<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 October 2, 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 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 November 1, 1998

                                       1
<PAGE>
 
                       GFSI HOLDINGS, INC. AND SUBSIDIARY
                         QUARTERLY REPORT ON FORM 10-Q
                     FOR THE QUARTER ENDED OCTOBER 2, 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                                         13
                                                                    
SIGNATURE PAGE                                                      14

                                       2
<PAGE>
 
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share data)
<TABLE>
<CAPTION>
                                                                       July 3,    October 2,
                                                                         1998        1998
                                                                      ----------  -----------
ASSETS
Current assets:
<S>                                                                   <C>         <C>
     Cash & cash equivalents                                          $   1,361    $   3,591
     Accounts receivable, net                                            27,664       37,162
     Inventories, net                                                    44,298       43,406
     Prepaid expenses and other current assets                            1,484        1,050
     Deferred income taxes                                                1,679        1,709
                                                                      ---------    ---------
Total current assets                                                     76,486       86,918
Property, plant and equipment, net                                       21,243       21,000
Other assets:
     Deferred financing costs, net                                        8,798        8,503
     Other                                                                    5            5
                                                                      ---------    ---------
Total assets                                                          $ 106,532    $ 116,426
                                                                      =========    =========
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
     Accounts payable                                                 $   8,409    $   7,651
     Accrued interest expense                                             4,521        1,677
     Accrued expenses                                                     8,918        9,122
     Income taxes payable                                                    --        1,418
     Current portion of long-term debt                                    5,050        5,426
                                                                      ---------    ---------
Total current liabilities                                                26,898       25,294
Deferred income taxes                                                     1,234        1,234
Revolving credit agreement                                                5,600       14,900
Other long-term obligations                                                 300          150
Long-term debt, less current portion                                    235,179      234,955
Redeemable preferred stock                                                4,136        4,242
Stockholders' equity (deficiency):
     Common stock, $.01 par value, 2,000 shares authorized, issued
         and outstanding at October 2, 1998 and July 3, 1998                 --           --
     Additional paid-in capital                                             200          200
     Accumulated deficiency                                            (167,015)    (164,549)
                                                                      ---------    ---------
Total stockholders' equity (deficiency)                                (166,815)    (164,349)
                                                                      ---------    ---------
Total liabilities and stockholders' equity (deficiency)               $ 106,532    $ 116,426
                                                                      =========    =========
</TABLE>
 
NOTE: The consolidated balance sheet at July 3, 1998 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.

                                       3
<PAGE>
 
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands)


<TABLE>
<CAPTION>
                                                   Quarter Ended
                                                   September 26,   October 2,
                                                        1997          1998
                                                   --------------  -----------
<S>                                                <C>             <C>
Net sales                                                $60,362      $60,045
Cost of sales                                             33,539       34,272
                                                         -------      -------
Gross profit                                              26,823       25,773
 
Operating expenses:
     Selling                                               6,505        6,442
     General and administrative                            6,840        8,734
                                                         -------      -------
                                                          13,345       15,176
                                                         -------      -------
 
Operating income                                          13,478       10,597
 
Other income (expense):
     Interest expense                                     (5,575)      (6,331)
     Other, net                                               12           35
                                                         -------      -------
                                                          (5,563)      (6,296)
Income before income taxes & extraordinary item          -------      -------
                                                           7,915        4,301
 
Provision for income taxes                                 3,245        1,729
                                                         -------      -------
 
Income before extraordinary item                           4,670        2,572
 
Extraordinary item, net tax benefit of $135                  203           --
                                                         -------      -------
 
Net income                                                 4,467        2,572
Preferred stock dividends                                   (794)        (106)
                                                         -------      -------
 
Net income attributable to common shareholders           $ 3,673      $ 2,466
                                                         =======      =======
</TABLE>


See notes to consolidated financial statements.

