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

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

For the fiscal year ended November 29, 1997        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  X    No 
    ---      ---

     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 [ ]

     The  aggregate  market  value  at  February  20,  1998  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
$132,936,000.  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 February 20,
1998, there were outstanding 5,686,592 shares of Common Stock, $.20 par value.

Documents  Incorporated  by  Reference:  Certain  portions  of the  Registrant's
definitive proxy statement to be filed not later than March 30, 1998 pursuant to
Regulation 14A are  incorporated by reference in Items 10 through 13 of Part III
of this Annual Report on Form 10-K.

<PAGE>

                              FAB INDUSTRIES, INC.

                               INDEX TO FORM 10-K


Item Number                                                               Page
-----------                                                               ----

PART I.......................................................................1
      Item 1. Business.......................................................1
      Item 2. Properties.....................................................3
      Item 3. Legal Proceedings..............................................5
      Item 4. Submission of Matters to a Vote of Security-Holders............5

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

PART III....................................................................11
      Item 10. Directors and Executive Officers of the Registrant...........11
      Item 11. Executive Compensation.......................................11
      Item 12. Security Ownership of Certain Beneficial Owners 
               and Management ..............................................11
      Item 13. Certain Relationships and Related Transactions...............11

PART IV.....................................................................12
      Item 14. Exhibits, Financial Statement Schedules, and Reports 
               on Form 8-K .................................................12

SIGNATURES..................................................................16

<PAGE>

                                     PART I

Item 1.     Business

     Fab Industries,  Inc. (together with its subsidiaries,  the "Company") is a
major manufacturer of warp knit textile fabrics,  raschel laces, circular knits,
novelty knits, and polyurethane coated bonded fabrics. In addition,  the Company
produces comforters, sheets, blankets and other bedding products.

     The Company was incorporated on April 21, 1966, under the laws of the State
of Delaware and is a successor by merger to previously existing businesses.

     The Company's  textile fabrics are sold to a wide variety of  manufacturers
of ready to wear and intimate  apparel for men,  women and  children.  Other use
applications include children's  sleepwear,  activewear,  recreational  apparel,
home  furnishings,  over-the-counter  fabrics,  industrial  fabrics,  upholstery
fabrics for  residential  and  contract  markets,  and health care and  consumer
products.  Fabrics are sold in piece dyed,  "PFP"  (Prepared For Printing),  and
printed configurations.

     While sales are primarily to  manufacturers  of finished goods, the Company
also uses its own  textile  fabrics  to produce  100%  cotton  jersey  (T-shirt)
sheets,  flannel and satin  sheets,  as well as blankets,  comforters  and other
bedding  products  which the Company sells to department  and specialty  stores,
catalogue  and  mail  order  companies,  as well  as  airlines  and  health-care
institutions.

     The Company manufactures Raschel lace products for sale to manufacturers of
intimate  apparel  and  bridal  wear  through  its  Ravel  Designer-Wiener  Lace
divisions.   Its  Raval  Lace  Division  produces  raschel  laces  for  sale  to
manufacturers  and  jobbers  of  sportswear,  dress,  blouse  and other  related
outerwear industries.

     The Company's JBJ Fabric Division offers an upscale line of wet and pigment
prints of knits and wovens. The knit line consists of suedes, panne's, interlock
and jersey.  The collection of wovens include rayon crepe,  crepon,  challis and
sheers.  These  fabrics  are  used in  various  segments  of  apparel  including
sportswear,  dresses,  children's  wear and evening wear.  Garments  using these
fabrics can be found mainly in department  stores,  specialty shops,  boutiques,
catalogues and chain stores.

     Fab also offers a comprehensive line of heat transfer prints for sleepwear,
robewear,   outerwear  and  activewear.   The  print  collection  includes  both
traditional and contemporary  patterns from around the world. Flocks,  embossed,
metallic, glitter and puff prints round out the print line.

     The  Company's  subsidiary,  Gem Urethane  Corporation,  produces a line of
polyurethane coated fabrics and a variety of flame,  adhesive and ultrasonically
bonded items for apparel, accessories, health care, environmental and industrial
products.  Gem is also manufacturing  SANDEL(R),  a silica-based material coated
with high performance  polymeric compounds whose unique construction  enables it
to stop  fire  from  spreading,  even  at  temperatures  of up to  1800  degrees
Fahrenheit.  Gem is marketing this fire fighting material through its subsidiary
Sandel International, Inc.


                                       1
<PAGE>

     The Company  engages in  research  and product  development  activities  to
create new fabrics and styles to meet the  continually  changing  demands of its
customers.  Direct  expenditures  in this area  aggregated  $4,184,000 in fiscal
1995,  $3,875,000 in fiscal 1996, and  $3,869,000 in fiscal 1997.  Through these
efforts,  the Company has 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,  the Company has also developed a full
line of proprietary  sheets and blankets,  including  specialty blankets for the
airline industry.

     While the Company uses various  trademarks and trade names in the promotion
and sale of its products, it does not believe that the loss or expiration of any
such  trademark  or trade  name  would  have a  material  adverse  effect on its
operations.

     The Company  markets its products  primarily  through its  full-time  sales
personnel, as well as independent  representatives located throughout the United
States and abroad. In cooperation with yarn producers, it employs advertisements
in various media as a marketing  tool.  The Company also markets its products on
its web site: www.fab- industries.com.

     Historically,  the Company's business reflects minor seasonal fluctuations.
Somewhat higher sales occur in the second and third fiscal quarters, as a result
of purchases by customers in  anticipation  of Fall and Holiday  apparel  sales.
First and fourth  fiscal  quarter  sales  tend to be lower as apparel  customers
limit their orders to refilling  smaller inventory  requirements  after Fall and
Holiday  sales  and  forecasting   customer   reorders  for  Spring  and  Summer
fabrications.

     The  Company  does not  believe  its  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.

     For fiscal 1997,  the  Company's  aggregate  sales to  companies  under the
common control of Sara Lee Corporation  accounted for  approximately  10% of the
Company's  net sales.  The  receivables  from this group of customers  represent
approximately  12%  of the  Company's  November  29,  1997  accounts  receivable
balance. The Company's export sales are not material.

Supplies of Raw Materials

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

Inventories

     The Company maintains adequate inventories of yarns and other raw materials
to insure an  uninterrupted  production  flow.  Greige  and  finished  goods are
maintained   as  inventory  to  meet  varying   customer   demand  and  delivery
requirements. The Company


                                       2
<PAGE>

must  maintain  adequate  working  capital,  because  credit terms  available to
customers  normally  exceed credit terms extended to the Company by suppliers of
raw materials.

Competition

     The  Company  is engaged in a highly  competitive  business  which is based
largely upon product quality,  service and price and general consumer demand for
the finished  goods  utilizing  the Company's  products.  There are more than 20
other manufacturers for its products. The Company believes that it is one of the
major manufacturers of warp and circular knit, raschel lace and urethane product
in the United  States.  The  proportion  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.  As a result of  significant  expenditures  on
production  equipment,  the Company's  strong  financial  position and increased
capacity  have enabled it to capture a larger share of the now smaller  domestic
textile market.

Employees

     The Company employs approximately 1,600 people, of whom approximately 1,500
are employed by the Company's subsidiaries. The employees are not represented by
unions. The Company considers relations with its employees to be satisfactory.

Acquisitions

     In March 1997, the Company acquired the copyrights,  trade name and certain
assets of Wiener Laces, Inc., a manufacturer of raschel and leavers lace.

     In August  1997, a  wholly-owned  subsidiary  of the Company,  Gem Urethane
Corporation,  formed a new  corporation  known as "Sandel  International,  Inc."
which has acquired patents, licenses, trademarks and other intellectual property
worldwide.  The new  corporation was formed for the purpose of creating fire and
flame retardant industrial fabrics made from glass filament yarns.

     In October 1997, the Company  acquired  copyrights,  trademarks and certain
assets of JBJ Fabrics.  The Company's JBJ Fabric Division offers an upscale line
of wet and pigment prints of knits and wovens.

     These acquisitions, individually and in the aggregate, were not material to
the Company's financial position or results of operations.


Item 2.     Properties.

     The Company  conducts  its  manufacturing  operations  in owned  facilities
located in Lincolnton, Maiden, Cherryville and Salisbury, North Carolina, and in
leased  facilities  located  in  Amsterdam,  New  York.  All  of  the  Company's
facilities are operated mostly on a five day-a-week basis.

     The  Company's  knitting,  dyeing-finishing  and  printing  operations  are
conducted at the Lincolnton facility.  These operations include warp and raschel
knitting, various types of dyeing, framing, lace separating,  sueding, shearing,
napping, calendaring and


                                       3
<PAGE>

heat-transfer  printing.  Dyeing-finishing  operations are also conducted at the
Cherryville facility. The Lincolnton and Cherryville facilities also process and
serve  as  warehouses  for  greige  goods,  manufactured  and  shipped  from the
Company's Amsterdam and Maiden plants.

