SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                          ----------------------------

                                    FORM 10-K

                      {x} ANNUAL REPORT PURSUANT TO SECTION
                          13 or 15(D) OF THE SECURITIES
                          EXCHANGE ACT OF 1934 For the
                         fiscal year ended December 31,
                                      1998

     {  }TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE  SECURITIES
EXCHANGE  ACT  OF  1934
  For  transition  period  from..................... to ......................

                          Commission file number 1-6150


                              ALBA-WALDENSIAN, INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                            56-0359780
  (State or other jurisdiction of              (I.R.S. Employer
   incorporation or organization)              Identification No.)

       201 St. Germain Avenue, S.W.
    P.O. Box 100 Valdese, North Carolina              28690
   (Address of principal executive offices)         (Zip Code)

        Registrant's telephone number, including area code: 828-879-6500

                    Securities registered pursuant to Section
                               12 (b) of the Act:

             COMMON STOCK ($2.50 PAR VALUE) AMERICAN STOCK EXCHANGE
             (Title of class) (Name of exchange on which registered)

   Securities registered pursuant to Section to Section 12(g) of the Act: None

     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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss..229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this form 10-K. [ ]

     State  the  aggregate  market  value  of  the  voting  stock  held  by  the
non-affiliates  of the  registrant:  Approximately  $46,970,000  as of March 24,
1999.

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date:  2,348,480 shares of
Common Stock ($2.50 par value) as of March 24, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Company's Proxy Statement for the 1999 Annual Meeting of
        Stockholders are incorporated by reference into Parts I and III.


<PAGE>


THIS ANNUAL REPORT ON FORM 1O-K, INCLUDING ANY INFORMATION INCORPORTATED THEREIN
BY  REFERENCE,  MAY  CONTAIN,  IN ADDITION TO  HISTORICAL  INFORMATION,  CERTAIN
FORWARD-LOOKING  STATEMENTS THAT INVOLVE  SIGNIFICANT  RISKS AND  UNCERTAINTIES.
SUCH  FORWARD-LOOKING  STATEMENTS  ARE BASED ON  MANAGEMENT'S  BELIEF AS WELL AS
ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO, MANAGEMENT PURSUANT
TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. FORWARD-LOOKING STATEMENTS CAN GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE
CONTEXT  OF THE  STATEMENT  USUALLY  WILL  INCLUDE  WORDS  SUCH AS "THE  COMPANY
BELIEVES"; OR; "EXPECTS"; OR WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT
DESCRIBE THE  COMPANY'S  FUTURE PLANS,  OBJECTIVES,  ESTIMATES OR GOALS ARE ALSO
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ADDRESS FUTURE EVENTS AND CONDITIONS
CONCERNING  CAPITAL  EXPENDITURES,   EARNINGS,   SALES,  LIQUIDITY  AND  CAPITAL
RESOURCES, AND ACCOUNTING MATTERS.

THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR
IMPLIED BY, THE FORWARD-LOOKING  STATEMENTS CONTAINED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES  INCLUDE,  BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN ITEM 1  DESCRIPTION  OF BUSINESS;  AND  ELSEWHERE IN THE  COMPANY'S
ANNUAL  REPORT  ON FORM  1O-K  FOR THE  YEAR  ENDED  DECEMBER  31,  1998,  OR IN
INFORMATION  INCORPORATED THERIN BY REFERENCE, AS WELL AS FACTORS SUCH AS FUTURE
ECONOMIC CONDITIONS,  ACCEPTANCE BY CUSTOMERS OF THE COMPANY'S PRODUCTS, CHANGES
IN CUSTOMER  DEMAND,  LEGISLATIVE,  REGULATORY AND  COMPETITIVE  DEVELOPMENTS IN
MARKETS  IN  WHICH  THE  COMPANY  OPERATES  AND  OTHER  CIRCUMSTANCES  AFFECTING
ANTICIPATED  REVENUES AND COSTS. THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE
PUBLICLY THE RESULT OF ANY REVISIONS TO THESE FORWARD  LOOKING  STATEMENTS  THAT
MAY BE MADE TO REFLECT  EVENTS OR  CIRCUMSTANCES  AFTER THE DATE OF THIS  ANNUAL
REPORT ON FORM 1O-K OR TO REFLECT THE OCCURRENCE OF OTHER ANTICIPATED EVENTS.



                                     PART I
Item 1.    Business.
General Development of Business

     Alba-Waldensian,  Inc., (the  "Company")  manufactures a variety of knitted
apparel and health care  products at two plants in Valdese,  North  Carolina and
one plant in Rockwood, Tennessee and markets the products through two divisions,
the Consumer Products Division and the Health Products Division.

         During 1997, the Company  determined that it was able to obtain certain
covered  yarn  from  outside  suppliers  at a  quality  level and cost such that
producing such yarn was no longer justified.  Accordingly,  the Company was able
to close  its  yarn  covering  facilities  and  sell  most of its yarn  covering
machinery.  The  Company  intends  to  either  lease  and/or  utilize  the idled
production facilities (the Alba plant) for material storage.

     In order to focus its efforts on seamless intimate apparel,  the Company in
1997  discontinued  the production of the "old  technology" full fashion product
line and severely curtailed production of the circular knit panty.

         Since  its  acquisition  in  1992,  the  Byford  menswear  distribution
business  had been  unable to  generate  the  volumes  necessary  to justify the
Company's  investment of capital and management time.  Accordingly,  in 1997 the
Company  discontinued  the Byford  business and began disposing of all remaining
Byford inventories.

     In  order  to  maintain  its  competitive  position,  in 1997  the  Company
established an outsourcing  program in Mexico.  During 1998, Alba solidified its
Mexican outsourcing program and achieved the targeted levels of Mexican produced
goods. For 1999, the Company plans to further expand its outsourcing program for
hosiery.

     The  Company  experienced  outstanding  growth in demand  for its  seamless
intimates and bodywear  products  during 1998. To meet such demand,  the Company
expanded  its  seamless  knitting  capacity  by 66% during 1998 and has plans to
further increase capacity by over another 50% in 1999. Upgrades to dying, sewing
and  finishing  capabilities  coupled  with a major  expansion  of Research  and
Development  efforts  round out the  Company's  response  to meeting the growing
demand for its seamless products.

Financial Information About Industry Segments

         See Note 10 of Notes to Consolidated  Financial Statements contained in
Item 8 of this Report for financial information about the Company's two industry
segments.

Principal Products

         The  principal  products of the  Company's  two Divisions are described
below.

Consumer Products Division

         Products manufactured and sold by this Division include women's apparel
and women's hosiery  products.  Women's apparel  includes both intimate  apparel
(brassieres,  briefs and  bodywear,  as well as  specially  designed  briefs for
maternity wear) and combination  internally/externally worn products (bodysuits,
bandeaus,  tube tops,  and  dresses).  Women's  hosiery  products  include sheer
stockings,  pantyhose,  tights and trouser socks, primarily for large-size women
and the maternity market.

     The  Company has  developed a process  that makes it possible to knit bras,
briefs,  tank tops,  bodysuits  and many other  products  on  seamless  knitting
equipment.  This  design  technology,  which  is  patented  for the knit bra and
various knit-in features for all seamless  products,  has allowed the Company to
significantly  broaden  its  product  offerings.   The  seamless  knit  bra  was
introduced  in 1994 and the tank tops and  bodysuits  were  introduced  in 1995.
During 1998, the Company  introduced several new products utilizing the seamless
technology, including bandeaus, tube tops, dresses and activewear.

         The Company uses state of the art computer-controlled circular-knitting
technology.  Such equipment produces apparel that management  believes is better
fitting and therefore more comfortable than traditional cut and sew products.

 Health Products Division

         Products  manufactured and sold by this Division are designed to assist
in healthcare.  They include  anti-embolism  stockings and  compression  therapy
systems,  an  intermittent  pneumatic  compression  device,  both of  which  are
designed  to  improve   circulation  and  reduce  the  incidence  of  deep  vein
thrombosis;  sterile wound dressings such as pre-saturated gauze, petrolatum and
xeroform gauze,  non-adhering dressings and gauze strips and XX-Span(R) dressing
retainers,  an extensible net tubing designed to hold dressings in place without
the use of adhesive tape. All dressing products are used in wound care therapy.

     In addition,  this Division manufactures a knitted stockinette in a variety
of sizes, which is used under fracture casts or is sterile packaged for use as a
supplemental drape in surgical procedures,  as well as heel and elbow pads which
are XX-Span(R)  sleeves with an inner soft foam pad used to reduce  pressure and
the incidence of decubitus ulcers.

         Other products include slip-resistant patient treads, which are knitted
soft patient  footwear with slip resistant  soles to help prevent  patient falls
while  keeping feet warm even while in bed;  knitted arm sleeves,  which provide
protection to the skin of patients  with poor  circulation;  oversize  socks for
diabetic patients;  baby caps to retain body temperature;  and knitted cuffs for
use on surgical gowns.

Methods of Distribution

     The  Company's  products  are sold  throughout  the United  States  through
salaried and commissioned  salesmen as well as by in-house marketing  personnel.
The Consumer  Products  Division  markets its products  directly to major retail
organizations,  which sell them under their own labels and to several  companies
that market nationally  advertised brands. The Company also distributes  branded
Consumer  Products  to  the  independent  retail  trade  through  telemarketing.
Products of the Health  Products  Division for use in hospitals  are marketed to
major  distributors by the Company's sales  representatives.  These products are
sold both under private  label and under the  Company's own Life Span(R)  Label.
Sales offices are located in Valdese, North Carolina and in New York City. Total
expenses for marketing and selling of all products from the Company's continuing
operations  were  7.1% of  sales  in  1998  and  8.2% of  sales  in  1997.  (See
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operations" contained in Item 7 of this Report.)

Manufacturing

         All Health Products  manufacturing  and  distribution is located at the
Rockwood, Tennessee plant. The Rockwood plant is a 246,000 square foot building,
with space and  available  labor market for growth.  All products are knitted on
circular  knitting  equipment.  Most of this equipment has been purchased in the
past ten  years.  Automated  seaming,  printing  and  packaging  are used in the
finishing process.

         Consumer  Products  manufacturing  and  distribution  is located at two
plants in Valdese,  North  Carolina.  Products are knitted on circular  knitting
equipment.  Most of the  circular  knitting  equipment  is the latest  equipment
available.  Greige  seaming and finishing is manual or  automated,  depending on
product and size of product.

     The Company has an ongoing  program for the  outsourcing  of  production to
augment certain of its internal production capacities. Domestically, the Company
obtains manual sewing from outside contractors. In 1997, the Company established
a Mexican source for the production and finishing of women's sheer hosiery, with
the first imports being received in late December.  The Company  solidified this
program in 1998 and attained  targeted  levels of Mexican  produced  goods.  For
1999, the Company plans to further expand its outsourcing program for hosiery.

