SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

 X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE QUARTER ENDED OCTOBER 3, 1998

                                                           OR

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

               Commission file numbers 333-42411 and 333-42411-01
               --------------------------------------------------

                               Glenoit Corporation
             (Exact name of registrant as specified in its charter)

Delaware                                                        13-3862561
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

                            Glenoit Asset Corporation
             (Exact name of registrant as specified in its charter)

Delaware                                                        51-0343206
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

                              111 West 40th Street
                            New York, New York 10018
                            Telephone: (212) 391-3915
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes__X_  No___



None of the voting securities of Glenoit Corporation or Glenoit Asset
Corporation is held by non-affiliates.

As of October 3, 1998, there were 1,000 shares of Glenoit Corporation common
stock outstanding.




                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


                                       1
<PAGE>


ART 1 - FINANCIAL INFORMATION

Item 1.     Financial Statements

              GLENOIT CORPORATION AND SUBSIDIARIES (a wholly-owned
                     subsidiary of Glenoit Universal, Ltd.)
                           Consolidated Balance Sheets


<TABLE>
<CAPTION>

                                                                                      January 3,       October 3,
                                                                                         1998             1998
                                                                                     --------------  ---------------
                                    ASSETS                                                            (Unaudited)
<S>                                                                                <C>             <C>             
Current assets:
     Cash and cash equivalents                                                     $     1,072,280 $        962,802
     Receivables:
          Trade accounts receivable, net of allowace of $543,000 and
               $2,226,000 as of January 3, 1998 and October 3, 1998,                                  
               respectively                                                             21,216,104       52,848,560
          Other receivables                                                                174,561          164,933
     Inventories                                                                         6,932,272       28,036,928
     Prepaid expenses and other current assets                                           1,155,761        1,420,593
                                                                                     --------------  ---------------

                    Total current assets                                                30,550,978       83,433,816

Property, plant and equipment, net                                                      35,141,104       45,995,153

Other assets:
     Notes receivable from related party                                                   187,500          271,824
     Intangible assets, net of accumulated amortization of $1,251,002
          and $1,436,000 as of January 3, 1998 and October 3, 1998,
          respectively                                                                   4,420,319       26,616,408
     Deferred loan costs and other, net of accumulated amortization of
          $523,743 and $964,000 as of January 3, 1998 and October 3,                                  
          1998, respectively                                                             4,929,666        5,326,174
     Other assets                                                                                -          359,913
                                                                                     --------------  ---------------

                    Total assets                                                   $    75,229,567 $    162,003,288
                                                                                     ==============  ===============
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       2
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                              January 3,            October 3,
                                                                                 1998                  1998
                                                                            ---------------       ---------------
          LIABILITIES AND STOCKHOLDER'S DEFICIT                                                    (Unaudited)
<S>                                                                    <C>                    <C>               

Current liabilities:
     Accounts payable                                                  $         5,961,475    $        6,117,365
     Accrued expenses                                                            6,065,182            12,132,643
     Current maturities of capital lease obligations                               697,934               243,397
     Due to Holdings                                                             2,678,587             5,280,660
                                                                            ---------------       ---------------

                    Total current liabilities                                   15,403,178            23,774,065

Long-term debt                                                                 102,000,000           174,707,499
Capital lease obligations - less current maturities                                 61,685                     -
Deferred income taxes                                                            1,930,694             2,405,299
Other long-term liabilities                                                              -               258,282
                                                                            ---------------       ---------------

                    Total liabilities                                          119,395,557           201,145,145
                                                                            ---------------       ---------------

Commitments and contingencies

Stockholder's deficit:
     Common stock, $.01 par value, 1,000 shares authorized, issued
         and outstanding as of January 3, 1998 and October 3, 1998                      10                    10
     Additional paid-in capital                                                  1,361,713             1,461,713
     Accumulated deficit                                                  (     45,295,099  )   (     39,677,385 )
     Accumulated other comprehensive income                               (        232,614  )   (        926,195 )
                                                                            ---------------       ---------------

                    Total stockholder's deficit                           (     44,165,990  )   (     39,141,857 )
                                                                            ---------------       ---------------

                    Total liabilities and stockholder's deficit        $        75,229,567    $      162,003,288  
                                                                            ===============       ===============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.