     At  the  Maiden  plant  facility,   the  Company   conducts  a  variety  of
manufacturing operations, including warping for the tricot and lace machines and
single and double knitting of fabrics. The Salisbury facility is the site of the
Company's consumer and institutional  products  manufacturing,  retail and over-
the-counter operations. The Company's Amsterdam facilities are devoted to tricot
warping and knitting and warehousing.  Approximately  106,000 square feet in one
of the  Company's  Amsterdam  plants  is used  for the  production  of a line of
polyurethane coated fabrics and a variety of flame,  adhesive and ultrasonically
bonded items.

     The  following  table  sets  forth the  location  of each of the  Company's
manufacturing facilities, its principal use, approximate floor space, and, where
leased,  the lease  expiration date. No facility owned by the Company is subject
to any encumbrance.


                                              Approximate             Lease
Location          Principal Use               Floor Space        Expiration Date
--------          -------------               -----------        ---------------

Lincolnton,       Dyeing and Finishing,      630,550 sq.ft.             (1)
North Carolina    Raschel and Tricot
                  Warp Knitting, Printing
                  and Warehouse

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

Maiden,           Warping, Circular Single   224,013 sq.ft.             (1)
North Carolina    and Double Knitting and
                  Warehouse

Salisbury,        Manufacturing Finished     125,000 sq.ft.             (1)
North Carolina    Consumer Products and
                  Retail Over- the-Counter
                  Fabric

Amsterdam,        Polyurethane Coating and   106,000 sq.ft.         12/31/99 (2)
New York          Fire Fighting Material
                  Manufacturing
                  Operations and Bonding
                  and Laminating

Amsterdam,        Warping, Tricot Knitting   367,000 sq.ft.         12/31/06 (2)
New York          and Warehouse

Cherryville,      Dyeing and Finishing       197,000 sq. ft.            (1)
North Carolina


                                       4
<PAGE>

New York,         Executive Offices and      33,000 sq. ft.            4/30/06
New York          Showroom Facilities

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

(1)  Owned by the Company.

(2)  Capitalized building lease - See note 5 of Notes to Consolidated  Financial
     Statements.

     All  of the  Company's  facilities  are  constructed  of  brick,  steel  or
concrete,  and the Company  considers all  facilities to be adequate and in good
operating condition and repair.


Item 3.     Legal Proceedings.

     Neither the Company nor any of its subsidiaries or properties is subject to
any material pending legal proceedings.


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

     Not Applicable

Executive Officers of the Company

     The following table sets forth certain information concerning the executive
officers of the Company as of February 20, 1998.


Name                        Age    Positions and Offices
----                        ---    ---------------------

Samson Bitensky...........  78     Chairman of the Board of Directors, and Chief
                                   Executive Officer

Stanley August............  66     Vice Chairman

Steven Myers..............  49     Co-President, Chief Operating Officer

David A. Miller...........  60     Vice President-Finance, Treasurer and Chief
                                   Financial Officer

Sherman S. Lawrence.......  79     Secretary


     Each of the  Company's  executive  officers  serves at the  pleasure of the
Board of Directors and until his or her successor is duly elected and qualifies.

     Samson  Bitensky  was among the  founders  of the  Company  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.

     Stanley  August has been employed by the Company since 1980 and  previously
served as  General  Sales  Manager of its  Circular  Knit  Division  and as Vice
President - Sales. Mr. August served as Vice President - Fabric  Operations from
1987 until 1992 and as Vice


                                       5
<PAGE>

President  from March 30, 1992 to May 1, 1997,  and has served as Vice  Chairman
since May 1, 1997.

     Steven  Myers,  an  attorney,  has been  employed by the Company in various
senior  administrative  and managerial  capacities since 1982. He served as Vice
President  - Sales  for  more  than  five  years  prior  to May 1988 and as Vice
President  from May 1988 to May  1997,  and has  served as  Co-President,  Chief
Operating  Officer  since  May 1,  1997.  Mr.  Myers  is the  son-in-law  of Mr.
Bitensky.

     David A. Miller has been  employed by the Company since 1966 and has served
as its 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.

     Sherman S.  Lawrence has served as a Director of the Company since 1966 and
as Secretary since 1968. Mr. Lawrence has been a practicing  attorney since 1942
and has served as co-counsel to the Company since 1966.

     On February 2, 1998, Bernd Hopp resigned as  Co-President,  Chief Operating
Officer of the Company. Mr. Hopp had served in such position from May 1, 1997.


                                     PART II


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

     The Company'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 1997

First Quarter........................................  $ 28 3/4       $ 26 1/8

Second Quarter.......................................  $ 31 1/4       $ 28

Third Quarter........................................  $ 33           $ 30 1/4

Fourth Quarter.......................................  $ 32 1/2       $ 29 7/16

Fiscal 1996

First Quarter........................................  $ 31 7/8       $ 29 1/2

Second Quarter.......................................  $ 29 7/8       $ 26 7/8

Third Quarter........................................  $ 28 7/8       $ 24 3/4

Fourth Quarter.......................................  $ 28 3/8       $ 25 7/8



                                       6
<PAGE>

     At February 20,  1998,  there were  approximately  559 holders of record of
Common  Stock.  For fiscal  1996,  quarterly  dividends  of $.175 per share were
declared on February  12, 1996,  May 20, 1996,  August 14, 1996 and November 24,
1996. For fiscal 1997,  quarterly  dividends of $.175 per share were declared on
February 27,  1997,  May 19,  1997,  August 13, 1997 and November 25, 1997.  The
payment of further  cash  dividends  will be at the  discretion  of the Board of
Directors  and  will  depend  upon,  among  other  things,   earnings,   capital
requirements and the financial condition of the Company.


Item 6.     Selected Consolidated Financial Data.

<TABLE>
<CAPTION>
                                          As at or for the fiscal year ended
                      --------------------------------------------------------------------------
                       November 29,   November 30,   December 2,    December 3,   November 27,
                           1997           1996           1995        1994 (2)         1993
                                       (In thousands, except share data)

<S>                      <C>             <C>           <C>            <C>            <C>     
Net Sales                $160,935        $156,136      $182,000       $ 189,753      $189,586
                       
Income before taxes    
  on income                13,529          12,596        13,760          22,428        25,531
                       
Net income                  9,394           8,796         9,410          15,093        17,006
                       
Earnings per share           1.65            1.52          1.57           2.44           2.75
                       
Total assets              163,524         160,980       161,027         163,133       157,499
                       
Long-term debt                556             620           678             731           799
                       
Stockholders' equity      137,892         133,888       132,932         129,533       124,326
                       
Book value per         
  share (1)                 24.26           23.25         22.42          21.52          19.98
                       
Cash dividends         
  per share                   .70             .70          .685            .64            .64
                       
Weighted average       
 number of shares      
 outstanding            5,705,624       5,797,228     5,981,690       6,189,831     6,181,186
</TABLE>
---------------------

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

(2)  Fifty-three weeks.


                                       7
<PAGE>

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

Results of Operations

     Fiscal 1997 Compared to Fiscal 1996

     Net sales  for the 1997  fiscal  year  were  $160,935,000  as  compared  to
$156,136,000  in fiscal 1996, an increase of $4,799,000 or 3.1%.  Certain of the
Company's  products  enjoyed  stronger  customer  demand  during  the  year  and
divisional product mix was more favorable.

     Gross profit margins for the year remained  fairly constant as a percentage
of sales.  The improved product mix and the Company's cost control programs more
than offset  lower  plant  utilization  rates.  Due to lower  average  FIFO cost
levels,  LIFO  inventory  reserves  decreased  by  $863,000  in fiscal  1997 and
$742,000 in fiscal 1996.

     Selling,  shipping and administrative  expenses  increased by $771,000,  or
5.4%,  and as a  percentage  of sales  remained  relatively  constant.  Selling,
shipping and administrative costs increased principally as a result of increased
selling expenses attributable to the Company's sales growth.

     Interest and dividend  income  increased by $170,000,  or 4.6%. The Company
realized gains from the sale of investment  securities of $1,139,000 compared to
$540,000 in fiscal 1996.

     The effective  income tax rate for the year was  relatively  unchanged from
fiscal 1996.

     As a result of these  factors,  net income  increased  to  $9,394,000  from
$8,796,000 and as a percentage of sales increased to 5.8% from 5.6%.

     Earnings  per share,  which are based upon the weighted  average  number of
shares outstanding (5,705,624 vs. 5,797,228), were $1.65 as compared to $1.52 in
fiscal 1996. There was no stock option related dilution in either year.

