FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                  For the quarterly period ended July 30, 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 - 1-6797
                                                  ------

                             TEXFI INDUSTRIES, INC.
                             ----------------------
             (Exact name of registrant as specified in its charter)


            Delaware                                 56-0795032
            --------                                 ----------
(State or other jurisdiction of                   (I.R.S. Employer
 incorporation or organization)                  Identification No.)


              1430 Broadway, 13th Floor, New York, New York 10018
              ---------------------------------------------------
                    (Address of principal executive offices)
                                   (ZIP Code)

                                 (212) 930-7200
              ---------------------------------------------------
              (Registrant's telephone number, including area code)


                  Number of shares of Common Stock outstanding
                        at _________________ - 8,859,098
                                               ---------

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

<PAGE>

                             TEXFI INDUSTRIES, INC.

                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE QUARTER ENDED JULY 30, 1999
                         PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

         Texfi Industries, Inc. (the Company") has prepared the consolidated
financial statements included herein, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The consolidated balance
sheet as of October 30, 1998 has been taken from the audited financial
statements as of that date. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest Annual
Report on Form 10-K.

     The consolidated financial statements included herein reflect all
adjustments (none of which are other than normal recurring accruals) which are,
in the opinion of management, necessary for a fair presentation of the
information included. Operating results for the thirteen-week and thirty-nine
week periods ended July 30, 1999 are not necessarily indicative of the results
that may be expected for the year ended October 29, 1999. The following
consolidated financial statements are included:

         Consolidated Statements of Income for the thirteen weeks and
         thirty-nine weeks ended July 30, 1999 and July 31, 1998

         Consolidated Balance Sheets as of July 30, 1999 and October 30, 1998

         Consolidated Statements of Cash Flows for the thirteen weeks and
         thirty-nine weeks ended July 30, 1999 and July 31, 1998

         Condensed Notes to Consolidated Financial Statements


                                       2
<PAGE>

                             TEXFI INDUSTRIES, INC.

                           CONSOLIDATED STATEMENTS OF
            OPERATIONS-UNAUDITED Thirteen Weeks and Thirty-nine Weeks
                      Ended July 30, 1999 and July 31, 1998
    (DOLLAR AMOUNTS IN THOUSANDS EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                              THIRTEEN WEEKS                        THIRTY-NINE WEEKS
                                                         1999                1998                1999                1998
                                                   ------------------ ------------------- ------------------- -------------------
                                                                       (RESTATED)                              (RESTATED)
<S>                                                  <C>                <C>                 <C>                 <C>
Net sales                                            $  24,537          $  31,095           $  75,167           $ 106,955

Cost and expenses:
   Cost of goods sold                                   23,401             29,511              71,086              97,588
   Selling, general and administrative                   2,066              3,397               6,646               9,424

   Restructuring charge                                      -                569                   -                 569
                                                   ------------------ ------------------- ------------------- -------------------
Total                                                   25,467             33,477              77,732             107,581

Operating (loss) income                                   (930)            (2,382)             (2,565)               (626)

Other expense (income):
   Interest                                              1,930              1,974               6,097               6,260
   Impairment loss on joint venture                          -                  -                   -               1,154
   Other, net                                           (1,146)                (5)             (1,146)                (24)
                                                   ------------------ ------------------- ------------------- -------------------
Total                                                      784              1,969               4,951               7,390

Net loss from continuing operations                     (1,714)            (4,351)             (7,516)             (8,016)

Discontinued operations:

   Loss on disposal of discontinued
        operations                                           -                 214                   -                 214



Extraordinary item:

   Loss from early debt extinguishment                       -                707                   -                 707
                                                   ------------------ ------------------- ------------------- -------------------


Net loss                                              $ (1,714)          $ (5,272)           $ (7,516)           $ (8,937)
                                                   ================== =================== =================== ===================

Weighted average number of shares                    8,859,098          8,859,098           8,859,098           8,859,098
                                                   ================== =================== =================== ===================



Basic and diluted net loss per share
   Continuing operations                              $   (.19)          $   (.49)           $   (.85)           $   (.90)
                                                   ================== =================== =================== ===================
   Discontinued operations                            $     -            $   (.03)           $     -             $   (.03)
                                                   ================== =================== =================== ===================
   Extraordinary item                                 $     -            $   (.08)           $     -             $   (.08)
                                                   ================== =================== =================== ===================
   Net loss                                           $   (.19)          $   (.60)           $   (.85)           $  (1.01)
                                                   ================== =================== =================== ===================

</TABLE>

SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       3
<PAGE>

                             TEXFI INDUSTRIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                       July 30, 1999 and October 30, 1998
                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   1999                 1998
                                                                                (UNAUDITED)
                                                                            -------------------- --------------------
<S>                                                                                <C>                  <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                       $  1,307             $    162
   Receivables:
     Due from factor                                                                 16,235               22,530
     Trade, less allowances                                                           4,446                7,829
     Other                                                                               82                   85
   Inventories                                                                       10,784               13,346
   Prepaid expenses                                                                     683                  964
                                                                            -------------------- --------------------
Total current assets                                                                 33,537               44,916

Property, plant and equipment - net                                                  21,484               24,882
Property, plant and equipment held for disposal-net
                                                                                        347                  368
Other assets                                                                          1,593                1,686
                                                                            -------------------- --------------------