                                       3
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
                  Consolidated Statements of Income (Unaudited)

<TABLE>
<CAPTION>


                                                             Three Months Ended                         Nine Months Ended
                                                     ----------------------------------      -------------------------------------
                                                      October 4,          October 3,            October 4,          October 3,
                                                         1997                1998                  1997                1998
                                                     --------------     ---------------       ----------------    ----------------

<S>                                             <C>                <C>                     <C>                    <C>              
Net sales                                       $       48,262,698 $        45,126,817     $      120,821,914   $     133,066,909

Cost of sales                                           29,568,355          31,919,884             77,958,622          91,073,159
                                                     --------------     ---------------       ----------------    ----------------

          Gross profit                                  18,694,343          13,206,933             42,863,292          41,993,750
                                                     --------------     ---------------       ----------------    ----------------

Operating expenses:
     Selling                                             3,568,832           3,910,112              9,646,405          11,173,760
     Administrative                                      2,773,216           2,011,487              6,725,045           6,951,888
     Research and development                              529,425             562,173              1,487,977           1,484,254
                                                     --------------     ---------------       ----------------    ----------------
          Total operating expenses                       6,871,473           6,483,772             17,859,427          19,609,902
                                                     --------------     ---------------       ----------------    ----------------

Income from operations                                  11,822,870           6,723,161             25,003,865          22,383,848
                                                     --------------     ---------------       ----------------    ----------------

Other income (expense):
     Interest expense                             (      3,013,162 )  (      3,292,375 )     (      8,093,954 ) (       9,608,288 )
     Amortization of deferred financing costs     (        134,799 )  (        160,411 )     (        429,077 ) (         479,134 )
     Other                                        (         53,553 )  (        177,861 )     (        156,737 ) (         181,567 )
                                                     --------------     ---------------       ----------------    ----------------
          Total other expense                     (      3,201,514 )  (      3,630,647 )     (      8,679,768 ) (      10,268,989 )
                                                     --------------     ---------------       ----------------    ----------------
Income before income taxes and
     extraordinary loss                                  8,621,356           3,092,514             16,324,097          12,114,859

Income tax expense                                       3,183,010           1,120,985              6,542,083           4,444,038
                                                     --------------     ---------------       ----------------    ----------------

Income before extraordinary loss                         5,438,346           1,971,529              9,782,014           7,670,821

Extraordinary loss on early extinguishment
     of debt, net of tax benefit of $67,000
     and $1,527,000, respectively                                -             117,236              2,856,884             117,236
                                                     --------------     ---------------       ----------------    ----------------


Net income                                      $        5,438,346    $      1,854,293     $        6,925,130 $         7,553,585
                                                     ==============     ===============       ================    ================

Basic and diluted income per share:
     Income before extraordinary loss           $            5,438 $             1,971     $            9,782 $             7,671

     Extraordinary loss on early
        extinguishment of debt                                        (            117 )     (          2,857 ) (             117 )
                                                     --------------     ---------------       ----------------    ----------------

     Net income                                 $            5,438               1,854     $            6,925 $             7,554
                                                     ==============     ===============       ================    ================

     Weighted average shares outstanding                     1,000               1,000                  1,000               1,000
                                                     ==============     ===============       ================    ================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                       4
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
           Consolidated Statement of Stockholder's Deficit (Unaudited)
                    for the nine months ended October 3, 1998

<TABLE>
<CAPTION>

                                                              Retained                Accumulated
                      Shares of               Additional      Earnings                Other
                      Common      Common      Paid-in         (Accumulated)           Comprehensive
                      Stock       Stock       Capital         Deficit)                Income                Total
                      ----------  ----------  ------------    ------------------      ----------------      ----------------
<S>                   <C>         <C>           <C>        <C>                      <C>                    <C>      
Balance as of
   January 3, 1998        1,000 $        10 $   1,361,713 $ (        45,295,099 ) $ (         232,614 ) $ (      44,165,990 )

Net Income                                                            7,553,585                                   7,553,585

Stock compensation                                100,000                                                           100,000

Dividends                                                   (         1,935,871 )                         (       1,935,871 )

