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 November 27, 2004

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from _____ to _____

                          Commission file number 1-5901

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



         Delaware                                         13-2581181
(State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                      Identification No.)

     200 Madison Avenue, New York, NY                     10016
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code: 212-592-2700

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

                                            NAME OF EACH EXCHANGE ON
         TITLE OF EACH CLASS                    WHICH REGISTERED
         -------------------                ------------------------

         Common Stock, $.20 par value       American Stock Exchange, Inc.


Securities registered pursuant to Section 12(g) of the Act: Share Purchase
Rights

         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, and (2) has been subject to such filing
requirements for the past 90 days.

                        Yes [_]                  No [X]

         Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K 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  [X]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of The Act)

                        Yes [_]                  No [X]

         The aggregate market value at May 31, 2004 of shares of the
registrant's Common Stock, $.20 par value (based upon the closing price per
share of such stock on the Composite Tape for issues listed on the American
Stock Exchange), held by non-affiliates of the registrant was approximately
$12,400,000. Solely for the purposes of this calculation, shares held by
directors and executive officers of the registrant and members of their
respective immediate families sharing the same household have been excluded.
Such exclusion should not be deemed a determination or an admission by the
registrant that such individuals are, in fact, affiliates of the registrant.


         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: At May 4, 2005 there
were outstanding 5,215,031 shares of Common Stock, $.20 par value.

<PAGE>


                              FAB INDUSTRIES, INC.

                               INDEX TO FORM 10-K


ITEM NUMBER                                                                 PAGE


PART I.........................................................................1
    Item 1. Business...........................................................1
    Item 2. Properties.........................................................4
    Item 3. Legal Proceedings..................................................6
    Item 4. Submission of Matters to a Vote of Security-Holders................6

PART II........................................................................7
    Item 5. Market for Common Equity and Related Stockholder Matters...........7
    Item 6. Selected Consolidated Financial Data...............................8
    Item 7. Management's Discussion and Analysis of Financial Condition and
            Results of Operations.............................................10
    Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......18
    Item 8. Financial Statements and Supplementary Data.......................18
    Item 9. Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure.........................................18
    Item 9A Controls and Procedures...........................................18

PART III .....................................................................20
    Item 10. Directors and Executive Officers.................................20
    Item 11. Executive Compensation...........................................22
    Item 12. Security Ownership of Certain Beneficial Owners and Management...25
    Item 13. Certain Relationships and Related Transactions...................27
    Item 14. Principal Accountant Fees and Services...........................27

PART IV.......................................................................29



<PAGE>

                                     PART I

ITEM 1.  BUSINESS


         Fab Industries, Inc. was incorporated on April 21, 1966, under the laws
of the State of Delaware and is a successor by merger to previously existing
businesses. References in this Annual Report to "Fab" or "us" or "our" or "the
Company" mean Fab Industries, Inc. and its subsidiaries on a consolidated basis,
unless the context otherwise requires. We are a manufacturer of warp and
circular knit fabrics, raschel laces, and laminated fabrics. We also produce
comforters, sheets, blankets and other bedding products.

          The Company's Board of Directors adopted resolutions dated March 1,
2002, which authorized, subject to stockholders approval, the sale of the
Company's business pursuant to a Plan of Liquidation and Dissolution (the
"Plan"). The Company's stockholders approved the Plan at the Company's annual
meeting on May 30, 2002.

          The Company engaged the investment banking firm of McFarland Dewey &
Co., LLC in November 2002 to assist it with the sale of the Company's business.
McFarland Dewey contacted over 80 potential acquirers during the course of this
eighteen-month process. On October 14, 2003, the Company announced that it had
yet to receive any bona-fide offers to acquire the business as a going concern.
Following that announcement, on October 23, 2003, the Company received a
preliminary offer from a management-led buyout group to acquire the business, as
a going concern, for $3.75 per share. The Company subsequently announced on
November 14, 2003, that a stockholder filed a lawsuit, naming as defendants, the
Company and each of its directors, seeking class-action certification,
preliminary and permanent injunctions against the proposed management-led
buyout, and unspecified damages. The preliminary offer from the management-led
buyout group was subsequently withdrawn.

         The Company continued the auction process following the withdrawal of
the management-led buyout group's preliminary offer. On March 10, 2004, the
Company paid a $3.00 per share liquidating distribution. Following this
liquidating distribution, the auction process resulted in the Company receiving
three non-binding initial indications of interest from unaffiliated third
parties, at prices ranging from $1.50 per share to $2.25 per share and a
non-binding initial indication of interest from SSJJJ, at a price of $2.83 per
share. A Special Committee of the Company's Board of Directors, (the "Special
Committee") comprised solely of independent directors, was formed to evaluate
SSJJJ's preliminary indication of interest. After further discussions between
the Special Committee and SSJJJ, SSJJJ indicated that it may be willing make a
binding offer of $2.80 per share to purchase the Company's business as a going
concern. SSJJJ informed the Special Committee on August 9, 2004, that it would
not be making a binding offer at that time to purchase the Company's business.
On August 11, 2004, the Company announced that it suspended its formal auction
process because it failed to receive a binding offer to purchase the Company's
business as a going concern.

         The Company announced on March 9, 2005 that it had received a
preliminary non-binding indication of interest from SSJJJ Manufacturing Co.,
Inc., an acquisition vehicle owned by several members of the Company's
management, including Steven Myers, the Company's President and Chief Operating
Officer ("SSJJJ"), to acquire the business, as a going concern, at a price of
$2.80 per share. A Special Committee of the Company's Board of Directors,
comprised solely of independent directors, is currently evaluating SSJJJ's
preliminary non-binding indication of interest.

         Under the Plan, if the Company's business is not sold prior to May 30,
2005, the Company will be required to transfer its assets and liabilities to a
liquidating trust for the benefit of the Company's stockholders. If the
Company's assets and liabilities are transferred to a liquidating trust on May
30, 2005, the Company's stock transfer books will close and its common stock
will be delisted from trading on the AMEX effective on the close of business on
May 30, 2005. Thereafter, certificates representing shares of Company common
stock will not be assignable or transferable on the books of the Company, except
by will, intestate succession or by operation of law. Thus, at such time, it
will no longer be possible for the Company's stockholders to publicly trade the
Company's stock and the proportionate interests of all of the Company's
stockholders will be fixed on the basis of their respective stock holdings at
the close of business on May 30, 2005. After such date, any distributions made
by the Company will be made solely to the stockholders of record at the close of
business on May 30, 2005, except as may be necessary to reflect subsequent
transfers recorded on the Company's books from any transfers by will, intestate
succession or by operation of law. The interests in any liquidating trust will
not be transferable.


                                       (1)
<PAGE>

There can be no assurance that the Company will be able to sell its business as
a going concern, that the Company will be able to liquidate all of its assets
prior to May 30, 2005, or that the sale of its business and assets will generate
proceeds to the stockholders in an amount equal to or greater than the market
price of its stock or the liquidation value of its assets.

         Due to the uncertainty as to whether the Company will be sold prior to
May 30, 2005, the Company and its accountants, BDO Siedman, LLP, have determined
that it is more appropriate to present the Company's financial statements on a
liquidation basis. Therefore, we changed our basis of accounting to the
liquidation basis as of November 27, 2004. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable value and
liabilities are stated at their anticipated settlement amounts. Included in the
liabilities, we accrued approximately $11.6 million in costs of liquidation
representing the Company's estimate of the costs and expenses to be incurred
during actual liquidation. There can be no assurance that actual liquidation
costs and expenses will be equal to the Company's estimated liquidation costs
and expenses.

         The amount of distributions ultimately available to be made to
shareholders upon the final liquidation of the Company may differ from the "net
assets in liquidation" recorded in the accompanying statements of Net Assets in
Liquidation as a result of future changes in settlement of liabilities and
obligations and actual costs of liquidation.

         The accompanying statements of operations, shareholders' equity and
cash flows for the period November 30, 2003 to November 26, 2004 (fiscal 2004)
and for each of the years in the two year period ended November 29, 2003 and
November 30, 2002 have been presented on a going concern basis comparable to
prior periods.

         Upon approval of the Plan by the stockholders on May 30, 2002 the
Employee Stock Ownership Plan (the ESOP) was terminated and all shares of common
stock of the Company then in the ESOP suspense account (86,456 shares) were
transferred to the Company, and held as treasury stock in exchange for the
cancellation of the outstanding loan in the amount of $3,957,000 from the
Company to the ESOP. The Company recorded the related treasury stocks at fair
market value on the date of termination, which resulted in a $2.4 million charge
to additional paid-in-capital.

         Pursuant to resolutions adopted by the Company's Board of Directors and
documentation sent to and returned to the Company by option holders, effective
immediately following stockholder approval of the Plan on May 30, 2002, all
outstanding options under the Company's 1997 Stock Incentive Plan became vested,
and all options as to which optionees (including employees and directors) had
returned to the Company the appropriate forms (representing options held by all
but one optionee, who exercised via payment to the Company) were exercised
through the issuance of loans from the Company to the optionees, with stock of
the optionees held as collateral by the Company until the loans have been
satisfied. The amount loaned to the employees and directors to exercise their
options was approximately $1,495,000, which was all repaid prior to August 30,
2003. These options were subject to variable accounting at each reporting
period, until the loans were repaid. In June 2003, the Company repurchased
22,984 shares of its common stock at $9.48 per share from employees and
directors with outstanding loans from the Company and offset the related payment
against the loans due from such employees and directors, which were due as of
May 31, 2003 with a one month grace period. The Company purchased the number of
shares necessary for the employees and directors to pay off all outstanding
loans, including interest.


                                       (2)
<PAGE>

OPERATIONS

         Fab is a supplier of knitted fabrics and lace in the domestic textile
industry. The Company currently operates in three segments: (1) Apparel Fabrics,
(2) Home Fashions and Accessories, and (3) Other, consisting of the Gem Urethane
operation, the Over-the-Counter Retail operation, located at the Salisbury
Manufacturing facility, and Industrial Fabrics.

         APPAREL FABRICS

         The Company's basic warp and circular knit fabrics are sold to
manufacturers of outerwear, intimate apparel, loungwear, and activewear. These
fabrics are sold primarily in piece dyed form, as well as in "PFP" (prepared for
print), and heat transfer print configurations.

         The Company's wide elastic fabrics are sold to manufacturers of
intimate apparel, foundation, swimwear, athleticwear, aerobicwear, sportswear,
and healthcare products.

         The Company's lace products are sold to manufacturers of intimate
apparel, hosiery, ladies sportswear, children's wear, swimwear, accessories, and
hobbies and crafts.

         HOME FASHIONS AND ACCESSORIES

         The Company utilizes its internally manufactured fabrics and laces to
produce flannel and satin sheets, blankets, comforters, and other
bedding-related products which are sold to specialty retail stores, catalog and
mail order companies and airlines through the Company's subsidiary, Salisbury
Manufacturing Corporation.

         OTHER

         Included in this segment is (1) Gem Urethane Corporation, (2) the
Over-the-Counter Retail operation, and (3) Industrial and other miscellaneous
fabrics.

            The Company's subsidiary, Gem Urethane Corporation produces a line
of bonded products for manufacturers of environmental, healthcare, industrial
and consumer products.

            Gem also performs commission laminating for various manufacturers of
consumer products. Fire resistant fabrics are sold to manufacturers in the
seating, transportation, and military markets through its subsidiary Sandel
International Corporation.

            The Company also sells its fabric and laces to "Over-the-Counter"
retail customers throught the Company's retail manufacturing operations, which
are located at the Company's Salisbury Manufacturing plant.

         Specialized, engineered fabrics are sold to manufacturers of
industrial, healthcare, medical, and military products.

         In the first quarter 2004, certain equipment was sold to a customer who
previously owned 50% of the equipment. The proceeds from the sale amounted to
$1,100,000. As a result, the customer at a future date will be doing the
production on its own.


                                       (3)
<PAGE>

GENERAL

         We engage in research and product development activities to create new
fabrics and styles to meet the continually changing demands of our customers.
Direct expenditures in this area aggregated $1,690,000 in fiscal 2002, $850,000
in fiscal 2003, and $775,000 in fiscal 2004. Through these efforts, we have
developed a full line of proprietary knitted fabrics for sale to manufacturers
of men's, women's, and children's apparel in both domestic and foreign markets.
Similarly, we have also developed a full line of flannel and satin sheets and
blankets, including specialty blankets for the airline and health care
institutions.

         While we use various trademarks and trade names in the promotion and
sale of our products, we do not believe that the loss or expiration of any such
trademark or trade name would have a material adverse effect on our operations.

         We market our products primarily through our full-time sales personnel,
as well as independent representatives located throughout the United States and
abroad.

         We do not believe our backlog of firm orders is a material indicator of
future business trends because goods subject to such orders are shipped within
two to ten weeks depending on the availability of yarn and other raw materials.
On average, orders are filled within six weeks.

         During fiscal 2004, one customer accounted for approximately 13% of net
sales. The receivable from this customer represents approximately 26% of
consolidated accounts receivable at November 27, 2004. No single customer
accounted for net sales greater than 10% of consolidated net sales for the
fiscal years 2003 and 2002. No single customer had a net balance due greater
than 10% of consolidated net accounts receivable at November 29, 2003. Our
export sales are not material.

SUPPLIES OF RAW MATERIALS

         We have not experienced difficulties in obtaining sufficient yarns,
chemicals, dyes and other raw materials and supplies to maintain full
production. We do not depend upon any single source of supply, and alternative
sources are available for most of the raw materials used in our business.

INVENTORIES

         We maintain adequate inventories of yarns and other raw materials to
ensure an uninterrupted production flow. Greige and finished goods are
maintained as inventory to meet varying customer demand and delivery
requirements. We must maintain adequate working capital, because credit terms
available to customers normally exceed credit terms extended to us by suppliers
of raw materials.

COMPETITION

         Fab is engaged in a highly competitive global business, which is based
largely upon price, product quality, service and general consumer demand for the
Company's finished goods. The portion of imported textile goods sold in the
United States has increased substantially in the past few years, adversely
impacting domestically manufactured textile products and the number of domestic
manufacturers of such products. Our sales have declined from approximately
$151,000,000 in 1998 to approximately $50,000,000 in 2004, largely as a result
of increased foreign competition.

SEGMENT INFORMATION

         See Note 14 of the Notes to Consolidated Financial Statements.

EMPLOYEES

         At April 10, 2005, the Company employed approximately 475 people, of
whom approximately 455 are employed by our subsidiaries. The employees are not
represented by unions. We consider relations with our employees to be
satisfactory. The number of our employees has declined from approximately 1,600
at the end of 1998 to approximately 475 on April 10, 2005.


                                       (4)
<PAGE>

ITEM 2.  PROPERTIES.

         The Company conducts its manufacturing operations in Lincolnton and
Salisbury, North Carolina, and Amsterdam, New York. Yarn receiving and storage,
dye and chemical receiving and storage, knitting operations, and dyeing and
finishing operations are conducted at the Mohican Mills facility. These
operations more specifically include tricot (warp knit) and raschel warping,
tricot knitting, raschel lace knitting, wide elastic/stretch raschel knitting,
circular and double-knit knitting, dyeing, framing, surface finishing including
sueding, napping, shearing, heat transfer printing, lace separation, all
facility-wide quality operations, laboratory testing and certification,
yielding, packaging, and shipping. The Mohican Mills facility also processes and
serves as a warehouse for greige and finished fabrics and lace.

         The Salisbury facility is the site of our consumer and institutional
finished products manufacturing, the Over-The-Counter Retail Operation, and the
Company's Mill Outlet Store. The Gem Urethane plant in Amsterdam, New York
utilizes approximately 106,000 square feet for production. Fab closed two
manufacturing plants, Travis Knits in Cherryville, North Carolina and Adirondack
Knitting in Amsterdam, New York, during the first week of July 2001. The
Adirondack Knitting Plant was on an operating lease which expired at the time of
closure.

         In addition, on November 16, 2001, Fab closed its manufacturing plant
in Maiden, North Carolina. The manufacturing operations of each of these
facilities were consolidated into the Company's Mohican Mills facility located
in Lincolnton, North Carolina. The Company is attempting to sell its plants in
Cherryville and Maiden, North Carolina.

          Over the past three years, the Company has reduced the floor space of
its executive offices and showroom facilities in its New York City headquarters.



                                       (5)
<PAGE>

         The following table sets forth the location of each of Fab's current
manufacturing facilities, its current principal use, if any, approximate floor
space and, where leased, the lease expiration date. There are no mortgages or
other encumbrances on any of our facilities. All the Company's operating
facilities are in good operating condition and repair.

<TABLE>
<CAPTION>
                                                                               APPROXIMATE                    LEASE
LOCATION                             PRINCIPAL USE                             FLOOR SPACE               EXPIRATION DATE
--------                             -------------                             -----------               ---------------
<S>                                  <C>                                      <C>                        <C>
Lincolnton,                          Dyeing and finishing,                    630,550 sq. ft.            (1)
North Carolina                       raschel and tricot knitting,
                                     circular single and double knitting,
                                     tricot and raschel warping, printing
                                     and warehousing.

Lincolnton, North Carolina           Warehouse                                 55,000 sq. ft.            (1)

Maiden, North Carolina               (3)                                      224,013 sq. ft.            (1)

Salisbury, North Carolina            Manufacturing finished consumer          125,000 sq. ft.            (1)
                                     and institutional products and
                                     retail and over-the- counter
                                     fabrics

Amsterdam, New York                  Laminated fabrics, fire fighting         106,000 sq. ft.            (2)
                                     material manufacturing
                                     operations and bonding and
                                     laminating

Cherryville, North Carolina          (3)                                      197,000 sq. ft.            (1)

New York, New York                   Executive offices and showroom             5,753 sq. ft.             7/31/05
                                     facilities
</TABLE>
(1)   Company owned.
(2)   The lease currently runs from month to month.
(3)   These facilities were closed during 2001 and are currently subject to a
      brokerage sale agreement. Manufacturing operations were consolidated into
      Fab's Mohican Mills facility located in Lincolnton, North Carolina.

         All of our facilities are constructed of brick, steel or concrete, and
we consider all facilities to be adequate and in good operating condition and
repair.


                                       (6)
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         On November 10, 2003, a class action complaint was filed against the
Company in Delaware Chancery Court. The complaint asserts claims against the
Company and certain of its officers and directors based on the management
buy-out proposal at a price allegedly lower than the cash value and book value
of the Company's shares which was an allegedly interested transaction, the
amendment to Mr. Bitensky's employment contract discussed below in Item 7, and
the Company's failure to file a certificate of dissolution with the Delaware
Secretary of State. The complaint alleges such actions constitute violations of
defendants' fiduciary duties, as well as the provisions of the Delaware General
Corporation Law. The complaint does not seek a specific amount of damages, and
seeks to enjoin defendants from effectuating the planned management buyout. The
Company served an answer to the complaint on December 11, 2003.

         On each of November 21 and November 26, 2003, additional class action
lawsuits were initiated against the Company in Delaware Chancery Court,
asserting substantially the same allegations as those described above.

         The Company believes that each of the claims described above is without
merit. Further, certain of the claims described above have been rendered moot by
the withdrawal of the preliminary offer by the management-led buyout group to
acquire the Company.

         By petition dated September 9, 2004, plaintiff requested that all of
its claims be dismissed because they have been rendered moot by the withdrawal
of the management buy-out and there is no current plan to effectuate a sale of
the Company's assets. Plaintiff also petitioned the Court for an award of
reasonable attorney's fees in the amount of $300,000 and attorney's expenses of
$13,794.05 (the "Fee Petition") because plaintiff's claim conferred a benefit on
the Company's public stockholders by preventing the consummation of the proposed
management buy-out and preserving the value of the public stockholders'
investment in the Company's stock. The Company opposed the petition.

         On December 29, 2004 the Court of Chancery of the State of Delaware
denied the Fee Petition. The Court concluded that the Fee Petition should be
denied as plaintiff's claims either were not meritorious when filed or, to the
extent that they were, they are not yet moot.