Total assets                                                                        $56,961             $ 71,852
                                                                            ==================== ====================

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
   Current maturities of long-term debt                                            $  1,200              $ 1,200
   Current maturities of subordinated debentures                                     36,725               34,371
   Accounts payable                                                                  18,803               22,503
   Other liabilities                                                                  6,459                3,833
                                                                            -------------------- --------------------
Total current liabilities                                                            63,187               61,907

Revolving credit line                                                                17,195               25,144
Long-term debt                                                                       10,954               11,766
Note payable                                                                          2,500                    -
Subordinated debentures                                                                   -                2,354
Other long-term obligations                                                             152                  192
                                                                            -------------------- --------------------
Total liabilities                                                                    93,988              101,363

Shareholders' deficit:
   Common stock, $1.00 par value                                                      8,859                8,859
   Additional paid-in capital                                                        25,534               25,534
   Accumulated deficit                                                              (71,420)             (63,904)
                                                                            -------------------- --------------------
Total shareholders' deficit                                                         (37,027)             (29,511)
                                                                            -------------------- --------------------

Total liabilities and shareholders' deficit                                         $56,961             $ 71,852
                                                                            ==================== ====================

</TABLE>

SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                       4
<PAGE>

                             TEXFI INDUSTRIES, INC.

   Thirteen Weeks and Thirty-nine Weeks Ended July 30, 1999 and July 31, 1998
                CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       THIRTEEN WEEKS                     THIRTY-NINE WEEKS

                                                                    1999             1998              1999              1998
                                                                --------------- ---------------- ----------------- -----------------
                                                                                 (RESTATED)                         (RESTATED)
<S>                                                                 <C>               <C>              <C>               <C>
OPERATING ACTIVITIES
Net loss                                                            $ (1,714)         $ (5,272)        $ (7,516)         $ (8,937)
Adjustments to reconcile net loss to net cash provided by
   operating activities:
     Impairment loss on joint venture                                      -                 -                -             1,154
     Depreciation and amortization                                     1,201             1,400            3,599             4,282
     Loss on capitalized loan costs                                        -               707                -               707
     Provision for losses on accounts receivable
                                                                           -               692              (45)              697
     Gain on disposition of property, plant and equipment
                                                                      (1,146)                -           (1,147)               (2)
     Change in operating assets and liabilities:
         Receivables                                                     957             2,103            9,726            14,552
         Inventories                                                     401             2,674            2,562             5,686
         Prepaid and other assets                                        731               (33)             167            (1,218)
         Accounts payable and other liabilities
                                                                         141             1,752           (1,126)           (4,162)
                                                                --------------- ---------------- ----------------- -----------------
Net cash provided by operating activities                                571             4,023            6,220            12,759

INVESTING ACTIVITIES
(Purchases) return of property, plant and equipment
                                                                          (6)              (22)              11            (1,449)
Proceeds from sale of property, plant and equipment
                                                                       1,314                76            1,336             2,105
                                                                --------------- ---------------- ----------------- -----------------
Net cash provided by investing activities                              1,308                54            1,347               656

FINANCING ACTIVITIES
Proceeds from long-term debt borrowing                                     -            36,176                -            36,176
Net payments on revolving credit                                      (1,393)          (31,507)          (7,949)          (38,035)
Issuance of notes payable                                              1,000                 -            2,500                 -
Payments on long-term debt                                              (405)           (8,138)            (812)          (10,471)
Repurchase of subordinated debentures                                      -                 -                -               (86)
Investment in joint venture                                                -                 -                -            (1,179)
Capitalized loan costs                                                   (43)             (549)            (161)             (962)

                                                                --------------- ---------------- ----------------- -----------------
Net cash used in financing activities                                   (841)           (4,018)          (6,422)          (14,557)
                                                                --------------- ---------------- ----------------- -----------------

Increase (decrease) in cash and cash equivalents                                                                           (1,142)
                                                                       1,038                59            1,145
Cash and cash equivalents at beginning of period
                                                                         269               233              162             1,434
                                                                --------------- ---------------- ----------------- -----------------
Cash and cash equivalents at end of period
                                                                     $ 1,307           $   292          $ 1,307           $   292
                                                                =============== ================ ================= =================
</TABLE>

SEE CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>

                             TEXFI INDUSTRIES, INC.
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 30, 1999

1. Details of certain balance sheet captions at July 30, 1999 and October 30,
   1998 are as follows (in thousands):

<TABLE>
<CAPTION>
INVENTORIES:
                                                                   1999                   1998
                                                           ---------------------- ---------------------
                                                                         (IN THOUSANDS)
<S>                                                               <C>                    <C>
Finished goods                                                    $  2,246               $  3,338
Goods in process                                                     5,387                  6,299
Raw materials                                                        1,879                  2,294
Supplies                                                             1,874                  2,017
                                                           ---------------------- ---------------------
Total                                                               11,386                 13,948
Less reserves                                                          602                    602
                                                           ---------------------- ---------------------
Inventories - net                                                 $ 10,784               $ 13,346
                                                           ====================== =====================