Accumulated Other
   Comprehensive
   Income                                                                           (         693,581 )   (         693,581 )
                      ----------  ----------  ------------    ------------------      ----------------      ----------------

Balance as of
   October 3, 1998        1,000 $        10 $   1,461,713 $ (        39,677,385 ) $ (         926,195 ) $ (      39,141,857 )
                      ==========  ==========  ============    ==================      ================      ================
</TABLE>


           Consolidated Statement of Comprehensive Income (Unaudited)

<TABLE>
<CAPTION>


                                                                         Nine Months Ended
                                                              ----------------------------------------
                                                                 October 4,             October 3,
                                                                    1997                   1998
                                                              ------------------      ----------------
<S>                                                       <C>                     <C>                
Net Income                                                $           6,925,130   $         7,553,585

Other comprehensive income, net of tax:
   Currency translation adjustment                                      112,542     (         693,581 )
                                                              ------------------      ----------------

Comprehensive income                                      $           7,037,672   $         6,860,004
                                                              ==================      ================

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.



                                       5
<PAGE>

              GLENOIT CORPORATION AND SUBSIDIARIES (a wholly-owned
                     subsidiary of Glenoit Universal, Ltd.)
                Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>


                                                                                            Nine Months Ended
                                                                                   --------------------------------------

                                                                                     October 4,             October 3,
                                                                                        1997                   1998
                                                                                   ---------------        ---------------
<S>                                                                         <C>                       <C>               
Cash flows from operating activities:
     Net income                                                             $           6,925,130     $        7,553,585
     Adjustments to reconcile net income to net cash provided by
       (used in) operating activities:                                                                      
          Loss on early extinguishment of debt                                          4,383,884                184,624
          Depreciation and amortization                                                 2,617,233              4,298,878
          Stock compensation                                                                                     100,000  
          Loss on sale of property and equipment                                          129,255                 19,183  
          Effect of foreign currency exchange rate                                        112,542     (          693,581 )
          Changes in operating assets and liabilities:
             Trade and other receivables                                       (       17,064,678 )   (       17,275,358 )
             Inventories                                                       (          855,182 )   (        2,142,465 )
             Prepaid expenses and other assets                                            324,996     (          317,118 )
             Due to Holdings                                                            1,535,641              2,602,073  
             Accounts payable                                                           4,619,346     (          958,647 )
             Accrued expenses and other liabilities                                     8,986,004              4,839,579
                                                                                   ---------------        ---------------
               Net cash provided by (used in) operating activities                     11,714,171     (        1,789,247 )
                                                                                   ---------------        ---------------

Cash flows from investing activities:
   Purchases of acquired businesses, net of cash acquired                      (        8,013,406 )   (       54,428,203 )
   Purchases of and additions to property, plant and equipment                 (       13,314,999 )   (       13,168,031 )
   Proceeds from sale of property and equipment and refunds of
          deposits                                                                         26,650                 42,042
                                                                                   ---------------        ---------------
               Net cash used in investing activities                           (       21,301,755 )   (       67,554,192 )
                                                                                   ---------------        ---------------

Cash flows from financing activities:
   Payments on capital lease obligations                                       (          409,651 )   (          516,222 )
   Proceeds from line of credit and issuance of debt, net                              25,100,000             77,707,499
   Dividends paid                                                              (        1,600,000 )   (        1,935,871 )
   Advances on notes receivable - related parties                                                     (           84,324 )
   Payment of note payable to related party                                    (        5,743,581 )
   Payments for financing costs                                                (        6,920,909 )   (          987,121 )
   Purchase of senior subordinated notes                                                              (        4,950,000 )
                                                                                   ---------------        ---------------
               Net cash provided by financing activities                               10,425,859             69,233,961  
                                                                                   ---------------        ---------------

               Net increase (decrease) in cash and cash equivalents                       838,275     (          109,478 )

Cash and cash equivalents at beginning of period                                           48,817              1,072,280
                                                                                   ---------------        ---------------

Cash and cash equivalents at end of period                                  $             887,092     $          962,802
                                                                                   ===============        ===============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.



