Units or the Old Exchange.  The Company's Registration Statement on
Form S-4 was declared effective on December 30, 1997, providing for the exchange
(the "New Exchange") of 11.375% Series B Senior Discount Notes due 2009 (the
"Discount Notes") registered under the Securities Act, for a like amount of the
Old Notes.  The Company did not receive any proceeds from the New Exchange.  The
Discount Notes were issued to repay $25.0 million of Holding's Subordinated
Notes and $25.0 million of Holdings's Preferred Stock and accrued dividends.
The Discount Notes will accrete at a rate of 11.375%, compounded semi-annually
to an aggregate principal amount of $108.5 million at September 15, 2004.
Thereafter, the Discount Notes will accrue interest at the rate of 11.375% per
annum, payable semi-annually, in cash on March 15 and September 15 of each year,
commencing on March 15, 2005.  Holdings will be dependent on GFSI to provide
funds to service the indebtedness.  Additionally, the remaining cumulative
Holdings Preferred Stock will accrue dividends totaling approximately $427,000
annually.  Holdings Preferred Stock may be redeemed at stated value
(approximately $3.6 million) plus accrued dividends with mandatory redemption in
2009.
 
3.  Commitments and Contingencies
    -----------------------------

  The Company, in the normal course of business, may be threatened with or named
as a defendant in various lawsuits.  It is not possible to determine the
ultimate disposition of these matters, however, management is of the opinion
that there are no known claims or known contingent claims that are likely to
have a material adverse effect on the results of operations, financial
condition, or cash flows of the Company.

                                     Page 7
<PAGE>
 
4.  New Accounting Standards
    ------------------------

  SFAS No. 130, ''Reporting Comprehensive Income,'' was issued in June 1997.
This Statement established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. This Statement will become effective
for fiscal years beginning after December 15, 1997.

  SFAS No. 131, ''Disclosures about Segments of an Enterprise and Related
Information,'' was issued in June 1997. This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company is in the process of evaluating the impact or applicability of this
new standard on the presentation of the financial statements and the disclosures
therein.  This Statement will become effective for fiscal years beginning after
December 15, 1997.

  In March 1998, the AICPA issued SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use."  SOP 98-1 provides guidance on
accounting for the costs of internal use computer software at various stages of
development.  This SOP is effective for fiscal years beginning after December
15, 1998.  The Company has not yet determined what effect implementation of the
SOP will have on its financial position, results of operations or cash flows.

                                     Page 8
<PAGE>
 
                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                -----------------------------------------------
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 ---------------------------------------------
                                        
  The discussions set forth in this Form 10-Q should be read in conjunction with
the financial information included herein and the Company's Form S-4
Registration Statement filed with the Securities and Exchange Commission on
December 17, 1997.  The discussions set forth within and comments made by the
Company from time to time may contain forward-looking comments based on current
expectations that involve a number of risks and uncertainties.  Actual results
could differ materially from those projected or suggested in the forward-looking
comments.  Factors that could cause the Company's actual results in future
periods to differ materially include, but are not limited to, those which may be
discussed herein, as well as those discussed or identified from time to time in
the Company's filings with the Commission.

OVERVIEW

  The Company is a leading designer, manufacturer and marketer of high quality,
custom designed sportswear and activewear bearing names, logos and insignia of
resorts, corporations, colleges and professional sports leagues and teams. The
Company, which was founded in 1974, custom designs and decorates an extensive
line of high-end outerwear, fleecewear, polo shirts, T-shirts, woven shirts,
sweaters, shorts, headwear and sports luggage. The Company markets its products
to over 13,000 active customer accounts through its well-established and
diversified distribution channels, rather than through the price sensitive mass
merchandise, discount and department store distribution channels.