         Following that decision, plaintiff moved for summary judgment on its
claims relating to the Company's alleged failure to timely file a certificate of
dissolution and seeking a declaration that the plan of dissolution (the "Plan")
is invalid for failure to require a shareholder vote before the sale of all of
the Company's assets. The motions were fully briefed and argued before the Court
on April 12, 2005. On May 2, 2005, the court issued its opinion holding that the
Plan is valid in its entirety and that the Company has not violated Delaware law
by not yet filing its certificate of dissolution. The court stated that the
Company may negotiate and agree to a sale before the certificate of dissolution
is filed, but that the sale cannot be consummated until the certificate of
dissolution has become effective. The court concluded that once the dissolution
becomes effective, Fab may consummate a sale of its assets without a shareholder
vote.


         A number of other claims and lawsuits are pending against the Company.
It is impossible at this time for the Company to predict with any certainty the
outcome of such litigation. However, management is of the opinion, based upon
information presently available, that it is unlikely that any liability, would
be material in relation to the Company's consolidated financial position or
results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

         Not Applicable


                                       (7)
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Fab's Common Stock is traded on the American Stock Exchange, Inc.
(ticker symbol - FIT). The table below sets forth the high and low sales prices
of the Common Stock during the past two fiscal years.

         FISCAL 2004                                    HIGH             LOW
         -----------                                    ----             ---

First Quarter....................................     $  6.25          $  5.08

Second Quarter...................................     $  6.60          $  3.25

Third Quarter....................................     $  4.50          $  3.33

Fourth Quarter...................................     $  4.39          $  3.74

         FISCAL 2003
         -----------

First Quarter....................................     $  9.00          $  8.15

Second Quarter...................................     $  9.75          $  8.98

Third Quarter....................................     $ 11.25          $  6.70

Fourth Quarter...................................     $  7.50          $  4.63

           At April 22, 2005, there were approximately 737 holders of record of
Common Stock. On May 30, 2002, the Company's Board of Directors declared an
initial liquidating distribution of $10.00 per share, which was paid on June 24,
2002, with a record date of June 10, 2002. Accordingly, $52,380,000 was paid on
June 24, 2002. On August 1, 2003, the Company's Board of Directors declared a
second liquidating distribution of $4.00 per share, which was paid on August 22,
2003, with a record date of August 11, 2003. Accordingly, $20,860,000 was paid
on August 22, 2003. On February 18, 2004 the Company's Board of Directors
declared a third liquidating distribution of $3.00 per share, which was paid on
March 10, 2004 with a record date of February 28, 2004. Accordingly, $15,645,000
was paid on March 10, 2004.

           On March 15, 2005, the Company received a letter from the American
Stock Exchange ("AMEX") that it is not in compliance with continued listing
standards as set forth in Section 1101 of the AMEX Company Guide as a result of
the Company's failure to file its annual report on Form 10-K for the fiscal year
ended November 27, 2004 and that trading of the Company's common stock would be
halted as a result thereof. On March 15, 2005, AMEX halted trading of the
Company's common stock. AMEX further advised the Company that it would initiate
proceedings to delist the Company's common stock from the AMEX on April 14,
2005, if the Company was not then in compliance with all AMEX continued listing
standards or the AMEX determined that the Company had made reasonable
demonstration of its ability to regain compliance with such listing standards.
AMEX requested that the Company submit a plan by March 25, 2005, advising AMEX
what actions the Company will take to regain compliance with all AMEX continued
listing standards.

           On March 24, 2005, the Company notified the AMEX that the preparation
of its financial statements for the fiscal year ended November 27, 2004 will be
complete within the next two weeks. On April 14, 2005, the Company asked for an
additional two weeks extension. Accordingly, Fab believes once this 10-K is
filed and its 10-Q for the quarter ended February 26, 2005 is filed it will be
in compliance with the AMEX requirements in this respect.

           On April 11, 2005, the Company filed a form 12b-25 indicating that it
would not be able to timely file it's 10-Q for the first quarter ended February
26, 2005.

           The Company has terminated all of its stock option plans and as a
result there are no options outstanding or available for grant.

                                       (8)
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.
         (in thousands, except for share and per share data)

<TABLE>
<CAPTION>
                                                                       AS AT OR FOR THE FISCAL YEAR ENDED
                                                            -----------------------------------------------------------------
                                         NOVEMBER 30, 2003      NOVEMBER            NOVEMBER         DECEMBER        DECEMBER
                                   THRU  NOVEMBER 26, 2004      29, 2003            30, 2002          1, 2001     2, 2000 (1)
<S>                                                <C>           <C>                 <C>              <C>            <C>
Net Sales                                          $49,660       $51,173             $62,965          $80,036        $118,185
Income (loss) before taxes on                         (107)       (1,545)              3,010          (15,488)          4,178
income (2)(5)
Net income (loss) (2)                                  (72)       (1,370)              1,970           (8,623)          3,033
Earnings (loss) per share: (5)
     Basic
     Diluted                                          (.01)         (.26)                .38            (1.64)            .57
                                                      (.01)         (.26)                .38            (1.64)            .57
Total assets (6) (7)                                    --        57,783              80,937          131,236         151,120
Long-term debt                                          --            --                  --              311             362
Redeemable Common Stock                                 --            --               7,000            7,000           7,000
Stockholders' equity (6) (7)                            --        48,637              64,279          113,211         123,563
Book value                                              --          9.38               12.33            21.79           23.45
per share (3) (7)
Cash dividends per share (4)                          3.00          4.00               10.00              .40            .475
Weighted average number of
shares outstanding:

     Basic                                       5,215,031     5,226,902           5,222,812        5,258,353       5,336,958
     Diluted                                     5,215,031     5,226,902           5,222,812        5,258,353       5,336,958
=============================================================================================================================
</TABLE>


     Net assets in liquidation:   (7)             NOVEMBER 27, 2004
                                                  -----------------

     Cash and cash equivalents and
        investment securities                           $19,894,000
     Accounts receivable                                  7,057,000
     Property, plant and equipment                        6,082,000
     Other assets                                         4,551,000
                                                          ---------

     Total assets                                        37,584,000

     Total liabilities                                   20,597,000
                                                         ----------

     Net assets in liquidation                          $16,987,000
                                                        ===========


                                       (9)
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (CONT.)




(1)    Fifty-three week period.

(2)    Fiscal year ended December 1, 2001 amounts include asset impairment and
       restructuring charges of $14,530,000.

(3)    Computed by dividing stockholders' equity by the number of shares
       outstanding at year-end.

(4)    Fiscal years ended November 27, 2004, November 29, 2003 and November 30,
       2002 cash dividends represent liquidating dividends.

(5)    Fiscal year ended November 30, 2002 includes litigation settlement of
       $750,000 and fiscal year ended November 29, 2003 includes $685,000 in
       asset impairment charges and $1,659,000 in charges resulting from the
       amended employment agreement between the Company and Mr. Bitensky. Fiscal
       year ended November 27, 2004 includes $615,000 in asset impairment
       charges and environmental costs of $226,000.

(6)    The consolidated financial statements for the years ended November 29,
       2003, November 30, 2002, December 1, 2001 and December 2, 2000 have been
       restated to correct an error relating to the fact that the Company has
       not depreciated certain improvements to it's land, mainly consisting of
       two parking lots constructed in 1984 and 1989 with a cost totaling
       approximately $292,000.

(7)    Due to the uncertainty as to whether the Company will be sold prior to
       May 30, 2005, the Company and its accountants BDO Siedman, LLP have
       determined that it is more appropriate to present the Company's financial
       statements on a liquidation basis. Therefore, we changed our basis of
       accounting to the liquidation basis as of November 27, 2004. Under the
       liquidation basis of accounting, assets are stated at their estimated
       realizable value and liabilities at their anticipated settlement amounts.


                                      (10)
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

The domestic textile industry has been negatively affected by a flow of low cost
foreign imports and market conditions since 1998.

The Company's Board of Directors adopted resolutions dated March 1, 2002, which
authorized, subject to stockholders approval, the sale of the Company's business
pursuant to a Plan of Liquidation and Dissolution (the "Plan"). The Company's
stockholders approved the Plan at the Company's annual meeting on May 30, 2002.

The Company engaged the investment banking firm of McFarland Dewey & Co., LLC in
November 2002 to assist it with the sale of the Company's business. McFarland
Dewey contacted over 80 potential acquirers during the course of this
eighteen-month process. On October 14, 2003, the Company announced that it had
yet to receive any bona-fide offers to acquire the business as a going concern.
Following that announcement, on October 23, 2003, the Company received a
preliminary offer from a management-led buyout group to acquire the business, as
a going concern, for $3.75 per share. The Company subsequently announced on
November 14, 2003, that a stockholder filed a lawsuit, naming as defendants, the
Company and each of its directors, seeking class-action certification,
preliminary and permanent injunctions against the proposed management-led
buyout, and unspecified damages. The preliminary offer from the management-led
buyout group was subsequently withdrawn.

The Company continued the auction process following the withdrawal of the
management-led buyout group's preliminary offer. On March 10, 2004, the Company
paid a $3.00 per share liquidating distribution. Following this liquidating
distribution, the auction process resulted in the Company receiving three
non-binding initial indications of interest from unaffiliated third parties, at
prices ranging from $1.50 per share to $2.25 per share and a non-binding initial
indication of interest from SSJJJ, at a price of $2.83 per share. A Special
Committee of the Company's Board of Directors, comprised solely of independent
directors, was formed to evaluate SSJJJ's preliminary indication of interest.
After further discussions between the Special Committee and SSJJJ, SSJJJ
indicated that it may be willing make a binding offer of $2.80 per share to
purchase the Company's business as a going concern. SSJJJ informed the Special
Committee on August 9, 2004, that it would not be making a binding offer at that
time to purchase the Company's business. On August 11, 2004, the Company
announced that it suspended its formal auction process because it failed to
receive a binding offer to purchase the Company's business as a going concern.

The Company announced on March 9, 2005 that it had received a preliminary
non-binding indication of interest from SSJJJ Manufacturing Co., Inc., an
acquisition vehicle owned by several members of the Company's management,
including Steven Myers, the Company's President and Chief Operating Officer
("SSJJJ"), to acquire the business, as a going concern, at a price of $2.80 per
share. A Special Committee of the Company's Board of Directors, comprised solely
of independent directors, is currently evaluating SSJJJ's preliminary
non-binding indication of interest.

Under the Plan, if the Company's business is not sold prior to May 30, 2005, the
Company will be required to transfer its assets and liabilities to a liquidating
trust for the benefit of the Company's stockholders. If the Company's assets and
liabilities are transferred to a liquidating trust on May 30, 2005, the
Company's stock transfer books will close and its common stock will be delisted
from trading on the AMEX effective on the close of business on May 30, 2005.
Thereafter, certificates representing shares of Company common stock will not be
assignable or transferable on the books of the Company, except by will,
intestate succession or by operation of law. Thus, at such time, it will no
longer be possible for the Company's stockholders to publicly trade the
Company's stock and the proportionate interests of all of the Company's
stockholders will be fixed on the basis of their respective stock holdings at
the close of business on May 30, 2005.

After such date, any distributions made by the Company will be made solely to
the stockholders of record at the close of business on May 30, 2005, except as
may be necessary to reflect subsequent transfers recorded on the Company's books
from any transfers by will, intestate succession or by operation of law. The
interests in any liquidating trust will not be transferable.

There can be no assurance that the Company will be able to sell its business as
a going concern, that the Company will be able to liquidate all of its assets
prior to May 30, 2005, or that the sale of its business and assets will generate
proceeds to the stockholders in an amount equal to or greater than the market
price of its stock or the liquidation value of its assets.

                                      (11)

<PAGE>

Due to the uncertainty as to whether the Company will be sold prior to May 30,
2005, the Company and its accountants, BDO Siedman, LLP, have determined that it
is more appropriate to present the Company's financial statements on a
liquidation basis. Therefore, we changed our basis of accounting to the
liquidation basis as of November 27, 2004. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable value and
liabilities are stated at their anticipated settlement amounts. Included in the
liabilities, we accrued approximately $11.6 million in costs and expenses of
liquidation representing the Company's estimate of the costs to be incurred
during actual liquidation. There can be no assurance that actual liquidation
costs and expenses will be equal to the Company's estimated liquidation costs
and expenses.

The amount of distributions ultimately available to be made to shareholders upon
the final liquidation of the Company may differ from the "net assets in
liquidation" recorded in the accompanying statements of Net Assets in
Liquidation as a result of future changes in settlement of liabilities and
obligations and actual costs of liquidation.


The accompanying statements of operations, shareholders' equity and cash flows
for the period November 30, 2003 to November 26, 2004 (fiscal 2004) and for each
of the years in the two year period ended November 29, 2003 and November 30,
2002 have been presented as a going concern basis comparable to prior periods.


At November 27, 2004, the following represent the Company's estimated costs and
expenses of liquidation:

     Compensation and benefits                                       $ 6,191,000
     Defined benefit pension plan                                      2,033,000
     Legal, audit and tax service                                      1,250,000
     Insurance                                                           450,000
     Other costs, including property taxes, utilities, maintenance,
     repairs, stationery supplies, postage and security                1,665,000
                                                                       ---------
                                        TOTAL                        $11,589,000
                                                                     ===========

CRITICAL ACCOUNTING ESTIMATES

         Our critical accounting estimates are those which we believe require
our most significant judgments about the effect of matters that are inherently
uncertain. A discussion of our critical accounting estimates, the underlying
judgments and uncertainties used to make them and the likelihood that materially
different estimates would be reported under different conditions or using
different assumptions, is set forth below:

Uncertainties

         Under the liquidation basis of accounting, assets are stated at their
estimated net realizable value and liabilities are stated at their anticipated
settlement amounts which approximates the $16,987,000 net orderly liquidation
value. Included in the liabilities, we accrued approximately $11.6 million in
costs of liquidation representing the estimate of the costs to be incurred
during liquidation, however, actual costs could vary from those estimates.
Distributions ultimately made to the shareholders upon liquidation will differ
from the "net assets in liquidation" recorded in the accompanying statements of
Net Assets in Liquidation as a result of future changes in settlement of
liabilities and obligations and final costs of liquidation.

Accruals and Contingencies

         We periodically assess the potential liabilities related to any
lawsuits or claims brought against us, as well as for other known unasserted
claims, including environmental, legal and tax matters. While it is typically
very difficult to determine the timing and ultimate outcome of these matters, we
use our best judgment to determine if it is probable that we will incur an
expense related to the settlement or final adjudication of such matters and
whether a reasonable estimation of such probable loss, if any, can be made. In
assessing probable losses, we make estimates of the amount of insurance
recoveries, if any. We accrue a liability when we believe a loss is probable and
the amount of the loss can be reasonably estimated, in accordance with the
provisions of SFAS No. 5, "Accounting for Contingencies," as amended. See Note 9
in the accompanying financial statements for additional information concerning
our contingencies.

                                      (12)
<PAGE>

         The Company maintains a non-contributory defined benefit pension plan
(Fab Industries, Inc. Hourly Employees' Retirement Plan) which covers
substantially all hourly employees. The Plan provided benefits based on the
participants' years of service.

         An estimate of the liability associated with terminating the plan for
underfunding of the hourly plan would be approximately $2.0 million. This will
be assessed by the Pension Benefit Guarantee Corporation. This has been included
in the estimated costs of liquidation. The Company plans to terminate the
non-contributory defined benefit pension plan and distribute the lump sum
payment to it's participant on transfer of the Company to the liquidating trust.

         Given the inherent uncertainty related to the eventual outcome of these
matters and potential insurance recoveries, it is possible that all or some of
these matters may be resolved for amounts materially different from any
provisions or disclosures that we may have made with respect to their
resolution. In addition as new information becomes available, we may need to
reassess the amount of probable liability that needs to be accrued related to
our contingencies. All such revisions in our estimates could materially impact
our results of operations and financial position.

         We maintain an accrual for workers compensation, which is classified as
other current liabilities in our consolidated balance sheets. We determine the
adequacy of the accrual by periodically evaluating our historical experience and
trends related to workers compensation claims and payments, information provided
to us by our insurance broker and industry experience and trends. If such
information indicates that our accrual is overstated or understated, we will
adjust the assumptions utilized in our methodologies and reduce or provide for
additional accruals as appropriate.

Bad Debt

         We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

Revenue Recognition

         The Company recognizes its revenue upon shipment of related goods.
Shipping terms are FOB shipping point pursuant to the Company's sales
agreements. Risk of loss transfers to the Company's customers at the time the
goods are transferred to a common carrier, per the Company's sales agreements.
The acceptance of goods by customers is not subject to inspection. Allowances
for estimated returns are provided when sales are recorded.

Impairment of Long-lived Assets

         Whenever events or circumstances indicate that the carrying values of
long-lived assets (including property, plant and equipment) may be impaired, we
perform an analysis to determine the recoverability of the asset's carrying
value. The carrying value of the asset includes the original purchase price (net
of depreciation) plus the value of all capital improvements (net of
depreciation). If the analysis indicates that the carrying value is not
recoverable from future cash flows, we write down the asset to its estimated
fair value and recognize an impairment loss. The estimated fair value is based
on what we estimate the current sale price of the asset to be based on
comparable sales information or other estimates of the asset's value. Any
impairment losses we recognize are recorded as operating expenses. In 2001, we
recognized $13.2 million of impairment losses. We did not recognize any
impairment losses in 2002. In 2004 and 2003, the Company reviewed assets held
for sale and determined an additional impairment charge of $615,000 and
$685,000, respectively, was required.

         We make estimates of the undiscounted cash flows from the expected
future operations of the asset. In projecting the expected future operations of
the asset, we base our estimates on future budgeted earnings before interest
expense, income taxes, depreciation and amortization, or EBITDA, and use growth
assumptions to project these amounts out over the expected life of the
underlying asset. If actual conditions differ from those in our assumptions, the
actual results of each asset's actual future operations could be significantly
different from the estimated results we used in our analysis. Our operating
results are also subject to the risks set forth under "Summary of Accounting
Policies - Risk and Uncertainties."

                                      (13)
<PAGE>

Results of Operations

NOVEMBER 30, 2003 THRU NOVEMBER 26, 2004 (FISCAL 2004) COMPARED TO FISCAL 2003

         Net sales for the fiscal 2004 were $49,660,000 as compared to
$51,173,000 in fiscal 2003, a decrease of 3.0 %. The domestic textile industry
has been negatively affected by a flow of low cost foreign imports and market
conditions since 1998. Apparel external sales for fiscal 2004 were $37.3
million, compared to $39.1 million in fiscal 2003, a decrease of $1.8 million or
4.6%. Home Fashion and Accessories external sales for fiscal 2004 were $4.5
million compared to $4.2 million in fiscal 2003, an increase of $0.3 million or
7.1%. Other external sales for fiscal 2004 were $7.9 million, compared to $7.8
million in fiscal 2003, an increase of $0.1 million or 1.3%. The decreases in
the apparel segment were caused substantially by lower volume due to continued
weakness in the domestic textile industry and market conditions and increased
foreign competition. There was a slight increase in the home fashions and
accessories and other segments.

         Gross margins as a percentage of sales increased to 9.9% from 8.3% in
the similar 2003 period. For fiscal 2004, an increase in LIFO reserves of
$314,000 was recorded. This was due to higher FIFO prices. For fiscal 2003, LIFO
inventory reserves decreased $607,000, due to lower average FIFO cost levels.
Additionally, gross margin has increased as a result of a decrease in
depreciation expense of $309,000 for fiscal 2004 compared to the prior
comparable period. This decrease in depreciation expense is a result of the sale
of fixed assets and fixed assets that have been fully depreciated over the past
year. Reductions in costs due to employee terminations and related expenses in
our production facilities also aided gross profit in fiscal 2004. Management is
hopeful that future gross margins will show an improvement over the current
year's performance due to an expected reduction in costs due to employee
terminations and related expenses in fiscal 2004 and a decrease in expected
depreciation as a result of a reduction in capital expenditures over the last
few years and assets which will become fully depreciated in 2005, tempered,
however, by the continuing deterioration in domestic textile manufacturing due
to foreign imports.