                                       6
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

1.       SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation

         The accompanying unaudited condensed consolidated financial statements
         of Glenoit Corporation and subsidiaries (collectively the "Company")
         have been prepared in accordance with generally accepted accounting
         principles for interim financial information. Accordingly, they do not
         include all of the information and footnotes required by generally
         accepted accounting principles for complete financial statements. In
         the opinion of management, all adjustments (consisting of only normal
         recurring adjustments) considered necessary for a fair presentation
         have been included. Operating results for the nine-month period ended
         October 3, 1998 are not necessarily indicative of the results that may
         be expected for the fiscal year ending January 2, 1999. The unaudited
         financial statements should be read in conjunction with the audited
         financial statements and footnotes thereto for the fiscal year ended
         January 3, 1998.

         Consolidation

         Prior to September 1997, the accompanying financial statements included
         the accounts of Glenoit Corporation and its wholly-owned subsidiaries
         Glenoit Mills, Inc. ("Mills"), Tarboro Properties, Inc. ("Tarboro"),
         and Glenoit Asset Corporation, Inc. ("Glenoit Asset Corporation"). In
         September 1997, Glenoit Corporation merged with Mills and Tarboro. In
         addition, Glenoit Corporation's newly formed wholly-owned subsidiary,
         Glenoit Corporation of Canada ("Glenoit Canada") acquired the assets of
         Collins & Aikman Canada Inc. (see Note 7). Accordingly, at October 3,
         1998 the accompanying financial statements include the accounts of
         Glenoit Corporation and it's wholly-owned subsidiaries Glenoit Canada,
         American Pacific Enterprises, Inc. (see Note 7) and Glenoit Asset
         Corporation. The Company is a wholly-owned subsidiary of Glenoit
         Universal, Ltd. ("Holdings").

         Net Income Per Share

         As of January 3, 1998, the Company adopted Statement of Financial
         Accounting Standards No. 128, "Earnings per Share", which requires the
         Company to present both basic and diluted earnings per share. There is
         no difference between the Company's basic and diluted earnings per
         share as the Company does not have any common stock equivalents.


                                       7
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

1.       SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Adoption of New Accounting Pronouncements

         The Company adopted Statement of Financial Accounting Standards No. 130
         "Reporting Comprehensive Income" ("SFAS No. 130") for the fiscal year
         ending January 2, 1999. SFAS No. 130 requires the Company to display an
         amount representing the total comprehensive income for the period in a
         financial statement which is displayed with the same prominence as
         other financial statements.

         In June 1998, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 133, Accounting for Derivative
         Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133
         establishes standards related to the recording and reporting of
         derivative instruments. Since the Company does not hold any derivative
         instruments, SFAS No. 133 does not have any impact on the Company's
         results from operation or financial position.

2.       RELATED PARTY TRANSACTIONS

         On March 5, 1997, the Company declared a dividend and issued a note in
         the amount of approximately $5.8 million (the "Note") to a shareholder
         of Holdings in satisfaction of a contingent earnout obligation of
         Holdings related to the recapitalization discussed in the January 3,
         1998 financial statements. This note contained a mandatory prepayment
         provision which required the Company to retire the Note and accrued
         interest as of the date of a bond offering of the Company. On April 1,
         1997, the date of the bond offering described in Note 4, the Company
         retired the Note from the proceeds of the bond offering.

         On June 14, 1997, the Company declared a dividend in the amount of $1.6
         million to enable Holdings to exercise an option to repurchase shares
         of Holdings' common stock and to repay a note due to a shareholder of
         Holdings. This transaction was related to the recapitalization
         discussed in Note 2 of the Company's January 3, 1998 audited financial
         statements. Additionally, as part of the same transaction, the Company
         made a loan of $931,263 to an officer at an interest rate of prime plus
         .5%. The principal and interest were repaid in full on August 12, 1997.

         In March 1998, the Company loaned an officer $100,000 and created an
         unsecured note receivable.

         During June 1998, Holdings sold three officers of the Company a total
         of 857.46 shares of Holdings' Class A common stock for approximately
         $158,000. Holdings loaned the officers an amount equal to the sales
         price and created full recourse notes receivable secured by the issued
         shares. In connection with the stock issuance, the Company recorded
         non-cash compensation expense of $100,000.