PROPERTY, PLANT AND EQUIPMENT:
                                                                   1999                   1998
                                                           ---------------------- ---------------------
                                                                         (IN THOUSANDS)
Land and land improvements                                        $   1,984              $   2,220
Buildings                                                            16,019                 16,019
Machinery and equipment                                              61,061                 61,022
Construction in progress                                                589                    638
                                                           ---------------------- ---------------------
Total                                                                79,653                 79,899
Less accumulated depreciation                                        58,169                 55,017
                                                           ---------------------- ---------------------
Property, plant and equipment - net
                                                                  $  21,484              $  24,882
                                                           ====================== =====================

LONG TERM DEBT:
                                                                   1999                   1998
                                                           ---------------------- ---------------------
                                                                         (IN THOUSANDS)
Term loan with variable interest
                                                                  $  12,154              $  12,966
Less current maturities                                               1,200                  1,200
                                                           ---------------------- ---------------------
Due after one year                                                $  10,954               $  11,766
                                                           ====================== =====================

SUBORDINATED DEBENTURES:
                                                                   1999                   1998
                                                           ---------------------- ---------------------
                                                                         (IN THOUSANDS)
Senior Subordinated Debentures, 8-3/4%, due August 1,
   1999
                                                                 $  34,371              $  34,371
Subordinated Extendible Debentures, 11%, due
   April 1, 2000 (Series C)                                          2,354                  2,354
                                                           ---------------------- ---------------------
Total                                                                36,725                 36,725
Less current maturities                                              36,725                 34,371
                                                           ---------------------- ---------------------
Due after one year                                                 $     -              $   2,354
                                                           ====================== =====================
</TABLE>

                                       6
<PAGE>

2. At July 30, 1999, shares of common stock were reserved for possible issuance
as follows:


           Stock options                                             858,099
           Stock options granted to an entity
              holding approximately    % of the
              Company's common stock outstanding                   1,200,000
           1990 Executive Stock Purchase Plan                        283,892
           Directors' Deferred Stock Compensation Plan                57,153
                                                                 --------------
           Total                                                   2,399,144
                                                                 ==============

3.       At the end of its 1999 first fiscal quarter, the Company was in
         violation of the August 28, 1998 credit and term loan facility's debt
         service coverage ratio, minimum capital funds requirement, and
         non-payment of certain real property taxes and equipment operating
         leases. On February 25, 1999, the Company entered into a Forbearance
         Agreement that replaced the debt service coverage ratio and minimum
         capital funds requirement with an EBITDA financial requirement and
         expanded periodic reporting requirements.

         The Forbearance Agreement was conditioned on the deferral of interest
         and principal payments due by the Company on its subordinated
         debentures and the receipt of $1.5 million in cash, representing the
         net proceeds of a subordinated loan made by Moore Assets International
         Limited ("MAI"). In addition, the Forbearance Agreement required that
         the net proceeds from the MAI subordinated loan be applied to the
         revolving credit line.

         At the end of the 1999 second fiscal quarter, the Company was in
         violation of the Forbearance Agreement's EBITDA financial requirement.
         On May 28, 1999, the Company negotiated Amendment Number 1 to the
         Forbearance Agreement and Amendment Number 3 to the Loan Agreement (the
         "Amendment"). The Amendment (a) reduced the maximum credit facility
         from $40.0 million to $30.0 million, (b) revised the period end EBITDA
         financial requirements, (c) limited Borrowing Base availability on
         specific in-house customers' trade accounts receivables, and (d)
         increased applicable interest rate margins.

         The Amendment extends the initial Forbearance period by 120 days
         through September 28, 1999. The extension period was contingent upon
         the Company raising an additional $2.0 million in subordinated
         financing which was received via two separate $1.0 million supplemental
         subordinated loans issued by MAI and received on May 28, 1999 and
         August 5, 1999. In addition, the Amendment required that the net
         proceeds from these MAI subordinated loans similarly be applied to the
         revolving credit

                                       7
<PAGE>

         line. The Company is prohibited from paying interest or principal to
         MAI during the forbearance period.

4.       During 1999, the Company has failed to (a) make both the February 1 and
         August 1, 1999 interest payments due on the 8-3/4% Debentures which
         approximated $3.0 million, (b) honor approximately $34.4 million in
         principal maturity of the 8-3/4% Debentures as of August 1, 1999, (c)
         make the April 1, 1999 interest payment due on the Series C Debentures
         which approximated $153,000, and (d) honor the approximately $1.5
         million in Series C Debentures put to the Company for redemption at the
         option of Series C Debenture holders.

5.       In May 1999, certain executive officers and entities affiliated with
         those officers sold their combined interest approximating 23% of the
         Company's common stock outstanding to Whitecross Limited, a Bahamas
         holding company. In conjunction therewith, Mr. Richard L. Kramer
         resigned as a director and Chairman of the Board of Directors. In
         addition, Mr. William L. Remley resigned as Chief Executive Officer,
         director, and Vice Chairman of the Board. The Board named Mr. Andrew J.
         Parise, Jr. as Chairman of the Board of Directors and Chief Executive
         Officer in addition to his responsibilities as President and Chief
         Operating Officer. Mr. Robert P. Ambrosini, Executive Vice President
         and Chief Financial Officer was appointed by the Board of Directors to
         fill a vacancy on the Board of Directors.