         Selling, general and administrative expenses for fiscal 2004 increased
by $229,000 or 3.6% compared to the prior comparable period due to a decrease in
payroll totaling $551,000, as a result of employee terminations over the past
year, offset by an increase in professional fees totaling $320,000, mainly
incurred in the first two quarters of 2004, relating to legal fees included in
connection with the class action law suits filed in November of 2003 (See Note 9
to the Consolidated Financial Statements), and an increase in bad debt expense
totaling $200,000 as a result of several customers who filed for bankruptcy or
have been unable to make their required payments due in the current year. In
addition in fiscal 2004, we have recorded compensation expenses and an offset to
investment income totaling $155,000 to reflect changes in the fair value of the
trading securities held by the nonqualified defined contribution plan, in
accordance with EITF 97-14.

         During fiscal 2004 and fiscal 2003 the Company reviewed assets held for
sale and determined an additional impairment charge of $615,000 and $685,000
respectively was required. These expenses apply to the apparel segment.

         In fiscal 2004, the Company recorded an expense of $226,000 for
environmental costs. The expense represents the costs associated with the lagoon
cleaning process as per North Carolina State requirements to eliminate odors in
a lagoon, which is located next to one of our plants. The lagoon process has
been completed and all costs associated with the process have been paid. For the
fiscal year ended November 29, 2003, a charge of $1,659,000 was recorded which
represents certain amendments to the agreement with the Chief Executive Officer.
See Note 9 to the Consolidated Financial Statements. This amount was allocated
between segments with a majority included in the apparel segment.

         For the fiscal year ended 2004, the Company had a gain on the sale of
fixed assets of $1,073,000 compared to $427,000 in last year's comparable
period. Approximately $441,000 of the current year gain belongs to the other
segment and the balance applies to the apparel segment. The fixed assets which
were sold in the first quarter of 2004 relating to the other segment, were sold
to a customer, which previously owned 50% of the equipment. The proceeds from
this sale amounted to $1,100,000. As a result, the customer, at an
undeterminable future date will be doing the production on its own.


                                      (14)
<PAGE>

         Apparel operating loss for fiscal 2004 was $3.0 million compared to an
operating loss of $4.6 million for fiscal 2003. Lower sales volume in fiscal
2004 reduced operating schedules at production facilities. The apparel segment
includes gain on the sale of fixed assets of $632,000 offset by $226,000 for
environmental costs.

         Home Fashion and Accessories operating income for 2004 was $0.2
compared to an operating loss of 0.2 in fiscal 2003.

         Other segment operating income for fiscal 2004 was $1.3 million
compared to $0.7 million in fiscal 2003. Of this, $441,000 includes gain on the
sale of fixed assets, which were sold to a customer who previously owned 50% of
the equipment. The proceeds from this sale amounted to $1,100,000. As a result,
the customer, at an undeterminable future date will be doing the production on
its own. In addition, higher margins increased operating income.

         Interest and dividend income decreased by $638,000 or 49.9% as compared
to fiscal year 2003. On March 10, 2004, the Company distributed its third
liquidating dividend of $3.00 per share, or $15,645,000. On August 22, 2003 the
Company distributed its second liquidating distribution of $4.00 per share or
$20,860,000. Accordingly, the Company had lower investment balances. In
addition, interest income includes a $155,000 gain reflecting an increase in the
fair value of the trading securities held by the nonqualified defined
contribution plan, in accordance with EITF 97-14.

         The Company realized gains from the sale of investment securities of
$759,000 in fiscal 2004 as compared to $1,266,000 in fiscal 2003.

         The Company realized a tax benefit for fiscal 2004 and fiscal 2003 of
32.7% and 11.3%, respectively.

         As a result of these factors, the Company had a net loss of $72,000 or
0.01 basic and diluted loss per share for fiscal 2004, and a net loss of
$1,370,000 or 0.26 basic and diluted loss per share in fiscal 2003.


FISCAL 2003 COMPARED TO FISCAL 2002

         Net sales for the fiscal 2003 were $51,173,000 as compared to
$62,965,000 in fiscal 2002, a decrease of 18.7%. Since 1998, a flood of low-cost
foreign imports continued to take a sustained toll in the U.S. textile
manufacturing sector and negatively impacted segment decline in sales and
production

         Apparel external sales for fiscal 2003 were $39.1 million, a decrease
of $12.2 million or 23.8%, as compared to $51.3 million for fiscal 2002.

         Home Fashion and Accessories external sales for fiscal 2003 were $4.2
million compared to $4.7 million in fiscal 2002, a decrease of $0.5 million or
10.6%.

         Other external sales for fiscal 2003 were $7.8 million, compared to
$7.0 million in fiscal 2002, an increase of $0.8 million or 11.4%.

         The decreases in the apparel and home fashions segments were due to a
loss of customers and related sales volume, which resulted from the continued
influx of low-cost foreign imports and continued weakness in the domestic
textile industry. The increase in other is due primarily to our subsidiary, Gem
Urethane Corporation, which experienced an increase in volume to several
customers.

         The apparel and home fashions segments implemented measures beginning
in fiscal 2001 to reduce operating costs including a reduction in the number of
employees, which reduced fixed overhead.


                                      (15)
<PAGE>

         Gross margins as a percentage of sales decreased to 8.3% compared to
10.4% in the similar 2002 period. Lower sales volumes reduced operating
schedules at production facilities. Due to lower average FIFO cost levels, LIFO
inventory reserves decreased by $607,000 and $96,000 in fiscal 2003 and 2002,
respectively. Management is hopeful that gross margins will show an improvement
over last year's performance due to an expected reduction in costs due to
employee terminations and related expenses in 2003 and a decrease in expected
depreciation as a result of a reduction in capital expenditures over the last
few years and assets which will become fully depreciated in 2004, tempered,
however, by the continuing deterioration in domestic textile manufacturing due
to foreign imports.

         Selling, general and administrative expenses decreased by $1,371,000,
or 18.6% as compared to fiscal year 2002. The decrease in expenses results
primarily from the reduction in the number of employees and related expenses
totaling approximately $790,000, moving its executive offices and showroom
facilities to smaller premises in July 2002 totaling approximately $335,000,
decreases in the amortization of intangible totaling approximately $124,000 due
to the fact that intangibles were fully amortized in 2002, decreases in
professional fees totaling approximately $475,000 as a result of a litigation
settlement in fiscal 2002 and the continued effectiveness of the cost
containment programs resulting in a decrease in expenses totaling approximately
$360,000, offset by a reduction in gains on the sale of fixed assets totaling
approximately $374,000 and a forgiveness of a debt of $339,000 in fiscal 2002
which was in selling, general and administrative expenses in fiscal 2002.

         During fiscal 2003, the Company reviewed assets held for sale and
determined an additional charge of $685,000 was required.

         For the fiscal year ended November 29, 2003, a charge of $1,659,000 was
recorded which represents certain amendments to the agreement with the Chief
Executive Officer. See Note 9 to the Consolidated Financial Statements.

         In March 2002, the Company settled a dispute without admitting
liability for $750,000. See Note 16 to the Consolidated Financial Statements.

         Apparel operating loss for fiscal 2003 was $4.6 million compared to an
operating loss of $0.7 million for fiscal 2002. Lower sales volume affected
operating loss by approximately $690,000 and lower selling margins resulted from
the write-down of inventory to market value totaling approximately $825,000
contributed to the increase in operating loss. In addition, the financial
results include other expenses of $1.7 million, which represents agreement with
the Chief Executive Officer (See Note 9). This was allocated between segments
with a majority included in the apparel segment (See Note 9). The financial
results include a charge for asset impairment of fixed assets $685,000.

         Home Fashion and Accessories operating loss for fiscal 2003 was $0.2,
compared to an operating loss of $1.1 million for fiscal 2002. In fiscal 2002,
the financial results includes a charge of $750,000 for settlement of a dispute
without admitting liability. See Note 16 to the Consolidated Financial
Statements.

         Other segments operating income for fiscal 2003 was $0.7 million
compared to an operating income of $0.2 million for fiscal 2002. Higher margins
and reduction of costs increased operating income.

         Interest and dividend income decreased by $1,134,000 or 47.0% as
compared to fiscal year 2002. On August 22, 2003, the Company distributed a
second liquidating distribution of $4.00 per share, or $20,860,000. Accordingly,
the Company had lower invested balances, which were invested primarily in United
States Treasury Obligations resulting in lower risks and lower yields. The
Company realized gains from the sale of investment securities of $1,266,000 in
fiscal 2003 as compared to $2,179,000 in fiscal 2002.

         The Company realized a tax benefit for fiscal 2003, which had an
effective tax rate of 11.3% as compared to an effective income tax rate of 34.6%
in the comparative 2002 period. See Note 8 to the Consolidated Financial
Statements.

         As a result of these factors, the Company had a net loss of $1,370,000,
or $0.26 basic and diluted loss per share, as compared to net income of
$1,970,000, or $0.38 basic and diluted earnings per share in fiscal 2002.


                                      (16)
<PAGE>

Liquidity and Capital Resources

         Due to the uncertainty as to whether the Company will be sold prior to
May 30, 2005, the Company has determined that it is more appropriate to present
the Company's financial statements on the liquidation basis. Therefore, we
changed our basis of accounting to the liquidation basis as of November 27,
2004. If the Company is not sold by May 30, 2005, all assets and liabilities
will be transferred to a liquidating trust. The liquidating trust would then
succeed to all our remaining assets, liabilities and obligations.

         Net cash provided by operating activities in fiscal 2004 amounted to
$907,000, primarily due to a decrease in inventories and increase in accounts
payable, offset by increases in accounts receivable. The variability of
operating cash flows is principally caused by sales fluctuations and the amount
of cash provided by changes in working capital accounts. The Company expects to
be generating a positive operating cash flow in future periods subject to any
unknown events that may arise.

         Net proceeds from sales of investment securities were $10,774,000 for
fiscal 2004 compared to $17,441,000 for fiscal 2003. The Company mainly used the
proceeds from sales of investment securities in fiscal 2004 for the third
liquidating distribution of $3.00 per share or $15,645,000 on March 10, 2004. In
fiscal 2003, the Company mainly used the proceeds for sales of investment
securities for the second liquidating distribution of $4.00 per share or
$20,860,000 on August 22, 2003.

         As of November 27, 2004, our assets consisted of $19,894,000 of cash
and cash equivalents and investment securities available for sale, $7,057,000
for accounts receivable, $1,517,000 for inventories, $3,034,000 for other assets
and $6,082,000 for property, plant and equipment. Our liabilities consist of
$9,008,000 for accounts payable, accruals and other liabilities, and $11,589,000
for estimated costs of liquidation. The net assets in liquidation is
$16,987,000. Distribution ultimately made to shareholders upon liquidation will
differ from the "net assets in liquidation" as a result in future changes in
amounts actually realized on dispositions of assets, as well as settlement of
liabilities and obligations and final costs of liquidation.

Inflation

         Management does not believe that the effects of inflation have had a
significant impact during fiscal years 2004, 2003 and 2002.

COMMITMENTS

         On July 25, 2003, the Company and Mr. Bitensky amended the Employment
Agreement between the Company and Mr. Bitensky dated as of March 1, 1993 to
provide that at such time as the Company is sold or liquidated pursuant to the
plan, in lieu of the annual consulting fees due under such agreement over the
five year consulting period provided therein, Mr. Bitensky will receive a lump
sum payment equal to the aggregate net present value of each payment due under
such an agreement, such present value to be determined utilizing the prevailing
prime rate at the time of the payment as determined by the Board. Accordingly,
the Company recorded a charge of $856,000, which was included in other expense
for the 52 weeks ended November 29, 2003.

         Such amendment to the Employment Agreement also provides that Mr.
Bitensky relinquishes his right under the terms of the original agreement to
require the Company to purchase upon his death approximately $10,000,000 of
shares of common stock from his estate. In consideration of Mr. Bitensky
relinquishing such right, the Company agreed to transfer to Mr. Bitensky
ownership of the three life insurance policies on Mr. Bitensky's life owned by
the Company. The Company transferred these policies having an aggregate cash
surrender value at November 29, 2003 of approximately $803,000. Accordingly, the
Company recorded a charge of $803,000, which was included in other expenses for
the 52 weeks ended November 29, 2003.

OFF BALANCE SHEET ARRANGEMENTS

         The Company does not utilize off Balance Sheet arrangements.


                                      (17)
<PAGE>

AGGREGATE CONTRACTUAL OBLIGATIONS

The following table provided information as of November 27, 2004.

<TABLE>
<CAPTION>
                             CONTRACTUAL OBLIGATIONS
                                 (In Thousands)
--------------------------------------------------------------------------------------------------------------------
                                                                           PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS                             TOTAL       LESS THAN     1-3 YEARS      3-5 YEARS    MORE THAN
                                                                1 YEAR (1)                                 5 YEARS
--------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>            <C>         <C>
Long-Term debt                                  $       --     $       --     $      --      $      --   $       --
--------------------------------------------------------------------------------------------------------------------
Capital Lease Obligations                               --             --            --             --           --
--------------------------------------------------------------------------------------------------------------------
Operating Leases                                       121            121            --             --           --
--------------------------------------------------------------------------------------------------------------------
Purchase Obligations                                    --             --            --             --           --
--------------------------------------------------------------------------------------------------------------------
Other Liabilities Reflected on the                   3,190          3,190            --             --           --
Registrant's Balance Sheet under GAAP
--------------------------------------------------------------------------------------------------------------------
Total                                           $    3,311     $    3,311     $      --      $      --    $      --
--------------------------------------------------------------------------------------------------------------------
</TABLE>


FORWARD-LOOKING INFORMATION

         Certain statements in this report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in our
communications and discussions with investors and analysts in the normal course
of business including, but not limited to, meetings, phone calls and conference
calls, regarding the sale of our assets pursuant to a plan of liquidation and
dissolution, as well as expectations with respect to future sales and operating
efficiencies prior to a sale of the company, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control and
which may cause actual results, performance or achievements to differ materially
from anticipated results, performances or achievements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "should," "expect," "anticipate," "estimate," "believe," "intend"
or "project" or the negative of them or other variations of them or comparable
terminology.

         Factors that could have a material adverse effect on our operations and
future prospects include, but are not limited to: our ability to find qualified
buyers for our assets; overall economic and business conditions; our continuing
ability to support the demand for our goods and services; competitive factors in
the industries in which we compete; changes in government regulation; changes in
tax requirements (including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; material contingencies
provided for in a sale of our assets; de-listing of our common stock from the
American Stock Exchange; our ability to retain key employees through any wind
down period; and any litigation arising as a result of our plan to wind down our
operations. These risks and uncertainties should be considered in evaluating any
forward-looking statements contained in the Form 10-K.

         We undertake no obligation to update or revise a forward-looking
statement, whether as a result of new information, future events, or otherwise,
other than required by law.


                                      (18)
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company is exposed to risk of fluctuations in the market value of
equity securities. To manage this exposure, the Company uses derivatives to
hedge against fluctuations in the market value of equity securities. The
Company's policy is to recognize all derivative instruments as either assets or
liabilities on the balance sheet at fair value. Changes in the fair value are
recognized in the income statement in the period in which they occur.
Derivatives are not used for trading purposes. At November 27, 2004, included in
the Company's equity investment securities are short term S & P 100 index put
options with a fair value of $74,120 and short term S & P 100 index call options
sold, not yet purchased with a fair value of $20,710. We believe this is our
only area of market risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         See the Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Consolidated Financial Statements Schedules
attached hereto.

ITEM 9.  CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE.

Not Applicable

ITEM 9A. CONTROLS AND PROCEDURES

(A) DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive Officer and Chief
Financial Officer have concluded, based on their evaluation, as of the end of
the period covered by this report, that our disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15(d)-15(e)) are (1) effective to ensure that material information required to
be disclosed by us in reports filed or submitted by us under the Securities
Exchange act of 1934, as amended, is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and (2)
designed to ensure that material information required to be disclosed by us in
such reports is accumulated, organized and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriated, to allow timely decisions regarding required disclosure.

(B) INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes in the
Company's internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934 , as
amended) that occurred during Fab's most recent quarter that has materially
affected, or is reasonably likely to materially affect Fab's internal control
over financial reporting.

It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there is only reasonable assurance that our controls will succeed in achieving
their stated goals under all potential future conditions.


                                      (19)
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS.

DIRECTORS

         The following table sets forth certain information concerning our
directors as of May 1, 2005.

<TABLE>
<CAPTION>
NAME                         AGE     PRINCIPAL OCCUPATION AND COMPANY OFFICE (1)             DIRECTOR SINCE
----                         ---     -------------------------------------------             --------------
<S>                          <C>     <C>                                                     <C>
Samson Bitensky............  85      Chairman of the Board of Directors and Chief            1966
                                     Executive Officer (2)
Steven Myers...............  56      President, Chief Operating Officer and Director (3)     2001
Susan B. Lerner............  48      Former Corporate Counsel of the Company (4)             1997
Richard Marlin.............  70      Attorney, member of the law firm of Kramer Levin        1995
                                     Naftalis & Frankel LLP. (5)
Lawrence H. Bober..........  79      Retired, Vice Chairman of the Board, First New York     1979
                                     Bank for Business and First New York Business Bank
                                     Corp.(6)
Martin B. Bernstein........  70      Chairman of Bedford Capital Corporation.(7)             1998
</TABLE>

------------------------------

(1)      Unless otherwise indicated, the directors' principal occupations have
         been their respective principal occupation for at least five years.

(2)      Mr. Samson Bitensky was one of the Company's founders in 1966 and has
         served as Chairman of the Board of Directors and Chief Executive
         Officer of the Company since such time. Mr. Bitensky also served as
         President of the Company from 1970 until May 1, 1997.

(3)      Mr. Steven Myers served as Co-President and Chief Operating Officer of
         the Company from May 1997 through July 2001. In August 2001, Mr. Myers
         became President of the Company and also maintained the position of
         Chief Operating Officer. In March 2002, Mr. Myers became Secretary of
         the Company. Mr. Myers served as Vice President of the Company from May
         1988 to May 1997. He served as Vice President of Sales of the Company
         for more than five years prior to May 1988. Mr. Myers is the son-in-law
         of Mr. Bitensky, Chairman of the Board of Directors and Chief Executive
         Officer of the Company.

(4)      Ms. Susan B. Lerner is former Corporate Counsel of the Company. She was
         Corporate Counsel from 1995 to 2002, Assistant Secretary of the Company
         from May 1997 until May 2001 and Secretary of the Company from May 2001
         until March 2002. From 1993 to 1995, she was president of the Company's
         Raval Lace Division. Ms. Lerner is the daughter of Mr. Bitensky,
         Chairman of the Board of Directors and Chief Executive Officer of the
         Company.

(5)      Since 1979, Mr. Richard Marlin has been a member of the law firm of
         Kramer Levin Naftalis & Frankel LLP.

(6)      Mr. Lawrence H. Bober is a retired Vice Chairman of the Board of First
         New York Business Bank Corp. ("FNYBBC") and of First New York Bank for
         Business (formerly, The First Women's Bank), a commercial bank and
         wholly-owned subsidiary of FNYBBC, where he served from January 1988
         until January 1991. Prior to 1988 and for more than five years, Mr.
         Bober was a Senior Vice President of Manufacturers Hanover Trust
         Company, a commercial bank.

(7)      Mr. Martin B. Bernstein has been Chairman of Bedford Capital
         Corporation ("BCC") since July 31, 2001. BCC is a private equity
         company, engaged in the acquisition of a variety of businesses. Mr.
         Bernstein was also the Chief Executive Officer of Ponderosa Fibres of
         America, Inc. ("PFAI") from


                                      (20)
<PAGE>

         1979 to 2001. PFAI is a member of a limited liability company or a
         stockholder of a corporation that are partners of two partnerships
         which have been reorganized under Chapter XI in fiscal 1999. PFAI filed
         a Chapter XI proceeding in May of 2001. Thereafter, its assets were
         sold and it has ceased operations. Mr. Bernstein is a member of the
         Board of Directors of Empire Insurance Company and Allcity Insurance
         Company.


EXECUTIVE OFFICERS

         The following table sets forth certain information concerning our
executive officers as of May 1, 2005.

<TABLE>
<CAPTION>
NAME                                     AGE       POSITIONS AND OFFICES
----                                     ---       ---------------------
<S>                                      <C>       <C>
Samson Bitensky.....................     85        Chairman of the Board of Directors and Chief Executive Officer
Steven Myers........................     56        President, Chief Operating Officer and Director
David A. Miller.....................     67        Vice President-Finance, Treasurer, and Chief Financial Officer
Jerry Deese.........................     53        Vice President-Controller of Plant Operations
Sam Hiatt ..........................     58        Vice President-Sales
</TABLE>

         Each of our executive officers serves at the pleasure of the Board of
Directors and until his or her successor is duly elected and qualified.