                                       8
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

2.       RELATED PARTY TRANSACTIONS (Continued)

         In July 1998, Holdings settled a dispute regarding additional purchase
         price owed to a shareholder associated with the recapitalization in
         December 1995 discussed in Note 2 to the Consolidated Financial
         Statements as of January 3, 1998. Accordingly, Holdings paid
         approximately $1.9 million to the shareholder during July 1998.
         These funds were paid to Holdings by the Company as a dividend.

3.       INVENTORIES

         Inventories are summarized as follows:

<TABLE>
<CAPTION>

                                                                                  January 3,           October 3,
                                                                                     1998                 1998
                                                                               -----------------    -----------------
                                                                                                       (Unaudited)

<S>                                                                                  <C>                  <C>       
        Raw Materials                                                                $2,082,516           $3,540,139
        Work-in-process                                                               1,516,899            1,791,231
        Finished goods                                                                3,332,857           22,705,558
                                                                               -----------------    -----------------

                  Total inventories                                                  $6,932,272          $28,036,928
                                                                               =================    =================
</TABLE>


4.       LONG-TERM DEBT

         As of January 3, 1998 and October 3, 1998 long-term debt consisted of
         the following:

<TABLE>
<CAPTION>
                                                                     January 3,            October 3,
                                                                       1998                   1998
                                                                    ------------           ------------
                                                                                           (unaudited)
<S>                                                                   <C>                   <C>        
            Senior credit facility...........................         $2,000,000            $79,707,499
            11% Senior subordinated notes ...................        100,000,000             95,000,000
                                                                    ------------           ------------
                 Total long-term debt........................       $102,000,000           $174,707,499
                                                                    ------------           ------------
</TABLE>


         On April 1, 1997, the Company issued $100,000,000 of senior
         subordinated notes (the "Senior Subordinated Notes") in a private
         placement bond offering. The Senior Subordinated Notes bear interest at
         a fixed rate of 11% and mature on April 15, 2007. The Company at its
         option, can prepay these notes at a price of 105.5% of the original
         principal amount, beginning on April 15, 2002. The premium declines by
         1.833% thereafter each year beginning on April 15 until reduced to the
         original principal amount. Additionally, prior to April 15, 2000, the
         Company may redeem in the aggregate up to 25% of the original aggregate
         principal amount with the proceeds of one or more Public Equity
         Offerings, as defined in the Indenture governing the Senior
         Subordinated Notes, at a redemption price of 110% of the original
         principal amount. Upon a Change of Control of


                                       9
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

4.       LONG TERM DEBT (Continued)

         the Company, as defined in the Indenture governing the Senior
         Subordinated Notes, the holder of a Senior Subordinated Note may
         require the Company to redeem the note at a price of 101% of the
         principal amount. Interest is payable semi-annually, and began on
         October 15, 1997.

         During September 1998, the Company acquired $5 million of the Senior
         Subordinated Notes in the open market. These notes were subsequently
         retired. In connection with this transaction, the Company recorded an
         extraordinary loss of approximately $117,000, net of a tax benefit,
         which consisted of the write off of a pro rata share of deferred
         financing costs associated with the issuance of the Senior Subordinated
         Notes.

         On April 1, 1997, the Company also entered into a $70 million senior
         credit facility (the "Facility") with a financial institution. Of the
         total commitment of $70 million under the Facility, $25 million is
         designated as an Acquisition Commitment and $45 million as a Working
         Capital Commitment, which is a revolving credit facility limited to the
         Borrowing Base as defined in the Facility. On October 2, 1998, the
         Facility was amended to increase the Acquisition Commitment to $76
         million. On October 2, 1998, in connection with the acquisition of
         American Pacific Enterprises, Inc., discussed in Note 7, the Company
         borrowed approximately $55.7 million under the Acquisition Commitment.
         The Company may borrow under the Acquisition Facility through December
         31, 1999. The bank also extended up to a total of $5 million in letters
         of credit to the Company; however, the amount is limited to the amount
         of the unused Working Capital Commitment. At October 3, 1998, the
         Company had $24.0 million outstanding under the Working Capital
         Commitment, and approximately $12.0 million available under the Working
         Capital Commitment and up to $20.3 million available under the
         Acquisition Commitment.