6.       In May 1999, the Company reached a settlement with Mentmore Holdings
         Corporation ("Mentmore"), an entity affiliated with certain of the
         Company's former executive officers whereby after August 1, 1998, the
         Company would receive management consulting services in exchange for
         office space and administrative services. The Company agreed to pay
         Mentmore approximately $56,000, representing the net amount due to
         Mentmore for management consulting services received and office space
         and administrative services provided prior to August 1, 1998. Mentmore
         deferred payment of this obligation without interest until July 31,
         1999.

7.       Basic net loss per share was determined by dividing net loss by the
         weighted average number of shares outstanding during each year. Diluted
         net loss per share reflects the potential dilution that could occur
         assuming conversion or exercise of all convertible securities and
         issued and unexercised stock options. Options to purchase shares of
         common stock were not included in the computation of diluted net loss
         per share because the options' exercise price was greater than the
         average market price of the common shares and, therefore, the effect
         would be antidilutive.

                                       8
<PAGE>

8.       The consolidated statements of operations and consolidated statements
         of cash flows for both the thirteen weeks and thirty-nine weeks ended
         July 31, 1998 have been restated to (a) reflect the terms of the
         settlement with Mentmore and (b) the need for greater reserves for
         losses on accounts receivable and discontinued operations as
         subsequently determined during the fourth quarter of 1998.

9.       The preparation of consolidated financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions that affect the amounts reported in these
         consolidated financial statements and accompanying footnotes. Actual
         results may differ from those estimates and assumptions.


                                       9
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations

RESULTS OF OPERATIONS

         Net sales for the thirteen weeks ended July 30, 1999 decreased to
$24,537,000 as compared to net sales of $31,095,000 for the thirteen weeks ended
July 31, 1998. This $6,558,000 (21.1%) decrease for the comparable thirteen
weeks periods resulted from lower sales volume at the Company's Blends
operations which was primarily attributable to unusually high imports of
competing fabrics and finished apparel from Asia into the United States'
markets, specifically the Company's missy and junior wear markets. Net sales for
the thirty-nine weeks ended July 30, 1999 decreased to $75,167,000 as compared
to net sales of $106,955,000 for the thirty-nine weeks ended July 31, 1998. This
$31,788,000 (29.7%) decrease for the comparable thirty-nine week periods was
created by the same factors.

         For the comparable thirteen-week period, cost of goods sold, as a
percentage of net sales, increased slightly to 95.4% in 1999 as compared to
94.9% in 1998. For the comparable thirty-nine week period, cost of goods sold,
as a percentage of net sales, increased 3.4% from 91.2% in 1998 to 94.6% in
1999. Both period increases were caused primarily by fixed manufacturing costs
increasing as a percentage of net sales while the Company operated at a reduced
schedule in order to avoid increasing inventory levels.

         Selling, general and administrative expenses ("SG&A") as a percentage
of net sales for the thirteen weeks ended July 31, 1998 decreased from 10.9% to
8.4% for the same period in 1999. SG&A as a percentage of net sales for the
thirty-nine weeks ended July 30, 1999 remained constant at 8.8% as compared to
the same thirty-nine week period in 1998. The third quarter decrease consists
primarily of management directed reductions in fixed costs to reflect declining
sales volume and the elimination of management consulting service fees paid to
Mentmore.

         Interest expense for the third quarter and first thirty-nine weeks of
1999 remained consistent as compared to the third quarter and first thirty-nine
weeks of 1998

         During the third quarter of 1999, the Company sold property with a book
value approximating $156,000 for $1.3 million in cash. As of July 30, 1999,
$200,000 of the $1.2 million in net proceeds was applied towards the outstanding
long-term debt. The remainder remained in escrow.

         During the third quarter of 1998, the Company began merging its weaving
operations located at its Fayetteville, North Carolina facility into its Rocky
Mount, North Carolina facility. The Company incurred $373,000 in
employee-related severance and benefit costs that were segregated as a
restructuring charge.

                                       10
<PAGE>

         Also during the third quarter of 1998, the Company incurred
$196,000 in restructuring charges associated with its former Texfi Narrow
Fabrics division. The total charge included a $133,000 post-closing adjustment
for the sale of its knitted narrow fabrics business and $63,000 in various other
restructuring costs.

         On December 18, 1997 the Company divested its interest in the joint
venture Rival Sport, LLC ("Rival") by selling its 50% ownership interest to an
entity affiliated with certain of the Company's then executive officers. The
Company received a secured $4.5 million ten-year note which bore interest at
5.0% per annum, payable at maturity. In the first quarter of fiscal 1998, the
Company determined that as a result of continued and anticipated future losses
at Rival and in light of the terms of the note there had been a permanent
impairment to its net investment in Rival and accordingly recorded an additional
$1.1 million impairment against its net investment in Rival, thus reserving the
full value of the note. Subsequent to the end of the first fiscal quarter 1999,
management was informed that the note may be of no collectible value.

         The third quarter 1998 loss on disposal of discontinued operations of
$214,000 is primarily related to the loss on sale of property, plant, and
equipment remaining from the Kingstree Knit Apparel division's operations at
prices less than recorded value, plus associated liquidation costs. The
Kingstree Knit Apparel division was closed in fiscal 1996. As of July 30, 1999,
the Company had approximately $347,000 million of Kingstree Knit Apparel
division assets still held for disposal.