         SAMSON BITENSKY was one of Fab's founders in 1966 and has served as
Chairman of the Board of Directors and Chief Executive Officer of Fab since such
time. Mr. Bitensky also served as President of Fab from 1970 until May 1, 1997.

         STEVEN MYERS, an attorney, has been employed by Fab in various senior
administrative and managerial capacities since 1979. He served as Vice President
- Sales for more than five years prior to May 1988 and as Vice President from
May 1988 to May 1, 1997 and Co-President, Chief Operating Officer from May 1,
1997 to November 27, 2001. On November 27, 2001, he became President, Chief
Operating Officer upon the retirement of our former Co-President, Stanley
August. Mr. Myers is the son-in-law of Mr. Bitensky.

         DAVID A. MILLER has been employed by Fab since 1966 and has served as
Controller from 1973 until December 7, 1995, as Vice President - Finance and
Treasurer since December 7, 1995, and as Chief Financial Officer since May 1,
1997.

         JERRY DEESE has been employed by Fab in various senior administrative
and managerial capacities since 1978. Mr. Deese served as Divisional Controller
from 1994 until 1998 and has served as Vice President-Controller of Plant
Operations since May 12, 1998.

         SAM HIATT has been employed by Fab since 1978 and previously had
various management responsibilities in the warp knit area. He has served as Vice
President-Sales since May 12, 1998.


                                      (21)
<PAGE>

         AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT.

         The Company has an audit committee (the "Audit Committee") composed of
Messrs. Bober and Marlin. The Board of Directors has determined that Mr. Bober
is an "audit committee financial expert" (as defined by the rules and
regulations of the Securities and Exchange Commission). Mr. Bober qualifies as
an audit committee financial expert as a result of his business experience
described under the heading "Directors and Executive Officers - Directors." The
Board of Directors has determined that Mr. Bober is independent pursuant to the
American Stock Exchange's (the "AMEX") listing standards as they relate to audit
committee members.

         SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than ten percent of the Common Stock
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the SEC. Directors, executive officers and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all Forms
3, 4 and 5 that they file.

         The Company believes that all of its directors, executive officers, and
greater than ten percent beneficial owners complied with all filing requirements
applicable to them in the fiscal year 2004.

         CODE OF CONDUCT AND ETHICS

         The Company has not yet adopted a code of conduct and ethics that
applies to the Company's principal executive officer, principal financial
officer and principal accounting officer. The Company does not intend to do in
light of the fact that the Company will be transferred to a liquidated trust
pursuant to the Plan by May 30, 2005.

ITEM 11.  EXECUTIVE COMPENSATION.

         The Summary Compensation Table shown below sets forth certain
information concerning the annual and long-term compensation for services in all
capacities to the Company for the 2004, 2003 and 2002 fiscal years of those
persons (the "named executive officers") who were (i) the Chief Executive
Officer during fiscal 2004 and (ii) the other four most highly-compensated
executive officers of the Company who were serving as executive officers at the
end of the fiscal year ended November 27, 2004.


                                      (22)
<PAGE>

SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                                                                                                     ALL OTHER
        NAME AND PRINCIPAL POSITION              YEAR        SALARY($)(1)       BONUS ($)       COMPENSATION ($)(2)
        ---------------------------              ----        ------------       ---------       -------------------
<S>                                              <C>            <C>              <C>                   <C>
Samson Bitensky                                  2004           350,000             --                 6,000
Chairman of the Board of Directors and           2003           350,000             --                 5,100
Chief Executive Officer                          2002           350,000             --                 5,100

Steven Myers                                     2004           227,000             --                 6,000
President and Chief Operating Officer            2003           225,750             --                 5,100
                                                 2002           212,000          5,000                 5,100

Sam Hiatt                                        2004           211,000             --                 6,000
Vice President-Sales                             2003           209,750             --                 5,100
                                                 2002           196,000          5,000                 5,100

David A. Miller                                  2004           143,000             --                 4,290
Vice President, Finance, Treasurer and           2003           142,583             --                 4,290
Chief Financial Officer                          2002           138,000          5,000                 4,140

Jerry Deese                                      2004           150,000          5,000                 4,500
Vice President, Controller of Plant              2003           148,750          5,000                 4,500
Operations                                       2002           135,000          5,000                 4,050
</TABLE>

-------------------------------------

(1)      Includes compensation deferred pursuant to the Company's qualified 401K
         Money Option Savings Plan.

(2)      Represents the amount of the Company's contribution under its Executive
         Retirement Plan for Messrs. Bitensky, Myers and Hiatt and the Fab
         Industries, Inc. Profit Sharing Plan for Messrs. Miller and Deese.


                                      (23)
<PAGE>

         OPTION/SAR GRANTS IN LAST FISCAL YEAR

         The Company did not make any individual grants of stock options or
stock appreciation rights during fiscal 2004 to any of the named executive
officers.

         AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
         OPTION VALUES

         No named executive officer exercised options during fiscal 2004 nor
held any options to purchase shares of Common Stock as of November 27, 2004.

         COMPENSATION OF DIRECTORS

         During fiscal 2004, the directors who were not employees of the Company
earned the following annual directors fees: $22,000 to Mr. Bober; $17,000 each
to Messrs. Bernstein and Marlin; $14,500 to Mr. Frank Greenberg; $11,000 to Ms.
Lerner. In addition, each non-employee director earned a fee of $1,000 for each
Audit Committee meeting that they attended (other than Executive Committee
meetings). No additional fee was paid for service on committees of the Board of
Directors.

         EMPLOYMENT AGREEMENT

         The Company has only one employment agreement with a named executive
officer. Mr. Bitensky entered into an employment agreement with the Company
effective April 1, 1993, pursuant to which he is to perform the duties of its
Chief Executive Officer. The agreement provided it would expire on March 31,
1998, subject to automatic successive one year renewals unless either party
terminates on notice given not less than six months prior to the then expiration
date. The current expiration date is March 31, 2006. The agreement provides for
an annual base salary of $350,000, or such greater amount as the Board of
Directors may from time to time determine, and incentive compensation if the
Company's annual pre-tax income exceeds $10,000,000 equal to 3% of the Company's
annual pre-tax income up to $11,000,000 and 4% of such pre-tax income in excess
of $11,000,000. In the event of disability (as defined in the employment
agreement), compensation at the above rate is payable for the first year, and at
one-half such rate for the second year of such disability. Upon termination of
full-time employment other than by the Company for cause, Mr. Bitensky will be
retained to provide advisory and consulting services for a period of five years
for a fee of $250,000 per annum. In the event of the death of Mr. Bitensky while
employed or providing such consulting services, an amount equal to the average
one year total annual compensation paid to Mr. Bitensky, based upon the three
most recent full-time employment years, is payable to his beneficiaries over a
five-year period.

         The Company and Mr. Bitensky amended the Employment Agreement between
the Company and Mr. Bitensky to provide that at such time as the Company is sold
or liquidated pursuant to the Plan of Liquidation and Dissolution, in lieu of
the annual consulting fees due under such agreement over the five year
consulting period provided therein, Mr. Bitensky will receive a lump sum payment
equal to the aggregate net present value of each payment due under such an
agreement, such present value to be determined utilizing the prevailing prime
rate at the time of the payment as determined by the Board of Directors. The
Employment Agreement was further amended to eliminate Mr. Bitensky's right under
the terms of the original agreement to require the Company to purchase upon his
death approximately $10,000,000 of shares of common stock from his estate. In
consideration of Mr. Bitensky relinquishing such right, the Company agreed to
transfer to Mr. Bitensky ownership of the three life insurance policies on Mr.
Bitensky's life owned by the Company.


                                      (24)
<PAGE>

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.

         The following table sets forth certain information as of May 4, 2005
(except as noted below) as to the shares of Common Stock beneficially owned by
each person known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding Common Stock.

                                               NUMBER OF            PERCENT OF
             NAME AND ADDRESS                    SHARES             OUTSTANDING
           OF BENEFICIAL OWNER            BENEFICIALLY OWNED(1)     COMMON STOCK
---------------------------------------   ---------------------     ------------
Samson Bitensky(2)                              1,488,276(3)           28.5%
c/o Fab Industries, Inc.
200 Madison Avenue
New York, New York  10016

Private Capital Management, L.P.,                 764,196              14.7%
Bruce S. Sherman
Gregg J. Powers(4)
8889 Pelican Bay Blvd.
Naples, Florida  34108

Dimensional Fund Advisors Inc.(5)                 305,081               5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, California  90401

FMR Corporation((6))                              521,100              10.0%
82 Devonshire Street
Boston, Massachusetts  02109

Salvatore Muoio((7))                              262,200               5.0%
S. Muoio & Co. LLC
c/o 509 Madison Avenue - Suite 406
New York, New York 10022

-------------------------------------

(1)      Except as otherwise indicated below, each of the persons listed in the
         table owns the shares of Common Stock opposite his or its name and has
         sole voting and dispositive power with respect to such shares of Common
         Stock.

(2)      Under the rules and regulations of the SEC, Mr. Bitensky may be deemed
         a "control person" of the Company.

(3)      Includes 74,000 shares of Common Stock owned by the Halina and Samson
         Bitensky Foundation, Inc. and 89,996 shares of Common Stock owned by
         Mr. Bitensky's spouse. Mr. Bitensky disclaims beneficial ownership of
         the shares owned by his spouse and by the Halina and Samson Bitensky
         Foundation, Inc.


                                      (25)
<PAGE>

(4)      Bruce S. Sherman is Chief Executive Officer of Private Capital
         Management, L.P., a Florida limited partnership ("PCM"), and exercises
         shared voting and dispositive power with respect to 764,196 shares of
         Common Stock held by PCM on behalf of its clients. Gregg J. Powers is
         President of PCM and exercises shared voting and dispositive power with
         respect to 764,196 shares of Common Stock held by PCM on behalf of its
         clients. Messrs. Sherman and Powers disclaim beneficial ownership for
         the shares held by PCM's clients and disclaim the existence of a group.
         This information is derived solely from PCM's Schedule 13G, as amended,
         filed with the Commission on February 14, 2005.

(5)      Dimensional Fund Advisors Inc., a Delaware corporation ("Dimensional")
         and an investment advisor registered under Section 203 of the
         Investment Advisers Act of 1940, furnishes investment advice to four
         investment companies registered under the Investment Advisers Act of
         1940 and serves as investment manager to certain other investment
         vehicles, including commingled group trusts and separate accounts. In
         its role as investment advisor or manager, Dimensional possesses voting
         and/or investment power over the shares of Common Stock that are owned
         by these investment companies and investment vehicles. Dimensional
         disclaims beneficial ownership of all such shares. This information is
         derived solely from Dimensional's Schedule 13G, as amended, filed with
         the Commission on February 9, 2005.

(6)      FRM Corp., a Delaware corporation ("FMR"), is the parent holding
         company of Fidelity Management & Research Company, an investment
         advisor registered under Section 203 of the Investment Advisers Act of
         1940 ("Fidelity"). Fidelity furnishes investment advice to various
         investment companies registered under the Investment Advisers Act of
         1940. In its role as investment advisor, Fidelity possesses voting
         and/or investment power over the shares of Common Stock that are owned
         by these investment companies. This information is derived solely from
         FMR's Schedule 13G filed with the Commission on February 14, 2005.

(7)      S. Muoio & Co. LLC, a Delaware limited liability company ("SMC"),
         possesses shared voting and dispositive power over 262,200 shares of
         Common Stock that are held by various investment vehicles and managed
         accounts for which SMC serves as general partner and/or investment
         manager. Salvatore Muoio, as the managing member of SMC, possesses
         shared voting and dispositive power over 262,200 shares of Common
         Stock. This information is derived solely from FMR's Schedule 13G filed
         with the Commission on August 19, 2004.


         SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS

         The following table sets forth certain information as of May 4, 2005 as
to the shares of Common Stock beneficially owned by the Company's directors, the
named executive officers and the directors and executive officers of the Company
as a group.

<TABLE>
<CAPTION>
                                          SHARES OF COMMON STOCK
                                         BENEFICIALLY OWNED ON THE    PERCENT OF OUTSTANDING
     NAME OF BENEFICIAL OWNER                 RECORD DATE (1)             COMMON STOCK
-------------------------------------    -------------------------    ----------------------
<S>                                             <C>                          <C>
Samson Bitensky                                 1,488,276(2)                 28.5%
Martin B. Bernstein                                 3,744                      *
Lawrence H. Bober                                   3,076                      *
Susan B. Lerner                                    64,514                    1.2%
Richard Marlin                                        500                      *
Steven Myers                                       92,556(3)                 1.8%
Sam Hiatt                                           4,243                      *
Jerry Deese                                         9,579                      *
David A. Miller                                     9,536                      *
All directors and executive
officers as a group (9 persons)                 1,676,024                    32.1%
</TABLE>

-------------------------------------

*    Less than 1%

(1)      Except as otherwise indicated below, each of the persons listed in the
         table owns the shares of Common Stock opposite his or her name and has
         sole voting and dispositive power with respect to the shares of Common
         Stock indicated as being beneficially owned by him or her.

(2)      See note 3 to the table set forth above under the heading "Security
         Ownership of Certain Beneficial Owners" with respect to beneficial
         ownership of these shares.


                                      (26)
<PAGE>

(3)      Includes 48,370 shares of Common Stock owned by Beth B. Myers; 3,332
         shares owned by Jessica C. Myers in a custodial account under control
         of Beth B. Myers; and 2,000 shares owned by Allison R. Myers in a
         custodial account under the control of Beth B. Myers. Beth B. Myers is
         the daughter of Mr. Bitensky, Chief Executive Officer of the Company,
         and the spouse of Steven Myers, President and Chief Operating Officer
         of the Company. Jessica C. Myers and Allison R. Myers are the minor
         daughters of Mr. and Mrs. Myers. Mr. Myers disclaims beneficial
         ownership of the shares owned by his spouse and minor daughters.

         EQUITY COMPENSATION PLAN INFORMATION

         As of November 27, 2004, there were no options to purchase common stock
outstanding or available for grant under any Company stock option plans. All
Company stock option plans have been terminated.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         There were no relationships or related transactions required to be
reported under this Item 13.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         AUDIT FEES

         For the fiscal years ended November 29, 2003 and November 27, 2004, BDO
Seidman, LLP ("BDO"), the Company's principal accountant, billed the Company
$100,000 and $110,000, respectively, for professional services rendered in
connection with the audit of the Company's financial statements included in the
Company's Annual Report on Form 10-K for such fiscal years. The amount of fees
that BDO billed for the review of the financial statements included in the
Company's Forms 10-Q for the fiscal years ended November 29, 2003 and November
27, 2004 was $12,000.

         AUDIT-RELATED FEES

         BDO did not bill the Company during fiscal 2003 or 2004 for any
assurance and related services reasonably related to their performance of the
audit or review of the Company that are not reported under "Audit Fees."


                                      (27)
<PAGE>

         TAX FEES

         In addition to the audit fees, the Company was billed $8,500 by BDO in
fiscal 2004 for professional services rendered for tax compliance, tax advice
and tax planning in connection with the review of the Company's 2003 tax
returns. The Company also expects to be billed by BDO in fiscal 2005 for
professional services rendered for tax compliance, tax advice and tax planning
in connection with the review of the Company's 2004 tax returns in addition to
the audit fees.

         ALL OTHER FEES

         BDO did not bill the Company for any other fees in fiscal 2003 and 2004
other than those set for above.

         PRE-APPROVAL POLICIES AND PROCEDURES

         The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services.




                                      (28)
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


        (a)(1) Financial Statements: See the Index to Consolidated Financial
               Statements at page F-2.

           (2) Financial Statement Schedules: See the Index to Consolidated
               Financial Statements Schedules at page S-2.

           (3) Exhibit List


EXHIBIT        DESCRIPTION OF EXHIBIT
-------        ----------------------

3.1        -   Restated Certificate of Incorporation, incorporated by reference
               to Exhibit 3.1 to the Company's Annual Report on Form 10-K for
               the fiscal year ended November 27, 1993 (the "1993 10-K").

3.2        -   Amended and Restated By-laws, incorporated by reference to
               Exhibit 3.2 to the 1993 10-K.

3.3        -   Certificate of Amendment of Restated Certificate of
               Incorporation, incorporated by reference to Exhibit 3.3 to the
               Company's Annual Report on Form 10-K for the fiscal year ended
               December 3, 1994 (the "1994 10-K").

3.4        -   Amendments to the Amended and Restated By-laws, incorporated by
               reference to Exhibit 3.4 of the Company's Annual Report on Form
               10-K for the fiscal year ended November 29, 1997.

3.5        -   Amendment to the Amended and Restated By-laws, incorporated by
               reference to Exhibit 3.5 of the Company's Annual Report on Form
               10-K for the fiscal year ended November 27, 1999.

4.1        -   Specimen of Common Stock Certificate, incorporated by reference
               to Exhibit 4-A to Registration Statement No. 2-30163, filed on
               November 4, 1968.

4.2        -   Rights Agreement dated as of June 6, 1990 between the Company and
               Manufacturers Hanover Trust Company, as Rights Agent, which
               includes as Exhibit A the form of Rights Certificate and as
               Exhibit B the Summary of Rights to purchase Common Stock,
               incorporated by reference to Exhibit 4.2 to the 1993 10-K.

4.3        -   Amendment to the Rights Agreement between the Company and
               Manufacturers Hanover Trust Company dated as of May 24, 1991,
               incorporated by reference to Exhibit 4.3 to the 1993 10-K.

10.1       -   Employment Agreement dated as of March 1, 1993, between the
               Company and Samson Bitensky, incorporated by reference to Exhibit
               10.2 to the 1993 10-K.


                                      (29)
<PAGE>

EXHIBIT        DESCRIPTION OF EXHIBIT
-------        ----------------------

10.2       -   Fab Industries, Inc. Hourly Employees Retirement Plan (the
               "Retirement Plan"), incorporated by reference to Exhibit 10.3 to
               the 1993 10-K.

10.3       -   Amendment to the Retirement Plan effective December 11, 1978,
               incorporated by reference to Exhibit 10.4 to the 1993 10-K.

10.4       -   Amendment to the Retirement Plan effective December 1, 1981,
               incorporated by reference to Exhibit 10.5 to the 1993 10-K.

10.5       -   Amendment to the Retirement Plan dated November 21, 1983,
               incorporated by reference to Exhibit 10.6 to the 1993 10-K.

10.6       -   Amendment to the Retirement Plan dated August 29, 1986,
               incorporated by reference to Exhibit 10.7 to the 1993 10-K.

10.7       -   Amendment to the Retirement Plan effective as of December 1,
               1989, incorporated by reference to Exhibit 10.8 to the 1993 10-K.

10.8       -   Amendment to the Retirement Plan dated September 21, 1995,
               incorporated by reference to Exhibit 10.9 to the Company's Annual
               Report on Form 10-K for the fiscal year ended December 2, 1995
               (the "1995 10-K").

10.9       -   Fab Lace, Inc. Employees Profit Sharing Plan (the "Profit Sharing
               Plan"), incorporated by reference to Exhibit 10.9 to the 1993
               10-K.

10.10      -   Amendment to the Profit Sharing Plan effective December 1, 1978,
               incorporated by reference to Exhibit 10.10 to the 1993 10-K.

10.11      -   Amendment dated December 1, 1985 to the Profit Sharing Plan,
               incorporated by reference to Exhibit 10.11 to the 1993 10-K.

10.12      -   Amendment dated February 5, 1987 to the Profit Sharing Plan,
               incorporated by reference to Exhibit 10.12 to the 1993 10-K.

10.13      -   Amendment dated December 24, 1987 to the Profit Sharing Plan,
               incorporated by reference to Exhibit 10.13 to the 1993 10-K.

10.14      -   Amendment dated June 30, 1989 to the Profit Sharing Plan,
               incorporated by reference to Exhibit 10.14 to the 1993 10-K.

10.15      -   Amendment dated February 1, 1991 to the Profit Sharing Plan,
               incorporated by reference to Exhibit 10.15 to the 1993 10-K.