                                       4
<PAGE>
 
GFSI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
                                                                            Quarter Ended
                                                                            September 26,   October 2,
                                                                                 1997          1998
                                                                            --------------  -----------
<S>                                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                       $  4,467      $ 2,572
Adjustments to reconcile net income to net cash used in
   operating activities:
     Depreciation                                                                     706          765
     Amortization of deferred financing costs                                         298          295
     Gain on sale or disposal of property, plant and equipment                         --          (28)
     Deferred income taxes                                                            353          (29)
     Amortization of discount on long-term debt                                        --        1,418
     Extraordinary loss on early extinguishment of debt                               338           --
Changes in operating assets and liabilities:
     Accounts receivable, net                                                     (15,388)      (9,499)
     Inventories, net                                                                 472          892
     Prepaid expenses, other current assets and other assets                          307          435
     Income taxes payable                                                           2,756        1,418
     Accounts payable, accrued expenses and other
        long-term obligations                                                      (4,497)      (3,549) 
                                                                                 --------      -------  
Net cash used in operating activities                                             (10,188)      (5,310)
                                                                                 --------      ------- 
 
CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sales of property, plant and equipment                              39          183
     Purchases of property, plant and equipment                                      (419)        (678)
                                                                                 --------      -------
Net cash used in investing activities                                                (380)        (495)
                                                                                 --------      -------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net changes to short-term borrowings and revolving credit agreement            9,000        9,300
     Proceeds from long-term debt                                                      --           --
     Payments on long-term debt                                                        --       (1,265)
     Cash paid for financing costs                                                   (261)          --
     Redemption of note receivable from sale of stock                                 788           --
                                                                                 --------      -------
Net cash provided by financing activities                                           9,527        8,035
                                                                                 --------      -------
Net increase (decrease)  in cash and cash equivalents                              (1,041)       2,230
Cash and cash equivalents at beginning of period                                    1,117        1,361
                                                                                 --------      -------
Cash and cash equivalents at end of period                                       $     76      $ 3,591
                                                                                 ========      =======
Supplemental cash flow information
     Interest paid                                                               $  6,677      $ 7,430
                                                                                 ========      =======
     Income taxes paid                                                                 --      $    33
                                                                                 ========      =======
Supplemental schedule of non-cash financing activities:
     Accrual of preferred stock dividends                                        $    794      $   106
                                                                                 ========      =======
</TABLE>

See notes to consolidated financial statements.

                                       5
<PAGE>
 
                       GFSI HOLDINGS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                OCTOBER 2, 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 July 3, 1998 included in the Company's
Annual Report on Form 10-K.

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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 

                                       6
<PAGE>
 
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 JZEP PLC (collectively
the "Jordan Investors") invested $52.2 million in Holdings and Holdings
contributed $51.4 million of this amount to GFSI (the "Equity Contribution");
(ii) GFSI entered into a credit agreement (the "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 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.

  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 and to provide funds to service the
indebtedness represented by the $50.0 million of Holdings Series B Senior
Discount Notes due 2009.  Holdings Series B Discount Notes do not have an annual
cash flow requirement until 2005.  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.

  Various state and local taxing authorities have examined, or are in the
process of examining the Company's sales and use tax returns.  The Company is
currently reviewing the status and the results of such examinations, including
the methods used by certain state taxing authorities in calculating the sales
tax assessments and believes that it has accrued an amount adequate to cover the
assessments.

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

  Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998.  This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities.  It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all quarters of fiscal years beginning after June 15, 1999.  The
Company is in the process of determining what impact the adoption of SFAS No.
133 will have on its financial position and results of operations.

  In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("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 does not expect the implementation of this
SOP to have a material impact on the Company's financial statements.

                                       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 Annual Report on
Form 10-K for the year ended July 3, 1998. Management's discussion and analysis
of financial condition and results of operations and other sections of this
report contain forward-looking statements relating to future results of the
Company.  Such forward-looking statements are identified by use of forward-
looking words such as "anticipates", "believes", "plans", "estimates",
"expects", and "intends" or words or phrases of similar expression.  These
forward-looking statements are subject to various assumptions, risks and
uncertainties, including but not limited to, changes in political and economic
conditions, demand for the Company's products, acceptance of new products,
developments affecting the Company's products and to those discussed in the
Company's filings with the Securities and Exchange Commission.  Accordingly,
actual results could differ materially from those contemplated by the forward-
looking statements.