Financial Condition:

         At July 30, 1999, the Company's working capital showed a deficit of
$29.7 million; a decrease of $12.7 million from October 30, 1998. This decrease
is due primarily to reductions in receivables of $9.7 million, inventories of
$2.6 million and prepaid expenses of $281,000 plus increases in current
maturities of subordinated debentures of $2.4 million which more than offset the
combined decrease in accounts payable and other liabilities of $1.1 million and
increases in cash and cash equivalents of $1.2 million.

         During the first thirty-nine weeks of 1999, operating activities
generated net cash of $6.2 million. This cash was generated as a result of the
$7.5 million net loss adjusted for both depreciation and amortization expense of
$3.6 million and the gain on disposition of property, plant and equipment of
$1.2 million, together with a decrease in receivables of $9.7 million,
inventories of $2.6 million, and prepaid expenses and other assets of $167,000,
which offset decreases in accounts payable and other liabilities of $1.1
million. Cash flow from operations plus the $2.5 million proceeds from a note
payable and $1.3 million net proceeds from the sale of property, plant and
equipment provided funds to repay long-term debt of $812,000, pay loan amendment
costs of $161,000, reduce the revolving line of credit by $8.0 million and
provide $1.1 million additional cash and cash equivalents.

                                       11
<PAGE>

Financial Condition-continued

         On August 28, 1998, the Company entered into a credit facility that
expires on August 31, 2000. Net proceeds of $22.8 million from the credit
facility were applied toward repayment of the previous revolving credit line.
The credit facility is secured by a first lien on substantially all of the
Company's working capital assets and a second lien on substantially all of the
Company's property, plant and equipment. The second lien position is subordinate
to the security interests of Back Bay Capital, LLC securing the term loan
entered into on August 28, 1998 and as more fully described below. The credit
facility currently provides for the Company to elect interest rates based upon a
Eurodollar or prime interest rate plus applicable margin. In addition, the
Company may choose interest periods of 1, 2, 3 or 6 months with respect to its
Eurodollar rate elections. As of July 30, 1999, funds available under the new
credit facility, which represents the difference between the Borrowing Base as
defined by the facility agreement and the revolving credit line outstanding,
approximated $1.2 million.

         On August 28, 1998, the Company also entered into a $13.0 million term
loan with Back Bay Capital, LLC. The $12.6 million in net proceeds from the term
loan were applied toward the term loan ($8.0 million) outstanding under the
previously existing credit facility and revolving credit line ($4.6 million) of
the new credit facility. The new term loan is payable in 23 equal monthly
installments of $100,000 beginning October 1, 1998 with a balloon payment on
August 31, 2000. The term loan is secured by a first lien on substantially all
of the Company's property, plant and equipment, with a second lien on
substantially all of the Company's working capital assets. The second lien is
subordinate to the aforesaid revolving credit facility's security interest. The
term loan provides for interest on the unpaid principal balance at 12.0% per
annum payable monthly in arrears. There is an additional provision for 3.0% per
annum interest that is accrued and added to the unpaid principal balance monthly
in arrears.

         Both the credit and term loan facilities placed limitations on the
Company's rental expense, additional indebtedness, acquisitions, capital
expenditures, payment of subordinated debentures, and sale or disposal of
assets. The Company was required to maintain minimum capital funds and comply
with a debt service coverage ratio, each as defined by the facilities. In
addition, the Company was required to consummate an exchange offer with the
holders of not less that $27.1 million in principal of its 8-3/4% Senior
Subordinated Debentures due August 1, 1999 on or before April 30, 1999 on terms
as set forth in the facilities. However, the Company is unable to complete such
offer at the present time.

                                       12
<PAGE>

Financial Condition-continued

         At the end of the 1999 first fiscal quarter, the Company was in
violation of the August 28, 1998 credit and term loan facility's debt service
coverage ratio, minimum capital funds requirement, and non-payment of certain
real property taxes and equipment operating leases. On February 25, 1999, the
Company entered into a Forbearance Agreement that replaced the debt service
coverage ratio and minimum capital funds requirement with an EBITDA financial
requirement and expanded periodic reporting requirements.

         The Forbearance Agreement was conditioned on (a) the deferral of
interest and principal payments due by the Company on any of its subordinated
debentures and (b) the receipt of $1.5 million in cash, representing the net
proceeds of a subordinated loan made by Moore Assets International Limited
("MAI"), a company organized under the International Business Companies Act of
the Commonwealth of the Bahamas. In addition, the Forbearance Agreement required
that the net proceeds from the MAI subordinated loan be applied to the revolving
credit line.

         At the end of the 1999 second fiscal quarter, the Company was in
violation of the Forbearance Agreement's EBITDA financial requirement and
failure to pay interest on the 8-3/4% Debentures and Series C Debentures and
Series C Debentures put to the Company for redemption on April 1, 1999. On May
28, 1999, the Company negotiated Amendment Number 1 to the Forbearance Agreement
and Amendment Number 3 to the Loan Agreement (the "Amendment"). The Amendment
(a) reduced the maximum credit facility from $40.0 million to $30.0 million, (b)
revised the period end EBITDA financial requirements, (c) limited Borrowing Base
availability on specific in-house trade customers' accounts receivables, and (d)
increased applicable interest rate margins.