         Due to  unprecedented  demand for its seamless  intimate  apparel,  the
Company  increased its capital  expenditures in 1998 to $6,365,000.  Significant
portions of these  expenditures  were for the  acquisition of seamless  knitting
machines.  The Company expects capital expenditures for 1999 to be approximately
$10,500,000.  The capital  expenditures  in 1999 will be for  purchasing new and
used equipment (including seamless knitting machines), upgrading remaining older
equipment and computer  systems,  automating,  renovating  and  improving  plant
facilities.  The  Company  anticipates  that it will be able to obtain  adequate
financing to allow for any such increased capital expenditures.

Financial Information About Classes of Similar Products

         The table below  presents  information  as to the sales  volumes of the
Company's product classes for each of the last three years:
<TABLE>
<CAPTION>
  Years
  Ended              Women's            Women's              Men's                                    Health
December 31,         Hosiery            Apparel               Wear                  Other           Products
   <S>                 <C>                <C>                 <C>                    <C>               <C>  
   1996                13.8%              28.6%               8.0%                     0%              49.6%
   1997                15.0%              27.3%               6.8%                     0%              50.9%
   1998                11.2%              44.2%               0.2%                   1.1%              43.3%
<FN>
Note: Amounts represent percentages of annual net sales.

     Women's apparel consists of regular size bras,  briefs and bodywear as well
as maternity and plus size briefs.

     Women's hosiery  products consist of maternity and plus-size panty hose, as
well as trouser socks and tights.

     Health products consist of stockinettes, treads, arm sleeves, anti-embolism
stockings,  pulStar(R), sterile wound dressings, heel pads, elbow pads, oversize
socks, baby caps, and knitted cuffs.
</FN>
</TABLE>

New Products

     The Company  maintains an active research and  development  department that
continually  evaluates  new  products  and  processes.  During  1998 the Company
introduced  several new product  lines such as  bandeaus,  tube tops and dresses
which   represented  new  applications  of  the  Company's   seamless   knitting
technology.  Management also evaluates new products, business opportunities, and
acquisitions on an on-going basis and could encounter an opportunity  that would
require substantial investment in the future.

Sources and Availability of Raw Materials

         The principal raw  materials  used by the Company in its  manufacturing
processes include various types of yarn,  chemicals for dyeing and finishing and
for impregnating  medical products,  plus packaging  materials for all products.
The  Company  acquires  these  materials  from a number  of  sources  and is not
dependent on any one source for a significant  amount of its raw materials.  The
Company anticipates no material change in either the availability or the cost of
its raw materials.


Patents and Trademarks

         The only material patents held by the Company are (1) for a device used
to warm wet  dressings,  which expires in 2002;  (2) for a process  covering the
manufacture  of dressings,  which expires in 2002,  and (3) a variety of patents
for  processes  which  make it  possible  to knit  bras and  various  functional
features in bras and panties on seamless  knitting  equipment,  which  expire in
2014. Also, the Company acquired a co-exclusive License Agreement for a patented
process which makes it possible to knit briefs. The agreement is for the life of
the patent,  which expires in 2012. The material  trademarks held by the Company
are: Alba(R), All Day Long(R),  ComfortKnit(R),  SomeBody(R), While You Wait(R),
Comfort   Zone(R),   Seamless   Comfort(R),   Lady   Alba(R),    Occasionals(R),
Ultimates(R),  XX-Span(R),  Speed-Roll(R), Life Span(R), Coplex(R), PAS(R), Baby
Bogan(R),  Balfour(R),  Care-Steps(R),  Case  Sox(R),  Body  Makeup(R),  Fashion
Tread(R),  Figure  Perfect(R),  Castmate(R)  and  pulStar(R).  The Company holds
numerous other patents and trademarks  that,  because of  obsolescence  or other
reasons, are not material to the Company's current operations.

Seasonality

     In prior  years,  sales  tended  to be  fairly  even  throughout  the year.
However,  in 1998 with the  introduction of new fashionable and  holiday-focused
products, the Company may for the first time be experiencing  seasonality in its
sales. The magnitude of such seasonal demand can only be measured as the Company
gains more sales history with its new fashion  product  lines and  experiences a
full cycle of seasons:  Spring,  Back-to-School  and  Holiday.  For an unaudited
summary of financial  information on a quarterly  basis, see Note 11 of Notes to
Consolidated Financial Statements contained in Item 8 of this Report.

Working Capital

         Differences  resulting from seasonal  fluctuations  have not materially
affected  the  Company's  working  capital  requirements  and the Company has an
adequate  revolving credit line to cover any short-term cash  requirements.  The
Company sells  merchandise  on  consignment  only on a limited  basis.  Although
returns are permitted when the quality of merchandise  sold is below  acceptable
standards or when an error in completing an order occurs, the number and amounts
of returns  did not have a material  effect on  working  capital of the  Company
during fiscal 1998 or 1997. Due to the various  approaches to manufacturing  and
distribution used by the industry, the Company is not aware of any industry-wide
norms relating to sale and delivery requirements.

Significant Customers

         See Note 10 of Notes to Consolidated  Financial Statements contained in
Item 8 of this report for information on significant customers.

     The loss of either of the two customers mentioned in such note would have a
material adverse effect on the business of the Company.

Open Orders

         The Company's open orders at December 31, 1998 and 1997 were $9,413,000
and  $3,825,000  respectively.  Open  orders  at  any  point  in  time  may  not
necessarily be indicative of orders for the remainder of the year.

Competition

         The  Company  encounters  substantial  competition  in the  sale of its
products  from  numerous  competitors,  a few of which are known to have  larger
sales and capital  resources than the Company.  Management is unable to estimate
the number of the Company's  competitors  or its relative  position  among them.
Management  believes that the principal methods of competition in the markets in
which the Company competes include price, delivery, performance, service and the
ability to bring to the market innovative products. Management believes that the
Company is  competitive  with respect to these factors but is unable to identify
specific positive and negative aspects of the Company's  business  pertaining to
such  factors.  (See also  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this Report.)

Research and Development

     In 1998,  the Company  spent  approximatel  $946,000  on  Company-sponsored
research and development projects through the Company's Research and Development
Department. This compares to $513,000 in 1997 and $474,000 in 1996.

Environmental Regulations

         In the opinion of management,  the Company and its  subsidiaries are in
substantial  compliance  with  present  federal,  state  and  local  regulations
regarding the discharge of materials into the environment.  Capital expenditures
required  to be made in order to achieve  such  compliance  have had no material
effect  upon  the  earnings  or  competitive  position  of  the  Company  or its
subsidiaries.
Management   believes  that  continued   compliance  will  require  no  material
expenditures.

Government Regulation

         The  Company  is  subject  to  various  regulations   relating  to  the
maintenance of safe working conditions and manufacturing practices. In addition,
certain of the products manufactured by the Health Products Division are subject
to the  requirements  of the  Food  and  Drug  Administration  with  respect  to
environmentally controlled facilities.  Management believes that it is currently
in compliance with all such regulations.

Employees

         The Company had 752  employees  as of December  31,  1998.  None of the
Company's  employees  are  covered by a  collective  bargaining  agreement.  The
Company considers its employee relations to be excellent.


<PAGE>



Item 2.  Properties.
<TABLE>
<CAPTION>

     The Company's principal physical properties are listed below:

                                                 Approximate
                                                 Square
Name              Location                       Footage                        Use
<S>               <C>                            <C>                            <C>

Alba              Valdese, NC                    157,000                        Warehouse (Consumer
                                                                                Products)

John Louis        Valdese, NC                    178,300                        Finishing (Consumer
                                                                                Products)

Pineburr          Valdese, NC                     81,000                        Knitting  (Consumer
                                                                                Products)

Rockwood          Rockwood, TN                   245,940                        Knitting, Yarn
                                                                                Processing  &
                                                                                Finishing (Health
                                                                                Products)

Offices           Valdese, NC                     52,000                        Corporate
                                                                                headquarters


Offices           New York City                    3,200 Leased                 Sales Offices and
                                                         $86,400                Showroom
                                                         Annually
                                                         Expires April 2000
<FN>


         All  plants  are of brick and steel  construction,  and most areas have
been air-conditioned. All have been maintained in working condition. The Company
leases its New York City office. The rest of the Company's  physical  properties
are held in fee simple,  subject to encumbrances that are described in Note 5 of
Notes to Consolidated Financial Statements contained in Item 8 of this Report.
</FN>
</TABLE>

Item 3.  Legal Proceedings.

Litigation

         There are no material  pending legal  proceedings,  other than ordinary
routine  litigation  incidental to the business,  to which the Company or any of
its subsidiaries or which any of its properties are subject.

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

     Not applicable.


<PAGE>



                                     PART II

     Item 5. Market for the Registrant's  Common Equity and Related  Stockholder
Matters.

     The Company's  $2.50 par value Common Stock is registered and traded on the
American Stock Exchange under the symbol "AWS".
<TABLE>
<CAPTION>

                                        Sales Price of Common Shares
                                  1998                                 1997
                            High        Low                   High       Low
<S>                        <C>         <C>                    <C>       <C>  
First Quarter               3.42       3.00                   4.17      3.33
Second Quarter              7.08       3.42                   3.50      3.25
Third Quarter               9.17       6.17                   3.50      3.21
Fourth Quarter             28.88       7.33                   3.83      3.08
<FN>

All per share prices have been  restated to reflect the 3 for 2 stock split paid
on November 16, 1998.
</FN>
</TABLE>

     Primarily  as a  result  of the  Company's  record  profits,  the  Board of
Directors declared a dividend of $0.05 per share (adjusted for the 3 for 2 stock
split on November  16,  1998)  payable on August 24, 1998,  to  shareholders  of
record on August 14,  1998.  This was the first  dividend  the  Company has paid
since 1984.  On February 1, 1999,  the Board of Directors  declared an increased
dividend of $0.075 per share of common  stock  payable on  February 22 1999,  to
shareholders of record on February 12, 1999.

     See Note 5 to the consolidated financial statements concerning restrictions
on the payment of dividends.

     As of January 29, 1999, there were 152 registered  holders of the Company's
Common  Stock.   The  Company  believes  that  there  are  over  400  additional
shareholders who maintain their positions in the name of beneficial owners.