         At the option of the Company, the Company may designate advances under
         the Facility to bear interest at the Base Rate, as defined in the
         Facility, plus 1% for an Acquisition Commitment Advance and .5% for a
         Working Capital Commitment Advance or the Eurodollar Rate plus 2.5% for
         an Acquisition Commitment Advance or 2% for a Working Capital
         Commitment Advance. The Company must pay a commitment fee equal to five
         eighths of one percent per year of the unused Acquisition Commitment
         and one half of one percent per year of the unused Working Capital
         Commitment. Additionally, the Company must pay a letter of credit fee
         of two percent per year of the average available amount under the
         letters of credit for each quarter such letters of credit are
         outstanding. All interest, commitment fees and letter of credit fees
         under the Facility are payable quarterly and began on June 30, 1997.
         The principal balance of the Acquisition Commitment is repayable
         quarterly commencing on March 31, 2000 in amounts equal to
         one-twentieth of the aggregate principal balance then outstanding, with
         the balance due on December 31, 2001. The Working Capital commitment is
         due on December 31, 2001.

                                       10
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

4.       LONG TERM DEBT (Continued)

         Prior to December 31, 1999, the Company may be required to prepay the
         Acquisition Commitment and Working Capital Commitment in amounts equal
         to the Net Cash Proceeds of the sale of assets, stock, debt securities
         or any other Net Cash Proceeds, as defined by the Facility. The
         Acquisition and Working Capital Commitments would then be permanently
         reduced by such payment.

         The Facility and Senior Subordinated Notes have various covenants that
         require the Company to: maintain key financial ratios, restrict
         corporate borrowings, limit the Company's ability to pay dividends,
         limit the type and amount of certain investments which may be
         undertaken by the Company, limit the Company's disposition of assets,
         limit the Company's ability to enter into operating and capital leases,
         and restrict the Company's ability to issue shares of its stock.

         Substantially all of the Company's assets and operations are pledged as
         collateral for the Facility. Holdings and Glenoit Asset Corporation
         have guaranteed the Company's obligations under the Facility. Holdings
         and Glenoit Asset Corporation have no substantive assets or operations
         and rely on the Company to fund their obligations.

         The Senior Subordinated Notes are fully and unconditionally guaranteed,
         on a joint and several basis, by Glenoit Asset Corporation. Glenoit
         Asset Corporation's operations consist solely of leasing certain
         trademarks and other intangibles to Glenoit Corporation. Accordingly,
         Glenoit Asset Corporation's assets and operations consist primarily of
         intercompany assets and operations with Glenoit Corporation. Glenoit
         Canada has not guaranteed the Senior Subordinated Notes. Prior to the
         formation of Glenoit Canada in June 1997, all of Glenoit Corporation's
         wholly-owned subsidiaries fully and unconditionally guaranteed the
         Senior Subordinated Notes. For periods prior to the formation of
         Glenoit Canada, the Company had no independent operations or assets
         other than its investment in its subsidiaries. The financial
         information of the subsidiary guarantors for these periods has been
         excluded because management believes that this information is not
         material to investors. Prior to the acquisition discussed in Note 7,
         Glenoit Canada had no operations.