         The Amendment extended the initial Forbearance period by 120 days
through September 28, 1999. The extension period was contingent upon the Company
raising an additional $2.0 million in subordinated financing which was received
via two separate $1.0 million supplemental subordinated loans issued by MAI and
received on May 28, 1999 and August 5, 1999. In addition, the Amendment required
that the net proceeds from these MAI subordinated loans similarly be applied to
the revolving credit line. The Company is prohibited from paying interest or
principal to MAI during the forbearance period.

                                       13
<PAGE>

Financial Condition-continued

         As of July 30, 1999, the Company had outstanding approximately $34.4
million of its Senior Subordinated Debentures due August 1, 1999 ("8-3/4%
Debentures"). The 8-3/4% Debentures, which cannot be called prior to their
maturity date, are unsecured obligations. These debentures contain covenants
that place limitations on the use of proceeds from disposal of assets and on the
incurrence of additional indebtedness and senior indebtedness (as defined in the
governing indenture) if such indebtedness would exceed stated ratios of
capitalization and earnings after such incurrence. The debenture definition of
indebtedness does not include revolver credit line borrowings or operating lease
obligations. The Company was prohibited from incurring additional indebtedness.

         In August 1998, the Company executed a Third Supplemental Indenture
whereby, the requisite 8-3/4% Debenture holders waived the restriction on the
incurrence of additional indebtedness with respect to both the August 28, 1998
Revolving Credit Facility and Term Loan and Security Agreements referred to
above and eliminated the monthly $600,000 sinking fund deposits which were
scheduled to begin on the last business day of September 1998.

         The Company failed to make the February 1 and August 1, 1999 interest
payments due on the 8-3/4% Debentures which approximated $3.0 million, and
failed to honor approximately $34.4 million in principal maturity of the 8-3/4%
Debentures as of August 1, 1999.

         As of July 30, 1999, the Company had approximately $2.4 million of its
Series C Debentures due April 1, 2000. The annual interest rate of the Series C
Debentures may be adjusted at the sole discretion of the Company on each April 1
until maturity in 2000. The Series C Debentures were redeemable on April 1,
1999, in whole or in part, at the option of the holder or the Company for the
principal amount thereof plus accrued interest through the date of redemption.

         The Company failed to make the April 1, 1999 interest payment due on
the Series C Debentures which approximated $153,000 and failed to honor the
approximately $1.5 million in debentures put to the Company for redemption at
the option of Series C Debenture holders.

         Management believes that cash flows from operations and funds available
under the current revolving credit line may not provide the Company with
sufficient funds to meet its fiscal 1999 cash needs, assuming no significant
improvement in current market conditions or interest rates. Management,
therefore, intends to explore various alternatives to the need for additional
working capital, including the possibility of filing for a reorganization under
the United States Bankruptcy code and /or raising additional capital from third
parties.

                                       14
<PAGE>

Because the Company's recurring losses from operations and net capital
deficiency raise substantial doubt about its ability to continue as a going
concern, the report of Ernst & Young LLP, the Company's independent auditors, on
the Company's 1998 consolidated financial statements including an explanatory
paragraph to that effect.

YEAR 2000 IMPACT

The Company is preparing for the impact of the arrival of the Year 2000 on its
business, as well as on the businesses of its customers, suppliers and business
partners. The "Year 2000 Issue" is a term used to describe the problems created
by systems that are unable to accurately interpret dates after December 31,
1999. These problems are derived predominantly from the fact that many software
programs have historically categorized the "year" in a two-digit format.


                                       15
<PAGE>

The Company has determined that it will need to modify or replace portions of
its software in order that its computer systems will function properly with
respect to dates in the year 2000 and beyond. A team of internal staff is
managing the Company's Year 2000 initiative. The team's activities are designed
to ensure that there is no adverse effect to the Company's core business
operations and transactions with customers, suppliers, and financial
institutions are fully supported. The team began with a review of all IT and
non-IT systems, including Company products and internal operating systems for
potential Year 2000 Issues. The Company completed this review for the majority
of its systems during fiscal 1998. The Company's believes that its business
applications are now currently compliant.

The Company is evaluating its principal suppliers, service providers and other
business partners to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the Company's
systems or may otherwise impact its operations. The Company anticipates that
this evaluation will be ongoing through 1999.

The Company is working jointly with customers, strategic vendors and business
partners to identify and resolve any Year 2000 issues that may impact the
Company. However, there can be no assurance that the companies with which the
Company does business will achieve a Year 2000 conversion in a timely fashion,
or that such failure to convert by another company will not have a material
adverse effect on the Company.

The total cost associated with the Company's Year 2000 remediation is not
expected to be material to the Company's financial condition or results of
operations. Costs of the Company's Year 2000 are being expensed as incurred.
These costs represent the labor costs of time allocated from existing internal
staff and vendor purchases.

There can be no assurance that the Company will be completely successful in its
efforts to address Year 2000 Issues. If some of the Company's products are not
Year 2000 compliant, the Company could suffer lost sales or other negative
consequences, including, but not limited to, diversion of resources, damage to
the Company's reputation, increased service and warranty costs and litigation,
any of which could materially adversely affect the Company's business operations
or financial statements.