Item 6.  Selected Financial Data.
<TABLE>
<CAPTION>
                                                                         $000's Except for Per Share Amounts
                                                          1998         1997         1996         1995          1994
<S>                                                    <C>          <C>          <C>          <C>           <C>  
Income Statement Data:
Net sales                                              $75,242      $59,912      $65,815      $63,718       $56,507
Gross margin                                            22,155       12,222       15,191       12,042        14,254
Income (loss) before income taxes                        8,265        (591)          504      (2,470)         3,150
Provision (benefit) for income taxes                     3,282        (214)          184        (814)         1,204
Net income (loss)                                        4,983        (377)          320      (1,656)         1,946
EBITDA**                                                11,509        2,850        4,142        1,081         5,161
Depreciation                                             1,726        1,768        1,700        1,789         1,693
Cash dividends                                             118           --           --           --            --

Per Share Data:
Income (loss) per common share (*):
  Net income (loss) per common share - basic             $1.98       $(.13)         $.11       $(.59)          $.70
  Net income (loss) per common share - diluted            1.90        (.13)          .11        (.59)           .70

Cash dividends (*)                                         .05           --           --           --            --
Stockholders' equity per basic common share (*)          12.56         9.79         9.92         9.82         10.49
Stock Price (*)
  High                                                    28.9          4.2          5.5          7.4           8.1
  Low                                                      3.0          3.1          3.6          5.0           6.5
  Close                                                   25.4          3.1          3.9          5.1           7.4
Weighted average number of share of common stock
 outstanding (in thousands of shares) (*)                2,518        2,801        2,801        2,798         2,774

Balance Sheet Data:
Working capital                                        $14,888      $15,372      $17,488      $17,960       $19,866
Property and equipment, net                             17,882       13,254       13,538       13,775        11,605
Capital spending                                         6,365        1,869        1,525        1,610         1,919
Total assets                                            46,779       43,619       45,271       49,250        37,730
Long-term debt and capital lease obligations             8,383        7,452        9,913       12,263         1,058
Stockholders' equity                                    29,649       27,411       27,788       27,469        29,093

Ratios & Other Data:
Net sales growth (decline)                               25.6%       (9.1%)         3.3%        12.8%         11.1%
% of Net Sales:
  Gross margin                                            29.4         20.4         23.1         18.9          25.2
  Operating income (loss)                                 12.2          0.7          2.7        (1.7)           5.7
  Income taxes (benefit)                                   4.4        (0.4)          0.3        (1.3)           2.1
  Net income (loss)                                        6.6        (0.6)          0.5        (2.6)           3.4
  EBITDA**                                                15.3          4.8          6.3          1.7           9.1
Debt to equity                                            31.1         35.8         44.1         57.8           9.4
Return on average assets                                  11.0        (0.8)          0.7        (3.8)           5.3
Return on average shareholders' equity                    17.5        (1.4)          1.2        (5.9)           6.9
Sales per employee                                        $101          $80          $80          $71           $67
Open Orders                                             $9,413       $3,825       $2,868       $3,651        $2,174
<FN>

* Restated to reflect the 3 for 2 stock split on November 16, 1998.
** EBITDA  represents  net income before  provision  for  interest,  income
taxes,  depreciation  and  amortization.  It is not a measure  of cash flow from
operating activities.

See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations"  contained  in Item 7 of this  Report  for a  discussion  of certain
factors that affect the comparability of the information reflected above.
</FN>
</TABLE>

     Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

         The  following  analysis  of the  financial  condition  and  results of
operations should be read in conjunction with the financial statements and notes
and other information contained elsewhere in this Annual Report on Form 10-K.

OVERVIEW

         Alba is a leading  worldwide  producer of seamless  apparel for private
label and contract brand markets.  The Consumer  Products Division also produces
women's hosiery,  primarily for the queen size and maternity markets. Our Health
Products  Division  manufactures  medical  specialty  products  and markets them
throughout the Americas and Europe. The Company employs approximately 752 people
in Valdese, North Carolina and Rockwood, Tennessee.

         In our Consumer Products  Division,  we made the strategic  decision to
focus our intimate apparel  production on the new seamless knitting  technology,
which we helped pioneer in the early 1990's.  To that end, we  discontinued  all
full fashion and circular knit production in 1997.  During 1998, the marketplace
validated  our  decision  through  explosive  growth in demand for our  seamless
products.

         To meet this demand we  aggressively  expanded  our  seamless  knitting
capacity  by  approximately  66% in 1998 and have  additional  machines on order
through  the first  half of 1999 to  further  increase  capacity  to 263% of its
beginning 1998 levels.

         Our research and  development  group has led the marketplace to new and
innovative  applications of our seamless technology to new product lines such as
bodysuits,  tubes,  bandeaus and dresses.  New product line introductions during
1998 accounted for $14.4 million or 43 % of women's apparel sales.

RESULTS OF OPERATIONS

The  following  table  details  the  items  in the  Consolidated  Statements  of
Operations as a percentage of sales for 1998, 1997 and 1996.
<TABLE>
<CAPTION>

                               Percentage of Sales
                             Year ended December 31,
                                        1998              1997              1996
<S>                                   <C>               <C>               <C>
Net Sales                             100.0%            100.0%            100.0%
Cost of Sales                           70.6              79.6              76.9
Gross Margin                            29.4              20.4              23.1
Selling, General
 and Administrative                     17.2              19.7              20.4
Operating Income/(Loss)                 12.2               0.7               2.7
Other Income (Expense), Net            (1.2)             (1.7)             (1.9)
Income (Loss) Before
 Income Taxes                           11.0             (1.0)               0.8
Provision (Benefit) for
 IncomeTaxes                             4.4             (0.4)               0.3
Net Income (Loss)                        6.6             (0.6)               0.5
</TABLE>


DISCUSSION OF 1998 COMPARED TO 1997

     During 1998, we reached record levels of revenues and earnings. Earnings of
$4,983,000  compared to a loss of $377,000 in 1997.  Basic earnings per share of
$1.98  ($1.90  diluted)  was a record for us and compared to a loss of $0.13 per
share in 1997.  Revenues for 1998  increased  25.6%,  reaching a record level of
$75,242,000.

     Net  Sales  for 1998 as  compared  to 1997 are set  forth in the  following
table:
<TABLE>
<CAPTION>
                             Dec. 31          Dec. 31         Increase/      % Increase/
                                1998             1997        (Decrease)       (Decrease)
($000's)
<S>                          <C>              <C>                <C>              <C> 

Health Products              $32,548          $30,527            $2,021             6.6%
                             -----------------------------------------------------------
Consumer Products:
 Women's apparel              33,284           16,356            16,928           103.5%
 Women's hosiery               8,400            8,945             (545)           (6.1%)
 Byford                          118            4,084           (3,966)          (97.1%)
 Other                           892               --               892               --
                                 -------------------------------------------------------
 Total Consumer               42,694           29,385            13,309            45.3%
                              ----------------------------------------------------------
Total                        $75,242          $59,912           $15,330            25.6%
                             ===========================================================
</TABLE>

         Sales  of  Health  Products  increased  $2,021,000  or 6.6%  over  1997
highlighted  by our market  leading  treads and  surgical  gown cuffs, partially
offset by slightly lower sales of sterile  dressings.  Market  acceptance of our
newly redesigned  pulStar(R) system has been slower than anticipated during 1998
and will be a major focus of our marketing efforts in 1999.

         Sales of women's apparel  (primarily all seamless) more than doubled in
1998,  increasing  by  $16,928,000  to  reach a  record  level  of  $33,284,000.
Innovative research and development efforts enabled the Company to introduce six
new seamless product lines during the year.  Escalating  consumer demand for the
superior  fit,  comfort and style of seamless  garments  translated  into strong
demand for all  categories of our seamless  women's  apparel.  This  outstanding
performance  validated  our  strategic  decision  in early 1997 to focus  future
production of women's apparel on our pioneering seamless knitting technology.

         Several of the new product lines introduced in 1998 represented apparel
such   as   bodysuits,    bandeaus,   tube   tops   and   dresses   (combination
innerwear/outerwear).  In prior years,  women's  intimates  (primarily  bras and
panties)  composed the majority of our women's  apparel  line.  The marketing of
this new combination of internal/external apparel through major specialty retail
stores has  introduced  both new market  opportunities  and new product  quality
requirements  as well as having  introduced for the first time the potential for
significant   seasonality  in  the  Company's  business.   The  impact  of  this
seasonality  cannot be measured until we have been through at least one complete
seasonal  cycle.  Sales of women's  apparel to one retail  customer  represented
$18,325,000, or 55%, of women's apparel sales in 1998.

         Worldwide  demand for women's sheer hosiery has been on the decline for
several  years.  This trend has  accelerated as informal dress codes have become
accepted in most  workplaces.  Our women's hosiery volume dropped  $545,000,  or
6.1%,  in 1998.  The Company is  continuing  to explore  new product  categories
within women's hosiery markets,  such as trouser socks and compression  hosiery,
to offset this continuing decline in traditional sheer hosiery.

         The decline in Byford sales  reflects our decision in the third quarter
of 1997 to no longer  distribute  the licensed  line of men's socks and sweaters
due to poor profitability.

         Gross profits  increased in 1998 to 29.4% of net sales,  as compared to
20.4% in 1997.  Health  Products' gross margin  percentage  increased 6% in 1998
with all major  products  reporting  improved  profitability.  This  increase is
significant  in the face of prior year declines in margins due to cost reduction
pressures  within the healthcare  industry and the loss of dressing  business to
competition.

         Consumer Products  Division's gross margin percentage  doubled in 1998,
reflecting an increase in women's  apparel  margins due to the large increase in
production   volume  and  the   introduction  of  higher  margin  specialty  and
fashionable product categories. This increase in margins was partially offset by
a 0.8 point  decline in  hosiery  margins  resulting  primarily  from  declining
volume.  The decline in hosiery margins was minimized during 1998 as we began to
shift production of certain hosiery styles to Mexican subcontractors in order to
maintain our competitive  position against many other hosiery  manufacturers who
began offshore  production  much earlier than Alba. The  discontinuation  of the
Byford business resulted in the disposition of inventories at substantially less
than normal margins in 1997.

     Selling,  General and Administrative  Expenses decreased as a percentage of
sales to 17.2% from  19.7% in 1997.  Higher  sales  volumes  along  with  strong
spending controls resulted in the lower expense percentage.

         Interest expense was $865,000 in 1998 as compared to $1,020,000 in 1997
primarily  as the  result of lower  borrowing  levels  throughout  most of 1998.
Additionally,  the  refinancing  of the  Company's  long-term  debt in May  1998
yielded a lower borrowing rate than in 1997.