  The following sets forth the amount and percentage of net sales for each of
the periods indicated (dollars in thousands):


                            QUARTER ENDED          
                          SEPTEMBER 26, 1997           OCTOBER 2, 1998
                       -------------------------------------------------

Resort                  $18,684      31.0%             17,256      28.7% 
                                                                        
Corporate                16,569      27.4%             19,257      32.1% 
                                                                        
College Bookstore        19,342      32.0%             18,193      30.3% 
                                                                        
Sports Specialty          3,601       6.0%              3,270       5.4% 
                                                                        
Event 1                                                   178        .3% 
                                                                        
Other                     2,166       3.6%              1,891       3.2% 
                        -------                       -------           
                                                                        
Total                   $60,362                       $60,045           
                        =======                       =======            


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 ended
September 26, 1997 and October 2, 1998.


                            QUARTER ENDED
                            SEPTEMBER 26,   OCTOBER 2,
                                 1997          1998
                            --------------  -----------

Net sales                       100.0%        100.0%
                                                    
Gross profit                     44.4          42.9 
                                                    
EBITDA                           23.5          18.9 
                                                    
Operating income                 22.3          17.7  

                                       9
<PAGE>
 
  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 Consolidated Statements of Cash Flows of the
Company herein for further information.


COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED OCTOBER 2, 1998 AND
SEPTEMBER 26, 1997.

     Net Sales.  Net sales for the first quarter of fiscal 1999, the three
months ended October 2, 1998, decreased .5% to $60.0 million from $60.4 million
in the first quarter of fiscal 1998.  The decrease  in net sales primarily
reflects decreases in net sales at the Company's Resort, College Bookstore and
Sports Specialty divisions of 7.6%, 5.9% and 9.2% respectively.  These decreases
in net sales were partially offset by an increase in net sales in the Company's
Corporate division of 16.2% and the Event 1 subsidiary sales of $178,000 for the
quarter ended October 2, 1998.

     Gross Profit.  Gross profit for the first quarter of fiscal 1999 decreased
3.9% to $25.8 million from $26.8 million in the first quarter of fiscal 1998.
The decrease in gross profit is primarily a result of the net sales decrease
described above and an increase in production costs during the first quarter of
fiscal year 1999 due primarily to a change in the production mix to more
embroidered units which are more costly to produce.   For the first quarter of
fiscal 1999, gross profit as a percentage of net sales decreased to 42.9%
compared to 44.4% in the first quarter of fiscal 1998.

     Operating Expenses.  Operating expenses for the first quarter of fiscal
1999 increased 13.7% to $15.2 million from $13.3 million in the first quarter of
fiscal 1998.  Increases in operating expenses are primarily attributable to
increased staffing levels, and costs associated with Event 1 activities.
Operating expenses as a percentage of net sales increased to 25.3% from 22.0% in
the prior year first quarter.

     EBITDA.  EBITDA for the first quarter of fiscal 1999 decreased 19.8% to
$11.4 million from $14.2 million in the first quarter of fiscal 1998.  The
decrease for the period is primarily a result of the decrease in net sales and
related gross profit and the increase in operating expenses, as described above.
EBITDA as a percentage of net sales decreased to 18.9% from 23.5% in the first
quarter of fiscal 1998.

     Operating Income.  Operating income for the first quarter of fiscal 1999
decreased 21.3% to $10.6 million from $13.5 million in the first quarter of
fiscal 1998.  The decrease is attributable to the changes in gross profit and
the increase in operating expenses described above.  Operating income as a
percentage of net sales deceased for the first quarter of fiscal 1999 to 17.7%
from 22.3% in fiscal 1998.

     Other Income (Expense).   Other expense for the first quarter of fiscal
1999 increased to $6.3 million from $5.6 million  in the first quarter of fiscal
1998.  The increase for the period is primarily a result of increased interest
expense associated with borrowings under the Company's $115 million Credit
Agreement and the issuance of the Holdings Discount Notes in October 1997.  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.

                                       10
<PAGE>
 
     Income Taxes.  The effective income tax rates for the quarters ended
October 2, 1998 and September 26, 1997 were 40.2% and 41.0%, respectively.