     Fiscal 1996 Compared to Fiscal 1995

     Net sales  for the 1996  fiscal  year  were  $156,136,000  as  compared  to
$182,000,000  in 1995,  a  decrease  of 14.2%.  Business  conditions  within the
textile  industry  remained  under  pressure  as a result of  sluggish  consumer
demand, as well as highly competitive market conditions and foreign competition.

     Gross margins as a percentage of sales declined from 14.9% to 14.5%.  Lower
sales volume reduced  operating  schedules at manufacturing  plants,  and a less
profitable mix also exerted  unfavorable  pressures on profit  margins.  Margins
were benefited by cost control programs and favorable LIFO inventory  levels. In
fiscal 1995,  an addition to LIFO  inventory  reserves in the amount of $893,000
was made as a result  of  higher  raw  material  prices  (primarily  fiber),  as
compared  to a decrease  of  $742,000  in  reserves  in fiscal 1996 due to lower
average FIFO cost levels.


                                       8
<PAGE>

     Selling,  shipping and administrative  expenses declined by $3,192,000,  or
18.4%,  and as a percentage of sales  declined to 9.1% from 9.5% last year.  The
decline  relates  primarily  to lower  incentive-based  compensation  and  lower
related  salaries and  commissions.  In addition,  other  selling,  shipping and
administrative  expenses decreased as a result of the continued effectiveness of
the Company's expense containment program, which began in fiscal 1995.

     Interest and dividend  income  remained at  approximately  $3.7 million for
both years.

     The  effective  income tax rate for the year was 30.2% as against  31.6% in
fiscal 1995. The decline was primarily  attributable to a proportionately higher
percentage of tax exempt interest in fiscal 1996.

     As a result of these  factors,  net  income  declined  to  $8,796,000  from
$9,410,000 but as a percentage of sales increased to 5.6% from 5.2%.

     Earnings  per share,  which are based upon the weighted  average  number of
shares outstanding (5,797,228 vs. 5,981,690), were $1.52 as compared to $1.57 in
fiscal 1995. There was no stock option related dilution in either year.

     Liquidity and Capital Resources

     The Company's principal source of funds continues to be cash flow generated
from  operations.  Net cash  provided  by  operating  activities  in fiscal 1997
amounted to $11,388,000  compared to $17,223,000 in the comparative 1996 period.
Of this decrease, $6,495,000 is attributable to comparative declines in accounts
receivable,  $735,000 to increases in other assets, $413,000 to depreciation and
$599,000 to realized  gains in  marketable  securities,  offset by a  $2,357,000
comparative increase in inventories.

     The Company's investment securities,  all classified as available-for-sale,
had a fair market value of $66,068,000  and  $60,880,000 at fiscal year-end 1997
and 1996, respectively.  See Note 2 to the consolidated financial statements for
further details about the Company's investment portfolio.

     Capital  expenditures for the current fiscal year were $4,870,000  compared
to $4,101,000 in fiscal 1996. The current year expenditures were principally for
additional knitting machines for the Company's knitting mills.

     During  fiscal 1997,  the Company  repurchased  83,943 shares of its common
stock at a cost of $2,406,000 (an average price of $28.66).  The Company intends
to continue to purchase its shares of common stock from time-to-time,  as market
conditions warrant and price criteria are met.

     During  fiscal  1997,  the Company  declared  regular  quarterly  dividends
totaling $0.70 per share.

     Stockholders' equity rose to $137,892,000,  or $24.26 book value per share,
from $133,888,000, or $23.25 per share, at the previous fiscal year-end.


                                       9
<PAGE>

     Management  believes that the current financial  position of the Company is
more than  adequate to  internally  fund any future  expenditures  to  maintain,
modernize  and expand  its  manufacturing  facilities,  pay  dividends  and make
acquisitions of textile related businesses if criteria relating to indebtedness,
market expansion and existing management are met.

     Inflation

     The  Company  does  not  believe  the  effects  of  inflation  have  had  a
significant impact on the consolidated financial statements.

     Compliance with Year 2000

     Management  has  initiated a Company wide program to prepare the  Company's
computer systems and applications for year 2000 compliance.  The Company expects
to incur internal staff costs as well as other expenses necessary to prepare its
systems for the year 2000. The Company  expects to both replace some systems and
upgrade others.  Maintenance or modification costs will be expensed as incurred.
The total cost of this effort is still being  evaluated,  but is not expected to
be material to the Company.


Item 8.     Financial Statements and Supplementary Data.

     See pages F-1 and S-1.


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

     Not Applicable.


                                       10
<PAGE>

                                   PART III

Item 10.    Directors and Executive Officers of the Company.

     See Part I, Item 4. "Executive  Officers of the Company." Other information
required by this item is incorporated by reference from the Company's definitive
proxy statement to be filed not later than March 30, 1998 pursuant to Regulation
14A of the General Rules and  Regulations  under the Securities  Exchange Act of
1934, as amended ("Regulation 14A").


Item 11.    Executive Compensation.

     The information required by this item is incorporated by reference from the
Company's  definitive  proxy statement to be filed not later than March 30, 1998
pursuant to Regulation 14A.


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

     The information required by this item is incorporated by reference from the
Company's  definitive  proxy statement to be filed not later than March 30, 1998
pursuant to Regulation 14A.


Item 13.    Certain Relationships and Related Transactions.

     The information required by this item is incorporated by reference from the
Company's  definitive  proxy statement to be filed not later than March 30, 1998
pursuant to Regulation 14A.


                                       11
<PAGE>

                                    PART IV


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

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

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

      (3)    Exhibits.


      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.

      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              - 1987 Stock Option Plan of the Company, incorporated
                          by reference to Exhibit 10.1 to the 1993 10-K.


                                       12
<PAGE>

      10.2              - 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.

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

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

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

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

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

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

      10.9              - 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").

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

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

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

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


                                       13
<PAGE>

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

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

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

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

      10.18             - 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.

      10.19             - 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.

      10.20             - 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.

      10.21             - 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.

      10.22             - 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.

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

      10.24             - Company's Employee Stock Ownership Plan effective
                          as of Nov. 25, 1991, incorporated by reference to
                          Exhibit 10.24 to the 1993 10-K.


                                       14
<PAGE>

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

      10.26             - Company's Non-Qualified Executive Retirement Plan
                          dated as of November 30, 1990, incorporated by
                          reference to Exhibit 10.25 to the 1993 10-K.

      21                - Subsidiaries of the Company incorporated by
                          reference to Exhibit 21 to the 1994 10-K.

      *23               - Consent of BDO Seidman, LLP.

      **27              - Financial Data Schedule pursuant to Article 5 of
                          Regulation S-X.

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

*  Filed herewith.
** Filed with EDGAR version only.

      (b)  Reports on Form 8-K: None


                                       15
<PAGE>
                      FAB INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                                FORM 10-K ITEM 8

             FISCAL YEARS ENDED NOVEMBER 29, 1997, NOVEMBER 30, 1996
                              AND DECEMBER 2, 1995


                                      F-1
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES


                                    CONTENTS



Report of independent certified public accountants             F-3

Consolidated financial statements:
  Balance sheets                                               F-4
  Statements of income                                         F-5
  Statements of stockholders' equity                           F-6
  Statements of cash flows                                     F-7

Summary of accounting policies                          F-8 - F-10

Notes to consolidated financial statements             F-11 - F-22


                                      F-2
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



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



We have audited the  consolidated  balance  sheets of Fab  Industries,  Inc. and
subsidiaries  as of  November  29,  1997 and  November  30, 1996 and the related
consolidated statements of income,  stockholders' equity and cash flows for each
of the three fiscal years in the period  ended  November 29, 1997.  We have also
audited  the  schedule  listed  in the  index on page  S-2.  These  consolidated
financial  statements  and  schedule  are the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements and schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Fab Industries, Inc.
and  subsidiaries as of November 29, 1997 and November 30, 1996, and the results
of their  operations  and their cash flows for each of the three fiscal years in
the period  ended  November  29,  1997 in  conformity  with  generally  accepted
accounting principles.