DISCUSSION OF 1997 COMPARED TO 1996

         Net Sales by Division for 1997 as compared to 1996 are set forth in the
following table:
<TABLE>
<CAPTION>


                             Dec. 31          Dec. 31         Increase/      % Increase/
                                1997             1996        (Decrease)       (Decrease)
($000's)
<S>                          <C>              <C>              <C>               <C> 

Health Products              $30,527          $32,640          $(2,113)           (6.5%)
Consumer Products:
 Women's apparel              16,356           18,824           (2,468)          (13.1%)
 Women's hosiery               8,945            9,045             (100)           (1.1%)
 Byford                        4,084            5,291           (1,207)          (22.8%)
 Other                            --               15              (15)           (100%)
                                --------------------------------------------------------
 Total Consumer              $29,385          $33,175          $(3,790)          (11.4%)
                             -----------------------------------------------------------
Consolidated                 $59,912          $65,815          $(5,903)           (9.0%)
                            ============================================================
</TABLE>

     Net sales,  as shown in the table above,  decreased by $5,903,000 or 9.0%in
1997.  Health Products  business was down primarily due to problems  encountered
with its P.A.S.(R)  anti-embolism  compression  system.  The Company was able to
redesign the product and  re-introduce  its new  pulStar(R)  wrap system in late
1997. Consolidation of product lines by a major distributor resulted in the loss
of significant  dressing  sales in the second half of 1997.  These declines were
partially offset by increased sales of tread footwear,  gown cuffs and specialty
products.  The decline in Consumer  Products sales of women's apparel was due to
the  decision in early 1997 to  discontinue  the "old  technology"  full fashion
panty production and the loss of circular knit business to lower priced imports.
The full  fashion  loss was offset in part by  converting  customers  to the new
seamless panty line. Women's hosiery volume remained relatively flat compared to
1996. Due to marginal profitability, the Company decided in 1997 to no longer be
a distributor for the Byford product line.

     Gross profits decreased in 1997 to 20.4% of net sales, as compared to 23.1%
in 1996. Health Products' margins declined 4.4% in 1997 due to problems with its
high margin P.A.S.(R)  anti-embolism  stocking system,  cost reduction pressures
within the healthcare industry and the loss of dressing business to competition.
Consumer  Products'  margins  increased  by 1.8% in 1997  reflecting a 4.3-point
increase in intimate  apparel  margins due to a shift to higher margin  seamless
products from the "old  technology"  full fashion and circular knit lines.  This
increase in margins was partially offset by a 3-point decline in hosiery margins
resulting from quality problems and startup expenses related to the installation
of new  knitting  equipment  in late  1996.  The  discontinuation  of the Byford
business in 1997 resulted in the  disposition of  inventories  at  substantially
less than normal margins.

         Selling,  General and Administrative Expenses decreased as a percentage
of sales to 19.7% from 20.4% in 1996.  Strong spending  controls resulted in the
lower expense percentage in the face of the decline in net sales and in spite of
the one-time costs of  approximately  $400,000 in connection  with the severance
arrangement with the Company's former President and CEO.

     Interest  expense was $1,020,000 in 1997 as compared to $1,286,000 in 1996.
Average  borrowings  under the Short-Term  Revolver were $71,000 with an average
interest rate of 8.65%  compared to average  borrowings  of  $1,066,000  with an
average interest rate of 7.40% in 1996.  Additionally,  the Company's  long-term
debt  continued  to  decline  in 1997,  reflecting  normal  quarterly  principal
reductions  as well as a special  one-time  principal  reduction  of $111,000 in
connection with the sale a substantial portion of the Byford inventories.


LIQUIDITY AND CAPITAL RESOURCES

     In May 1998, we secured a new  three-year  $21,000,000  financing  facility
with a major bank (see Note 5 of Notes to  Consolidated  Financial  Statements).
The new  financing  facility  provides a  revolving  loan of up to  $15,000,000,
depending  upon levels of accounts  receivable and  inventories,  a term loan of
$3,000,000 and a future capital expenditure line of $3,000,000. In addition, the
facility  permits  the  Company to secure  other  outside  financing  of capital
expenditures of up to $4,500,000  over the three-year  term of the facility.  On
August 7, 1998, the Company secured a $1,500,000 financing lease facility with a
major  financial  institution  covering the  acquisition of qualified  machinery
during the remainder of 1998.

     Working  capital   continues  to  be  adequate  to  support  the  Company's
operations.  On December 31, 1998,  the Company had current  working  capital of
$14,888,000 with a current ratio of 3.23 to 1. This is comparable to $15,372,000
or 3.19 to 1 at  December  31,  1997.  Although  our working  capital  decreased
slightly ($484,000) since December 31, 1997, our liquidity has actually improved
during 1998.  Under the terms of our new financing  facility,  all of our excess
cash is used daily to reduce the  outstanding  balance on our  revolving  credit
line.  This  results in  increasing  the amount  available  to borrow  under the
revolver while at the same time providing for the maximum short-term  investment
return on the Company's  available cash balances.  However,  this results in our
not reporting  normal levels of cash (current asset) which have been utilized to
temporarily  reduce our revolving  credit line (long-term  liability).  Our cash
balances at the end of 1997  totaled  $2,416,000,  as compared to $15,000 at the
end of the current year.  However,  availability under our revolving credit line
totaled $6,332,000 at December 31, 1998.

         Liquidity  needs are  primarily  affected  by and  related  to  capital
expenditures and changes in the Company's  business  volume.  During 1998, these
needs were  adequately  met through the new $21 million  financing  facility and
$1,500,000  of other lease  financing.  Capital  expenditures  for 1998  totaled
$6,365,000,   reflecting   expansion  of  our  seamless   knitting  capacity  by
approximately 70% during the year. This level of capital  expenditures  compares
to $1,869,000 for the 1997 year.

         We intend to  continue to  aggressively  expand our  seamless  knitting
capacity  in 1999.  In addition to the 66%  capacity  increase in 1998,  we have
enough  machines  on order  with  scheduled  delivery  dates in 1999 to  further
increase  seamless  knitting  capacity  to 263% of its  beginning  1998  levels.
Capital  expenditures  in  1999  may  approximate  $10,500,000.  This  level  of
investment in the future of our Company may require that  additional  sources of
funding be obtained beyond that provided in our current financing facility.  The
Company  believes that it will be successful in securing the necessary  funds to
allow us to capitalize on the expanding demand for seamless apparel.

         Cash  provided  by  operating  activities  was  $7,263,000  in  1998 as
compared to $6,092,000  in 1997,  and  $5,082,000 in 1996.  The increase in cash
provided in 1998 was primarily due to increased business volume partially offset
by higher working capital required to support the higher operating  levels.  The
1997 cash provided from  operations was higher than 1996 mainly as the result of
decreases in working capital commensurate with the lower business volume in 1997
as compared to 1996.

         Net cash used in investing  activities  was $4,793,000 in 1998 compared
to  $1,509,000 in 1997 and  $1,168,000  in 1996.  The cash used in each of these
three years was primarily for capital expenditures to expand capacities,  and to
replace and update plant and equipment. During 1998, Alba increased its seamless
knitting  capacity by 66%. Net cash used by financing  activities was $4,871,000
in 1998 as compared to  $2,461,000  in 1997 and  $3,676,000  in 1996.  Financing
activities in 1998 included the  refinancing  of our long-term  bank debt with a
new $21 million financing. The purchase on May 15, 1998 of 295,000 shares of the
Company's common stock for  approximately  $2,328,000  reduced the company's net
worth.  However,  the  acquisition  price per share of $7.50  (plus  transaction
costs) was significantly less than the Company's book value per share ($15.08 at
March 29, 1998) and accordingly the net book value of the remaining  outstanding
shares was increased.

         On August 4, 1998, the Company  declared a semi-annual cash dividend of
$.075 per share  ($.05 per  post-split  share)  totaling  $118,000 on its common
stock payable on August 24, 1998, to  shareholders of record on August 14, 1998.
Under the Company's  loan agreement  with a bank,  dividends and  repurchases of
Company stock may not exceed $3,500,000 during the three-year term of the loan.
At December 31, 1998, dividends and stock repurchases totaled $2,897,000.

         On August 12, 1998,  the Company's  Board of Directors  authorized  the
Corporation  to acquire up to 40,000 shares  (60,000  post-split  shares) of the
outstanding  Common Stock of the Corporation for an aggregate purchase price not
to exceed $550,000.  During 1998, the Company purchased a total of 29,200 shares
(43,800 post-split shares) at an aggregate cost of $416,644.

     Net cash used in 1997 and 1996 was  primarily  for  principal  payments  on
long-term debt and payments to reduce the borrowings under the line of credit.


YEAR 2000 COMPLIANCE

         We have addressed the Year 2000 compliance  issues in three parts;  our
products, our internal systems and third-parties.

         Our  Products  - Year  2000  compliance  is not an issue for any of our
products.  None of our products,  women's  hosiery,  women's intimate apparel or
health products contains date-sensitive-electronic  components or date-sensitive
software.

         Our Internal  Systems - We are confident  that all major systems within
Alba will be Year 2000 compliant before the turn of the century. For operational
reasons,  in late 1996 we decided to install a new integrated  manufacturing and
financial  reporting  management  information  system.  This new system involved
acquiring new system hardware, new PC-based local and wide-area networks and the
standardization  of PC software.  All of these hardware and software systems are
Year 2000  compliant.  The new  system  hardware,  the new  PC-based  local area
network and the new  financial  reporting  system are now  operational.  The new
manufacturing  system and the wide-area  network  should be  operational  in the
second quarter of 1999. Additionally, we have substantially completed our review
of  all  other   date-sensitive   systems   throughout  Alba  with  no  material
non-compliance  problems  noted.  This  review  also  included   non-information
technology  systems  and  equipment  such as the  electronic  components  of our
knitting and other manufacturing equipment.

         Third Parties - Like most all other  companies,  we are dependent  upon
our material  vendors,  suppliers and customers to ensure that we remain a going
concern.  We are unable to control the  actions of others with  respect to their
Year 2000 compliance.  However,  our material  suppliers,  service providers and
customers are mostly all very large  companies  within their own  industries and
have much at stake in ensuring their own compliance.  We are  questioning  these
third parties as to their  compliance plans and to date have not been advised of
any major non-compliance  problems.  We expect to have this process completed by
mid-1999 and will then develop  contingency plans in indicated problem areas, as
feasible. The risks to Alba in this area are obviously significant; for example,
we  could  not  operate  without  a  continuous  source  of  electricity  to our
manufacturing  plants  and  there  are  no  realistic  contingency  alternatives
available.  Similarly,  there is very little that we can do to continue sales to
customers  who  themselves  are  unable to operate  due to their own  failure to
ensure Year 2000 compliance.

         We have not incurred and do not anticipate  that we will incur material
costs associated with the Year 2000 compliance  issue. Our operational  decision
in 1996 to replace our  manufacturing  and financial  reporting  systems had the
side benefit of eliminating most Year 2000 compliance issues for us.

EFFECTS OF INFLATION

         Management believes that inflation has not had a material effect on the
Company's operations for the years ended December 31, 1998 and 1997.