10.16      -   Amendment dated September 1, 1995 to the Profit Sharing Plan,
               incorporated by reference to Exhibit 10.17 to the 1995 10-K.

10.17      -   Lease dated as of December 8, 1988 between Glockhurst
               Corporation, N.V. and the Company, incorporated by reference to
               Exhibit 10.16 to the 1993 10-K.


                                      (30)
<PAGE>

EXHIBIT        DESCRIPTION OF EXHIBIT
-------        ----------------------

10.18      -   Lease Modification Agreement dated April 2, 1991 between
               Glockhurst Corporation, N.V. and the Company, incorporated by
               reference to Exhibit 10.17 to the 1993 10-K.

10.19      -   Second Lease Modification Agreement dated May 23, 1996 between
               200 Madison Associates, L.P. and the Company, incorporated by
               reference to Exhibit 10.20 to the Company's Annual Report on Form
               10-K for the fiscal year ended November 30, 1996.

10.20      -   Third Lease Modification Agreement dated April 24, 2000 between
               200 Madison Associates, L.P. and the Company, incorporated by
               reference to Exhibit 10.21 to the Company's Annual Report on Form
               10-K for the fiscal year ended November 30, 2001.

10.21      -   Fourth Lease Modification Agreement dated April 11, 2002 between
               200 Madison Associates, L.P. and the Company, incorporated by
               reference to Exhibit 10.22 to the Company's Annual Report on Form
               10-K for the fiscal year ended November 30, 2002.

10.22      -   Lease dated as of March 1, 1979 between City of Amsterdam
               Industrial Development Agency and Gem Urethane Corp.,
               incorporated by reference to Exhibit 10.18 to the 1993 10-K.

10.23      -   Lease dated as of January 1, 1977 between City of Amsterdam
               Industrial Development Agency and Lamatronics Industries, Inc.,
               incorporated by reference to Exhibit 10.19 to the 1993 10-K.

10.24      -   Form of indemnification agreement between the Company and its
               officers and directors, incorporated by reference to Exhibit
               10.20 to the 1993 10-K.

10.25      -   Fab Industries, Inc. Employee Stock Ownership Plan effective as
               of Nov. 25, 1991, incorporated by reference to Exhibit 10.24 to
               the 1993 10-K.

10.26      -   Amendment dated September 21, 1995 to the Employee Stock
               Ownership Plan, incorporated by reference to Exhibit 10.27 to the
               1995 10-K.

10.27      -   Fab Industries, Inc. Non-Qualified Executive Retirement Plan
               dated as of November 30, 1990, incorporated by reference to
               Exhibit 10.25 to the 1993 10-K.

10.28      -   Form of loan agreement, dated May 30, 2002, entered into between
               Fab Industries, Inc. and certain of its executive officers and
               directors, incorporated by reference to Exhibit 10.31 to the
               Company's Annual Report on Form 10-K for the fiscal year ended
               November 30, 2002.

10.29      -   Amendment dated July 25, 2003 to the Employment Agreement between
               Fab Industries, Inc. and Samson Bitensky, incorporated by
               reference to Exhibit 10.1 to the Company's Quarterly Report on
               Form 10-Q filed for the quarter ended August 30, 2003.


                                      (31)
<PAGE>

EXHIBIT        DESCRIPTION OF EXHIBIT
-------        ----------------------

21         -   Subsidiaries of the Company, incorporated by reference to Exhibit
               21 to the Company's Annual Report on Form 10-K for the fiscal
               year ended December 2, 2000.

*31.1      -   Certification of Samson Bitensky pursuant to Section 302 of the
               Sarbanes-Oxley Act.

*31.2      -   Certification of David A. Miller pursuant to Section 302 of the
               Sarbanes-Oxley Act.

*32.1      -   Certification of Samson Bitensky pursuant to 18 U.S.C. Section
               1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
               Act.

*32.2      -   Certification of David A. Miller pursuant to 18 U.S.C. Section
               1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
               Act.





                                      (32)
<PAGE>





                              FAB INDUSTRIES, INC.
                                  AND SUBSIDIARIES




                                               CONSOLIDATED FINANCIAL STATEMENTS
                                                                FORM 10-K ITEM 8
                     FISCAL YEARS ENDED NOVEMBER 27, 2004, NOVEMBER 29, 2003 AND
                                                               NOVEMBER 30, 2002





                                                                             F-1
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES


                                    CONTENTS
                                    --------


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                      F-3



CONSOLIDATED FINANCIAL STATEMENTS:
   Statement of Net Assets in Liquidation                                    F-4
   Statement of changes in Net Assets in Liquidation                         F-5
   Balance sheets                                                            F-6
   Statements of operations                                                  F-7
   Statements of stockholders' equity                                        F-8
   Statements of cash flows
                                                                             F-9
SUMMARY OF ACCOUNTING POLICIES                                       F-10 - F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F-17 - F-42





                                                                             F-2
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Fab Industries, Inc.
New York, New York


We have audited the accompanying statement of net assets in liquidation of Fab
Industries, Inc. and subsidiaries as of November 27, 2004, and the related
statement of changes in net assets in liquidation for the one day period ended
November 27, 2004. We have also audited the consolidated balance sheet of Fab
Industries, Inc. and subsidiaries as November 29, 2003, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from November 30, 2003 to November 26, 2004 and for the fiscal years
ended November 29, 2003 and November 30, 2002. We have also audited the
financial statement schedules listed in the index on page S-1. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedules are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedules, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in the summary of accounting policies, on March 1, 2002, the
Company's Board of Directors adopted resolutions, which authorize, subject to
shareholder approval, the sale of the business pursuant to a plan of
liquidation. The Company's stockholders approved the Plan at the Company's
annual meeting on May 30, 2002, which requires the transfer of assets and
liabilities of the Company to a liquidating trust of May 30, 2005. As a result
of the Company's liquidation on May 30, 2005, the Company has changed its basis
of accounting for periods subsequent to November 26, 2004, from the going
concern basis to the liquidation basis.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of Fab
Industries, Inc. and subsidiaries at November 27, 2004, and changes in net
assets in liquidation for the one day period ended November 27, 2004. In
addition, in our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of Fab Industries, Inc. and
subsidiaries as of November 29, 2003, and the results of their operations and
their cash flows for the period from November 30, 2003 to November 26, 2004 and
for the fiscal years ended November 29, 2003 and November 30, 2002 in conformity
with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedules presents fairly, in all
material respects, the information set forth therein.

As described in Note 17 to the consolidated financial statements, the
accompanying consolidated financial statements as of November 29, 2003 has been
restated.


/s/ BDO Seidman, LLP
---------------------
BDO Seidman, LLP
New York, New York
April 29, 2005


                                                                             F-3
<PAGE>

                                                      FAB INDUSTRIES, INC.
                                                          AND SUBSIDIARIES


                                    STATEMENT OF NET ASSETS IN LIQUIDATION

================================================================================

ASSETS:                                                     NOVEMBER 27, 2004
                                                            -----------------
   Cash and cash equivalents                                  $    639,000
   Investment securities available-for-sale                     19,255,000
   Accounts receivable                                           7,057,000
   Inventories                                                   1,517,000
   Other assets                                                  3,034,000
    Property, plant and equipment                                6,082,000
--------------------------------------------------------------------------------
             TOTAL ASSETS                                       37,584,000
--------------------------------------------------------------------------------
LIABILITIES:

   Accounts payable                                              3,570,000
   Corporate income and other taxes                                819,000
   Accrued payroll and related expenses                            983,000
   Other liabilities                                             3,636,000
   Estimated cost of liquidation                                11,589,000

--------------------------------------------------------------------------------
        TOTAL LIABILITIES                                       20,597,000
--------------------------------------------------------------------------------
                                                               $16,987,000
Net assets in liquidation
================================================================================



                                 SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
                                 AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-4
<PAGE>

                                                      FAB INDUSTRIES, INC.
                                                          AND SUBSIDIARIES


                         STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

================================================================================

PERIOD FROM NOVEMBER 26, 2004 THRU NOVEMBER 27, 2004
----------------------------------------------------

  Net assets in liquidation at November 26, 2004                  $16,987,000
                                                                  -----------

  Net assets in liquidation at November 27, 2004                  $16,987,000
                                                                  -----------



                                 SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
                                 AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                                                             F-5
<PAGE>


                                                      FAB INDUSTRIES, INC.
                                                          AND SUBSIDIARIES


                                                CONSOLIDATED BALANCE SHEET

================================================================================

                                                               NOVEMBER 29, 2003
--------------------------------------------------------------------------------
                                                                    (Restated)
ASSETS
CURRENT:
   Cash and cash equivalents                                     $    3,397,000
   Investment securities available-for-sale                          29,004,000
   Accounts receivable, net of allowance of $1,100,000 for
      doubtful accounts                                               7,171,000
   Inventories                                                        5,531,000
   Deferred income taxes                                                506,000
   Other current assets                                                 701,000
--------------------------------------------------------------------------------
        TOTAL CURRENT ASSETS                                         46,310,000
PROPERTY, PLANT AND EQUIPMENT - NET                                   9,192,000
OTHER ASSETS                                                          2,281,000
--------------------------------------------------------------------------------
                                                                    $57,783,000
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
   Accounts payable                                              $    1,913,000
   Corporate income and other taxes                                     861,000
   Accrued payroll and related expenses                                 763,000
   Other current liabilities                                          1,106,000
--------------------------------------------------------------------------------
        TOTAL CURRENT LIABILITIES                                     4,643,000
DEFERRED INCOME TAXES                                                    52,000
OTHER NONCURRENT LIABILITIES                                          4,451,000
--------------------------------------------------------------------------------
        TOTAL LIABILITIES                                             9,146,000
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 7 AND 9)                                --
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
   Preferred stock, $1 par value - shares authorized 2,000,000;
      none issued                                                            --
   Common stock, $.20 par value - shares authorized 15,000,000;
      issued 6,724,944                                                1,345,000
   Retained earnings                                                 84,933,000
   Accumulated other comprehensive (loss)                              (186,000)
   Cost of common stock  held in treasury - 1,509,913               (37,455,000)
--------------------------------------------------------------------------------
        TOTAL STOCKHOLDERS' EQUITY                                   48,637,000
--------------------------------------------------------------------------------
                                                                    $57,783,000
================================================================================

                                 SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
                                 AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                                                             F-6
<PAGE>

                                                      FAB INDUSTRIES, INC.
                                                          AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                     CONSOLIDATED STATEMENTS OF OPERATIONS

========================================================================================================

                                                  NOVEMBER 30,            FISCAL YEAR ENDED
                                                  2003 THROUGH    --------------------------------------
                                               NOVEMBER 26, 2004  NOVEMBER 29, 2003   NOVEMBER 30, 2002
--------------------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>                 <C>
NET SALES                                            $49,660,000        $51,173,000         $62,965,000
COST OF GOODS SOLD                                    44,742,000         46,918,000          56,412,000
--------------------------------------------------------------------------------------------------------
        GROSS PROFIT                                   4,918,000          4,255,000           6,553,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES           6,657,000          6,428,000           8,189,000
ASSET IMPAIRMENT AND RESTRUCTURING CHARGES               615,000            685,000                  --
OTHER EXPENSES                                           226,000          1,659,000             750,000
 GAIN ON SALE OF FIXED ASSETS                         (1,073,000)          (427,000)           (817,000)
--------------------------------------------------------------------------------------------------------
        OPERATING LOSS                                (1,507,000)        (4,090,000)         (1,569,000)
--------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
   Interest and dividend income                          641,000          1,279,000           2,413,000
   Interest expense                                           --                 --             (13,000)
   Net gain on investment securities                     759,000          1,266,000           2,179,000
--------------------------------------------------------------------------------------------------------
        TOTAL OTHER INCOME                             1,400,000          2,545,000           4,579,000
--------------------------------------------------------------------------------------------------------
        INCOME (LOSS) BEFORE TAXES ON INCOME            (107,000)        (1,545,000)          3,010,000
INCOME TAX EXPENSE (BENEFIT)                             (35,000)          (175,000)          1,040,000
--------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                    $   (72,000)       $(1,370,000)        $ 1,970,000
========================================================================================================
EARNINGS (LOSS) PER SHARE:
   Basic                                             $      (.01)       $      (.26)        $       .38
   Diluted                                           $      (.01)       $      (.26)        $       .38
--------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE                    $      3.00        $      4.00         $     10.00

========================================================================================================
</TABLE>
                                 SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
                                 AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-7
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
============================================================================================================

                                                   COMMON STOCK
                                             ------------------------
                                                                                       RETAINED
                                                                                       EARNINGS
                                                                                    (RESTATED -
                                                                                    SEE SUMMARY
                                                                        ADDITIONAL           OF
                                                  NUMBER                   PAID-IN   ACCOUNTING
                                      TOTAL    OF SHARES       AMOUNT      CAPITAL     POLICIES)
------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>         <C>          <C>        <C>          <C>
Balance, December 1, 2001, as
   previously reported         $113,503,000    6,591,944   $1,319,000   $6,967,000 $144,224,000 $(3,957,000)

Restatement adjustment (See
   Note 17)                        (292,000)          --           --           --     (292,000)         --
------------------------------------------------------------------------------------------------------------
Balance, December 1, 2001, as
   restated                     113,211,000    6,591,944    1,319,000    6,967,000  143,932,000   3,957,000)
Net loss-- fiscal 2002            1,970,000           --           --           --    1,970,000          --
Minimum pension liability
   adjustment of $164,000, net
   of tax benefit of $59,000       (105,000)          --           --           --           --          --
Total comprehensive loss          1,865,000           --           --           --           --          --
Cash dividends                  (52,380,000)          --           --   (6,641,000) (45,739,000)         --
Acceleration of stock options
   (Note 6)                         418,000           --           --      418,000           --          --
Exercise of stock options
   (Note 6)                       1,445,000      133,000       26,000    1,640,000           --          --
Purchase of treasury stock         (280,000)          --           --       17,000           --          --
P Termination of Employee Stock
   Ownership Plan                                     --           --   (2,401,000)          --   3,957,000
------------------------------------------------------------------------------------------------------------
Balance, November 30, 2002       64,279,000    6,724,944    1,345,000           --  100,163,000          --
Net loss - fiscal 2003           (1,370,000)          --           --           --   (1,370,000)         --
Change in net unrealized
   holding gain on investment
   securities available-for-       (223,000)
   sale, net of taxes                                 --           --           --           --          --
Minimum pension liability of
   $300,000 net of tax benefit
   of $108,000                     (192,000)
Total comprehensive loss         (1,785,000)          --           --           --           --          --
Cash dividends                  (20,860,000)          --           --           --  (20,860,000)         --
Repayment of  notes receivable
   from stockholders                221,000           --           --           --           --          --
Purchase of treasury stock         (218,000)          --           --           --           --          --
Reclass of  redeemable common
   stock to non redeemable
   common stock                   7,000,000           --           --           --    7,000,000          --
------------------------------------------------------------------------------------------------------------
Balance, November 29, 2003       48,637,000    6,724,944    1,345,000           --   84,933,000          --
Net loss - fiscal 2004              (72,000)          --           --           --      (72,000)         --
Change in net unrealized
   holding loss on investment
   securities available-for-       (193,000)
   sale, net of taxes                                 --           --           --           --          --
Minimum pension liability of
   $50,000 net of tax benefit
   of $18,000                       (32,000)                                                             --
Total comprehensive loss           (297,000)          --           --           --           --          --
Cash dividends                  (15,645,000)          --           --           --  (15,645,000)         --
------------------------------------------------------------------------------------------------------------

Balance, November 26, 2004      $32,695,000    6,724,944   $1,345,000           --  $69,216,000          --

------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                  TREASURY STOCK
                                             -------------------------
                                 ACCUMULATED                           ------------
                                       OTHER                                  NOTES
                               COMPREHENSIVE                             RECEIVABLE
                                      INCOME      NUMBER                       FROM
                                       (LOSS)  OF SHARES          COST STOCKHOLDERS
-----------------------------------------------------------------------------------
<S>                                <C>        <C>         <C>                   <C>
Balance, December 1, 2001, as
   previously reported             $ 334,000  (1,383,574) $(35,384,000)         $--

Restatement adjustment (See
   Note 17)                               --          --            --           --
-----------------------------------------------------------------------------------
Balance, December 1, 2001, as
   restated                          334,000  (1,383,574)  (35,384,000)          --
Net loss-- fiscal 2002                    --          --            --           --
Minimum pension liability
   adjustment of $164,000, net
   of tax benefit of $59,000        (105,000)         --            --           --
Total comprehensive loss                  --          --            --           --
Cash dividends                            --          --            --           --
Acceleration of stock options
   (Note 6)                               --          --            --           --
Exercise of stock options
   (Note 6)                               --          --            --     (221,000)
Purchase of treasury stock                --     (16,899)     (297,000)          --
P Termination of Employee Stock
   Ownership Plan                         --     (86,456)   (1,556,000)          --
-----------------------------------------------------------------------------------
Balance, November 30, 2002           229,000  (1,486,929)  (37,237,000)    (221,000)
Net loss - fiscal 2003                    --          --            --           --
Change in net unrealized
   holding gain on investment
   securities available-for-
   sale, net of taxes               (223,000)         --            --           --
Minimum pension liability of
   $300,000 net of tax benefit
   of $108,000                      (192,000)
Total comprehensive loss                  --          --            --           --
Cash dividends                            --          --            --           --
Repayment of  notes receivable
   from stockholders                      --          --            --      221,000
Purchase of treasury stock                --     (22,984)     (218,000)          --
Reclass of  redeemable common
   stock to non redeemable
   common stock                           --          --            --           --
-----------------------------------------------------------------------------------
Balance, November 29, 2003          (186,000) (1,509,913)  (37,455,000)          --
Net loss - fiscal 2004                    --          --            --           --
Change in net unrealized
   holding loss on investment
   securities available-for-
   sale, net of taxes               (193,000)         --            --           --
Minimum pension liability of
   $50,000 net of tax benefit
   of $18,000                        (32,000)
Total comprehensive loss                  --          --            --           --
Cash dividends                            --          --            --           --
-----------------------------------------------------------------------------------

Balance, November 26, 2004          (411,000) (1,509,913) $(37,455,000)         $--

-----------------------------------------------------------------------------------
</TABLE>


                                 SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
                                 AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-8
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                       (NOTE 10)

<TABLE>
<CAPTION>
============================================================================================================

------------------------------------------------------------------------------------------------------------
                                                               NOVEMBER 30,
                                                               2003 THROUGH           FISCAL YEAR ENDED
                                                               NOVEMBER 26,    NOVEMBER 29,    NOVEMBER 30,
                                                                   2004            2003            2002
------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                            $   (72,000)  $  (1,370,000)  $   1,970,000
   Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
        Provision for doubtful accounts                             600,000         400,000         400,000
        Depreciation and amortization                             1,618,000       1,927,000       2,143,000
        Deferred income taxes                                      (534,000)        214,000          38,000
        Non-cash asset impairment and restructuring charges         615,000         685,000              --
        Compensation relating to acceleration of stock options           --              --         418,000
        Net gain on investment securities                          (759,000)     (1,266,000)     (2,179,000)
        Gain on disposition of fixed assets                      (1,073,000)       (443,000)       (817,000)
        Decrease (increase) in:
           Accounts receivable                                   (1,479,000)        (23,000)      2,720,000
           Inventories                                              423,000       2,855,000       3,949,000
           Other current assets                                      81,000         166,000         750,000
           Other assets                                              87,000         915,000          58,000
        Increase (decrease) in:
           Accounts payable                                       1,657,000        (942,000)       (804,000)
           Accruals and other liabilities                          (257,000)        198,000         112,000
------------------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY OPERATING ACTIVITIES             907,000       3,316,000       8,758,000
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment                       (34,000)       (267,000)       (225,000)
   Proceeds from sale of property and equipment                   1,828,000         621,000         957,000
   Proceeds from sales of investment securities                  10,774,000      17,441,000      38,650,000
   Acquisition of investment securities                            (588,000)             --              --
------------------------------------------------------------------------------------------------------------
              NET CASH PROVIDED BY INVESTING ACTIVITIES          11,980,000      17,795,000      39,382,000
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Purchase of treasury stock                                            --              --        (280,000)
   Dividends                                                    (15,645,000)    (20,860,000)    (52,901,000)
   Exercise of stock options                                             --              --       1,445,000
------------------------------------------------------------------------------------------------------------
              NET CASH USED IN FINANCING ACTIVITIES             (15,645,000)    (20,860,000)    (51,736,000)
------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 (2,758,000)        251,000      (3,596,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                      3,397,000       3,146,000       6,742,000
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $  639,000    $  3,397,000    $  3,146,000
============================================================================================================
</TABLE>

                                 SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
                                 AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-9
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================

BUSINESS

     Fab Industries, Inc. (the "Company") is a manufacturer of knitted apparel
     fabrics, including laces and finished home products, as well as laminated
     fabrics. The Company's sales are primarily made to United States customers.