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


/s/ BDO Seidman, LLP

New York, New York
February 5, 1998


                                      F-3
<PAGE>

                                           FAB INDUSTRIES, INC. AND SUBSIDIARIES
                                                CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                         November 29,        November 30,
                                                                             1997               1996
                                                                         ------------        ------------
<S>                                                                    <C>                  <C>          
ASSETS

Current:
    Cash and cash equivalents (Note 1)                                 $   4,574,000        $   7,518,000
    Investment securities available-for-sale (Note 2)                     66,068,000           60,880,000
    Accounts receivable, net of allowance of $900,000
     and $600,000 for doubtful accounts (Note 13)                         28,872,000           28,797,000
    Inventories (Note 3)                                                  28,270,000           28,947,000
    Other current assets                                                   2,051,000            1,944,000
                                                                       -------------        -------------
       Total current assets                                              129,835,000          128,086,000

Property, plant and equipment - net (Note 4)                              30,009,000           30,203,000
Other assets (Note 8)                                                      3,680,000            2,691,000
                                                                       -------------        -------------
                                                                       $ 163,524,000        $ 160,980,000
                                                                       =============        =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current:
    Accounts payable                                                   $   8,862,000        $  12,076,000
    Corporate income and other taxes                                       2,568,000            1,667,000
    Accrued payroll and related expenses                                   3,649,000            3,403,000
    Dividends payable                                                        994,000            1,007,000
    Other current liabilities                                                966,000              532,000
    Deferred income taxes (Note 9)                                           778,000              761,000
                                                                       -------------        -------------
       Total current liabilities                                          17,817,000           19,446,000

Obligations under capital leases, net of current
 maturities (Note 5)                                                         556,000              620,000
Other noncurrent liabilities (Note 8)                                      2,779,000            2,364,000
Deferred income taxes (Note 9)                                             4,480,000            4,662,000
                                                                       -------------        -------------
       Total liabilities                                                  25,632,000           27,092,000

Commitments (Notes 8 and 10)
Stockholders' equity (Notes 2, 6, 7, 8, 9 and 10): 
    Preferred stock, $1 par value - shares authorized
       2,000,000; none issued                                                     --                   --
    Common stock, $.20 par value - shares authorized
     15,000,000; issued 6,572,994 and 6,564,194                            1,315,000            1,313,000
    Additional paid-in capital                                             6,562,000            6,410,000
    Retained earnings                                                    162,629,000          157,223,000
    Loan to employee stock ownership plan                                 (7,117,000)          (7,907,000)
    Net unrealized holding gain on investment
     securities available-for-sale, net of taxes                             636,000              607,000
    Unearned restricted stock compensation                                   (27,000)             (58,000)
    Cost of common stock held in treasury - 890,382
     and 806,439 shares                                                  (26,106,000)         (23,700,000)
                                                                       -------------        -------------

       Total stockholders' equity                                        137,892,000          133,888,000
                                                                       -------------        -------------
                                                                       $ 163,524,000        $ 160,980,000
                                                                       =============        =============
</TABLE>

See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.


                                      F-4
<PAGE>

                                           FAB INDUSTRIES, INC. AND SUBSIDIARIES
                                             CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>      
                                                                                   Fiscal year ended
                                                              --------------------------------------------------------------
                                                                November 29,           November 30,             December 2,
                                                                   1997                   1996                    1995
                                                              -------------           -------------           -------------

<S>                                                           <C>                     <C>                     <C>          
Net sales (Note 13)                                           $ 160,935,000           $ 156,136,000           $ 182,000,000

Cost of goods sold                                              137,389,000             133,466,000             154,956,000
                                                              -------------           -------------           -------------

    Gross profit                                                 23,546,000              22,670,000              27,044,000

Selling, shipping and administrative
 expenses                                                        14,921,000              14,150,000              17,342,000
                                                              -------------           -------------           -------------

    Operating income                                              8,625,000               8,520,000               9,702,000
                                                              -------------           -------------           -------------

Other income (expenses):
    Interest and dividend income (Note 12)                        3,830,000               3,660,000               3,676,000
    Interest expense                                                (65,000)               (124,000)               (129,000)
    Net gain on investment securities (Note 2)                    1,139,000                 540,000                 511,000
                                                              -------------           -------------           -------------

     Total other income                                           4,904,000               4,076,000               4,058,000
                                                              -------------           -------------           -------------

Income before taxes                                              13,529,000              12,596,000              13,760,000

Taxes on income (Note 9)                                          4,135,000               3,800,000               4,350,000
                                                              -------------           -------------           -------------

Net income                                                    $   9,394,000           $   8,796,000           $   9,410,000
                                                              =============           =============           =============

Earnings per share                                            $        1.65           $        1.52           $        1.57
                                                              =============           =============           =============

Weighted average number of shares of common
 stock outstanding                                                5,705,624               5,797,228               5,981,690
                                                              =============           =============           =============

Cash dividends declared per share                             $         .70           $         .70           $        .685
                                                              =============           =============           =============
</TABLE>

See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.


                                      F-5
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                                           
                                                                                                                Loan to    
                                              Common Stock                                                     employee    
                              ------------------------------------------      Additional                        stock      
                                                 Number of                     paid-in         Retained        ownership   
                                   Total          shares        Amount         capital         earnings          plan      
                              -------------      ---------    ----------      ---------      ------------     ------------

<S>                           <C>                <C>          <C>             <C>            <C>              <C>         
Balance, December 3, 1994     $ 129,533,000      6,493,494    $1,298,000      $5,214,000     $147,154,000     $(9,487,000)

  Net income -
   fiscal 1995                    9,410,000           --            --              --          9,410,000            --   

  Cash dividends                 (4,091,000)          --            --              --         (4,091,000)           --   

  Exercise of stock
   options                          947,000         56,400        11,000         936,000             --              --   

  Purchase of treasury
   stock                         (4,519,000)          --            --              --               --              --   

  Compensation under
   restricted stock
   plan (Note 6)                    324,000           --            --              --               --              --   

  Change in net unrealized
   holding gain on
   investment securities
   available-for-sale,
   net of taxes                     538,000           --            --              --               --              --   

  Payment of loan from
   ESOP (Note 8)                    790,000           --            --              --               --           790,000
                              -------------      ---------    ----------    ------------    -------------     ----------- 

Balance, December 2, 1995       132,932,000      6,549,894     1,309,000       6,150,000      152,473,000      (8,697,000)

  Net income -
   fiscal 1996                    8,796,000           --            --              --          8,796,000            --   

  Cash dividends                 (4,046,000)          --            --              --         (4,046,000)           --   

  Exercise of stock
   options                          228,000         14,300         4,000         224,000             --              --   

  Purchase of treasury
   stock                         (5,401,000)          --            --              --               --              --   

  Compensation under
   restricted stock
   plan (Note 6)                    206,000           --            --            36,000             --              --   

  Change in net unrealized
   holding gain on
   investment securities
   available-for-sale,
   net of taxes                     383,000           --            --              --               --              --   

  Payment of loan from
   ESOP (Note 8)                    790,000           --            --              --               --           790,000
                              -------------      ---------    ----------    ------------    -------------     ----------- 

Balance, November 30, 1996      133,888,000      6,564,194     1,313,000       6,410,000      157,223,000      (7,907,000)

  Net income -
   fiscal 1997                    9,394,000           --            --              --          9,394,000            --   

  Cash dividends                 (3,988,000)          --            --              --         (3,988,000)           --   

  Exercise of stock
   options                          154,000          8,800         2,000         152,000             --              --   

  Purchase of treasury
   stock                         (2,406,000)          --            --              --               --              --   

  Compensation under
   restricted stock
   plan (Note 6)                     31,000           --            --              --               --              --   

  Change in net unrealized
   holding gain on
   investment securities
   available-for-sale,
   net of taxes                      29,000           --            --              --               --              --   

  Payment of loan from
   ESOP (Note 8)                    790,000           --            --              --               --           790,000
                              -------------      ---------    ----------    ------------    -------------     ----------- 

Balance, November 29, 1997    $ 137,892,000      6,572,994    $1,315,000    $  6,562,000    $ 162,629,000     $(7,117,000)
                              =============      =========    ==========    ============    =============     =========== 




<CAPTION>
                                 Net                                           
                             unrealized      Unearned                   Treasury Stock
                               holding      restricted          --------------------------
                                gain          stock             Number of   
                               (loss)      compensation           shares         Cost
                              ---------    ------------         ---------    -------------

<S>                           <C>           <C>                 <C>          <C>          
Balance, December 3, 1994     $(314,000)    $(552,000)          (474,704)    $(13,780,000)

  Net income -
   fiscal 1995                     --            --                 --               --

  Cash dividends                   --            --                 --               --

  Exercise of stock
   options                         --            --                 --               --

  Purchase of treasury
   stock                           --            --             (144,931)      (4,519,000)

  Compensation under
   restricted stock
   plan (Note 6)                   --         324,000               --               --

  Change in net unrealized
   holding gain on
   investment securities
   available-for-sale,
   net of taxes                 538,000          --                 --               --

  Payment of loan from
   ESOP (Note 8)                   --            --                 --               --
                               ---------     ---------           --------     ------------ 

Balance, December 2, 1995       224,000      (228,000)          (619,635)     (18,299,000)

  Net income -
   fiscal 1996                     --            --                 --

  Cash dividends                   --            --                 --               --

  Exercise of stock
   options                         --            --                 --

  Purchase of treasury
   stock                           --            --             (186,804)      (5,401,000)

  Compensation under
   restricted stock
   plan (Note 6)                   --         170,000               --               --

  Change in net unrealized
   holding gain on
   investment securities
   available-for-sale,
   net of taxes                 383,000          --                 --               --

  Payment of loan from
   ESOP (Note 8)                   --            --                 --               --
                               ---------     ---------           --------     ------------ 

Balance, November 30, 1996      607,000       (58,000)          (806,439)    $(23,700,000)

  Net income -
   fiscal 1997                     --            --                 --

  Cash dividends                   --            --                 --               --

  Exercise of stock
   options                         --            --                 --               --

  Purchase of treasury
   stock                           --            --              (83,943)      (2,406,000)

  Compensation under
   restricted stock
   plan (Note 6)                   --          31,000               --               --

  Change in net unrealized
   holding gain on
   investment securities
   available-for-sale,
   net of taxes                  29,000          --                 --               --

  Payment of loan from
   ESOP (Note 8)                   --            --                 --               --
                               ---------     ---------           --------     ------------ 

Balance, November 29, 1997     $ 636,000     $ (27,000)          (890,382)    $(26,106,000)
                               =========     =========           ========     ============ 
</TABLE>

Note:  The Company has 2,000,000  shares of authorized,  but unissued  preferred
stock.