                                       16
<PAGE>

The Company is dependent on third parties such as its customers, suppliers,
service providers and other business partners. If these or other third parties
fail to adequately address Year 2000 Issues, the Company could experience a
negative impact on its business operations or financial statements.

Although the Company has not yet developed a comprehensive contingency plan to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent is unable to achieve Year 2000 readiness,
the Company's Year 2000 compliance program is ongoing and its ultimate scope, as
well as the consideration of contingency plans, will continue to be evaluated as
new information becomes available.

Forward Looking Information:

         Statements contained in the foregoing discussion and elsewhere in this
report that are not based on historical fact are considered "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's present assumptions as to
future trends, and changes in current economic trends, prevailing interest
rates, availability and cost of raw materials, laws affecting the Company's
business and similar factors could affect the validity of such assumptions.



                                       17
<PAGE>

                           PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits

         Exhibits to this report are listed in the accompanying index to
exhibits.

     (b) Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended July 30,
1999.


                                       18
<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.

                              TEXFI INDUSTRIES, INC.
                                   (Registrant)



Date:  June 21, 1999           By:/S/Robert P. Ambrosini
                                   ---------------------------------
                                     Robert P. Ambrosini
                                     Chief Financial Officer and
                                     Executive Vice President
                                     (Principal Accounting Officer)



                                       19
<PAGE>

                             TEXFI INDUSTRIES, INC.
                                INDEX TO EXHIBITS

*3(a)(1)          Restated Certificate of Incorporation of Registrant
                  dated August 13, 1969, filed as Exhibit (3)(a)(1) to
                  Registrant's Form 10-K Annual Report for the fiscal year ended
                  October 31, 1980.

*3(a)(2)          Certificate of Amendment of Certificate of
                  Incorporation of Registrant dated March 16, 1972, filed as
                  Exhibit (3)(a)(2) to Registrant's Form 10-K Annual Report for
                  the fiscal year ended October 31, 1980.

*3(a)(3)          Certificate of Amendment of Certificate of
                  Incorporation of Registrant dated March 27, 1978, filed as
                  Exhibit (3)(a)(3) to Registrant's Form 10-K Annual Report for
                  the fiscal year ended October 31, 1980.

*3(a)(4)          Certificate of Amendment of Certificate of
                  Incorporation of Registrant dated May 19, 1986, filed as
                  Exhibit 4.4 to Registrant's Form S-8 Registration Statement
                  (No. 33-14697).

*3(a)(5)          Certificate of Amendment of Certificate of
                  Incorporation of Registrant dated March 20, 1987, filed as
                  Exhibit 4.5 to Registrant's Form S-8 Registration Statement
                  (No. 33-14697).

*3(a)(6)          Certificate of Amendment of Certificate of
                  Incorporation of Registrant dated September 28, 1987, filed as
                  Exhibit 4(a)(6) to Registrant's Form S-2 Registration
                  Statement (No. 33-16794).

*3(a)(7)          Certificate of Designations of Registrant dated November 20,
                  1987, filed as Exhibit 4(a)(7) to Registrant's Form S-2
                  Registration Statement (No. 33-16794).

*3(a)(8)          Certificate of Designations of Registrant dated March 8,1988
                  filed as Exhibit 4(a)(8) to Registrant's Form S-2 Registration
                  Statement (No. 33-20131).

*3(a)(9)          Certificate of Designations of Registrant dated August 4 1988,
                  filed as Exhibit 4(d)(9) to Registrant's Form 10-Q Quarterly
                  Report for the fiscal quarter ended July 29, 1988.

*3(b)(1)          Bylaws of Registrant, filed as Exhibit 4.6 to Registrant's
                  Form S-8 Registration Statement (No. 33-14697).

*3(b)(2)          Amendment to Bylaws of Registrant, filed as Exhibit 4(b)(2) to
                  Registrant's Form S-2 Registration Statement (No. 33-16794).

<PAGE>

*3(b)(3)          Amendment to Bylaws of Registrant adopted by Registrant's
                  Board of Directors on January 18, 1991, filed as Exhibit
                  3(b)(3) to Registrant's Form 10-K Annual Report for the fiscal
                  year ended November 2, 1990.

*3(b)(4)          Amendment to Bylaws of Registrant adopted by Registrant's
                  Board of Directors on August 31, 1994, filed as Exhibit
                  4(b)(4) to Registrant's Form 10-Q Quarterly Report for the
                  fiscal quarter ended July 29, 1994.

*3(b)(5)          Amendment to Bylaws of Registrant adopted by Registrant's
                  Board of Directors on September 7, 1994, filed as Exhibit
                  4(b)(5) to Registrant's Form 10-Q Quarterly Report for the
                  fiscal quarter ended July 29, 1994.

*4(a)(1)          Indenture between Registrant and Rhode Island Hospital Trust
                  National Bank, Trustee, with a copy of Subordinated Debentures
                  due April 1, 1995, Series A, Subordinated Debentures due April
                  1, 1995, Series B and Subordinated Extendible Debentures due
                  April 1, 2000, Series C attached, filed as Exhibit 4(f) to
                  Registrant's Form S-2 Registration Statement (No. 33-32485).