  On January 29, 1998, GFSI established a wholly owned subsidiary, Event 1,
Inc., to provide a retail outlet for the Company's sportswear and activewear.
Event 1 is anticipated to provide increasing sales for the Company's products at
higher margins.  Operating expenses are also anticipated to increase due to site
fees and royalties included in the concessionaire agreement with the National
Collegiate Athletic Association.

  On February 27, 1997, GFSI Holdings, Inc. ("Holdings")  acquired all of the
issued and outstanding capital stock of  Winning Ways, Inc. ("Winning Ways") and
immediately thereafter merged Winning Ways with and into GFSI, Inc. ("GFSI"),
with GFSI as the surviving entity.  All of the capital stock of Winning Ways
acquired by Holdings in connection with the acquisition was contributed to GFSI
along with the balance of equity contributions.  See Note 2 - Recapitalization
Transaction, included herein, for further information.

  EBITDA represents operating income plus depreciation and amortization. While
EBITDA should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. In addition, the Company believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs.  See the Statements of Cash Flows of the Company herein
for further information.

SALES DIVISIONS

  The Company markets its products, which include custom designed fleecewear,
jackets, polo shirts, T-shirts, woven shirts, sweaters, shorts, headwear and
sports luggage, through five sales divisions.

                                     Page 9
<PAGE>
 
  The Resort Division (29.3% of year-to-date fiscal 1998 net sales) is a leading
  marketer of custom logoed sportswear and activewear to destination resorts,
  family entertainment companies, hotel chains, golf clubs, cruise lines,
  casinos and United States military bases.

  The Corporate Division (34.2% of year-to-date fiscal 1998 net sales) is a
  leading marketer of corporate identity sportswear and activewear for use by a
  diverse group of corporations in incentive and promotional programs as well as
  for office casual wear and uniforms.

  The College Bookstore Division (22.5% of year-to-date fiscal 1998 net sales)
  is a leading marketer of custom designed, embroidered and silk-screened
  sportswear and activewear products to nearly every major college and
  university in the United States.

  The Sports Specialty Division (6.4% of year-to-date fiscal 1998 net sales),
  established in 1994, has entered into licensing agreements to design,
  manufacture and market sportswear and activewear bearing the names, logos and
  insignia of professional sports leagues and teams as well as major sporting
  events.  The Company's licensors include, among  others, Major League
  Baseball, the National Basketball Association, the National Hockey League and
  NASCAR.

  The Event 1 Division (2.3% of year-to-date fiscal 1998 net sales), established
  in the third quarter of fiscal 1998, has entered into an exclusive agreement
  with the National Collegiate Athletic Association (NCAA) to become the
  official concessionaire for all NCAA events.  Additonally, the division has
  agreements with various conferences in the NCAA.

     THE FOLLOWING SETS FORTH THE AMOUNT AND PERCENTAGE OF NET SALES FOR EACH OF
THE PERIODS INDICATED (DOLLARS IN THOUSANDS):

<TABLE>
<CAPTION>
                                      QUARTER ENDED                                     NINE MONTHS ENDED
                        March 28, 1997            APRIL 3, 1998               MARCH  28, 1997            APRIL 3, 1998
                    -----------------------  ------------------------  --------------------------------------------------
<S>                 <C>          <C>         <C>           <C>         <C>           <C>         <C>           <C>
Resort                  $14,836       37.7%       $14,048       28.9%      $ 50,836       35.2%        48,476       29.3%
Corporate                14,457       36.7%        18,328       37.7%        42,318       29.4%        56,614       34.2%
Bookstore                 6,670       16.9%         7,316       15.1%        34,001       23.6%        37,304       22.5%
Sports Specialty          2,513        6.4%         3,164        6.5%         7,899        5.5%        10,614        6.4%
Event 1                                             3,721        7.7%                                   3,721        2.3%
Other                       895        2.3%         1,997        4.1%         9,128        6.3%         8,748        5.3%
                        -------                   -------                  --------                  --------
Total                   $39,371                   $48,574                  $144,182                  $165,477
                        =======                   =======                  ========                  ========
</TABLE>
                                                                                