                             See accompanying summary of accounting policies and
                                     notes to consolidated financial statements.


                                       F-6

<PAGE>

                                         FAB INDUSTRIES, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (NOTE 11)
<TABLE>
<CAPTION>
                                                                               Fiscal year ended
                                                          -----------------------------------------------------------
                                                            November 29,           November 30,           December 2,
                                                               1997                    1996                  1995
                                                            ------------           ------------           -----------
<S>                                                       <C>                    <C>                    <C>         
Cash flows from operating activities:
    Net income                                            $  9,394,000           $  8,796,000           $  9,410,000
    Adjustments to reconcile net
       income to net cash provided
       by operating activities:
          Provision for doubtful accounts                      400,000                400,000                400,000
          Depreciation and amortization                      5,064,000              5,477,000              5,568,000
          Deferred income taxes                               (185,000)                61,000               (121,000)
          Compensation under restricted
             stock plan                                         31,000                206,000                324,000
          Net gain on investment
             securities                                     (1,139,000)              (540,000)              (511,000)
          Decrease (increase) in:
             Accounts receivable                              (475,000)             6,020,000             (3,027,000)
             Inventories                                       677,000             (1,680,000)             2,727,000
             Other current assets                             (107,000)                26,000                385,000
             Other assets                                     (989,000)              (254,000)              (250,000)
          Increase (decrease) in:
             Accounts payable                               (3,214,000)              (585,000)            (1,628,000)
             Accruals and other liabilities                  1,931,000               (704,000)              (122,000)
                                                          ------------           ------------           ------------

Net cash provided by operating activities                   11,388,000             17,223,000             13,155,000
                                                          ------------           ------------           ------------

Cash flows from investing activities:
    Purchases of property, plant and equipment              (4,870,000)            (4,101,000)            (5,215,000)
    Proceeds from sales of investment securities             3,185,000              9,660,000              9,746,000
    Acquisition of investment securities                    (7,183,000)           (14,687,000)           (10,350,000)
                                                          ------------           ------------           ------------

Net cash used in investing activities                       (8,868,000)            (9,128,000)            (5,819,000)
                                                          ------------           ------------           ------------

Cash flows from financing activities:
    Purchase of treasury stock                              (2,406,000)            (5,401,000)            (8,317,000)
    Principal repayment on loan to employee
       stock ownership plan                                    790,000                790,000                790,000
    Dividends                                               (4,002,000)            (4,077,000)            (4,016,000)
    Exercise of stock options                                  154,000                228,000                947,000
                                                          ------------           ------------           ------------

Net cash used in financing activities                       (5,464,000)            (8,460,000)           (10,596,000)
                                                          ------------           ------------           ------------

Decrease in cash and cash equivalents                       (2,944,000)              (365,000)            (3,260,000)

Cash and cash equivalents, beginning of year                 7,518,000              7,883,000             11,143,000
                                                          ------------           ------------           ------------

Cash and cash equivalents, end of year                    $  4,574,000           $  7,518,000           $  7,883,000
                                                          ============           ============           ============
</TABLE>

See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.


                                      F-7
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES

BUSINESS:

     Fab  Industries,  Inc. (the  "Company") is a major  manufacturer of knitted
textile fabrics, laces and finished home products as well as polyurethane coated
fabrics. Sales of textile products comprised  substantially all of the Company's
sales in fiscal  1997,  1996 and 1995,  and such  sales were  primarily  made to
United  States  customers.  Accordingly,  the  Company  considers  itself  to be
operating in a single segment business.

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 1997, 1996 and 1995 had fifty-two weeks.

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.

     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. By policy, the
Company  limits the amount of credit  exposure to any one financial  institution
and  receives   confirmation   indicating   that,  with  respect  to  investment
securities,  each custodian (with the exception of one custodian  holding equity
securities  with a market  value of  approximately  $5.7 million at November 29,
1997)  maintains   appropriate  insurance  coverage  to  protect  the  Company's
investment  portfolio.  Concentrations  of  credit  risk with  respect  to trade
receivables are limited due to the diverse group of  manufacturers,  wholesalers
and  retailers to whom the Company  sells (see Note 13).  The Company  reviews a
customer's credit history before extending  credit.  The Company has established
an allowance for doubtful  accounts  based upon factors  surrounding  the credit
risk of specific customers, historical trends and other information.

CASH EQUIVALENTS:

     For purposes of the  statement  of cash flows,  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 No. 115
(SFAS 115),  "Accounting for Certain Investments in Debt and Equity Securities".
SFAS 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  either
held-to-maturity, trading, or available- for-sale. The Company classifies 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, is recorded in
stockholders' equity.

     Gains and losses on sales of investment  securities  are computed using the
specific identification method.


                                      F-8
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES


INVENTORIES:

     Inventories  are valued at the lower of cost or market.  For a majority  of
the inventories, cost is determined by the last-in, first-out (LIFO) method with
the balance being determined by the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT:

     Property,  plant and equipment are stated at cost. Depreciation is computed
using principally the straight-line  method. The range of estimated useful lives
is 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.

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.

RESEARCH AND DEVELOPMENT COSTS:

     Research and development costs are charged to expenses in the year incurred
and amounted to $3,869,000,  $3,875,000, and $4,184,000 in fiscal 1997, 1996 and
1995, respectively.

STOCK-BASED COMPENSATION:

     In fiscal  1997,  the Company  became  subject to  Statement  of  Financial
Accounting  Standards No. 123 "Accounting for Stock-Based  Compensation"  ("SFAS
No. 123"), which allows either the intrinsic or fair value method.  SFAS No. 123
encourages,  but does not  require,  entities to adopt the fair value  method in
place of the  intrinsic  value method as provided for in  Accounting  Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees"  ("APB No. 25"),
for all  arrangements  under which  employees  receive  shares of stock or other
equity  instruments  of the  employer  or the  employer  incurs  liabilities  to
employees in amounts based on the price of its stock.  When the Company  adopted
SFAS No. 123, it elected to retain the intrinsic value method. The required fair
value  disclosures  are  included  in the  notes to the  consolidated  financial
statements.

TAXES ON INCOME:

     The Company follows the liability  method of accounting for income taxes in
accordance  with  Statement  of  Financial  Accounting  Standards  No. 109 (SFAS
109),"Accounting for Income Taxes".

     Provision  is made for  deferred  income  taxes which  result from  various
temporary   differences,   principally   relating  to  the  use  of  accelerated
depreciation for tax purposes.

EARNINGS PER SHARE:

     Earnings per share has been computed by dividing net income by the weighted
average number of shares of common stock  outstanding  during the period.  There
was no stock  option  related  dilution  reflected  in the  earnings  per  share
computation for fiscal 1997, 1996 and 1995, as the reduction was less than 3%.

REVENUE RECOGNITION:

     The Company  recognizes  substantially all of its revenues upon shipment of
the related goods.  Allowances for estimated returns are provided when sales are
recorded.


                                      F-9
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES


PENDING ACCOUNTING PRONOUNCEMENTS:

     In February 1997, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  Per
Share." SFAS No. 128  establishes a different  method of computing  earnings per
share than is currently  required under the provisions of Accounting  Principles
Board  Opinion  No. 15.  Under SFAS No.  128,  the  Company  will be required to
present both basic earnings per share and diluted earnings per share.  Basic and
diluted  earnings per share are not expected to differ  materially from earnings
per share as presented in the accompanying  consolidated  financial  statements.
The Company plans to adopt SFAS No. 128 in its fiscal  quarter  ending  February
28, 1998 and at that time all historical  earnings per share data presented will
be restated to conform to the provisions of SFAS No. 128.