     The Company's Board of Directors adopted resolutions dated March 1, 2002,
     which authorized, subject to stockholders approval, the sale of the
     Company's business pursuant to a Plan of Liquidation and Dissolution (the
     "Plan"). The Company's stockholders approved the Plan at the Company's
     annual meeting on May 30, 2002.

     The Company engaged the investment banking firm of McFarland Dewey & Co.,
     LLC in November 2002 to assist it with the sale of the Company's business.
     McFarland Dewey contacted numerous potential acquirers during the course of
     this eighteen-month process. On October 14, 2003, the Company announced
     that it had yet to receive any bona-fide offers to acquire the business as
     a going concern. Following that announcement, on October 23, 2003, the
     Company received a preliminary offer from a management-led buyout group to
     acquire the business, as a going concern, for $3.75 per share. The Company
     subsequently announced on November 14, 2003, that a stockholder filed a
     lawsuit, naming as defendants, the Company and each of its directors,
     seeking class-action certification, preliminary and permanent injunctions
     against the proposed management-led buyout, and unspecified damages. The
     preliminary offer from the management-led buyout group was subsequently
     withdrawn.

     The Company continued the auction process following the withdrawal of the
     management-led buyout group's preliminary offer. On March 10, 2004, the
     Company paid a $3.00 per share liquidating distribution. Following this
     liquidating distribution, the auction process resulted in the Company
     receiving three non-binding initial indications of interest from
     unaffiliated third parties, at prices ranging from $1.50 per share to $2.25
     per share and a non-binding initial indication of interest from SSJJJ (an
     affiliated company, see below), at a price of $2.83 per share. A Special
     Committee of the Company's Board of Directors, comprised solely of
     independent directors, was formed to evaluate SSJJJ's preliminary
     indication of interest. After further discussions between the Special
     Committee and SSJJJ, SSJJJ indicated that it may be willing make a binding
     offer of $2.80 per share to purchase the Company's business as a going
     concern. SSJJJ informed the Special Committee on August 9, 2004, that it
     would not be making a binding offer at that time to purchase the Company's
     business. On August 11, 2004, the Company announced that it suspended its
     formal auction process because it failed to receive a binding offer to
     purchase the Company's business as a going concern.

     The Company announced on March 9, 2005 that it had received a preliminary
     non-binding indication of interest from SSJJJ Manufacturing Co., Inc., an
     acquisition vehicle owned by several members of the Company's management,
     including Steven Myers, the Company's President and Chief Operating Officer
     ("SSJJJ"), to acquire the business, as a going concern, at a price of $2.80
     per share. A Special Committee of the Company's Board of Directors,
     comprised solely of independent directors, is currently evaluating SSJJJ's
     preliminary non-binding indication of interest.


                                                                            F-10
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


     Under the Plan, if the Company's business is not sold prior to May 30,
     2005, the Company will be required to transfer its assets and liabilities
     to a liquidating trust for the benefit of the Company's stockholders. If
     the Company's assets and liabilities are transferred to a liquidating trust
     on May 30, 2005, the Company's stock transfer books will close and its
     common stock will be delisted from trading on the AMEX effective on the
     close of business on May 30, 2005. Thereafter, certificates representing
     shares of Company common stock will not be assignable or transferable on
     the books of the Company, except by will, intestate succession or by
     operation of law. Thus, at such time, it will no longer be possible for the
     Company's stockholders to publicly trade the Company's stock and the
     proportionate interests of all of the Company's stockholders will be fixed
     on the basis of their respective stock holdings at the close of business on
     May 30, 2005. After such date, any distributions made by the Company will
     be made solely to the stockholders of record at the close of business on
     May 30, 2005, except as may be necessary to reflect subsequent transfers
     recorded on the Company's books from any transfers by will, intestate
     succession or by operation of law. The interests in any liquidating trust
     will not be transferable.

     There can be no assurance that the Company will be able to sell its
     business as a going concern, that the Company will be able to liquidate all
     of its assets prior to May 30, 2005, or that the sale of its business and
     assets will generate proceeds to the stockholders in an amount equal to or
     greater than the market price of its stock or the liquidation value of its
     assets.

     Due to the uncertainty as to whether the Company will be sold prior to May
     30, 2005, the Company has determined that it is more appropriate to present
     the Company's financial statements on a liquidation basis. Therefore, the
     Company changed its basis of accounting to the liquidation basis as of
     November 27, 2004.

     The amount of distributions ultimately available to be made to shareholders
     upon the final liquidation of the Company may differ from the "net assets
     in liquidation" recorded in the accompanying statements of Net Assets in
     Liquidation as a result of future changes in settlement of liabilities and
     obligations and actual costs of liquidation.


                                                                            F-11
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


     Under the liquidation basis of accounting, assets are stated at their
     estimated net realizable value and liabilities are stated at their
     anticipated settlement amounts, which approximates the $16,987,000 net
     orderly liquidation value. The liquidation values of the Company's
     receivables, inventory and fixed assets were based on valuations made by an
     independent valuation company. Included in the liabilities, the Company
     accrued $11,589,000 in costs of liquidation representing the estimate of
     the costs to be incurred during liquidation, however, actual costs could
     vary from those estimates. Distributions ultimately made to the
     shareholders upon liquidation will differ from the "net assets in
     liquidation" recorded in the accompanying statements of Net Assets in
     Liquidation as a result of future changes in settlement of liabilities and
     obligations and final costs of liquidation.

     As a result of the change to the liquidation basis of accounting on
     November 27, 2004, the Company wrote down assets by $5,656,000 and recorded
     additional liabilities relating to costs to liquidate totaling $10,052,000.
     The net adjustment as recorded as a reduction to equity of $15,708,000,
     resulting in the net assets in liquidation value of $16,987,000 as of
     November 27, 2005.

     Costs of liquidation including losses to be incurred winding down
     operations are $11,589,000, as summarized below:


     Compensation and benefits                                       $ 6,191,000
     Defined benefit pension plan                                      2,033,000
     Legal, audit and tax services                                     1,250,000
     Insurance                                                           450,000
     Other costs, including leases, property taxes, utilities,
     maintenance, repairs, stationery supplies, postage, and security  1,665,000
                                                                       ---------
     Total                                                           $11,589,000
                                                                     ===========

     Certain costs to liquidate have been offset against the related assets (see
     notes 3 and 4).

     Certain of the following policies and footnotes relate to periods prior to
     the change to the liquidation basis on November 27, 2004.


PRINCIPLES OF
CONSOLIDATION

     The financial statements include the accounts of the Company and its
     subsidiaries, all of which are wholly owned. Significant intercompany
     transactions and balances have been eliminated.


FISCAL YEAR

     The Company's fiscal year ends on the Saturday closest to November 30.
     Fiscal 2004 includes the period November 30, 2003 through November 26, 2004
     on a going concern basis. Fiscal 2003 and 2002 had fifty-two weeks.

                                                                            F-12
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


RISKS AND UNCERTAINTIES

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

     Financial instruments, which potentially subject the Company to
     concentrations of credit risk consist principally of cash and cash
     equivalents, investment securities, and trade receivables. The Company
     places its cash and cash equivalents with high credit quality financial
     institutions. The Company is subject to credit risk if brokers are unable
     to repay balances due or deliver securities in their custody. By policy,
     the company limits the amount of credit exposure to any one financial
     institution. The Company has received confirmation indicating that, with
     respect to investment securities, each custodian with the exception of one
     custodian maintains appropriate insurance coverage. During fiscal 2004 and
     fiscal 2003, that custodian had an average balance of approximately $6.3
     million and $9.6 million, respectively, of the Company's cash under
     investment, which from time to time during such periods was invested
     entirely in equity securities. At November 27, 2004, that custodian had
     approximately $5.9 million of the Company's cash under investments, with a
     majority invested in equities. In March 2004, the Company liquidated $2.5
     million from that custodian as part of the liquidating dividend. The
     Company's investment policy currently permits up to 50% of the Company
     portfolio to be held by the custodian.


                                                                            F-13
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


     Concentrations of credit risk with respect to trade receivables are limited
     due to a diverse group of manufacturers, wholesalers and retailers to whom
     the Company sells. The Company reviews a customer's credit history before
     extending credit. The Company further reduces its credit risk by factoring,
     without recourse, a variable amount of trade receivables. As of November
     27, 2004 and November 29, 2003, 18% and 8%, respectively, of the accounts
     receivable outstanding were due from factors. During fiscal 2004, one
     customer accounted for approximately 13% of net sales. The receivable from
     this customer represents approximately 26% of consolidated accounts
     receivable at November 27, 2004. No single customer accounted for sales
     greater than 10% of consolidated accounts receivable for the fiscal years
     2003 and 2002. No single customer had a net balance due greater than 10% of
     consolidated accounts receivable at November 29, 2003. Our export sales are
     not material. The Company's accounts receivable are customer obligations
     due under normal trade terms and up until November 26, 2004, carried at
     their face value less an allowance for doubtful accounts.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS

     The Company's accounts receivable are customer obligations due under normal
     trade terms and up until November 26, 2004, carried at their face value
     less an allowance for doubtful accounts.

     Up until November 26, 2004 the Company evaluated its accounts receivable on
     an ongoing basis and established an allowance for doubtful accounts based
     on specific customer circumstances and on its historical rate of
     write-offs. The Company included any accounts receivable balances that are
     determined to be uncollectible, along with a general reserve, in an overall
     allowance for doubtful accounts. After all attempts to collect a receivable
     have failed, the receivable is written off against the allowance. The
     Company believes the allowance for doubtful accounts as of November 26,
     2004 is adequate, however, actual write-offs might exceed the recorded
     allowance. As of November 27, 2004, accounts receivable are valued at net
     orderly liquidation value determined by an outside independent APPRAISER.


                                                                            F-14
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


CASH EQUIVALENTS

     The Company considers all highly liquid debt instruments with original
     maturities of three months or less to be cash equivalents.

INVESTMENTS

     The Company follows Statement of Financial Accounting Standards ("SFAS")
     No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
     ("SFAS No. 115"). SFAS No. 115 addresses accounting and reporting for
     investments in equity securities that have readily determinable fair values
     and for all investments in debt securities. Investments in such securities
     are to be classified as held-to-maturity, trading, or available-for-sale up
     until November 26, 2004. The Company classified all of its investments as
     available-for-sale. The investments are recorded at their fair value and
     the unrealized gain or loss, net of income taxes, was recorded in
     stockholders' equity.

     Gains and losses was on sales of investment securities prior to November
     27, 2004, are computed using the specific identification method.

INVENTORIES

     Up until November 26, 2004, inventories were valued at the lower of cost or
     market. For a portion of the inventories, cost was determined by the
     last-in, first-out (LIFO) method with the balance being determined by the
     first-in, first-out (FIFO) method. Inventories accounted for under the LIFO
     method are goods for the Apparel segment. Inventories accounted for under
     the FIFO method are goods manufactured for the Home Furnishing and
     Accessories and the Other segments. Both methods are not used for similar
     types of goods. The Company reviewed inventory values on a quarterly basis
     for items requiring markdowns to lower of cost or market value or due to
     obsolescence. As of November 27, 2004, inventories are valued at net
     orderly liquidation value determined by an independent appraiser.

COST OF GOODS SOLD

     Cost of goods sold includes labor, purchases, inbound freight charges,
     receiving costs, warehouse costs and the change in inventory during the
     period. Excess fixed production costs are not inventoried and are expensed
     in the period incurred.


                                                                            F-15
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE

     Selling, general and administrative expenses primarily include costs
     relating to administrative and salespersons salaries and benefits, bad debt
     expense, professional and consulting fees, insurance expense and rent for
     the New York office. In addition, these expenses include compensation
     expense and an offset to investment income to reflect changes in the fair
     value of the trading securities held by the nonqualified defined
     contribution plan, in accordance with EITF 97-14.


REVENUE RECOGNITION

     The Company recognizes its revenues upon shipment of related goods.
     Shipping terms are FOB shipping point pursuant to the Company's sales
     agreements. Risk of loss transfers to the Company's customers at the time
     the goods are transferred to a common carrier, per the Company's sales
     agreements. The acceptance of goods by the customer is not subject to
     inspection. Allowances for estimated returns are provided when sales are
     recorded.


SHIPPING AND
HANDLING COSTS

     Shipping and handling costs billed to customers are recorded as revenue.
     The costs associated with shipping goods to customers are recorded as the
     cost of goods sold. The majority of the shipping costs are paid directly by
     the Company's customers to independent trucking companies.

DERIVATIVE FINANCIAL
INSTRUMENTS HELD OR
ISSUED

     The Company is party to equity option contracts as part of its investing
     activities. Option contracts are contractual agreements that give the
     purchaser the right, but not the obligation, to purchase or sell a
     financial instrument at a predetermined exercise price. In return for this
     right, the purchaser pays a premium to the seller of the option. By selling
     or writing options, the Company receives a premium and becomes obligated
     during the term of the option to purchase or sell a financial instrument at
     a predetermined exercise price if the option is exercised, and assumes the
     risk of not being able to enter into a closing transaction if a liquid
     secondary market does not exist.

     In accordance with SFAS 133, the Company's policy is to recognize all
     derivatives instruments as either assets or liabilities on the balance
     sheet at fair value. Changes in fair value are recognized in the income
     statement in the period in which they occur. Derivatives are not used for
     trading purposes. Derivatives are used to hedge against fluctuations in the
     market value of equity securities.

PROPERTY, PLANT AND
EQUIPMENT

     Up until November 26, 2004, property, plant and equipment was stated at
     cost. Depreciation was computed using principally the straight-line method.
     The range of estimated useful lives was 15 to 33 years for buildings and
     building improvements, 4 to 10 years for machinery and equipment, 10 years
     for leasehold improvements and 5 years for trucks and automobiles.
     Depreciation ceases upon any items classification as held for sale. As of
     November 27, 2004, property, plant and equipment are valued at net orderly
     liquidation value determined by an outside independent appraiser.


                                                                            F-16
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


LONG-LIVED ASSETS

     The Company reviews the carrying values of its long-lived and identifiable
     intangible assets for possible impairment whenever events or changes in
     circumstances indicate that the carrying amount of the assets may not be
     recoverable. Any long-lived assets held for disposal are reported at the
     lower of their carrying amounts or fair value less cost to sell. During
     fiscal 2004 and fiscal 2003, the Company reviewed assets held for sale and
     determined an additional impairment charge of $615,000 and $685,000,
     respectively, was required. See Note 12 of the notes to the financial
     statements. As of November 27, 2004, the Company changed to liquidation
     basis of accounting.

RESEARCH AND
DEVELOPMENT COSTS

     Research and development costs are charged to expenses in the year incurred
     and amounted to $775,000, $850,000, and $1,690,000 in fiscal 2004, 2003 and
     2002, respectively.

ACCOUNTING FOR
STOCK-BASED COMPENSATION

     The Company applied Accounting Principles Board Opinion No. 25, "Accounting
     for Stock Issued to Employees" and related interpretations in accounting
     for its various stock option plans. The Company has adopted the
     disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
     Compensation" and SFAS No. 148, "Accounting for Stock-Based
     Compensation-Transition and Disclosure", which was released in December
     2002 as an amendment to SFAS 123. In accordance with SFAS No. 148, the
     following table illustrates the effect on net income and earnings per share
     as if the Company had applied the fair value recognition provisions of SFAS
     No. 123. See Note 6 for disclosure of assumptions utilized in the
     calculation of fair value. The Company's stock option plans were terminated
     subsequent to the fiscal year ended November 30, 2002.

<TABLE>
<CAPTION>
                                                              2004          2003         2002
                                                           (In thousands, except per share data)
<S>                                                           <C>        <C>           <C>
Net Income (loss) as reported                                 $(72)      $(1,370)      $1,970
Less:  Total stock-based employee compensation
expense determined under fair value based method
for all awards,
net of related tax effects                                      --            --         (130)
                                                            ----------------------------------
Pro forma net income (loss)                                   $(72)      $(1,370)      $1,840
Basic and diluted net income (loss) per share-As reported   $(0.01)       $(0.26)       $0.38

Pro forma                                                   $(0.01)       $(0.26)       $0.35
==============================================================================================
</TABLE>


                                                                            F-17
<PAGE>

                                                       FAB INDUSTRIES, INC.
                                                           AND SUBSIDIARIES


                                             SUMMARY OF ACCOUNTING POLICIES

================================================================================


TAXES ON INCOME

     The Company follows the liability method of accounting for income taxes.
     Accordingly, deferred income taxes reflect the net tax effect of temporary
     differences between the carrying amounts of assets and liabilities for
     financial reporting purposes and for income tax purposes.

EARNINGS (LOSS)
PER SHARE

     Basic earnings (loss) per share is based on the weighted average number of
     common shares outstanding during the fiscal year. Diluted earnings per
     share is based on the weighted average number of common shares and dilutive
     potential common shares outstanding during the fiscal year. There were no
     dilutive potential common shares outstanding in fiscal 2004 and 2003. For
     fiscal 2002, potentially dilutive securities that related to shares
     issuable upon the exercise of stock options granted by the Company were
     excluded, as their effect was antidilutive. See Note 13 of notes to the
     financial statements.

RECLASSIFICATIONS

     Certain prior fiscal years' accounts have been reclassified for comparative
     purposes.


                                                                            F-18

<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

1.   CASH AND CASH EQUIVALENTS

     Cash and cash equivalents at November 27, 2004 and November 29, 2003
     consisted of the following (in thousands):

                                                        2004               2003
     ---------------------------------------------------------------------------
     Cash                                               $369               $549
     Taxable and tax-free short-term
       debt instruments

                                                         270              2,848
     ---------------------------------------------------------------------------
                                                        $639             $3,397
     ===========================================================================


2.   INVESTMENT SECURITIES

     Investment securities available-for-sale at November 27, 2004 and November
     29, 2003 consisted of the following (in thousands):


                                             GROSS         GROSS
                                           UNREALIZED    UNREALIZED
                                 COST     HOLDING GAIN  HOLDING LOSS  FAIR VALUE
     ---------------------------------------------------------------------------
     2004:
        Equities             $     6,516  $        222    $     (87)  $    6,651
        U.S. Treasury
           obligations            11,132           --           (20)      11,112
        Corporate bonds            1,591           --          (252)       1,339
        Money market                 153           --            --          153
    ----------------------------------------------------------------------------
                             $    19,392  $       222     $    (359)  $   19,255
     ===========================================================================
     2003:
        Equities             $       750  $        17     $      --   $      767
        U.S. Treasury
           obligations            27,519          418            --       27,937
        Corporate bonds              253           --          (250)           3
        Money market                 297           --            --          297
     ---------------------------------------------------------------------------
                             $    28,819  $       435     $    (250)  $   29,004
     ===========================================================================


                                                                            F-19
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


The carrying values and approximate fair values of investments in debt
securities available-for-sale, at November 27, 2004 and November 29, 2003.