Results of Operations

  The following table sets forth certain historical financial information of the
Company, expressed as a percentage of net sales, for the quarters and nine month
periods ended March 28, 1997 and April 3, 1998:
<TABLE>
<CAPTION>
                                  Quarter Ended                          NINE MONTHS ENDED
                           March 28,         April 3,               March 28,           April 3,
                              1997             1998                    1997               1998
                         --------------  ----------------        ----------------  ------------------
<S>                      <C>             <C>                     <C>               <C>
Net sales                    100.0%            100.0%                  100.0%              100.0%
Gross profit                  47.5              45.6                    44.4                44.0
EBITDA                        22.8              17.6                    22.7                20.8
Operating income              20.6              16.1                    21.0                19.5
</TABLE>

                                    Page 10
<PAGE>
 
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS AND NINE MONTH PERIODS ENDED
APRIL 3, 1998 AND MARCH 28, 1997.

  Net Sales.   Net sales for the third quarter of fiscal 1998, the three months
ended April 3, 1998, increased 23.4% to $48.6 million from $39.4 million in the
third quarter of fiscal 1997.  Net sales for the first nine months of fiscal
1998 increased 14.8% to $165.5 million from $144.2 million in the first nine
months of fiscal 1997.  The increase in net sales for both periods primarily
reflects increases in net sales at the Company's Corporate, Sports Specialty and
Bookstore divisions for the nine months of  33.8%, 34.4% and 9.7%, respectively,
and the net sales for the Company's Event 1 division for the quarter ended April
3, 1998 of $3.7 million.  These increases in net sales were partially offset by
a 4.6% decrease in net sales for the nine month period at the Resort division.
These increases were driven primarily by volume increases in both periods due to
continued account expansion and the introduction of new product lines through
each distribution channel.  The decrease in the Resort division was due to
fluctuations in business with our top 10 Resort  customers primarily attributed
to poor climatic conditions.

  Gross Profit.   Gross profit for the third quarter of fiscal 1998 increased
18.3% to $22.1 million from $18.7 million in the third quarter of fiscal 1997.
Gross profit for the first nine months of fiscal 1998 increased 13.6% to $72.7
million from $64.0 million in the first nine months of fiscal 1997.  The
increase in gross profit is primarily a result of the net sales increase
described above. For the third quarter of fiscal 1998, gross profit as a
percentage of net sales slightly decreased to 45.6% compared to 47.5% in the
third quarter of fiscal 1997.  For the first nine months of fiscal 1998 and
fiscal 1997, gross profit as a percentage of net sales was 44.0% and 44.4%,
respectively.  The slight decrease in gross profit for the third quarter
reflects an increase in embroidery costs compared to the third quarter of fiscal
1997.

  Operating Expenses.   Operating expenses for the third quarter of fiscal 1998
increased 34.9% to $14.3 million from $10.6 million in the third quarter of
fiscal 1997.  For the first nine months, operating expenses increased 19.7% to
$40.5 million from $33.8 million in the first nine months of fiscal 1997.
Operating expenses for both periods increased due primarily to increased
staffing levels and the additional site fees and royalties incurred by the Event
1 division.  Operating expenses as a percentage of net sales increased to 29.4%
from 26.9% in the prior year third quarter.  For the first nine months,
operating expenses increased to 24.5% from 23.5% in the prior year period. The
increase in operating expenses for the first nine months, as a percentage of net
sales, is primarily due to the Event 1 site fees and royalties incurred in the
third quarter of fiscal 1998.