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income." This  Statement  establishes  standards  for  reporting and  displaying
comprehensive  income and its  components in the financial  statements.  It does
not,  however,  require a specific  format for the  statement,  but requires the
Company to display an amount  representing  total  comprehensive  income for the
period in that financial statement. The Company is in the process of determining
its preferred  format.  This  Statement is effective for fiscal years  beginning
after December 15, 1997.

     Also in June  1997,  the FASB  issued  SFAS  No.  131,  "Disclosures  about
Segments of an Enterprise and Related  Information."  The Statement  establishes
standards for the manner in which public business enterprises report information
about  operating  segments in annual  financial  statements  and requires  those
enterprises to report selected  information about operating  segments in interim
financial  reports  issued to  stockholders.  This  Statement is  effective  for
financial  statements  for periods  beginning  after  December 15, 1997, and the
Company is currently  evaluating  the impact of the  Statement on its  financial
reporting.


                                      F-10
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Cash and Cash Equivalents
--------------------------------------------------------------------------------

     Cash and cash  equivalents  at  November  29,  1997 and  November  30, 1996
consisted of the following (in thousands):

                                                        1997         1996
                                                       ------       ------
Cash                                                   $1,360       $1,700
Tax-free short-term debt instruments                    3,214        5,818
                                                       ------       ------

                                                       $4,574       $7,518
                                                       ======       ======

Note 2 - Investment Securities
--------------------------------------------------------------------------------

     Investment securities  available-for-sale at November 29, 1997 and November
30, 1996  consisted of the  following  (in  thousands):  

                                            Gross         Gross  
                                          Unrealized    Unrealized 
                                  Cost   Holding Gain  Holding Loss   Fair Value
                                -------  ------------  ------------   ----------

     1997:
     -----

Equities                        $ 8,568        389        $(44)         $8,912
U.S. Treasury obligations            24          -           -              24
Tax-exempt obligations           51,118        526         (26)         51,618
Corporate bonds                   5,298        216           -           5,514
                                -------     ------        ----         -------
                                                                      
                                $65,008     $1,131        $(70)        $66,068
                                =======     ======        =====        =======

     1996:
     -----

Equities                        $ 7,251     $  624        $(218)       $ 7,657
U.S. Treasury obligations            37        --           --              37
Tax-exempt obligations           46,891        513          (25)        47,379
Corporate bonds                   5,689        155          (37)         5,807
                                -------     ------        -----        -------
                                                                      
                                $59,868     $1,292        $(280)       $60,880
                                =======     ======        =====        =======


                                      F-11
<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 29, 1997 and November 30, 1996,  by
contractual maturity are as shown below:

<TABLE>
<CAPTION>
                                                November 29, 1997      November 30, 1996
                                                -----------------      -----------------
                                                 Cost    Fair Value    Cost    Fair Value
                                                 ----    ----------    ----    ----------
<S>                                            <C>        <C>        <C>        <C>    
Maturing in one year or less                   $ 8,377    $ 8,416    $ 4,995    $ 5,030
Maturing after one year through five years      39,704     40,269     45,853     46,402
Maturing after five years through ten years      8,359      8,471      1,769      1,791
                                               -------    -------    -------    -------

                                               $56,440    $57,156    $52,617    $53,223
                                               =======    =======    =======    =======
</TABLE>


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

                           1997        1996      1995
                           ----        ----      ----

Gross realized gains     $ 2,371     $ 1,518     $ 762
Gross realized losses     (1,232)       (978)     (251)
                         -------     -------     -----

Net realized gain        $ 1,139     $   540     $ 511
                         =======     =======     =====

     Approximately $5.7 million of the Company's equity investment securities at
November 29, 1997 consists 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. At November 29, 1997, the notional amounts
of the put and call options were $5.7 million and $5.8 million, respectively.


Note 3 - Inventories
--------------------------------------------------------------------------------

     Inventories  at November 29, 1997 and  November  30, 1996  consisted of the
following (in thousands, except for percentages):

                                                  1997        1996
                                                --------    -------

Raw materials                                   $ 9,132     $10,504
Work-in process                                   9,781      10,087
Finished goods                                    9,357       8,356
                                                -------     -------

                                                $28,270     $28,947
                                                =======     =======

Approximate percentage of inventories
 valued under LIFO method                            65%         65%
                                                =======     =======

Excess of FIFO valuation over LIFO valuation    $ 6,298     $ 7,161
                                                =======     =======


                                      F-12
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4 - Property, Plant and Equipment
--------------------------------------------------------------------------------

     Property,  plant and  equipment  at November 29, 1997 and November 30, 1996
consisted of the following (in thousands):

                                                          1997        1996
                                                        --------    --------
Owned by the Company:
    Land and improvements                               $    698    $    698
    Buildings and improvements                            13,041      12,703
    Machinery and equipment                               94,885      90,459
    Trucks and automobiles                                 1,631       1,547
    Office equipment                                         681         659
    Leasehold improvements                                   808         808
                                                        --------    --------

                                                         111,744     106,874
Property under capital leases:
    Land                                                      18          18
    Buildings and improvements                             1,432       1,432
                                                        --------    --------

                                                         113,194     108,324
Less: Accumulated depreciation and amortization           83,185      78,121
                                                        --------    --------

                                                        $ 30,009    $ 30,203
                                                        ========    ========


                                      F-13
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Obligations Under Capital Leases
--------------------------------------------------------------------------------

     Obligations under capital leases at November 29, 1997 and November 30, 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                                       1997    1996
                                                                       ----    ----
<S>                                                                    <C>     <C> 
Obligations under capital leases through 2006 payable in monthly
  installments of $11 including interest at 10% per annum              $584    $648

Less: Current maturities (included with other current
         liabilities)                                                    28      28
                                                                       ----    ----

                                                                       $556    $620
                                                                       ====    ====
</TABLE>

     Aggregate  installments on obligations  under capital leases maturing after
one year are as follows:

Fiscal year ending (in thousands):
                                            1999                     $  73
                                            2000                        79
                                            2001                        85
                                            2002                        91
                                            Thereafter                 228
                                                                      ----
                                                                      $556
                                                                      ====
Note 6 - Stock Compensation Plans:
--------------------------------------------------------------------------------

Stock Option Plan:

     Under the Company's 1987 stock option plan,  which  terminated in May 1997,
the Company was able to grant to key employees either  nonqualified or incentive
stock  options to purchase up to a maximum of 650,000  shares of common stock at
the fair market value at the date of the grant.

     In May 1997, the Board of Directors adopted and the shareholders approved a
new stock option plan  providing for the grant of up to 175,000 shares of common
stock at any time over the next ten  years.  In  general,  the terms of the 1997
plan are similar to the Company's previous stock option plans.

     The Company has adopted  the  disclosure-only  provisions  of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the Company's stock option plans. If the Company had elected
to recognize  compensation  costs based on the fair value of the options granted
at grant date as  prescribed  by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated below:

(Dollars in thousands, except per share data)          1997          1996
---------------------------------------------          ----          ----

Pro forma net income                                  $ 8,999      $ 8,547
Pro forma earnings per share                          $ 1.58       $  1.47

     The weighted-average  fair value of options granted was $10.29 per share in
1997 and $8.30 per share in 1996.


                                      F-14
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for fiscal
1997 and 1996 grants:

Dividends:                          $.70 per share
Volatility:                         27.5%
Risk-free interest:                 Ranging from 5.6% to 6.7%
Expected term:                      Ranging from 5 to 10 years

     Data regarding the Company's stock option plan follows:

                                                Shares       Weighted-Average
                                                              Exercise Price
                                                                 Per Share

Shares under option December 3, 1994            187,400           $17.25
Options granted                                    --                --
Options exercised                               (56,400)           15.85
Options canceled                                 (1,800)           15.44
                                                -------           ------
Shares under option December 2, 1995            129,200            17.45
Options granted                                  50,000            27.46
Options exercised                               (14,300)           15.96
Options canceled                                (10,000)           26.26
                                                -------           ------
Shares under option November 30, 1996           154,900            20.25
Options granted                                  64,000            29.77
Options exercised                                (8,800)           17.50
Options canceled                                 (3,000)           33.88
                                                -------           ------
Shares under option November 29, 1997           207,100           $23.11
                                                =======           ======

                                                               
Options exercisable at:                                        
December 2, 1995                                127,400           $17.22
November 30, 1996                               113,700            17.57
November 29, 1997                               125,900            19.37
                                                               
     The  following  summarizes  information  about  shares  under option in the
respective exercise price ranges at November 29, 1997:

Range of Exercise      Number     Weighted-  Weighted-    Number       Weighted-
Price Per share     Outstanding   Average    Average      Exercisable  Average  
                                  Remaining  Exercise                  Exercise 
                                  Life       Price Per                 Price Per
                                             Share                     Share

15.44-19.00           93,100       3.07       16.20        93,100       16.20
                                                                     
26.38-30.06          114,000       8.54       28.68        32,800       28.35
                     -------                               ------
                                                                     
                     207,100                              125,900         
                     =======                              =======

     The shares  authorized  but not granted  under the  Company's  stock option
plans were 175,000 at November 29, 1997 and 128,800 at November 30, 1996. Common
stock  reserved  for options  totalled  207,100  shares at November 29, 1997 and
154,900 shares at November 30, 1996.