RECENT ACCOUNTING PRONOUNCEMENTS

     In  April  1998,  the  Accounting   Standards  Executive  Committee  issued
Statement  of  Position  (SOP)  98 5,   "Reporting  on  the  Costs  of  Start-up
Activities",  which is effective for fiscal years  beginning  after December 15,
1998.  The SOP  requires  that the costs of start-up  activities  be expensed as
incurred.  The Company is not currently  engaged in any start-up  activities and
does not have any deferred start-up costs recorded on its balance sheet.  Should
the Company  engage in any start-up  activities at any time in the future,  they
will be recorded in accordance with generally accepted accounting  principles in
effect at such time.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  133 (SFAS  133), "Accounting  for  Derivative
Instruments and Hedging  Activities".  SFAS 133 requires  companies to recognize
all  derivative  contracts as either assets or  liabilities in the balance sheet
and to measure them at fair value.  If certain  conditions are met, a derivative
may be  specifically  designated as a hedge,  the objective of which is to match
the  timing  of gain or loss  recognition  on the  hedging  derivative  with the
recognition  of (I) the  changes  in the  fair  value  of the  hedged  asset  or
liability that are  attributable  to the hedged risk or (ii) the earnings effect
of the hedged  forecasted  transaction.  For a derivative  not  designated  as a
hedging  instrument,  the gain or loss is  recognized in income in the period of
change SFAS 133 is effective for all fiscal  quarters of fiscal years  beginning
after June 15,  1999.  The Company is not  presently  a party to any  derivative
contracts  and does not  expect  adoption  of the new  standard  to  affect  its
financial statements.

<PAGE>


Item 8.  Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>

Table of Contents
         <S>                                                                            <C> 
         Description                                                                    Page

         Management's Responsibility for Financial Statements                           F-1

         Report of Independent Certified Public Accountants                             F-2

         Consolidated Balance Sheets as of December 31, 1998 and 1997                   F-3

         Consolidated Statements of Operations for the Years
          Ended December 31, 1998, 1997 and 1996                                        F-4

         Consolidated Statements of Stockholders' Equity for the Years
         Ended December 31, 1998, 1997 and 1996                                         F-4

         Consolidated Statements of Cash Flows for the Years
          Ended December 31, 1998, 1997 and 1996                                        F-5

         Summary of Significant Accounting Policies                                     F-6

         Notes to Consolidated Financial Statements                                     F-8
</TABLE>


<PAGE>




MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The  management of  Alba-Waldensian,  Inc. is  responsible  for the accuracy and
consistency of all the information contained in the annual report, including all
accompanying  consolidated  financial  statements.   The  statements  have  been
prepared to conform with generally  accepted  accounting  principles and include
amounts based on management's estimates and judgments.

Alba-Waldensian,  Inc.  maintains  a  system  of  internal  accounting  controls
designed to provide  reasonable  assurance that financial  records are accurate,
Company  assets are  safeguarded,  and financial  statements  present fairly the
consolidated financial position of the Company.

The  Audit  Committee  of the Board of  Directors,  composed  solely of  outside
directors,  reviews  the scope of audits  and the  findings  of the  independent
certified  public  accountants.  The  auditors  meet  regularly  with the  Audit
Committee to discuss audit and financial issues.

BDO Seidman, LLP, the Company's  independent  certified public accountants,  has
audited the financial  statements  prepared by management.  Their opinion on the
financial statements is presented as follows.

LEE N. MORTENSON
President and Chief Executive

GLENN J. KENNEDY
Chief Financial Officer


                                       F-1

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Alba-Waldensian, Inc.
Valdese, North Carolina

We have audited the accompanying consolidated balance sheets of Alba-Waldensian,
Inc.  and  subsidiaries  as of  December  31,  1998 and  1997,  and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of  Alba-Waldensian,
Inc. and  subsidiaries  at December 31, 1998 and 1997,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

BDO SEIDMAN, LLP
Greensboro, North Carolina
February 2, 1999


                                       F-2

<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
($000's, except share amounts)

                                                                                             1998              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>               <C>  

ASSETS
Current Assets:
Cash                                                                                          $15            $2,416
Accounts receivable (net of allowance for uncollectible accounts
 of $260 in 1998 and 1997)                                                                  6,426             7,823
Inventories                                                                                13,622            11,309
Deferred income tax asset                                                                     906               707
Prepaid expenses and other                                                                    602               127
-------------------------------------------------------------------------------------------------------------------
Total current assets                                                                       21,571            22,382
-------------------------------------------------------------------------------------------------------------------
Net Property and Equipment                                                                 17,882            13,254
-------------------------------------------------------------------------------------------------------------------
Other Assets:
Notes receivable                                                                               13                17
Trademarks and patents                                                                        427               492
Excess of cost over net assets acquired, net                                                6,886             7,474
-------------------------------------------------------------------------------------------------------------------
Total other assets                                                                          7,326             7,983
-------------------------------------------------------------------------------------------------------------------
Total assets                                                                              $46,779           $43,619
-------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt                                                         $852            $2,350
Accounts payable                                                                            2,989             3,118
Accrued expenses                                                                            2,842             1,542
-------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                   6,683             7,010

Long-Term Debt                                                                              8,383             7,452
Deferred Compensation                                                                         200                --
Deferred Income Tax Liability                                                               1,864             1,746
-------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                          17,130            16,208
-------------------------------------------------------------------------------------------------------------------

Commitments

Stockholders' Equity:
Common stock -- authorized 3,000,000 shares, $2.50 par value;
 issued: 2,829,834 and 1,886,580 shares in 1998 and 1997, respectively;
 outstanding: 2,361,231 and 1,867,403 shares in 1998 and 1997, respectively                 7,075             4,716
Additional paid-in capital                                                                  6,823             9,182
Retained earnings                                                                          18,436            13,650
-------------------------------------------------------------------------------------------------------------------
Total                                                                                      32,334            27,548
Less treasury stock -- at cost (468,603 and 19,177 shares in 1998
 and 1997, respectively)                                                                  (2,685)             (137)
-------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                 29,649            27,411
-------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                                $46,779           $43,619
-------------------------------------------------------------------------------------------------------------------
<FN>

     See accompanying  summary of significant  accounting  policies and notes to
consolidated financial statements.
</FN>
</TABLE>


                                       F-3



<PAGE>

<TABLE>
<CAPTION>


CONSOLIDATED  STATEMENTS OF OPERATIONS  Years Ended December 31, 1998,  1997 and
1996 ($000's, except share amounts)
<S>                                                                              <C>          <C>          <C> 
                                                                                    1998         1997         1996
------------------------------------------------------------------------------------------------------------------
NET SALES                                                                        $75,242      $59,912      $65,815
COST OF SALES                                                                     53,087       47,690       50,624
------------------------------------------------------------------------------------------------------------------
GROSS MARGIN                                                                      22,155       12,222       15,191
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                      12,966       11,809       13,392
------------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                                   9,189          413        1,799
------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense                                                                   (865)      (1,020)      (1,286)
Interest income                                                                       56           79           21
Loss on sale of property and equipment                                               (1)         (77)          (9)
Other                                                                              (114)           14         (21)
------------------------------------------------------------------------------------------------------------------
Total other income (expense), net                                                  (924)      (1,004)      (1,295)
------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES                                                  8,265        (591)          504
PROVISION (BENEFIT) FOR INCOME TAXES                                               3,282        (214)          184
------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                                                 $4,983       $(377)        $320 
------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE - BASIC                                         $1.98       $(.13)         $.11
------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE - DILUTED                                  $1.90              $(.13)          $.11
---------------------------------------------------------------------------------------------------------------------
<FN>

See  accompanying  summary  of  significant  accounting  policies  and  notes to
consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>


CONSOLIDATED  STATEMENTS OF STOCKHOLDERS'  EQUITY Years Ended December 31, 1998,
1997 and 1996 ($000's, except share amounts)

                                                                      Additional
                                                         Common          Paid-In     Retained           Treasury Stock
                                              Shares        Amount       Capital     Earnings       Shares       Amount      Total
<S>                                         <C>             <C>           <C>         <C>         <C>            <C>       <C>
BALANCE AT JANUARY 1, 1996                  1,886,580       $4,716        $9,182      $13,707     (19,177)       $(137)    $27,468
Net income                                         --           --            --          320           --           --        320
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                1,886,580        4,716         9,182       14,027     (19,177)        (137)     27,788
Net loss                                           --           --            --        (377)           --           --      (377)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                1,886,580        4,716         9,182       13,650     (19,177)        (137)     27,411
Net income                                         --           --            --        4,983           --           --      4,983
Cash dividends                                     --           --            --        (118)           --           --      (118)
Purchase of treasury stock                         --           --            --           --    (324,200)      (2,779)    (2,779)
Stock split                                   943,254        2,359        (2,359)          --    (157,138)           --         --
Exercise of stock options                          --           --            --         (79)       31,912          231        152
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                2,829,834       $7,075        $6,823      $18,436    (468,603)     $(2,685)    $29,649
----------------------------------------------------------------------------------------------------------------------------------
<FN>

See  accompanying  summary  of  significant  accounting  policies  and  notes to
consolidated financial statements.
</FN>
</TABLE>


                                       F-4

<PAGE>
<TABLE>
<CAPTION>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
($000's)

                                                                                             1998         1997         1996
---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S>                                                                                        <C>          <C>            <C>   
Net income (loss)                                                                          $4,983       $(377)         $320
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization                                                               2,379        2,421        2,352
Provision for bad debts                                                                        48          103          110
Loss on sale of property and equipment                                                          1           77            9
Increase (decrease) in deferred income taxes                                                 (81)         (86)          118
Provision for inventory obsolescence                                                        2,132        1,388          754
Changes in operating assets and liabilities providing (using) cash:
Accounts receivable                                                                         1,350        1,767        (408)
Refundable income taxes                                                                        --           --          437
Inventories                                                                               (4,445)        (354)        2,061
Prepaid expenses and other                                                                  (475)           65        (142)
Accounts payable                                                                            (129)        1,218        (873)
Accrued expenses and other liabilities                                                      1,300          102          442
Deferred compensation                                                                         200        (232)         (98)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                   7,263        6,092        5,082
---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from surrender of life insurance policies                                             --          ---          328
Capital expenditures                                                                      (4,797)      (1,869)      (1,525)
Proceeds from sale of property and equipment                                                    2          233            7
Proceeds from collections of notes receivable                                                   2          127           22
---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                     (4,793)      (1,509)      (1,168)
---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit agreement, net                                4,328           --      (1,268)
Proceeds from issuance of long-term debt                                                    3,664           --           --
Principal payments on long-term debt and capital leases                                  (10,118)      (2,461)      (2,408)
Payment of dividends                                                                        (118)           --           --
Cash proceeds from exercise of stock options                                                  152           --           --
Repurchase of capital stock                                                               (2,779)           --           --
---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                                     (4,871)      (2,461)      (3,676)
---------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH                                                           (2,401)        2,122          238
CASH, BEGINNING OF YEAR                                                                     2,416          294           56
---------------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR                                                                             $15       $2,416         $294
---------------------------------------------------------------------------------------------------------------------------
<FN>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for:
 Interest                                                                                    $764         $979       $1,281
 Income taxes, net of refunds received                                                     $2,903        $(54)           $1
Non-cash transactions:
 Equipment acquired under capital leases                                                   $1,568           --           --


See  accompanying  summary  of  significant  accounting  policies  and  notes to
consolidated financial statements.
</FN>
</TABLE>


                                       F-5


<PAGE>


SUMMARY OF SIGNIFICANT  ACCOUNTING  POLICIES Years Ended December 31, 1998, 1997
and 1996

Operations --  Alba-Waldensian,  Inc. (the  Company)  manufactures  and sells an
extensive  line of knitted  apparel  products as well as a variety of  specialty
medical  products for the health care industry.  The Company's  principal market
for both apparel and medical products is the United States.