  EBITDA.   EBITDA for the third quarter of fiscal 1998 decreased 4.9% to $8.5
million from $9.0 million in the third quarter of fiscal 1997.  For the first
nine months, EBITDA increased 5.1% to $34.5 million from $32.8 million in the
first nine months of fiscal 1997.  The increase for the nine month period is
primarily a result of the net sales and related gross profit increase partially
offset by the increase in operating expenses, as described above. EBITDA as a
percentage of net sales decreased to 17.6% from 22.8% in the third quarter of
fiscal 1997.  For the first nine months of fiscal 1998, EBITDA decreased to
20.8% from 22.7% in the first nine months of fiscal 1997.  The decrease in
margin for both periods reflects the changes in gross profit and an increase in
operating expenses, as described above.

                                    Page 11
<PAGE>
 
  Operating Income.   Operating income for the third quarter of fiscal 1998
decreased 3.4% to $7.8 million from $8.1 million in the third quarter of fiscal
1997.  The decrease is attributable to the changes in gross profit and the
increase in operating expenses described above.  For the first nine months,
operating income increased 6.7% to $32.3 million from $30.2 million in the first
nine months of fiscal 1997.  The increase for the nine month period is primarily
a result of the net sales increase described above.  Operating income as a
percentage of net sales decreased for the third quarter of fiscal 1998 to 16.1%
from 20.6% in fiscal 1997, and to 19.5% for the nine month period of fiscal 1998
from 21.0% in the first nine months of fiscal 1997.  The decrease as a
percentage of net sales is due to the decrease in margin as a percentage of
sales for the third quarter in addition to the increase in operating expenses as
a percentage of net sales as noted above.

  Other Income (Expense).   Other expense for the third quarter of fiscal 1998
increased to $6.0 million from $2.1 in the third quarter of fiscal 1997.  For
the first nine months of fiscal 1998, other expense increased to $18.1 million
from $3.5 million in the first nine months of fiscal 1997.  The increase for
both periods is primarily a result of increased interest expense associated with
the Company's recapitalization and subsequent issuance of $125 million Senior
Subordinated Notes, borrowings under the Company's $115 million New Credit
Agreement and the issuance of the Holdings Subordinated Notes and Holdings
Discount Notes.  The effect of derivative financial instruments serves to
minimize unplanned changes in interest expense due to changes in interest rates.
As such, interest rate fluctuations and their effect were immaterial for the
periods presented. A reasonable likely change in the underlying rate, price or
index would not have a material impact on the financial position of the Company.

  Income Taxes.  The effective income tax rates for the quarters ended April 3,
1998 and March 28, 1997 were 42.4% and 20.4%, respectively.  The fiscal 1997
rate is attributed to the Company's change in tax status from an S-Corporation
to a C-Corporation for income tax reporting purposes which was effective
February 27, 1997.  Company earnings subsequent to February 27, 1997 are subject
to corporate income taxes.

  Net Income.   Net income for the third quarter of fiscal 1998 was $1.0 million
compared to $3.3 million in the third quarter of fiscal 1997.  For the first
nine months of fiscal 1998, net income was $8.1 million compared to $24.0
million in the first nine months of fiscal 1997.  The decrease in net income for
both periods is primarily the result of interest expense and income taxes, as
mentioned above.


LIQUIDITY AND CAPITAL RESOURCES

  Cash provided by operating activities for the first nine months of fiscal 1998
was $7.6 million compared to $26.1 million in the first nine months of fiscal
1997.  The decrease in cash provided by operating activities between the two
periods resulted from a decrease in net income, as previously discussed, in
addition to increased accounts receivable due to a 14.8% increase in sales
compared to the prior year period.

  Cash used by investing activities in the first nine months of fiscal 1998 was
$1.6, consistent with cash used by investing activities in the first nine months
of fiscal 1997.

                                    Page 12
<PAGE>
 
  Cash used by financing activities for the first nine months of fiscal 1998 was
$5.9 million compared to cash used of $19.1 million in the first nine months of
fiscal 1997.  The decrease in cash used compared to the prior year period is due
to Subchapter S distributions to Winning Ways shareholders in the prior year
period.  Due to the recapitalization transactions, as previously discussed, the
Company changed from S-Corporation status to C-Corporation status for income tax
reporting purposes.