                         NOVEMBER 27, 2004                NOVEMBER 29, 2003
                      -----------------------     ---------------------------
                        Cost       Fair value           Cost       Fair value
                       $12,723       $12,451           $27,772       $27,940
     ========================================================================

Gross and net realized gains and losses on sales of investment securities were:

                                          2004            2003           2002
     -------------------------------------------------------------------------
     Gross realized gains              $ 1,705         $ 3,980        $ 6,653
     Gross realized losses                (946)         (2,714)        (4,474)
     -------------------------------------------------------------------------
     Net realized gain                   $ 759         $ 1,266        $ 2,179
     =========================================================================


Other comprehensive income (loss) for fiscal 2004, 2003, and 2002 included the
following (in thousands):


                                            2004           2003           2002
     ---------------------------------------------------------------------------
     Unrealized holding gains
     arising during the year, net of
     tax
                                           $ 262          $ 537         $1,307


     Reclassification adjustment,
     net of tax                             (455)          (760)        (1,307)
     ---------------------------------------------------------------------------


     Other comprehensive loss, net
     of tax                                $(193)         $(223)            --
     ===========================================================================


                                                                            F-20
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     During Fiscal 2004, the Company invested a portion of their securities in
     equity consisting of a portfolio of Standard and Poor's 100 ("S&P 100")
     common stocks, the fair value of which varies consistently with changes in
     the S&P 100 index. To hedge against fluctuations in the market value of the
     portfolio, the Company has purchased short-term S&P 100 index put options
     and sold short-term S&P 100 call options. Although the Company uses these
     instruments to hedge against fluctuations in the market value of the
     securities, the Company does not maintain adequate documentation for its
     hedging activities, and therefore does not use hedge accounting. All gains
     and losses from the use of these instruments are included in the income
     statement in the period that they occur. At November 27, 2004, the Company
     had a majority invested in equities. At November 29, 2003 the Company had
     no such investments. The Company will continue to invest in such equities
     in the future.

     Realized losses on purchased short-term S&P 100 index put options and sold
     short-term S&P 100 call options during fiscal 2004, 2003, and 2002 were
     approximately $(64,000), $(874,000), and $(1,463,000), respectively.

     The Company has agreements with various brokerage firms to carry its
     account as a customer. The brokers have custody of the Company's securities
     and, from time to time, cash balances which may be due from these brokers.

     These securities and/or cash positions serve as collateral for any amounts
     due to brokers or as collateral for securities sold short or securities
     purchased on margin. The securities and/or cash positions also serve as
     collateral for potential defaults of the Company.


                                                                            F-21
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


3.    INVENTORIES

     Inventories at November 27, 2004 and November 29, 2003 consisted of the
     following (in thousands, except for percentages):

                                                   NET ORDERLY
                                              LIQUIDATION VALUE           COST
     ---------------------------------------------------------------------------
                                                           2004           2003
     ---------------------------------------------------------------------------
     Raw materials                                       $  623       $  1,446
     Work-in-process                                        233          1,867
     Finished goods                                       1,486          2,218
     ---------------------------------------------------------------------------
                                                       $  2,342       $  5,531

     Less: Estimated costs to liquidate                     825

     --------------------------------------------------------------------------
     Net orderly liquidation value                    $   1,517
     ===========================================================================

     Approximate percentage of
       inventories valued under LIFO
       method                                                              61%
     ===========================================================================
     Excess of FIFO valuation over LIFO
       valuation                                                      $  1,007
     ===========================================================================

     The net orderly liquidation value has been determined by an outside
     independent appraiser.


                                                                            F-22
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


4.   PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment at November 27, 2004 and November 29, 2003
     consisted of the following (in thousands):

                                                 NET ORDERLY
                                             LIQUIDATION VALUE            COST
     ---------------------------------------------------------------------------
                                                        2004              2003
     ---------------------------------------------------------------------------
        Land and improvements                    $       390       $       390
        Buildings and improvements                     2,205             7,323
        Machinery and equipment                        3,637            22,255
        Trucks and automobiles                            --               679
        Office equipment                                  --               287
        Leasehold improvements                            --               548
        Assets held for sale (Note 12)                    --             2,013
     ---------------------------------------------------------------------------
                                                       6,232            33,495
     Less:  Accumulated depreciation and
               amortization                               --            24,303
     ---------------------------------------------------------------------------
                                                       6,232          $  9,192
     Less: Estimated costs to liquidate                  150                --
                                                         ---
                                                     $ 6,082
     ===========================================================================

     The net orderly liquidation value has been determined by an outside
     independent appraiser.


5.   OBLIGATIONS UNDER CAPITAL LEASES

     During fiscal 2002, the capital lease liability was forgiven by the lessor,
     resulting in other income of $339,000, which was included in selling,
     general and administrative expenses for fiscal 2002.


                                                                            F-23
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


6.   STOCK COMPENSATION PLANS

     STOCK OPTION PLAN

     In May 2001 and May 1997, the Board of Directors adopted and the
     shareholders approved two new stock option plans providing for the grant of
     up to 200,000 shares and 175,000 shares of common stock, respectively, at
     any time over the next ten years from the date such plans were adopted.
     These stock option plans have been terminated subsequent to the fiscal year
     ended November 30, 2002.

     Pursuant to resolutions adopted by the Company's Board of Directors and
     documentation sent to and returned to the Company by option holders,
     effective immediately following stockholder approval of the Plan, on May
     30, 2002, all outstanding options under the Company's 1997 Stock Incentive
     Plan became vested, and all options as to which optionees (including
     employees and directors) had returned to the Company the appropriate forms
     (representing options held by all but one optionee, who exercised via
     payment to the Company) were exercised through the issuance of loans from
     the Company to the optionees, with stock of the optionees held as
     collateral by the Company until the loans have been satisfied. The amount
     loaned to the employees and directors to exercise their options was
     approximately $1,495,000, which was repaid as of June 13, 2003. These
     options were subject to variable accounting at each reporting period, until
     the related loans were repaid. In June 2003, the Company repurchased 22,984
     shares of its common stock at $9.48 per share from employees and directors
     with outstanding loans from the Company to offset the related payment of
     the loans due from such employees and directors, which were due as of May
     31, 2003 with a one month grace period. The Company purchased the number of
     shares necessary for the employees and directors to pay off all outstanding
     loans, including interest. In fiscal 2003 and 2002 no compensation costs
     was recorded related to variable accounting since the market price of the
     Company's stock did not change significantly from the date the options were
     exercised to the date the loans were repaid in fiscal 2003 and 2002. Based
     on the acceleration of certain stock options, the Company recorded a charge
     of approximately $418,000 to compensation expense and an increase to
     additional paid-in capital in fiscal 2002. As of November 27, 2004 there
     were no outstanding options under either of the 2001 stock option plan or
     the 1997 stock option plan.


                                                                            F-24
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     There were no options granted in fiscal 2004, 2003 and 2002.

     Data regarding the Company's stock option plan follows:


                                                      SHARES    WEIGHTED AVERAGE
                                                                 EXERCISE PRICE
                                                                    PER SHARE
     ---------------------------------------------------------------------------
     Shares under option, December 1, 2001           143,200       $  12.53
     Options granted                                      --             --
     Options exercised                              (133,000)         12.51
     Options canceled                                (10,200)         12.70
    ----------------------------------------------------------------------------
     Shares under option, November 30, 2002               --             --
    ----------------------------------------------------------------------------
     Shares under option, November 29, 2003               --             --
    ----------------------------------------------------------------------------
     Shares under option, November 27, 2004
    ----------------------------------------------------------------------------

     ===========================================================================

    ----------------------------------------------------------------------------
     Options exercisable at:
        November 30, 2002                                 --             --
        November 29, 2003                                 --             --
        November 27, 2004                                 --             --
     ===========================================================================


                                                                            F-25
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


7.   BENEFIT PLANS

     PROFIT SHARING PLANS

     A qualified plan, which covers the majority of salaried employees, provides
     for discretionary contributions up to a maximum of 15% of eligible
     salaries. The distribution of the contribution to the Plan's participants
     is based upon their annual base compensation. Contributions for fiscal
     2004, 2003 and 2002 were $104,000, $118,000 and $144,000, respectively.

     The Company also has a nonqualified defined contribution retirement plan
     for key employees who are ineligible for the salaried employees' qualified
     profit sharing plan. Contributions for fiscal 2004, 2003 and 2002 were
     $39,000, $41,000 and $41,000, respectively. Benefits payable under this
     plan amounting to $1,901,000 and $1,925,000 at November 27, 2004 and
     November 29, 2003, respectively, are included in other noncurrent
     liabilities. These liabilities are fully funded by plan assets of equal
     amounts, which are included in other assets.


     In fiscal 2004, the Company recorded compensation expense and an offset to
     investment income totaling $155,000 to reflect changes in the fair value of
     the trading securities held by the nonqualified defined contribution
     retirement plan, in accordance with EITF 97-14.


     PENSION PLAN

     The Company maintains a non-contributory defined benefit pension plan (Fab
     Industries, Inc. Hourly Employees' Retirement Plan) which covers
     substantially all hourly employees. The Plan provides benefits based on the
     participants' years of service.

     An estimate of the liability associated with terminating the plan for
     underfunding of the hourly plan would be approximately $2.0 million. This
     will be assessed by the Pension Benefit Guarantee Corporation. This has
     been included in the estimated costs of liquidation. The Company plans to
     terminate the non-contributory defined benefit pension plan and distribute
     the lump sum payment to its participant on transfer of the Company's assets
     to the liquidating trust.


                                                                            F-26
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     The following table provide a reconciliation of the changes in the Plan's
     benefit obligations and fair value of assets and a statement of the funded
     status of the Plan for fiscal 2003:


                                                                 2003
                                                        ------------------
     RECONCILIATION OF THE BENEFIT OBLIGATION
     Obligation at beginning of year                       $3,312,000
     Service cost                                             163,000
     Interest cost                                            218,000
     Actuarial loss                                           355,000
     Benefit payments                                        (785,000)
                                                        ------------------
     Obligation at end of year                             $3,263,000
                                                        ==================

                                                                 2003
                                                        ------------------
     RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
     Fair value of plan assets at beginning of year
                                                           $2,477,000
     Actual return on plan assets (net of expenses)
                                                              137,000
     Employer contribution                                         --
     Benefit payments                                        (785,000)
                                                        ------------------
     Fair value of plan assets at end of year              $1,829,000
                                                        ==================

                                                                 2003
                                                        ------------------
     FUNDED STATUS
     Funded status                                        $(1,434,000)
     Unrecognized prior service cost                          256,000
     Unrecognized actuarial loss                              464,000
                                                        ------------------
     Net amount recognized                                  $(714,000)
                                                        ==================


                                                                            F-27
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     The following table provides the amounts recognized in the consolidated
     balance sheets as of November 29, 2003:


                                                                         2003
                                                                  --------------
              Accrued benefit liability (included in other        $(1,434,000)
                noncurrent liabilities)
              Intangible pension asset (included in other assets)     256,000
              Accumulated other comprehensive loss (Net of tax
                effect below)                                         297,000
              Deferred tax asset                                      167,000
                                                                  --------------
              Net amount recognized                               $  (714,000)
                                                                  ==============


     The following table provides the components of the net periodic (benefit)
     cost for the Plan for fiscal 2004 and 2003:

<TABLE>
<CAPTION>
                                                                        2004         2003
                                                                 -------------------------
<S>                                                              <C>          <C>
              Service cost                                       $   159,000  $   163,000
              Interest cost on projected benefit obligation          215,000      218,000
              Expected return on plan assets                        (144,000)    (191,000)
              Amortization of prior service cost                      37,000       37,000
              Amortization of net gain                                31,000           --
              Recognized loss due to curtailment and settlement
                                                                      83,000      109,000
                                                                 =========================
              Net periodic pension cost                          $   381,000  $   336,000
                                                                 =========================
</TABLE>


     Prior service costs are being amortized over the average remaining service
     period as of the date of each amendment for active members expected to
     receive benefits. Accumulated gains/losses in excess of 10% of the greater
     of Projected Benefit Obligation and the Fair Value of Assets are amortized
     over the average future work life of participants expected to receive
     benefits.

     The weighted average assumptions used in the measurement of the Company's
     benefit obligations for fiscal 2004 and 2003 are shown in the following
     table:

                                                               2004       2003

                                                            --------------------

               Discount rate                                   6.00%      6.25%
               Expected return on plan assets                  8.00%      8.00%


                                                                            F-28
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     EMPLOYEE STOCK OWNERSHIP PLAN

     The Company had an Employee Stock Ownership Plan ("ESOP"), which covered
     all full-time employees who have completed one year of service. In 1991,
     the ESOP purchased 340,000 shares of common stock from the Chairman of the
     Board of Directors and President of the Company for $34.875 per share,
     which represented 5.5% of the Company's then outstanding common stock. The
     ESOP was funded by the Company, pursuant to a loan pledge agreement for
     $11,857,000. The loan was payable by the ESOP to the Company from
     contributions to be made in fifteen equal annual principal installments
     plus interest at the prime rate. Employee rights to the common shares vest
     over a seven-year period and are payable at retirement, death, disability
     or termination of employment.

     The Company accounted for the ESOP shares in accordance with the provisions
     of the American Institute of Certified Public Accountants' Statement of
     Position No. 76-3. ESOP contributions were recorded for financial reporting
     purposes as the ESOP shares became allocable to the plan participants. All
     ESOP shares were considered outstanding in the determination of earnings
     (loss) per share.

     Pursuant to resolutions adopted by the Company's Board of Directors, upon
     approval of the Plan by the stockholders on May 30, 2002 Employees Stock
     Ownership Plan (the ESOP) was terminated and all shares of common stock of
     the Company then held in the ESOP suspense account (86,456 shares) were
     transferred to the Company, and held as treasury stock, in exchange for the
     cancellation of the outstanding loan in the amount of $3,957,000 from the
     Company to the ESOP. The Company recorded the related treasury stock at the
     fair market value on the date of the termination, which resulted in a $2.4
     million charge to additional paid-in-capital in fiscal 2002.


                                                                            F-29
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


8. Income Taxes

     Provisions (benefits) for Federal, state and local income taxes for fiscal
     2004, 2003 and 2002 consisted of the following components (in thousands):

                                            2004         2003         2002
     ------------------------------------------------------------------------
     Current:
     Federal                            $    379      $   313      $   479
     State and local                         120          150          100
     ------------------------------------------------------------------------
                                             499          463          579
     Deferred:
     Federal and state                      (534)        (638)         461
     ------------------------------------------------------------------------
                                        $    (35)     $  (175)      $1,040
     ========================================================================

     The provision (benefit) for income taxes differed from the amount computed
     by applying the statutory federal income tax rate of 34.0% for fiscal 2004,
     2003 and 2002 to income (loss) before income taxes due to the following:

                                            2004         2003         2002
                                             (Tax effect in thousands)
     ------------------------------------------------------------------------
     Federal tax expense (benefit)
     at statutory rate                 $     (36)   $    (525)    $    513
     State and local income taxes,
     net of Federal benefit                   79           99           66
     Tax-free interest income and
     dividends received deduction            (50)         (59)        (119)
     Other                                   (28)         310          580
     ------------------------------------------------------------------------
     Income tax expense (benefit)      $     (35)   $    (175)    $  1,040
     ========================================================================


                                                                            F-30
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     The net deferred tax liability (asset) at November 27, 2004 and November
     29, 2003 consisted of the following (in thousands):


     ---------------------------------------------------------------------------
                                                                  2003
     ---------------------------------------------------------------------------
     Long-term portion:
         Deferred tax liability (asset) for:
             Depreciation                                  $     1,577

             Employee Benefit Plans                             (1,360)
             Pension obligation                                   (167)
             Other                                                   2
     ---------------------------------------------------------------------------
                   Net long-term liability (asset)                  52
     ---------------------------------------------------------------------------
     Current portion:
         Deferred tax liability (asset) for:
             Allowance for doubtful accounts                      (337)
             Net unrealized gain
                on investment securities                            74
             Other                                                (243)
     ---------------------------------------------------------------------------
                   Net current liability (asset)                  (506)
     ---------------------------------------------------------------------------
     Net deferred tax asset                                   $   (454)
     ===========================================================================

                                                                  2004
     ---------------------------------------------------------------------------
     DEFERRED TAX ASSET
          Accounts Receivable                                   $ (713)
          Inventory                                             (1,203)
          Other                                                   (111)
                                       Total                    (2,027)
          Valuation Allowance                                      172
     ---------------------------------------------------------------------------
              Net Asset after Valuation Allowance             $ (1,855)
     ---------------------------------------------------------------------------

     DEFERRED TAX LIABILITY
          Fixed Assets                                         $   739
           Prepaid Insurance                                       164
                                       Total                       903
     ---------------------------------------------------------------------------
             Net Deferred Tax Asset (1)                       $   (952)
     ---------------------------------------------------------------------------

     (1) Included in other assets in the statement of net assets in liquidation
     and represents expected recoveries in liquidation.


                                                                            F-31

<PAGE>


                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

9.   COMMITMENTS AND CONTINGENCIES

     EMPLOYMENT AGREEMENT

     On July 25, 2003, the Company and Mr. Bitensky amended the employment
     agreement between the Company and Mr. Bitensky dated as of March 1, 1993 to
     provide that at such time as the Company is sold or liquidated pursuant to
     the Plan, in lieu of the annual consulting fees due under such an agreement
     over the five year consulting period provided therein, Mr. Bitensky will
     receive a lump sum payment equal to the aggregate net present value of each
     payment due under such agreement, such present value to be determined
     utilizing the prevailing prime rate at the time of the payment, as
     determined by the Board. Accordingly, the Company recorded a charge of
     $856,000, which was included in other expense for fiscal 2003.

     Such amendment to the employment agreement also provides that Mr. Bitensky
     relinquishes his right under the terms of the original agreement to require
     the Company to purchase upon his death shares of common stock from his
     estate equal to the lessor of $7 million or 10% of the book value of the
     Company at the end of the year immediately following his death, plus $3
     million in proceeds from insurance on his life for which the Company was
     beneficiary. In consideration of Mr. Bitensky's relinquishing the right to
     have the Company repurchase approximately $10 million of shares of common
     stock from his estate, the Company agreed to transfer to Mr. Bitensky
     ownership of the three life insurance policies on Mr. Bitensky's life owned
     by the Company. The Company transferred these policies having an aggregate
     cash surrender value at November 29, 2003 of approximately $803,000.
     Accordingly, the Company recorded a charge of $803,000, which was included
     in other expenses and reclassified the $7 million in redeemable common
     stock to retained earnings in fiscal 2003. The redeemable shares were
     included in the basic and diluted weighted average number of shares
     outstanding for the fiscal years ending November 29, 2003 and November 30,
     2002.


                                                                            F-32

<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     LEASES

     The Company leases its New York City offices and showrooms until 2005, at
     average minimum annual rentals of $91,000 plus escalation and other costs.

     Rental expense for operating leases in fiscal 2004, 2003 and 2002
     aggregated $251,000, $297,000 and $495,000, respectively.

     Future minimum annual payments over the remaining noncancellable term of
     the Company's New York City operating lease are as follows:

     FISCAL YEAR ENDING (IN THOUSANDS)
     =====================================================================
     2005                                               $  91
     ---------------------------------------------------------------------

     LITIGATION

     On November 10, 2003, a class action suit was filed against the Company in
     Delaware Chancery Court. The complaint asserts claims against the Company
     and certain of its officers and directors based on the management buy-out
     proposal at a price allegedly lower than the cash value and book value of
     the Company's shares and which was an allegedly interested transaction, the
     amendment to Mr. Bitensky's employment contract, the Company's failure to
     seek stockholder approval for the management buyout and the Company's
     failure to file a certificate of dissolution with the Delaware Secretary of
     State. The complaint alleges such actions constitute violations of
     defendants' fiduciary duties, as well as the provisions of the Delaware
     General Corporation Law.

     The complaint does not seek a specific amount of damages, and seeks to
     enjoin defendants from effectuating the planned management buyout. The
     Company served an answer to the complaint on December 11, 2003.

     On each of November 21 and November 26, 2003 class action lawsuits were
     initiated against the Company in Delaware Chancery Court asserting the same
     allegations as those described above.

     The Company believes that each of the claims described above is without
     merit. Further, certain of the claims described above have been rendered
     moot by the withdrawal of preliminary offer by the management-led buyout to
     acquire the Company.

     By petition dated September 9, 2004, plaintiff requested that all of its
     claims be dismissed because they have been rendered moot by the withdrawal
     of the management buy-out and there is no current plan to effectuate a sale
     of the Company's assets. Plaintiff also petitioned the Court for an award
     of reasonable attorney's fees in the amount of $300,000 and attorney's
     expenses of $13,794.05 (the "Fee Petition") because plaintiff's claim
     conferred a benefit on the Company's public stockholders by preventing the
     consummation of the proposed management buy-out and preserving the value of
     the public stockholders' investment in the Company's stock. The Company
     opposed the petition.