                                       11
<PAGE>
                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

4.       LONG-TERM DEBT (Continued)

         The following tables present summarized balance sheet information of
         Glenoit Corporation, Glenoit Asset Corporation, American Pacific
         Enterprises, Inc. and Glenoit Canada as of October 3, 1998 and the
         related summarized operating statement and cash flow statement
         information for the period then ended. The Company believes that
         separate financial statements and other disclosures regarding Glenoit
         Asset Corporation, the sole subsidiary guarantor of the Senior
         Subordinated Notes, are not material to investors. Summarized balance
         sheet information, in thousands, as of October 3, 1998 is as follows
         (unaudited):
<TABLE>
<CAPTION>
                                                       Glenoit
                                          Glenoit        Asset
                                      Corporation  Corporation  Eliminations   Sub-total
                                      -----------  -----------  ------------   ---------
<S>                                     <C>          <C>          <C>          <C>      
Cash and cash equivalents ...........   $     230    $      84                 $     314
Accounts  and other  receivables, net      36,595                                 36,595
Inventories .........................       8,300                                  8,300
Other current assets ................       1,173         --                       1,173
                                        ---------    ---------    ---------    ---------
     Total current assets ...........      46,298           84                    46,382
Property,  plant  and  equipment, net      36,544                                 36,544
Other assets ........................     109,288       35,637      (71,357)      73,568
                                        ---------    ---------    ---------    ---------
     Total assets ...................   $ 192,130    $  35,721    $ (71,357)   $ 156,494
                                        ---------    ---------    ---------    ---------
Accounts payable ....................       4,609            1                     4,610
Other current liabilities ...........      12,754        4,009       (4,009)      12,754
                                        ---------    ---------    ---------    ---------
     Total current liabilities ......      17,363        4,010       (4,009)      17,364
Long-term debt ......................     210,344            0      (35,637)     174,707
Other long-term liabilities .........       2,639            0                     2,639
Stockholders equity (deficit) .......     (38,216)      31,711      (31,711)     (38,216)
                                        ---------    ---------    ---------    ---------
     Total liabilities and equity ...   $ 192,130    $  35,721    $ (71,357)   $ 156,494
                                        ---------    ---------    ---------    ---------
</TABLE>
<TABLE>
<CAPTION>
                                                      American
                                                      Pacific
                                         Sub-total  Enterprises    Canada  Eliminations Consolidated
                                         ---------  -----------    ------  ------------ ------------
<S>                                        <C>          <C>            <C>    <C>           <C>   
Cash and cash equivalents ...........   $     314    $     395   $     254               $     963
Accounts  and other  receivables, net      36,595       14,348       2,070                  53,013
Inventories .........................       8,300       18,962         775                  28,037
Other current assets ................       1,173          206          42                   1,421
                                        ---------    ---------   ---------               ---------
     Total current assets ...........      46,382       33,911       3,141                  83,434
Property,  plant  and  equipment, net      36,544        1,380       8,071                  45,995
Other assets ........................      73,568       22,517         380    (63,891)      32,574
                                        ---------    ---------   ---------   --------    ---------
     Total assets ...................   $ 156,494    $  57,808   $  11,592   $(63,891)   $ 162,003
                                        ---------    ---------   ---------   --------    ---------

Accounts payable ....................       4,610        1,115         392                   6,117
Other current liabilities ...........      12,754        1,870       3,033                  17,657
                                        ---------    ---------   ---------               ---------
     Total current liabilities ......      17,364        2,985       3,425                  23,774
Long-term debt ......................     174,707                                          174,707
Other long-term liabilities .........       2,639                       25                   2,664
Stockholders equity (deficit) .......     (38,216)      54,823       8,142    (63,891)     (39,142)
                                        ---------    ---------   ---------   --------    ---------
     Total liabilities and equity ...   $ 156,494    $  57,808   $  11,592   $(63,891)   $ 162,003
                                        ---------    ---------   ---------   --------    ---------
</TABLE>

                                       12
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

4.       LONG-TERM DEBT (Continued)

         Summarized operating statements information, in thousands, for the nine
         months ended October 3, 1998 is as follows (unaudited):


<TABLE>
<CAPTION>
                                            Glenoit
                               Glenoit       Asset                                Glenoit                           
                             Corporation  Corporation  Eliminations  Sub-total     Canada   Eliminations Consolidated
                             -----------  -----------  ------------  ---------     ------   ------------ ------------
<S>                           <C>          <C>          <C>          <C>         <C>        <C>           <C>      
Net sales .................   $ 123,895                              $ 123,895      9,172                 $ 133,067
Cost of sales .............      83,898                                 83,898      7,175                    91,073
                              ---------                              ---------   --------                 ---------
Gross profit ..............      39,997                                 39,997      1,997                    41,994
Operating expenses ........      18,619           10                    18,629        981                    19,610
Royalty income (expense)         (7,874)       7,874                        --         --                        --
                              ---------    ---------                 ---------   --------                 ---------
Income from operations ....      13,504        7,864                    21,368      1,016                    22,384
Interest expense (income) .      11,252       (1,727)                    9,525         83                     9,608
Other expense (income) ....      (6,245)                    6,235          (10)       207         464           661
Income taxes ..............         826        3,356                     4,182        262                     4,444
Extraordinary loss, net ...         117           --           --          117         --          --           117
                              ---------    ---------    ---------    ---------   --------   ---------     ---------
     Net income ...........   $   7,554    $   6,235    $  (6,235)   $   7,554   $    464   $    (464)    $   7,554
                              ---------    ---------    ---------    ---------   --------   ---------     ---------
</TABLE>