  The Company believes that cash flow from operating activities and borrowings
under the New Credit Agreement will be adequate to meet the Company's short-term
and long-term liquidity requirements prior to the maturity of its credit
facilities in 2007, although no assurance can be given in this regard.  While
the Company is currently evaluating its future capital requirements, no material
capital commitments existed as of quarter end.  Under the New Credit Agreement,
the Revolver provides $50 million of revolving credit availability (of which no
borrowings were outstanding as of April 3, 1998 and approximately $26.1 million
was utilized for outstanding commercial and stand-by letters of credit).

  The Company anticipates paying dividends to Holdings to enable Holdings to pay
corporate income taxes, fees payable under a consulting agreement and certain
other ordinary course expenses incurred on behalf of the Company. Holdings is
dependent upon the cash flows of the Company to provide funds to service the
indebtedness represented by the $50.0 million of 11.375% Series B Senior
Discount Notes due 2009 (the "Discount Notes").  The Discount Notes will accrete
at a rate of 11.375%, compounded semi-annually to an aggregate principal amount
of $108.5 million at September 15, 2004.  Thereafter, the Discount Notes will
accrue interest at the rate of 11.375% per annum, payable semi-annually, in cash
on March 15 and September 15 of each year, commencing on March 15, 2005.
Holdings will be dependent on the Company to provide funds to service the
indebtedness.  Additionally, the remaining cumulative Holdings Preferred Stock
will accrue dividends totaling approximately $427,000 annually. Holdings
Preferred Stock may be redeemed at stated value (approximately $3.6 million)
plus accrued dividends with mandatory redemption in 2009.

  The Company monitors market risk with respect to the derivative instruments
entered into by the Company, including the value of such instruments, by
regularly consulting with its senior financial managers. The Company enters into
such agreements for hedging purposes and not with a view toward speculating in
the underlying instruments. Accordingly, any reasonably likely change in the
level of the underlying rate, price or index would not be likely to have either
a favorable or adverse impact on the Company's business, operations or financial
condition, including with respect to interest expense.


SEASONALITY AND INFLATION

  The Company experiences seasonal fluctuations in its sales and profitability,
with generally higher sales and gross profit in the first and second quarters of
its fiscal year.  The seasonality of sales and profitability is primarily due to
higher volume at the College Bookstore division during the first two fiscal
quarters. This pattern of sales affects working capital requirements and
liquidity, as the Company generally must finance higher levels of inventory
during these periods prior to fully receiving payment from these customers.
Sales and profitability at the Company's Resorts, Corporate and Sports Specialty
divisions typically show no significant seasonal variations. As the Company
continues to expand into other markets in its Resorts, Corporate and 

                                    Page 13
<PAGE>
 
Sports Specialty divisions, seasonal fluctuations in sales and profitability are
expected to decline. Cash requirements of Event 1 are anticipated to be
seasonal, with increasing sales and profitability in the third quarter of fiscal
years.

  The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in the
future would not have an adverse effect on the Company's operating results.

                                    Page 14
<PAGE>
 
PART II - OTHER INFORMATION


Item 1.  Legal Proceedings
-------  -----------------

None

Item 2. Changes in Securities
-----------------------------

None

Item 3. Defaults Upon Senior Securities
---------------------------------------

None

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

None

Item 5. Other Information
-------------------------

None

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

  (a)  Exhibits.  The following exhibits are included with this report:

       Exhibit 27 - Financial Data Schedule (SEC Use Only)

  (b)  Reports on Form 8-K

       No reports on Form 8-K were filed by the Registrant during the reporting
       period.

                                    Page 15
<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.


GFSI HOLDINGS, INC.

MAY 18, 1998               /s/  ROBERT G. SHAW
---------------         --------------------------------------------------
Date                    Robert G. Shaw, Sr. Vice President of Finance and
                        Principal Accounting Officer

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