     Net Income.   Net income for the first quarter of fiscal 1999 was $2.6
million compared to $4.7 million in the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES

  Cash used in operating activities for the first quarter of fiscal 1999 was
$5.3 million compared to $10.2 million in the first quarter of fiscal 1998.  The
change in cash used in operating activities between the two periods resulted
from a decrease in net income for the period and changes in working capital
account balances during the first quarter of fiscal 1999 compared to the first
quarter of fiscal 1998.

  Cash used in investing activities in the first quarter of fiscal 1999 was
$495,000 compared to $380,000 in the first quarter of 1998.  The cash used in
both periods was related to acquisitions of property, plant and equipment.

  Cash provided by financing activities for the first quarter of fiscal 1999 was
$8.0 million compared to $9.5 million in the first quarter of fiscal 1998.  Cash
flows from borrowings under the revolving credit agreement were relatively
consistent during the two periods, however, during the first quarter of fiscal
1998 the Company also received $788,000 on the redemption of a stockholder note
receivable.

  The Company believes that cash flow from operating activities and borrowings
under the 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.   Under the Credit
Agreement, the Revolver provides $50 million of revolving credit availability
(of which $14.9 million was outstanding as of October 2, 1998 and approximately
$18.1 million was utilized for outstanding commercial and stand-by letters of
credit).

  Holdings is dependent upon the cash flows of GFSI to provide funds to pay
certain ordinary course expenses incurred on behalf of the Company and 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.


DERIVATIVE AND MARKET RISK DISCLOSURE

  The Company's market risk exposure is primarily due to possible fluctuations
in interest rates.  Derivative financial instruments, including an interest rate
swap and an interest rate cap agreement are used by the Company to manage its
exposure on variable rate debt obligations.  The Company enters into such
agreements for hedging purposes and not with a view toward speculating in the
underlying instruments.  The Company uses a balanced mix of debt maturities
along with both fixed rate and variable rate debt to manage its exposure to
interest rate changes.  The fixed rate portion of the Company's long-term debt
does not bear significant interest rate risk.  The variable rate debt would be
affected by interest rate changes to the extent the debt is not matched with an
interest rate swap or cap agreement or to the extent, in the case of the
revolving credit agreement, that balances are outstanding.  An immediate 10
percent change in interest rates 

                                       11
<PAGE>
 
would not have a material effect on the Company's results of operations over the
next fiscal year, although there can be no assurances that interest rates will
not significantly change.



YEAR 2000 COMPLIANCE

  The Company has a program to identify, evaluate and implement changes to its
computer systems as necessary to address the Year 2000 issue.  As part of the
program, the Company is currently upgrading its existing management information
system ("MIS") with a new system designed to improve the overall efficiency of
the Company's operations and to enable management to more closely track the
financial performance of each of its sales and operating areas.  Based on
management's best estimates, the new MIS will be operational during fiscal year
ending July 2, 1999.  The costs associated with the new MIS implementation are
not expected to be material to the Company and are being expensed as incurred.
Any difficulty with the installation, initial operation or untimely resolution
of the new MIS may present an uncertainty that would be reasonably likely to
affect the Company's inventory purchasing control, sales and customer service
which could materially and adversely impact the Company's future financial
results, or cause its reported financial information not to be necessarily
indicative of future operating results or future financial condition.

  Also as part of the Company's Year 2000 program, the Company has initiated
communications with suppliers with which it interacts to determine their plans
for addressing Year 2000 concerns.  Based upon management's best estimates, all
year 2000 issues will be resolved in 1999.  However, the Company cannot make any
assurances that its computer systems, or the computer systems of its suppliers
will be Year 2000 ready on schedule, or that management's cost estimates will be
achieved.



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 Resort, 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 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 and fourth
quarters 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.

                                       12
<PAGE>
 
PART II - OTHER INFORMATION


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

There has been no change to matters discussed in Business-Legal Proceedings in
Holdings' Form 10-K as filed with the Securities and Exchange Commission on
September 25, 1998.

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.

                                       13
<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.
November 13, 1998
                       /s/ ROBERT G. SHAW
                       _________________________________________________
                       Robert G. Shaw, Sr. Vice President of Finance and
                       Principal Accounting Officer

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