Principles of Consolidation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, which are inactive.

Estimates -- The financial  statements are prepared in conformity with generally
accepted  accounting  principles which requires management to make estimates and
assumptions  that affect the  amounts  reported  in the  accompanying  financial
statements and notes.
Actual results could differ from those estimates.

Cash  --  The  Company  considers  any  short-term   investments  with  original
maturities  of three months or less to be cash  equivalents  and  presents  such
investments as cash in the accompanying financial statements.

Inventories -- Inventories are stated at the lower of cost (first-in,  first-out
"FIFO"  basis) or  market.  The  Company  writes  down  closeout  and  irregular
inventory on an ongoing basis based on market  conditions.  Inventories  reflect
valuation  allowances  necessary to reduce  inventories  to their net realizable
value. It is possible that these estimates could change in 1999.

Property, Equipment, Depreciation and Amortization -- Property and equipment are
stated  at cost.  Betterments  are  capitalized.  Maintenance  and  repairs  are
expensed as incurred.

Depreciation of plant and equipment is provided over the estimated  useful lives
of the assets  primarily on the  straight-line  method.  Estimated  useful lives
range from seven to forty  years for  buildings  and  improvements  and three to
twenty years for  furniture,  fixtures,  machinery and  equipment.  Assets under
capital   leases  are  amortized  in  accordance   with  the  Company's   normal
depreciation policy for owned assets.

Intangible  Assets -- The costs of acquired or developed  trademarks and patents
are amortized using the  straight-line  method over their estimated useful lives
of approximately  fifteen to seventeen years.  Cumulative  amortization  totaled
$632,230 and $567,358 at December 31, 1998 and 1997, respectively.

Excess of cost of business assets  acquired over their fair value  (goodwill) is
being  amortized  on  the  straight-line   method  over  15  years.   Cumulative
amortization  totaled  $2,256,781  and $1,668,349 at December 31, 1998 and 1997,
respectively.  Amortization  expense  charged to  operations  was  approximately
$588,000,  $588,000  and $608,000 in 1998,  1997,  and 1996,  respectively.  The
Company  periodically  reviews  the value of its  goodwill  to  determine  if an
impairment  has  occurred.  The Company  measures the  potential  impairment  of
recorded  goodwill by the  undiscounted  value of expected future operating cash
flows in  relation  to its net  capital  investment.  Based on its  review,  the
Company does not believe that an impairment of its goodwill has occurred.

Revenue Recognition -- The Company recognizes revenue when goods are shipped.

Concentration of Credit Risk -- Financial  instruments which potentially subject
the Company to concentrations of credit risk consist of trade  receivables.  Any
such risk is limited due to the  Company's  large number of customers  and their
geographic dispersion, except as discussed in Note 10.

Advertising  Costs -- Advertising costs are charged to operations when incurred.
The  Company  spent  approximately   $155,000,   $329,000,   and  $408,000,  for
advertising in 1998, 1997 and 1996, respectively.

Research and Development -- All research and  development  costs are expensed as
incurred and totaled  approximately  $946,000,  $513,000,  and $474,000 in 1998,
1997 and 1996, respectively.

                                       F-6
<PAGE>
Income  Taxes -- The  Company  calculates  income  taxes  using  the  asset  and
liability  method which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amount and tax basis of assets and liabilities.

     Net Income Per  Common  Share - Basic  earnings  per share is  computed  by
dividing the net income available to common shareholders by the weighted average
shares of outstanding  common stock (2,517,909 in 1998 and 2,801,105 in 1997 and
1996 - each  adjusted  for a 3 for 2 stock split in 1998).  The  calculation  of
diluted  earnings  per share is similar to basic  earnings  per share except the
denominator  includes any dilutive effect of potential common shares outstanding
during the period such as stock  options and  warrants.  The dilutive  effect of
potential  common  shares  outstanding  during  1998 was a  weighted  average of
104,019 shares.  There was no dilutive  effect with respect to potential  common
shares outstanding during 1997 or 1996.

Deferred Compensation -- The Company allows certain key employees, directors and
officers to defer a portion of their annual  compensation until their retirement
from the Company.  Agreements  entered  into for 1998 are for three  years.  The
agreements allow for deferred amounts to earn interest at the current prime rate
and  provide  for  payment of the  accumulated  amounts  over a ten year  period
beginning on the retirement  date.  Compensation  expense is being recognized in
the year the deferred salary is earned.  Interest expense is recorded as accrued
and the reported liability represents the accumulated value (including interest)
of all previously deferred amounts.

Additionally,  in 1998  the  Company  awarded  certain  key  employees  deferred
compensation  which will be paid out over a three year period beginning in 1999.
Compensation  expense  was  recorded  in 1998 and  such  deferred  amounts  earn
interest at the Company's incremental borrowing rate.

Fair Value of  Financial  Instruments  -- Financial  instruments  of the Company
include  long-term  debt and line of credit  agreements.  Based upon the current
borrowing  rates  available  to the  Company,  estimated  fair  values  of these
financial instruments approximate their recorded carrying amounts.

Group  Health  Insurance  -- The  Company  is  self-insured  as to group  health
insurance for its employees.  The Company accrues an amount for estimated claims
incurred but not reported.

Reclassification  -- Certain  1996 and 1997 amounts  have been  reclassified  to
conform to 1998 classifications.

Comprehensive  Income - Statement of Financial  Accounting  Standards (SFAS) No.
130, "Reporting Comprehensive Income", which establishes standards for reporting
and display of  comprehensive  income,  its components and accumulated  balances
became  effective  for the Company in 1998.  Comprehensive  income is defined to
include all changes in equity except those resulting from  investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting  standards
as components of comprehensive  income be reported in a financial statement that
is  displayed  with  the same  prominence  as other  financial  statements.  The
adoption  of  SFAS  No.  130  had no  impact  upon  the  accompanying  financial
statements.

Segment Information - SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business  Enterprise"  became  effective  for the Company in 1998.
SFAS No. 131  establishes  standards  for the way that public  companies  report
information  about  operating  segments in  financial  statements  issued to the
public.  It also establishes  standards for disclosures  regarding  products and
services,  geographic areas and major customers.  SFAS No. 131 defines operating
segments as components of a company about which separate  financial  information
is  available  that is  evaluated  regularly  by the  chief  decision  makers in
deciding how to allocate  resources  and in assessing  performance.  The Company
adopted  the  provisions  of SFAS  No.  131 in 1998 and has  disclosed  required
segment  information,  including  comparative  information  for  earlier  years.
Results of  operations  and  financial  position,  however,  were  unaffected by
implementation of this standard.
                                       F-7
<PAGE>
NOTES TO CONSOLIDATED  FINANCIAL  STATEMENTS Years Ended December 31, 1998, 1997
and 1996

1. INVENTORIES

($000's)                                1998          1997
----------------------------------------------------------
Materials and supplies               $3,076         $2,554
Work-in-process                        7,048         5,045
Finished goods                         3,498         3,710
----------------------------------------------------------
Total                                $13,622       $11,309
----------------------------------------------------------

2. PROPERTY AND EQUIPMENT

($000's)                                1998          1997
----------------------------------------------------------
Land                                    $256          $256
Buildings                              8,399         8,274
Machinery and equipment               28,786        22,581
----------------------------------------------------------
Total property and equipment          37,441        31,111
Less: accumulated depreciation
 and amortization                   (19,559)      (17,857)
----------------------------------------------------------
Net property and equipment           $17,882       $13,254
----------------------------------------------------------

Included in machinery  and  equipment are assets under capital lease with a cost
of $1,568,000 ($0 in 1997) and with  accumulated  amortization of $51,000 ($0 in
1997).

Depreciation  expense  amounted to  approximately  $1,726,000,  $1,768,000,  and
$1,700,000 in 1998, 1997 and 1996, respectively.

At  December  31,  1998,  the Company  had paid  $508,000  of deposits  covering
outstanding commitments to purchase production equipment totaling $5,054,000.

3. SHORT-TERM BORROWINGS AND LINES OF CREDIT

On May 14, 1998, the Company entered into a new $21 million credit facility (See
Note 5).  Previously  the Company had an agreement  with a bank that  provided a
seasonal line of credit of up to  $3,000,000.  That line of credit bore interest
at the LIBOR rate plus 2.75% (8.72% at December  31, 1997) and was  scheduled to
expire on June 30, 1998.

There were no borrowings under the line of credit in 1998. The following relates
to aggregate short-term borrowings in 1997 and 1996 ($000's):

                                           1997       1996
Amount outstanding
 at December 31.                            $--        $--
Maximum amount
 outstanding at any
 month end                                 $764     $2,555
Average amount outstanding
(based on weighted daily
average balances)                           $71     $1,066
Weighted average interest
 rate during the year                     8.65%      7.40%
Weighted average interest
 rate at December 31.                     8.72%      7.41%    
--------------------------------------------------------------

                                       F-8
<PAGE>
The  weighted  average  interest  rate during the year was  computed by dividing
total  short-term  interest  expense for the year by the weighted average amount
outstanding during the year.

4. ACCRUED EXPENSES

($000'S)                                     1998       1997
------------------------------------------------------------
Compensation                               $1,371       $897
Healthcare claims                             350        255
Income taxes                                  459         --
Other                                         662        390
------------------------------------------------------------
Total                                      $2,842     $1,542
------------------------------------------------------------

5. LONG-TERM DEBT

($000's)                                     1998       1997
------------------------------------------------------------
Revolving Credit Line                      $4,328        $--
Equipment Loan                              2,786         --
Capital Expenditure Line                      664         --
Capital Lease Obligations                   1,457         --
Variable Rate Term Loan, due in graduated
 installments plus interest at LIBOR plus
 2.75% (8.72% at December 31, 1997)            --      9,802
------------------------------------------------------------
Total                                       9,235      9,802
Less current portion                        (852)    (2,350)
------------------------------------------------------------
Long-term debt                             $8,383     $7,452
------------------------------------------------------------

On May 14, 1998, the Company  obtained a three-year $21 million credit  facility
from a major financial institution (the "Facility"). The Facility provides for a
$15 million  revolving  line of credit  (based upon  levels of  inventories  and
accounts  receivable),  a $3 million  equipment  loan and a $3  million  capital
expenditure  line and  matures on May 14,  2001.  Interest  on the  facility  is
payable  monthly and is based upon the Prime rate plus 0.5% (or at the option of
the Company,  portions of the  Facility  may be priced at LIBOR plus 2.5%).  The
equipment  loan  is  payable  in 84  equal  monthly  payments  and  the  capital
expenditure  line is  amortized  over 60  monthly  payments,  both with  balloon
payments due upon the expiration of the three-year  Facility.  Proceeds from the
new credit  facility  were used to retire the  Company's  outstanding  long-term
debt.