                                      F-15
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Plan:
 
     The Company has a restricted stock plan which awards shares of common stock
previously held in its treasury to key employees. Shares are awarded in the name
of the  employee,  who has all  rights  of a  shareholder,  subject  to  certain
restrictions or forfeiture. Vesting occurs over a five-year period from the date
the shares were awarded.  Dividends  associated  with the shares are held by the
Company and vest over the same five-year period.

     During  fiscal 1991,  60,000 shares were awarded and were recorded at their
quoted market value at the date of grant of $26 per share,  or  $1,560,000.  The
compensation  element  related to such shares was  recognized  ratably  over the
five-year restriction period.

     During fiscal 1996 and 1994,  an additional  2,400 shares and 1,000 shares,
respectively, were awarded under terms similar to those described above.

     Compensation  expense  related  to the above  restricted  shares for fiscal
1997, 1996 and 1995 was $26,000, $181,000 and $324,000, respectively.


Note 7 - Stockholder Rights Plan
--------------------------------------------------------------------------------

     In May 1990,  the Board of Directors of the Company  adopted a  Shareholder
Rights Plan which was  amended in May 1991 (the  "Plan").  Under the Plan,  each
stockholder  has received a  distribution  of rights for each common share held.
The rights will  become  exercisable  and will  detach from the common  shares a
specified time after any person  becomes the beneficial  owner of 20% or more of
the Company's  common shares,  or commences a tender or exchange offer which, if
consummated,  would result in any person becoming the beneficial owner of 30% or
more of the Company's common shares.  Once exercisable,  each right will entitle
the  holder,  other  than the  acquiring  person,  to  purchase,  for the rights
purchase price, common shares having a market value of twice the rights purchase
price.

     If, following an acquisition of 20% or more of the Company's common shares,
the Company is involved in any merger or other business  combination or sells or
transfers more than 50% of its assets or earnings power, each right will entitle
the holder to purchase,  for the rights  purchase  price,  common  shares of the
other  party  to such  transaction  having a market  value of twice  the  rights
purchase price.

     The Company may redeem the rights at a price of $0.01 per right at any time
prior to a  specified  period of time after a person  has become the  beneficial
owner of 20% or more of the Company's common shares. The Rights attach to all of
the Company's  common  shares  outstanding  as of June 6, 1990, or  subsequently
issued, and expire on June 6, 2000.


Note 8 - 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  1997,  1996 and 1995 were
$429,000, $439,000 and $415,000, 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 1997, 1996 and 1995 were $94,000, $98,000
and  $123,000,  respectively.  Benefits  payable  under this plan  amounting  to
$2,047,000   and  $1,643,000  at  November  29,  1997  and  November  30,  1996,
respectively,  are included in other noncurrent  liabilities.  These liabilities
are fully  funded by plan assets of equal  amounts,  which are included in other
assets.


                                      F-16
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pension Plan:

     The Company's  defined benefit plan covers all eligible  hourly  production
employees.  The  benefits  are  based  on years of  service.  Contributions  are
intended to provide benefits attributable to both past and future services.

     The net periodic  pension cost of the defined benefit plan for fiscal 1997,
1996 and 1995 is as follows (in thousands):

                                                   1997       1996        1995
                                                   ----       ----        ----

Service cost                                     $   181    $   178     $   160
Interest cost on projected benefit obligation        179        161         162
Actual return on plan assets                      (1,590)    (1,267)     (1,024)
Net amortization and deferral                      1,117        924         768
                                                 -------    -------     -------

Net periodic pension cost                        $  (113)   $    (4)    $    66
                                                 =======    =======     =======


     The following table presents a  reconciliation  of the funded status of the
Plan for fiscal 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
                                                                         1997        1996
                                                                       --------     ------

<S>                                                                     <C>         <C>     
Accumulated benefit obligations including vested benefits
  of $(3,468) and ($2,080)                                              $(3,690)    $(2,235)
                                                                        =======     =======

Projected benefit obligation for service rendered to date               $(3,690)    $(2,235)
Plans assets at fair value, primarily listed stocks                       5,593       4,350
                                                                        -------     -------
Projected plan assets in excess of benefit obligation                     1,903       2,115

Unrecognized net gain from past experience different
  from that assumed and effects of changes in assumptions                (2,766)     (2,194)

Unrecognized prior service cost                                             906          37

Unrecognized net asset at transition being recognized over 11 years         (28)        (56)
                                                                        -------     -------

Accrued pension costs included in other current assets (liabilities)    $    15     $   (98)
                                                                        =======     =======
</TABLE>

     The average  discount rate was 7% in fiscal 1997, 7 1/2% in fiscal 1996 and
8% in fiscal  1995,  and the  expected  rate of return on assets for both fiscal
1997 and 1996 was 8%.


                                      F-17
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Employee Stock Ownership Plan:

     The Company has an Employee  Stock  Ownership  Plan (ESOP) which covers 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 is
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.

     Annual  principal  installments of $790,000 plus interest at prime are paid
by the ESOP to the Company. The balance on the ESOP indebtedness at November 30,
1997 of $7,117,000  is reflected as a reduction of the  Company's  stockholders'
equity in the consolidated balance sheet.

     The Company  accounts 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 are recorded for financial  reporting  purposes as
the ESOP shares become allocable to the Plan  participants.  All ESOP shares are
considered outstanding in the determination of earnings per share.

     The portion of the common stock dividends  declared relating to ESOP shares
totaled  $227,000,  $232,000  and  $229,000  for  fiscal  1997,  1996 and  1995,
respectively.  Of these amounts,  $89,000,  $75,000 and $60,000 for fiscal 1997,
1996 and 1995, respectively,  related to allocated shares and $138,000, $157,000
and  $169,000  for  fiscal  1997,  1996  and  1995,  respectively,   related  to
unallocated  shares.  The dividends related to the unallocated  shares are being
applied towards the $790,000 annual principal installments referred to above.

     As of November 29, 1997 and November 30, 1996, ESOP shares  information was
as follows:


                                   1997      1996
                                  -----      ----

Allocated                        141,041    123,694
Committed to be released          26,716     25,693
In suspense                      151,226    178,965
                                 -------    -------

    Total shares held by ESOP    318,983    328,352
                                 =======    =======

                                      F-18
<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   The net charges to earnings  for fiscal  1997,  1996 and 1995 were as follows
(in thousands):

                                                   1997        1996       1995
                                                   ----        ----       ----

Contribution to ESOP                             $1,242      $1,297     $1,513
Less: Interest income on loan to ESOP               691         738        840
                                                 ------      ------     ------

Net charge to earnings                           $  551      $  559     $  673
                                                 ======      ======     ======


   The  contribution  to the ESOP is allocated  between  costs of goods sold and
operating  expenses;  the  interest  income is included in interest and dividend
income.

Note 9 - Income Taxes
--------------------------------------------------------------------------------


   Provisions  for Federal,  state and local income taxes for fiscal 1997,  1996
and 1995 consisted of the following components (in thousands):

                                                1997           1996       1995
                                                ----           ----       ----

Current:
         Federal                              $3,876         $3,415     $3,924
         State and local                         444            324        547
                                              ------         ------     ------
                                               4,320          3,739      4,471
Deferred:
         Federal and state                      (185)            61       (121)
                                              -------        ------    --------

                                              $4,135         $3,800     $4,350
                                              ======         ======     ======

   The net  deferred  tax  liability  at November 29, 1997 and November 30, 1996
consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                                            1997             1996
                                                                            ----             ----
<S>                                                                      <C>               <C>
Long-term Portion:
  Gross deferred tax liability (asset) for:
   Excess depreciation for tax purposes                                   $5,648           $5,738
   Future tax deductions for employee benefit plans                       (1,168)          (1,076)
                                                                         -------           ------
                  Net long-term liability                                  4,480            4,662
                                                                         -------           ------

Current Portion:
  Gross deferred tax liability (asset) for:
   Allowance for doubtful accounts                                           (60)            (108)
   Net unrealized holding gain on investment securities
    available-for-sale, included in stockholders' equity                     426              405
   ESOP contribution accrued for tax purposes                                408              417
   Other                                                                       4               47
                                                                         -------           ------
                  Net current liability                                      778              761
                                                                         -------           ------

  Net deferred tax liability                                              $5,258           $5,423
                                                                          ======           ======
</TABLE>