*4(a)(2)          Indenture dated September 8, 1993 between Registrant and The
                  First Union National Bank of North Carolina, Trustee, with
                  copy of 8-3/4% Senior Subordinated Debenture due August 1,
                  1999, filed as Exhibit 4(c)(2) to Registrant's Form 10-Q
                  Quarterly Report for the fiscal quarter ended July 30, 1993.

*4(a)(3)          First Supplemental Indenture dated as of March 10, 1995,
                  between Registrant and First Union National Bank of North
                  Carolina, as Trustee, filed as Exhibit 4(a)(1) to Registrant's
                  Form 8-K Current Report as of March 15, 1996.

*4(a)(4)          Second Supplemental Indenture dated as of March 15, 1996,
                  between Registrant and First Union National Bank of North
                  Carolina, as Trustee, filed as Exhibit 4(a)(2) to Registrant's
                  Form 8-K Current Report as of March 15, 1996.

*4(a)(5)          Tripartite Agreement dated as of August 14, 1998, between
                  Registrant, First Union National Bank, formerly known as First
                  Union National Bank of North Carolina, as Initial Trustee, and
                  Norwest Bank, Minnesota, National Association, as successor
                  Trustee filed as Exhibit 4(a)(5) to Registrant's Form 10-Q
                  Quarterly Report for the fiscal quarter ended July 31, 1998.

*4(a)(6)          Third Supplemental Indenture dated as of August 28, 1998,
                  between Registrant and Norwest Bank, Minnesota, National
                  Association, as successor Trustee filed as Exhibit 4(a)(6) to
                  Registrant's Form 10-Q Quarterly Report for the fiscal quarter
                  ended July 31, 1998.

                                       2
<PAGE>

*4(b)(1)          Specimen Common Stock ($1 par value) certificates, filed as
                  Exhibit 4.01 to Amendment No. 2 to Registrant's Form S-1
                  Registration Statement (No. 2-41653).

*4(d)(1)          Amended and Restated Loan and Security Agreement dated
                  December 19, 1997 to the Credit Agreement dated March 15, 1996
                  among Registrant, as Borrower, the Financial Institutions
                  referred to therein, and BankBoston, N.A., as Agent filed as
                  Exhibit 4(d)(14) to Registrant's Form 10-K for the fiscal year
                  ended October 31, 1997.

*4(d)(2)          Forbearance Agreement dated June 5, 1998 among Registrant, as
                  Borrower, the Financial Institutions referred to therein, and
                  BankBoston, N.A., as Agent, filed as Exhibit 4(d)(15) to
                  Registrant's Form 10-Q filed for the fiscal quarter ended May
                  1, 1998.

*4(d)(3)          Forbearance Agreement Extension dated July 21, 1998 among
                  Registrant, as Borrower, the Financial Institutions referred
                  to therein, and BankBoston, N.A., as Agent, filed as Exhibit
                  4(d)(16) to Registrant's Form 10-Q filed for the fiscal
                  quarter ended July 30, 1998.

*4(d)(4)          Forbearance Agreement Extension dated August 21, 1998 among
                  Registrant, as Borrower, the Financial Institutions referred
                  to therein, and BankBoston, N.A., as Agent, filed as Exhibit
                  4(d)(17) to Registrant's Form 10-Q filed for the fiscal
                  quarter ended July 30, 1998.

*4(d)(5)          Loan and Security Agreement dated August 28, 1998 among
                  Registrant, as Borrower, the Financial Institutions referred
                  to therein, and BankBoston, N.A., as Agent, filed as Exhibit
                  4(d)(18) to Registrant's Form 10-Q for the fiscal quarter
                  ended July 30, 1998.

*4(d)(6)          Term Loan and Security Agreement dated August 28, 1998 among
                  Registrant, as Borrower and Back Bay Capital LLC, filed as
                  Exhibit 4(d)(19) to Registrant's Form 10-Q filed for the
                  fiscal quarter ended July 30, 1998.

*4(d)(7)          Ledger Debt Payment Agreement dated August 28, 1998 among
                  Registrant, as Borrower and the CIT Group/Commercial Services,
                  Inc., filed as Exhibit 4(d)(20) to Registrant's Form 10-Q for
                  the fiscal quarter ended July 30, 1998.

*4(d)(8)          Forbearance Agreement dated February 25, 1999 among
                  Registrant, as Borrower, the Financial Institutions referred
                  to therein, and BankBoston, N.A., as Agent, and Back Bay
                  Capital LLC, filed as Exhibit 4(d)(13) to Registrant's Form
                  10-K Annual Report for the fiscal year ended October 30, 1998.

                                       3
<PAGE>

*4(d)(9)          Subordinated note dated February 26, 1999 between Registrant,
                  as payor, and Moore Assets International Limited, filed as
                  Exhibit 4(d)(14) to Registrant's Form 10-K Annual Report for
                  the year ended October 30, 1998.

*4(d)(10)         Amendment Number 1 to Forbearance Agreement and Amendment
                  Number 3 to Loan Agreement dated May 28, 1999 among
                  Registrant, as Borrower, the Financial Institutions referred
                  to therein, and BankBoston, N.A., as Agent, and Back Bay
                  Capital LLC. Filed as Exhibit 4(d)(1) to Registrant's Form
                  10-Q for the fiscal quarter ended January 29, 1999.


* Incorporated by reference to previous filing.


                                       4