Availability  under the revolving credit line totaled $6,332,000 at December 31,
1998 and availability under the capital expenditure line totaled $2,336,000. The
Facility also provides that the Company may secure additional  outside financing
for capital  expenditures  of up to  $1,500,000  per year during its  three-year
term.

The Facility is  collateralized by substantially all of the Company's assets and
contains  provisions  whereby  the  Company  is  required  to  maintain  certain
financial ratios and other financial conditions. The Facility also prohibits the
Company  from  incurring  certain   additional   indebtedness,   limits  certain
investments,  advances or loans and restricts  substantial asset sales,  capital
expenditures, cash dividends and other payments to shareholders. At December 31,
1998 the company was not in compliance with the capital expenditure  covenant of
the agreement.  However, the lender has waived this violation as of December 31,
1998.

The future maturities of long-term debt are as follows:
1999                                  $852
2000                                   847
2001                                 6,979
Thereafter                             557
                                    $9,235




                                       F-9
<PAGE>
6. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS

Common Stock Transactions

On November  16,  1998,  the Company  effected a 3 for 2 stock split paid in the
form of a stock  dividend on the  Company's  Common  Stock.  Earnings  per share
amounts and weighted  average shares  outstanding  for all years  presented have
been restated to reflect the 3 for 2 stock split.

On May 15, 1998,  investors,  including the Company and Mr. Clyde Wm. Engle, the
Company's  Chairman and beneficial holder (through  Sunstates  Corporation) of a
majority of the  Company's  common  stock,  purchased  from a major bank 938,700
shares (1,408,050 post-split shares) of the Company's common stock formerly held
by Sunstates Corporation,  pursuant to a private sale of collateral held under a
defaulted loan which Sunstates  Corporation's  affiliates had with the bank. The
Company purchased 295,000 of the shares (442,500 post-split shares) at a cost of
$2,212,500 plus other transaction  costs totaling  approximately  $115,000.  The
Company  utilized its existing cash plus funds obtained from the new $21,000,000
financing  facility  to  purchase  the stock.  The  Company  intends to hold the
295,000 shares (442,500  post-split  shares) as treasury stock and currently has
no plans for future utilization of those shares.

As a result of these  transactions,  the  Company is no longer a  subsidiary  of
Sunstates Corporation. Mr. Engle now controls approximately 36% of the Company's
outstanding common stock.

On August 4, 1998, the Company declared a semi-annual cash dividend of $.075 per
share ($.05 per post-split  share) totaling $117,930 on its common stock payable
on August 24, 1998, to shareholders of record on August 14, 1998.

On August 12, 1998, the Company's Board of Directors  authorized the Corporation
to acquire up to 40,000 shares  (60,000  post-split  shares) of the  outstanding
Common Stock of the  Corporation  for an aggregate  purchase price not to exceed
$550,000.  During 1998,  the Company  purchased a total of 29,200 shares (43,800
post-split shares) at an aggregate cost of approximately $416,644.

Under the  Company's  loan  agreement  with a bank (see Note 4),  dividends  and
repurchases  of Company stock may not exceed  $3,500,000  during the  three-year
term of the loan.  As of December  31,  1998,  dividends  and stock  repurchases
totaled $2,897,000.


Employee Incentive Plans

In June, 1993, the Company adopted the 1993 Long Term Performance Plan (the 1993
Plan),  which includes both  qualified and  nonqualified  option  provisions and
stock  appreciation  rights and restricted,  performance  and other  stock-based
awards.  Under  the  1993  Plan,  the  Compensation  Committee  of the  Board of
Directors is authorized  to grant stock awards to purchase up to 375,000  shares
of the Company's  common stock at prices equal to the fair value of the stock on
the dates of grant.

The  1993  Plan  options  are  exercisable  over  a  period  determined  by  the
Compensation Committee at the date of grant (usually 5 years).

The 1992  Nonqualified  Stock Option Plan for  Non-employee  Directors (the 1992
Plan) was a plan under which each  non-employee  director was granted options to
purchase 3,000 shares of the Company's  common stock at prices equal to the fair
value of the stock on the dates of grant.  The 1992 Plan expired on December 17,
1997,  and was  replaced  with a new 1997  Nonqualified  Stock  Option  Plan for
Director which  provides for all directors to  immediately  receive 3,000 shares
plus 750 shares in each succeeding year of the Plan.





                                      F-10
<PAGE>
Transactions involving the Plans are summarized as follows:

                                          Weighted Average
                                  Shares    Exercise Price
Option Shares
 outstanding at
  January 1, 1996                220,500             $6.01
Granted                           13,875              4.61
Expired and/or cancelled        (42,000)              6.18
----------------------------------------------------------
Outstanding at
  December 31, 1996              192,375              5.86
Granted                          197,625              3.32
Expired and/or cancelled       (139,500)              5.81
----------------------------------------------------------
Outstanding at
  December 31, 1997              250,500              3.33
Granted.                          63,000             18.17
Exercised and/or cancelled      (71,401)              3.32
----------------------------------------------------------
Outstanding at
  December 31, 1998              242,099             $6.91
  --------------------------------------------------------

The following summarizes information about stock options outstanding at December
31, 1998:

                                    Weighted      Weighted
        Range of                     Average       Average
        Exercise         Number    Remaining      Exercise
          Prices    Outstanding         Life         Price
   $3.08 - $3.67        191,099          3.3         $3.31
   $6.83 - $8.00         18,000          4.7         $7.81
          $27.25         33,000            5        $27.25
                         ------
                        242,099                      $6.91
                        -------

Information with respect to stock options exercisable at December 31, 1998 is as
follows:

                                                  Weighted
          Range of                                 Average
          Exercise                    Number      Exercise
            Prices               Exercisable         Price
----------------------------------------------------------
     $3.08 - $3.67                    58,257         $3.35
     $6.83 - $8.00                     3,000         $6.83
            $27.25                     6,750        $27.25
                                       -----
                                      68,007         $5.87
                                      ------

During 1998,  63,000  options  were issued with a range of exercise  prices from
$3.08 to $27.25 and a contract life of 5.0 years

                                      F-11

<PAGE>



The Company has adopted Statement of Financial  Accounting Standards (SFAS) 123,
"Accounting for Stock-Based Compensation,". In accordance with the provisions of
SFAS  123,   the  Company   continues  to  apply  APB  Opinion  25  and  related
interpretations in accounting for its stock option plans and,  accordingly,  has
not  recognized  compensation  cost.  If the Company  had  elected to  recognize
compensation  cost based on fair value of the options  granted at the grant date
as prescribed by SFAS 123, net income (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated in the table below ($000's,
except per share amounts):

                                    1998     1997       1996
------------------------------------------------------------
Net income (loss) -- as reported  $4,983  $ (377)      $ 320
Net income (loss) -- pro forma    $4,888    (427)        308
Basic EPS -- as reported            1.98    (.13)        .11
Basic EPS -- pro forma              1.94    (.15)        .10
Diluted EPS - as reported           1.90    (.13)        .11
Diluted EPS - pro forma             1.86    (.15)        .10

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

                                  1998       1997       1996
------------------------------------------------------------
Expected dividend yield          0.40%      0.00%      0.00%
Expected stock price volatility 35.00%     18.00%     18.26%
Risk-free interest rate          4.60%      6.21%      5.67%
Expected life of options.      5 years    5 years    5 years

The weighted  average fair values of options  granted during 1998, 1997 and 1996
were $6.65, $1.51 and $2.03, respectively.


7. INCOME TAXES

Components  of the  income  tax  provision  (benefit)  for  1998,  1997 and 1996
included ($000's):

                                  1998        1997      1996
------------------------------------------------------------
Current:
  Federal                      $ 2,796         $--      $66
  State                            566          --       --
Deferred:
  Federal                        (119)        (182)     102
  State                            39          (32)      16  
--------------------------------------------------------------
Provision (benefit)
  for income taxes              $3,282       $(214)    $184  
--------------------------------------------------------------


                                      F-12

<PAGE>



The approximate tax effect of temporary  differences  and  carryforward  amounts
that are the basis for the Company's  deferred income tax assets and liabilities
for 1998 and 1997 are as follows:

($000's)                                     1998       1997
------------------------------------------------------------
Current deferred tax assets:
Receivables                                  $169        $95
Inventories                                   719        610
Benefit of state operating
 loss carryforwards                            --          2
Other                                          18         --
------------------------------------------------------------
Current deferred tax assets                   906        707
------------------------------------------------------------
Noncurrent deferred tax assets (liabilities), net:
Property                                  (1,998)    (2,129)
Deferred compensation                         110         44
Insurance reserve                             128         93
Benefit of state operating
 loss carryforwards                            --         85
Alternative minimum tax
 credit carryforward                           --        264
Other                                       (104)      (103)
------------------------------------------------------------
Noncurrent deferred tax
 assets (liabilities), net                (1,864)    (1,746)
------------------------------------------------------------
Total deferred tax assets
 (liabilities), net                        ($958)   $(1,039)
 -----------------------------------------------------------

The income tax  provision  differs  from the amount  computed  by  applying  the
federal statutory income tax rate of 34% to pre-tax income.  The computed amount
is reconciled to total income tax expense as follows:

($000's)                          1998       1997       1996
------------------------------------------------------------
Federal income tax at
 statutory rate (benefit)       $2,810     ($201)       $171
State income taxes, net of
federal benefit (cost)             399       (21)         10
Expenses which are not
 deductible for income
 tax purposes                       39         15         21
All other                           34         (7)       (18)
------------------------------------------------------------
Total provision (benefit) for
income taxes                    $3,282     ($214)       $184
------------------------------------------------------------

8. EMPLOYEE 401-K RETIREMENT PLAN

The Company has a 401-K  retirement  plan covering  substantially  all employees
which  allows  participants  to defer from 2% to 20% of their  salaries,  or the
maximum  allowable  under the Internal  Revenue  Code.  The  Company's  matching
contribution,  if any, is discretionary on an annual basis and may not exceed 6%
of participants' compensation.  For the three years ended December 31, 1998, the
Company has contributed 40% of the participant's contributions up to 4% of their
compensation.  Effective January 1, 1999, the Company will contribute 50% of the
participant's  contribution,  up  to  4%  of  their  compensation.  Contribution
expenses  related to this plan for the years ended  December 31, 1998,  1997 and
1996 were $146,000, $132,000, and $149,000, respectively.
                                      F-13
<PAGE>
9.  LEASE OBLIGATIONS

The future  minimum  lease  payments  under capital and other  operating  leases
having initial or remaining lease in excess of one year are as follows:


                                   Operating         Capital
Year                                  Leases          Leases
------------------------------------------------------------
1999                                    $340            $427
2000                                     187             354
2001                                      26             330
2002                                      10             330
2003                                       3             264
------------------------------------------------------------
Total minimum lease payments            $566           1,705
                                        ====
Less amounts representing interest                       248
------------------------------------------------------------
Present value of net minimum lease
payments                                              $1,457
------------------------------------------------------------

Total rental expense for all operating leases was $521,000 in 1998,  $515,000 in
1997, and $543,000 in 1996.