                                      F-19

<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

   The  differences  between  the  Company's  effective  tax  rate  and  Federal
statutory tax rate for fiscal 1997, 1996 and 1995 arose from the following:
                                                                            1997             1996              1995
                                                                            ----             ----              ----
                                                                                   (% of pretax income)

<S>                                                                         <C>              <C>               <C>  
Federal tax expense at statutory rate                                       35.0%            35.0%             35.0%
State and local income taxes, net of Federal benefit                         2.5              2.4               3.0
Tax-free interest income and dividends received deduction                   (6.5)            (6.4)             (6.2)
Other                                                                        (.4)            (0.8)             (0.2)
                                                                           ------            ----              ----
Effective tax rate                                                          30.6%            30.2%             31.6%
                                                                           =====             ====              ====
</TABLE>


Note 10 - Commitments
--------------------------------------------------------------------------------


Stock Repurchase:

     In March 1993,  the Company  entered  into a five year  agreement  with the
Chairman of the Board of Directors  and  President  ("Chairman").  The agreement
provides that, in the event of the Chairman's  death,  his estate has the option
to sell, and the Company the  obligation to purchase  certain stock owned by the
Chairman.  The amount of stock  subject to purchase is equal to the lesser of $7
million  or  10%  of the  book  value  of the  Company  at the  end of the  year
immediately  following his death, plus the $3 million proceeds from insurance on
his life for  which  the  Company  is the  beneficiary.  The  agreement  extends
automatically from year to year unless either party gives notice of cancellation
at least six months  prior to the then  current  expiration  date.  The  current
expiration date is March 1999.

Lease:
   The Company  leases its New York City offices and  showrooms  until 2006,  at
   average  minimum  annual  rentals of $503,000  until April 2001 and  $660,000
   thereafter until April 2006, plus escalation and other costs. The Company has
   the option to cancel the lease effective April 2001.

   Rental expense for operating  leases in fiscal 1997, 1996 and 1995 aggregated
   $605,000, $643,000 and $671,000, respectively.

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

   Fiscal year ending (in thousands):

         1998                                             $494
         1999                                              530
         2000                                              559
         2001                                              235
                                                        ------

                                                        $1,818
                                                        ======


                                      F-20

<PAGE>


                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 11 - Statement of Cash Flows
--------------------------------------------------------------------------------


   Cash outlays for  corporate  income taxes and interest for fiscal 1997,  1996
and 1995 were as follows (in thousands):

                                                   Corporate
                                                  income taxes          Interest
                                                  ------------          --------


         1997                                           $3,545             $  65
         1996                                            3,840               124
         1995                                            4,634               129

Non-cash investing and financing activities:

   In fiscal  1997,  1996 and 1995,  net  unrealized  holding  gains of $48,000,
$639,000,  and  $902,000,  respectively,  less related  income taxes of $19,000,
$256,000,  and  $364,000,  on  investment  securities  available-for-sale,  were
recorded as increases in stockholders' equity.



Note 12 - Interest and Dividend Income
--------------------------------------------------------------------------------


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

                                    Interest          Dividend
                                     income            income            Total
                                     ------            ------            -----


         1997                         $3,654              $176           $3,830
         1996                          3,505               155            3,660
         1995                          3,546               130            3,676



Note 13 - Major Customer
--------------------------------------------------------------------------------


   For fiscal  1997,  1996 and 1995,  sales to a group of  customers  affiliated
through  common  control  accounted  for  approximately  10%, 12% and 16% of net
sales,  respectively.  The receivables from this group of customers  represented
approximately  12% and 13% of the  November  29,  1997  and  November  30,  1996
accounts receivable balances, respectively.


                                      F-21

<PAGE>

                      FAB INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 14 - Quarterly Financial Data (unaudited)
--------------------------------------------------------------------------------


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

<TABLE>
<CAPTION>


                                       First            Second             Third           Fourth
                                     Quarter           Quarter           Quarter          Quarter             Total
                                     -------           -------           -------          -------             -----

<S>                                  <C>               <C>               <C>              <C>              <C>     
Fiscal 1997:
Net sales                            $35,475           $42,940           $41,775          $40,745          $160,935
Cost of goods sold                    31,427            36,601            35,009           34,352           137,389
Net income                             1,650             2,395             2,640            2,709             9,394
Earnings per share                      $.29              $.42              $.46             $.48             $1.65


Fiscal 1996:
Net sales                            $35,588           $40,768           $40,016          $39,764          $156,136
Cost of goods sold                    31,040            34,753            33,704           33,969           133,466
Net income                             1,594             2,156             2,420            2,626             8,796
Earnings per share                      $.27              $.37              $.42             $.46             $1.52
</TABLE>


                                      F-22

<PAGE>



                      FAB INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                                FORM 10-K ITEM 14

             FISCAL YEARS ENDED NOVEMBER 29, 1997, NOVEMBER 30, 1996
                              AND DECEMBER 2, 1995





                                       S-1


<PAGE>





                      FAB INDUSTRIES, INC. AND SUBSIDIARIES




                                    CONTENTS



Schedule:

  II.  Valuation and qualifying accounts                                    S-3




                                       S-2


<PAGE>


                                   SCHEDULE II
                      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                                              Balance
                                   beginning          to costs        Charged to                             at end
Description                         of year       and expenses    other accounts       Deductions           of year
-----------                         -------       ------------    --------------       ----------           -------
<S>                                    <C>            <C>                <C>           <C>                     <C>
Fiscal year ended November 29, 1997:

    Allowance for doubtful
     accounts                           $600           $400 (i)           -            $(100) (ii)             $900

Fiscal year ended November 30, 1996:

    Allowance for doubtful
     accounts                           $500           $400 (i)           -            $(300) (ii)             $600

Fiscal year ended December 2, 1995:

    Allowance for doubtful
     accounts                           $950           $400 (i)           -            $(850) (ii)             $500

</TABLE>

(i) Current year's provision.

(ii) Accounts receivable written-off, net of recoveries.



                                       S-3


<PAGE>

                               SIGNATURES

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

                                    FAB INDUSTRIES, INC.
                                    (Company)


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

                                          February 27, 1998
                                          -----------------
                                                 Date

     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

  /s/ Samson Bitensky         February 27, 1998   Chairman of the Board, Chief
----------------------------                      Executive Officer and Director
  Samson Bitensky                                 Executive Officer and Director

  /s/ David A. Miller         February 27, 1998   Vice President - Finance,
----------------------------                      Treasurer and Chief Financial 
  David A. Miller                                 Officer (Principal Financial 
                                                  and Accounting Officer)

  /s/ Sherman S. Lawrence     February 27, 1998   Secretary and Director
----------------------------
  Sherman S. Lawrence

  /s/ Lawrence Bober          February 27, 1998   Director
----------------------------
  Lawrence Bober

  /s/ Richard Marlin          February 27, 1998   Director
----------------------------
  Richard Marlin

                              February 27, 1998   Director
----------------------------
  Louis Feil

  /s/ Oscar Kunreuther        February 27, 1998   Director
----------------------------
  Oscar Kunreuther

  /s/ Susan Lerner            February 27, 1998   Director
----------------------------
  Susan Lerner


<PAGE>

                            INDEX TO EXHIBITS

                                                                  Page Number In
                                                                   Sequentially
Exhibit      Description of Exhibit                               Numbered Copy

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.

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      -  1987 Stock Option Plan of the Company, incorporated by reference
             to Exhibit 10.1 to the 1993 10-K.

10.2     -   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.

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


                                      17
<PAGE>

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

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

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

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

10.8     -   Amendment  to the  Retirement  Plan  effective  as of December 1,
             1989, incorporated by reference to Exhibit 10.9 to the 1993 10-K.

10.9     -   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").

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

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

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

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

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

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

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

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

10.18    -   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.

10.19    -   Lease Modification Agreement dated as of April 8, 1991 between
             Glockhurst Corporation N.V. and the Company, incorporated by
             reference to Exhibit 10.17 to the 1993 10-K.

10.20    -   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.


                                      18
<PAGE>

10.21    -   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.

10.22    -   Lease dated as of January 1, 1977 between City of Amsterdam
             Industrial Development by reference to Exhibit 10.19 to the 1993 
             10-K.

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

10.24    -   Company's Employee Stock Ownership Plan effective as of November
             25, 1991, incorporated by reference to Exhibit 10.24 to the 1993 
             10-K.

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

10.26    -   Company's Non-Qualified Executive Retirement Plan dated as of
             November 30, 1990, incorporated by reference to Exhibit 10.25 to
             the 1993 10-K.

21       -   Subsidiaries of the Company incorporated by reference to Exhibit 
             21 to the 1994 10-K.

*23      -   Consent of BDO Seidman, LLP.

**27     -   Financial Data Schedule pursuant to Article 5 of Regulation S-X.

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

*     Filed herewith.
**    Filed with EDGAR version only.


                                       19