                                                                            F-33
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


     On December 29, 2004 the Court of Chancery of the State of Delaware denied
     the Fee Petition. The Court concluded that the Fee Petition should be
     denied as plaintiff's claims either were not meritorious when filed or, to
     the extent that they were, they are not yet moot.

     Following that decision, plaintiff moved for summary judgment on its claims
     relating to the Company's alleged failure to timely file a certificate of
     dissolution and seeking a declaration that the plan of dissolution (the
     "Plan") is invalid for failure to require a shareholder vote before the
     sale of all of the Company's assets. The motions were fully briefed and
     argued before the Court on April 12, 2005. On May 2, 2005, the court issued
     its opinion holding that the Plan is valid in its entirety and that the
     Company has not violated Delaware law by not yet filing its certificate of
     dissolution. The court stated that the Company may negotiate and agree to a
     sale before the certificate of dissolution is filed, but that the sale
     cannot be consummated until the certificate of dissolution has become
     effective. The court concluded that once the dissolution becomes effective,
     Fab may consummate a sale of its assets without a shareholder vote.

     A number of claims and lawsuits are pending against the Company. It is
     impossible at this time for the Company to predict with any certainty the
     outcome of such litigation. However, management is of the opinion based
     upon information presently available, that it is unlikely that any
     liability would be material in relation to the Company's consolidated
     financial position, or results of operations.

     OTHER

     The Company had a letter of credit with its insurance provider for $400,000
     as of November 27, 2004, subsequently reduced to $100,000.


10.  STATEMENT OF CASH FLOWS

     Cash outlays for corporate income taxes and interest for fiscal 2004, 2003
     and 2002 were as follows (in thousands):

                                                     CORPORATE INCOME
                                                          TAXES         INTEREST
          ----------------------------------------------------------------------
          November 30, 2003 thru November 26, 2004      $    162          $   --
          Fiscal 2003                                        538              --
          Fiscal 2002                                        156              13
          ======================================================================


     NONCASH INVESTING AND FINANCING ACTIVITIES

     In fiscal 2004, 2003 and 2002, net unrealized holding losses of $(322,000),
     $(372,000) and $0, respectively, less related income taxes of $(129,000),
     $(149,000), and $0, on investment securities available-for-sale, were
     recorded as decreases in stockholders' equity.

     In June 2003, the Company repurchased 22,984 shares of its common stock at
     $9.48 per share from employees and directors in exchange for its notes
     receivable from these individuals.


                                                                            F-34
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


11.  INTEREST AND DIVIDEND INCOME

     Interest and dividend income for the past three fiscal years were as
     follows (in thousands):

                                                       DIVIDEND
                               INTEREST INCOME          INCOME         TOTAL
      --------------------------------------------------------------------------
      November 30, 2003             $529                 $112           $641
      thru November 26, 2004
      Fiscal 2003                  1,089                  190          1,279
      Fiscal 2002                  2,164                  249          2,413
      ==========================================================================

     Fiscal 2004 includes investment income of $155,000 offset by compensation
     expense to reflect changes in the fair value of the trading securities held
     by the nonqualified defined contribution plan, in accordance with EITF
     97-14.


12.  ASSET IMPAIRMENT AND RESTRUCTURING CHARGES

     From November 30, 2003 thru November 26, 2004 and fiscal 2003, the Company
     reviewed assets held for sale and determined an additional impairment
     charge of $615,000 and $685,000, respectively was required based on a
     comparison of a comparison the assets book value to market prices
     determined by an independent appraiser.

     The Company continues to utilize the majority of its remaining property,
     plant, and equipment, however, there can be no assurance that the Company
     will sell its assets or if it does sell its assets, that it will be able to
     recover the full value of its assets, particularly its property, plant and
     equipment. (see summary of accounting policies for the transfer to the
     liquidating trust)


                                                                            F-35
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


13.  EARNINGS (LOSS) PER SHARE

     Basic and diluted earnings (loss) per share for fiscal 2004, 2003 and 2002
     are calculated as follows:

<TABLE>
<CAPTION>
                                          NET INCOME      WEIGHTED
                                              (LOSS)   AVERAGE SHARES   PER SHARE AMOUNT
     -----------------------------------------------------------------------------------
     <S>                                    <C>            <C>            <C>
     November 30, 2003 thru
       November 26, 2004:
        Basic loss per share                $(72,000)      5,215,031      $  (.01)
                                                                        ===============
        Effect of assumed exercise of
           employee stock options                 --              --
     -----------------------------------------------------------------------------------
        Diluted loss per share              $(72,000)      5,215,031      $  (.01)
     ===================================================================================
     Fiscal year ended November 29,
       2003:
        Basic loss per share             $(1,370,000)      5,226,902      $(  .26)
                                                                        ===============
        Effect of assumed exercise of
           employee stock options                 --              --
     -----------------------------------------------------------------------------------
        Diluted loss per share           $(1,370,000)      5,226,902      $(  .26)
     ===================================================================================
     Fiscal year ended November 30,
       2002:
        Basic earnings per share          $1,970,000       5,222,812      $   .38
                                                                        ===============
        Effect of assumed exercise of
           employee stock options                 --              --
     -----------------------------------------------------------------------------------
        Diluted earnings per share        $1,970,000       5,222,812      $   .38
     ===================================================================================
</TABLE>

     During fiscal 2004 and 2003 there were no options outstanding. During
     fiscal 2002, all outstanding options were either exercised or canceled.

                                                                            F-36
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


14.  SEGMENT INFORMATION

The Company adopted SFAS No. 131 "Disclosure About Segments of an Enterprise and
Related Information" in fiscal 1999. SFAS No. 131 requires companies to report
information on segments using the way management organizes segments within the
company for making operating decisions and assessing financial performance.

The Company's chief operating decision-maker is considered to be the Chief
Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The Company has identified three reportable segments based
upon the primary markets it serves: Apparel Fabrics, Home Fashions, Industrial
Fabrics and Accessories and Other.

Apparel Fabrics: The Company's basic warp and circular knit fabrics are sold to
manufacturers of outerwear, intimate apparel, loungwear, and activewear. These
fabrics are sold primarily in piece dyed form, as well as in "PFP" (prepared for
print), and heat transfer print configurations.

The Company's wide elastic fabrics are sold to manufacturers of intimate
apparel, foundation, swimwear, athleticwear, aerobicwear, sportswear, and
healthcare products.

The Company's lace products are sold to manufacturers of intimate apparel,
hosiery, ladies sportswear, children's wear, swimwear, accessories, and hobbies
and crafts.

Home Fashions and Accessories: The Company utilizes its internally manufactured
fabrics and laces to produce flannel and satin sheets, blankets, comforters, and
other bedding-related products which are sold to specialty retail stores,
catalog and mail order companies and airlines through the Company's subsidiary,
Salisbury Manufacturing Corporation.

Other: Included in this segment is (1) Gem Urethane Corporation, (2) the
Over-the-Counter Retail operation and (3) sales of industrial and other
miscellaneous fabrics.

The Company's subsidiary, Gem Urethane Corporation produces a line of bonded
products for manufacturers of environmental, healthcare, industrial and consumer
products.

Gem also performs commission laminating for various manufacturers of consumer
products. Fire resistant fabrics are sold to manufacturers in the seating,
transportation, and military markets through its subsidiary Sandel International
Corporation.


                                                                            F-37
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


The Company also sells its fabric and laces to "Over-the-Counter" retail
customers throught the Company's retail manufacturing operations, which are
located at the Company's Salisbury Manufacturing plant.

Specialized, engineered fabrics are sold to manufacturers of industrial,
healthcare, medical, and military products.


The accounting policy of the reportable segments are the same as those described
in Summary of Accounting Policies. The Company neither allocates to the segments
nor bases segment decisions on the following:

         - Interest and dividend income
         - Interest and other expense
         - Net gain on investment securities
         - Income tax expense or benefit

Many of the Company's assets are used by multiple segments. While certain assets
such as Inventory and Property, Plant and Equipment are identifiable by segment,
an allocation of the substantial remaining assets is not meaningful.

The 52 weeks ended November 30, 2002 includes a litigation settlement in the
amount of $750,000, which was included in the Home Fashions and Accessories
segment (see Note 16). The 52 weeks ended November 29, 2003 included other
expenses of $1,659,000, relating to the amendment to Mr. Bitensky's employment
agreement (see Note 9). This amount was allocated between segments with a
majority included in the apparel segment. In addition, the asset impairment
charge in fiscal 2004 and fiscal 2003 applied to the apparel segment (see Note
12). The 52 weeks ended November 27, 2004 includes a gain on the sale of fixed
assets of $1,073,000. Of this, $441,000 belongs to the other segment and the
balance applied to the apparel segment. The fixed assets, which were sold in the
first quarter of 2004 relating to the other segment, were sold to a customer,
which previously owned 50% of the equipment. The proceeds from this sale
amounted to $1,100,000. As a result, the customer, at an undeterminable future
date will be doing the production on its own. In, addition, the apparel segment
includes a $226,000 reserve for environmental costs (see Note16). The apparel
segment includes $155,000 compensation expenses and an offset to investment
income to reflect changes in the fair value of the trading securities held by
the nonqualified defined contribution retirement plan, in accordance with EITF
97-14. As of November 27, 2004, accounts receivable, inventory, and plant and
equipment are valued at net orderly liquidation value determined by an outside
independent appraiser. In addition, other assets were decreased to liquidation
value.


                                                                            F-38
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


During fiscal 2004, one customer accounted for approximately 13% of net sales.
The receivable from this customer represents approximately 26%. Our export sales
are not material.


The following are our segment revenues and income (loss) by reportable segments
for the fiscal years 2004, 2003, and 2002.

<TABLE>
<CAPTION>
                                                               HOME FASHIONS,
NOVEMBER 30, 2003 THRU NOVEMBER 26, 2004         APPAREL       AND ACCESSORIES        OTHER         TOTAL
----------------------------------------         -------       ---------------        -----         -----
<S>                                               <C>           <C>                  <C>          <C>
External sales                                    $37,311       $ 4,478              $7,871       $49,660
Intersegment sales                                  3,088            50                 216         3,354
Operating income/(loss)                            (2,998)          184               1,307        (1,507)
Depreciation expense                                1,296            56                 247         1,599
Segment assets  (1)                                 6,197           385               1,001         7,583
Capital expenditures                                   13             7                  14            34

                                                               HOME FASHIONS,
2003                                             APPAREL       AND ACCESSORIES        OTHER         TOTAL
----                                             -------       ---------------        -----         -----
External sales                                    $39,143       $ 4,227              $7,803       $51,173
Intersegment sales                                  3,579            56                 306         3,941
Operating income/(loss)                            (4,647)         (187)                744        (4,090)
Depreciation expense                                1,475            64                 364         1,903
Segment assets                                     11,682           929               2,370        14,981
Capital expenditures                                   27            38                 202           267

                                                               HOME FASHIONS,
2002                                             APPAREL       AND ACCESSORIES        OTHER         TOTAL
----                                             -------       ---------------        -----         -----
External sales                                    $51,269       $ 4,673              $7,023       $62,965
Intersegment sales                                  3,860            22                 372         4,254
Operating income/(loss)                              (679)       (1,085)                195        (1,569)
Depreciation expense                                1,600            51                 327         1,978
Segment assets                                     16,317         1,005               2,543        19,865
Capital expenditures                                   --            --                 225           225
</TABLE>

(1)   As of November 27, 2004, accounts receivable, inventory and property,
      plant and equipment are valued at net orderly liquidation value determined
      by an outside independent appraiser.


                                                                            F-39
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

<TABLE>
<CAPTION>
REVENUES                                        2004              2003             2002
                                                ----              ----             ----
<S>                                          <C>               <C>              <C>
Total external sales for segments            $  49,660         $  51,173        $  62,965
Intersegment sales for segments
                                                 3,354             3,941            4,254
Elimination of intersegment sales               (3,354)           (3,941)          (4,254)
                                            ----------------------------------------------
Total consolidated sales                     $  49,660         $  51,173        $  62,965
                                            ==============================================


PROFIT OR LOSS

Total operating loss for segments            $   (1,507)       $  (4,090)       $  (1,569)
Total other income
                                                  1,400            2,545            4,579
                                            ----------------------------------------------
Income (loss) before taxes on income         $     (107)       $  (1,545)       $   3,010
                                            ==============================================


ASSETS

Total segments assets  (1)                   $    7,583        $  14,981        $  19,865
Assets not allocated to segments
                                                 30,001           42,802           61,052
                                            ----------------------------------------------
Total consolidated assets                    $   37,584        $  57,783        $  80,937
                                            ==============================================


OTHER SIGNIFICANT ITEMS

Depreciation expense                         $    1,599        $   1,903        $   1,978
Not allocated to segments
                                                     19               24              165
                                            ----------------------------------------------
Consolidated total                           $    1,618        $   1,927        $   2,143
                                            ==============================================


Capital expenditures                            $    34         $    267         $    225
Not allocated to segments
                                                     --               --               --
                                            ----------------------------------------------
Consolidated total                              $    34         $    267         $    225
                                            ==============================================
</TABLE>

(1) As of November 27, 2004, accounts receivable, inventory and property, plant
and equipment are valued at net orderly liquidation value determined by an
outside independent appraiser.

                                                                            F-40
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

15.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     Quarterly earnings were as follows (in thousands, except for earnings per
     share):

<TABLE>
<CAPTION>
                               FIRST                             THIRD           FOURTH
                              QUARTER       SECOND QUARTER      QUARTER        QUARTER (1)       TOTAL
     --------------------------------------------------------------------------------------------------
     <S>                     <C>             <C>             <C>            <C>             <C>
     Fiscal 2004:
       Net sales             $  10,141       $   14,596      $    11,741    $     13,182    $   49,660
       Gross profit                429            2,311              492           1,686         4,918
       Net income (loss)          (292)             767             (508)            (39)          (72)
       Earnings (loss)
        per share:
          Basic              $   (0.06)      $     0.15      $     (0.10)   $      (0.01)   $    (0.01)
          Diluted            $   (0.06)      $     0.15      $     (0.10)   $      (0.01)   $    (0.01)
     ==================================================================================================
     Fiscal 2003:
       Net sales             $  11,587       $   13,646      $    13,357    $     12,583    $   51,173
       Gross profit                741            1,353            1,002           1,159         4,255
       Net income (loss)          (270)             320           (1,252)           (168)       (1,370)
       Earnings (loss)
        per share:
          Basic              $   (0.05)       $    0.06      $     (0.24)   $      (0.03)   $    (0.26)
          Diluted            $   (0.05)       $    0.06      $     (0.24)   $      (0.03)   $    (0.26)
     ==================================================================================================
</TABLE>

     (1) For Fiscal 2004, the period of the fourth quarter was from August 29,
     2004 to November 26, 2004.

                                                                            F-41
<PAGE>

                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


16.  OTHER EXPENSE

     In fiscal 2004, the Company recorded an expense of $226,000 for
     environmental costs. The expense represents the costs associated with a
     lagoon cleaning process as per North Carolina State requirements to
     eliminate odors in a lagoon, which is located next to one of our plants.
     The lagoon process has been completed and all associated costs associated
     with this process have been paid.

     During the fall of 1999, San Francisco Network ("SFN") commenced an action
     in the Superior Court of California, Marin County, against the Company and
     the Company's Salisbury Manufacturing Corporation ("Salisbury") subsidiary.
     The action relates to an agreement between SFN and Salisbury (whose
     performance the Company guaranteed), pursuant to which Salisbury was
     licensed to use the Karen Neuburger trademark for branded bedding products.
     The case was removed to the United States District Court of California.
     Salisbury and the Company denied any wrong doing and asserted affirmative
     claims against SFN and certain of its principals. On March 14, 2002, at a
     court ordered conference, the Company settled this issue without admitting
     liability. On April 12, 2002, the Company paid SFN $750,000 in exchange for
     a complete release of all claims.


17.  RESTATEMENT

     The consolidated balance sheet as of November 29, 2003 has been restated to
     correct an error relating to the fact that the Company had not depreciated
     certain improvements to it's land, mainly consisting of two parking lots
     constructed in 1984 and 1989 with a cost totaling approximately $292,000.

     The restatement adjustments have resulted in a reduction of approximately
     $292,000 in fixed assets and retained earnings, from the amounts previously
     reported. This adjustment does not effect the statements of operations for
     any period presented, as the fixed assets would have been depreciated over
     an estimated useful life of 15 years.

                                                                            F-42
<PAGE>


                      FAB INDUSTRIES, INC. AND SUBSIDIARIES

                   CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES
                                    FORM 10-K

                                      INDEX


SCHEDULE:                                                 PAGE


II. Valuation and Qualifying Accounts                      S-2










                                       S-1
<PAGE>


                                                            FAB INDUSTRIES, INC.
                                                                AND SUBSIDIARIES

                                               VALUATION AND QUALIFYING ACCOUNTS
                                                                  (IN THOUSANDS)

================================================================================

<TABLE>
<CAPTION>
COL. A                             COL. B                  COL. C                     COL. D          COL. E
------                             ------                  ------                     ------          ------
                                                         ADDITIONS
                                                 - - - - - - - - - - - - - -
                                                      (1)           (2)
                                   BALANCE AT     CHARGED TO      CHARGED TO
                                    BEGINNING      COSTS AND        OTHER                              BALANCE AT
DESCRIPTION                           OF YEAR       EXPENSES       ACCOUNTS           DEDUCTIONS      END OF YEAR
-------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>              <C>             <C>                <C>
November 30, 2003 thru
   November 27, 2004:
         Allowance for doubtful
              Accounts                $   900        $   600(i)       $   --          $   (1,500)(ii)    $     --

Fiscal year ended
   November 29, 2003:
         Allowance for doubtful
              Accounts                $ 1,000        $   400(i)       $   --          $     (500)(ii)    $    900

Fiscal year ended
   November 30, 2002:
         Allowance for doubtful
              Accounts                $   600        $   400(i)       $   --          $       --         $  1,000

(i) Current year's provision.

(ii) Accounts receivable written-off, net of recoveries and an adjustment was
recorded on November 27, 2004 in the amount of $1,100 to reduce the allowance to
$0, based on the change in the basis of accounting to the liquidation basis on
November 27, 2004.
===================================================================================================================

November 30, 2003 thru
   November 27, 2004:                 $   500        $   400          $   --          $     (900)(iii)   $     --
         Allowance for sales returns

Fiscal year ended
   November 29, 2003:
         Allowance for sales returns  $   700        $    --          $   --          $     (200)        $    500

Fiscal year ended
   November 30, 2002:
         Allowance for sales returns  $   700        $    --          $   --          $       --         $    700
</TABLE>

(iii) An adjustment was recorded on November 27, 2004 to reduce the allowance to
$0, based on the change in the basis of accounting to the liquidation basis on
November 27, 2004.


                                       S-2
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Fab has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.


                                                FAB INDUSTRIES, INC.

                                                By: /s/ Samson Bitensky
                                                    ---------------------
                                                Samson Bitensky
                                                Chairman of the Board and
                                                Chief Executive Officer


                                                Date:    May 4, 2005


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

SIGNATURE                       DATE             CAPACITY IN WHICH SIGNED
---------                       ----             ------------------------


                                May 4, 2005      Chairman of the Board, Chief
/s/ Samson Bitensky                              Executive Officer, and Director
-------------------------                        (Principal Executive Officer)
Samson Bitensky


                                May 4, 2005      Vice President - Finance,
/s/ David A. Miller                              Treasurer, and Chief Financial
-------------------------                        Officer (Principal Financial
David A. Miller                                  and Accounting Officer)


/s/ Martin B. Bernstein         May 4, 2005      Director
-------------------------
Martin B. Bernstein


/s/ Lawrence H. Bober           May 4, 2005      Director
-------------------------
Lawrence H. Bober


/s/ Susan B. Lerner             May 4, 2005      Director
-------------------------
Susan B. Lerner


/s/ Richard Marlin              May 4, 2005      Director
-------------------------
Richard Marlin


/s/ Steven E. Myers             May 4, 2005      Director, President and Chief
-------------------------                        Operating Officer
Steven E. Myers