10. SEGMENT INFORMATION

Alba has two operating  segments;  Consumer  Products and Health Products.  Each
segment  is a  strategic  business  unit that  offers  different  products,  has
separate management and requires different technology and marketing  strategies.
The Consumer  Products  Division  ("Consumer  Products")  manufactures  seamless
women's  intimate and fashion apparel along with women's  hosiery,  all of which
are marketed  domestically to both the private label and contract brand markets.
The Health Products Division ("Health Products")  manufactures specialty medical
products that it markets throughout the Americas and Europe.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting  policies.  Alba evaluates  performance based
upon profit or loss from divisional  manufacturing and marketing  activities not
including  corporate general and  administrative  expenses,  interest expense or
other nonrecurring gains and losses or income taxes.

The following table contains selected  information with respect to the Company's
business segments:

                                    Consumer          Health
                                    Products        Products
1998 ($000's)
Net sales                            $42,694         $32,548
Depreciation and amortization          1,282             414
Segment profit                         8,357           5,474
 % Net sales                           19.6%           16.8%
Segment assets                        25,294          11,286
Capital expenditures                   4,958             671

1997 ($000's)
Net sales                            $29,385         $30,527
Depreciation and amortization          1,161             566
Segment profit                             2           4,900
 % Net sales                              0%           16.1%
Segment assets                        19,652          11,706
Capital expenditures                   1,080             467


                                      F-14
<PAGE>
1996
Net sales                            $33,175         $32,640
Depreciation and amortization          1,187             338
Segment profit (loss)                  (378)           6,446
 % Net sales                          (1.1%)           19.7%
Segment assets                           N/A             N/A
Capital expenditures                   1,013             312

N/A = Information not available.

Reconciliation of Segment Profits, Assets and Other Information ($000's):
                                   1998       1997      1996
Segment profit                  $13,831     $4,902    $6,068
General and administrative
  expenses                      (4,054)    (3,901)   (3,661)
Goodwill amortization             (588)      (588)     (608)
Other income (expense), net       (924)    (1,004)   (1,295)
Income taxes                    (3,282)        214     (184)
------------------------------------------------------------
Net income (loss)                $4,983     ($377)      $320
------------------------------------------------------------

Segments assets                 $36,580    $31,358
Cash                                 15      2,416
Other current assets              1,289        900
Corporate property and
  equipment, net                  2,009      1,471
Goodwill                          6,886      7,474
Other assets                         --         --
--------------------------------------------------
Total assets                    $46,779    $43,619
--------------------------------------------------

Segment capital expenditures     $5,629     $1,547     1,325
Corporate capital expenditures      736        322       200
------------------------------------------------------------
Total capital expenditures       $6,365     $1,869    $1,525
------------------------------------------------------------

Segment depreciation and
  amortization                   $1,696     $1,727    $1,525
Corporate depreciation and
  amortization                      683        694       827
  ----------------------------------------------------------
Total depreciation and
 amortization                    $2,379     $2,421    $2,352
------------------------------------------------------------

Revenues from Intimate  Brands,  Inc., one customer of Alba's Consumer  Products
segment, represented approximately $18,325,000 of the Company's consolidated net
sales in 1998. Revenues from Allegiance Healthcare Corporation,  one customer of
the Health Products segment, represented approximately $14,296,000,  $13,937,000
and $15,932,000 of the Company's  consolidated net sales in 1998, 1997 and 1996,
respectively.

Foreign sales totaled $1,099,000 and $1,004,000 for the years ended December 31,
1998 and 1997, respectively.
                                      F-15
<PAGE>
11. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>

                                                     Quarters Ended ($000's except per share amounts)

1998                                                                               1997
                             Dec. 31     Sept. 27      Jun. 28      Mar. 29      Dec. 31     Sept. 28       Jun. 29      Mar. 30
                             ---------------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>          <C>           <C>          <C>
Net Sales                    $20,328      $18,904      $17,714      $18,296      $14,710      $15,390       $15,872      $13,940
Gross Margin                   7,502        5,665        4,518        4,470        2,533        3,185         3,500        3,004
Net Income (Loss)              2,357        1,232          653          741         (97)          162           243        (685)
EPS - Basic                     1.01          .52          .25          .27        (.03)          .06           .09        (.25)
EPS - Diluted                    .94          .49          .24          .27        (.03)          .06           .09        (.25)
Weighted Average Number
  Of Shares of Common Stock
 Outstanding                   2,346        2,355        2,801        2,801        2,801        2,801         2,801        2,801
<FN>


     All per share amounts and number of shares outstanding information has been
restated to reflect the 3 for 2 stock split effected on November 16, 1998.
</FN>
</TABLE>


                                      F-16

<PAGE>


     Item 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosure.

  Not applicable.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

     The information  regarding  Directors and Executive  Officers called for by
this item appears beneath the heading  "Information about Directors and Nominees
for Director" and "Executive  Officers" in the Company's Proxy Statement for the
1999 Annual Meeting of Shareholders, which information is incorporated herein by
reference.  Such Proxy  Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the Company's fiscal year end.


Item 11.  Executive Compensation.

     The  information  called  for  by  this  item  appears  under  the  heading
"Executive  Compensation"  in the Proxy  Statement for the Company's 1999 Annual
Meeting of Shareholders, which information is incorporated by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The  information  called for by this item appears under the heading "Voting
Securities and Principal  Security Holders" in the Company's Proxy Statement for
the 1999 Annual  Meeting of  Shareholders,  which  information  is  incorporated
herein by reference.


Item 13.  Certain Relationships and Transactions.

         The  information  called  for by this item  appears  under the  heading
"Information  About Directors and Nominees for Directors" in the Proxy Statement
for the Company's  1999 Annual  Meeting of  Shareholders,  which  information is
incorporated by reference.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)      The following are filed as a part of this report:

(1)      Financial Statements filed:

     Consolidated  Balance  Sheets as of December 31, 1998 and 1997 (page F-3 of
this report)

     Consolidated  Statements  of  Operations  for the Years Ended  December 31,
1998, 1997 and 1996 (page F-4 of this report)

     Consolidated  Statements  of  Stockholders'  Equity  for  the  Years  Ended
December 31, 1998, 1997 and 1996 (page F-4 of this report)

     Consolidated  Statements  of Cash Flows for the Years  Ended  December  31,
1998, 1997 and 1996 (page F-5 of this report)

     Summary of Significant Accounting Policies (page F-6 of this report)

     Notes to Consolidated Financial Statements (page F-8 of this report)

(2) Financial Statement Schedules filed:

     Report of Independent  Certified Public Accountants on Financial  Statement
Schedule (page S-1 of this report)

     Schedule II (Valuation and Qualifying Accounts) (page S-2 of this report)

     All other schedules are omitted as the required information is inapplicable
or is present in the financial statements or related notes thereto.

(3) Exhibits filed:

     3.1 Certificate of Incorporation,  as amended, which is incorporated herein
by reference to Exhibit 3.1 of the Company's 1986 Annual Report on Form 10-K.

     3.1.1  Amendment to Certificate of  Incorporation  adopted by  shareholders
which is  incorporated  herein by reference to Exhibit 3.1 of the Company's 1987
Annual Report on Form 10-K.

     3.2 Bylaws,  which are  incorporated  herein by reference to Exhibit 3.2 of
the Company's 1986 Annual Report on Form 10-K.

     4.1 Specimen  certificate of common stock, which is incorporated  herein by
reference to Exhibit 4 of the Company's  Registration Statement on Form S-2 (No.
2-83186).

     4.3  Undertaking  of the Company to file exhibits  pursuant to Item 601 (b)
(4) (iii) (A) of Regulation  S-K, which is  incorporated  herein by reference to
Exhibit 28 of the Company's 1986 Annual Report on Form 10-K.

     *10.10 1989 Non-Qualified Deferred Compensation Plan, which is incorporated
herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1988.

     *10.11  1989  Management  Incentive  Plan which is  incorporated  herein by
reference to Exhibit 10.10 of the  Company's  Annual Report on Form 10-K for the
year ended December 31, 1988.

     *10.13 1993 Long Term  Performance  Plan,  which is incorporated  herein by
reference to Exhibit 10.13 of the  Company's  Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.

     *10.14 1997 Nonqualified Stock Option Plan for Directors (filed herewith).

     23.1 Consent of Independent Certified Public Accountants, BDO Seidman, LLP
           (filed herewith).

     27 Financial Data Schedule (filed in electronic format only). This schedule
is  furnished  for the  information  of the  Commission  and is not deemed to be
"filed".


*        Identifies compensation plans.


(b)  Reports on Form 8-K:  No  reports  on Form 8-K were  filed  during the last
quarter of the year ended December 31, 1998.



<PAGE>



                                   SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) 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.

                                      ALBA-WALDENSIAN, INC.

Date :   March 30, 1999               By /S/________________       
                                         Lee N. Mortenson
                                          Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated


/S/                                           /S/
Paul H. Albritton, Jr., Director              William M. Cousins, Jr., Director
March 30, 1999                                March 30, 1999


/S/
Nathan H Dardick, Director
March 30, 1999


/S/                                           /S/
Clyde Wm. Engle, Director                     C. Alan Forbes, Director
March 30, 1999                                March 30, 1999


/S/                                           /S/
James M. Fawcett, Jr., Director               Glenn J. Kennedy, Director and
March 30, 1999                                Chief Financial Officer (Chief
                                               Accounting Officer)
                                              March 30, 1999


/S/                                           /S/
Joseph C. Minio, Director                     Lee N. Mortenson , Director and
March 30, 1999                                Chief Executive Officer
                                              (Principal Executive Officer)
                                              March 30, 1999


<PAGE>



                              ALBA-WALDENSIAN, INC.

                                INDEX TO EXHIBITS



Annual Report on Form 10-K for the Fiscal Year 
Ended December 31, 1998                             Commission File No. 1-6150


Exhibit Number                     Exhibit

         10.14                     1997 Nonqualified Stock Option Plan
                                    for Directors

         23.1                      Consent of Independent Certified Public
                                    Accountants, BDO Seidman, LLP

         27                        Financial Data schedule (filed in electronic
                                    format only)