         Summarized cashflow statement information, in thousands, for the period
         ended October 3, 1998 is as follows (unaudited):


<TABLE>
<CAPTION>
                                                        Glenoit                                                               
                                           Glenoit       Asset                               Glenoit                           
                                         Corporation  Corporation  Eliminations  Sub-total    Canada   Eliminations  Consolidated
                                         -----------  -----------  ------------  ---------    ------   ------------  ------------
<S>                                        <C>         <C>         <C>           <C>         <C>       <C>            <C>       
Cashflows from operating activities ...    $(11,583)   $  9,591                  $ (1,992)   $    203                 $ (1,789) 
Cashflows used in investing                                                                                  
     activities .......................     (64,618)                              (64,618)     (2,936)                 (67,554)
Cashflows from financing activities ...      76,175      (9,583)                   66,592       2,642                   69,234  
                                           --------    --------                  --------    --------                 --------
Net decrease in cash ..................         (26)          8                       (18)        (91)                    (109) 
                                                                                                            
Cash at beginning of period ...........         651          76                       727         345                    1,072  
                                           --------    --------                  --------    --------                 --------
Cash at end of period .................    $    625    $     84                  $    709    $    254                 $    963  
                                           --------    --------                  --------    --------                 --------
</TABLE>
                                                                          
                                           
                                       13
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

4.       LONG-TERM DEBT (Continued)
         Summarized balance sheet information, in thousands, as of October 4,
1997 is as follows (unaudited):

<TABLE>
<CAPTION>
                                                     Glenoit                   Consolidated
                                       Glenoit        Asset                      Domestic
                                     Corporation   Corporation   Eliminations   Operations    Canada    Eliminations   Consolidated
                                     -----------   -----------   ------------   ----------    ------    ------------   ------------
<S>                                   <C>          <C>           <C>            <C>          <C>          <C>            <C>      
Cash and cash equivalents .........   $      67    $      67                    $     134    $     753                   $     887
Accounts and other receivables, net      36,011                                    36,011        3,735                      39,746
Inventories .......................       8,501                                     8,501          923                       9,424
Other current assets ..............         765           --            --            765           20           --            785
                                      ---------    ---------     ---------      ---------    ---------    ---------      ---------
     Total current assets .........      45,344    $      67                       45,411        5,431                      50,842
Property, plant and equipment, net       24,758                                    24,758        5,346                      30,104
Other assets ......................      41,390       22,798       (45,663)        18,525                    (9,165)         9,360
                                      ---------    ---------     ---------      ---------    ---------    ---------      ---------
     Total assets .................   $ 111,492    $  22,865     $ (45,663)     $  88,694    $  10,777    $  (9,165)     $  90,306
                                      ---------    ---------     ---------      ---------    ---------    ---------      ---------

Accounts payable ..................       7,587                                     7,587        1,088                       8,675
Other current liabilities .........      15,277          164          (164)        15,277          417           --         15,694
                                      ---------    ---------     ---------      ---------    ---------    ---------      ---------
     Total current liabilities ....      22,864          164          (164)        22,864        1,505                      24,369
Long-term debt ....................     107,100                                   107,100                                  107,100
Other long-term liabilities .......      24,739                    (22,798)         1,941                                    1,941
Stockholders equity (deficit) .....     (43,211)      22,701       (22,701)       (43,211)       9,272       (9,165)       (43,104)
                                      ---------    ---------     ---------      ---------    ---------    ---------      ---------
     Total liabilities and equity .   $ 111,492    $  22,865     $ (45,663)     $  88,694    $  10,777    $  (9,165)     $  90,306
                                      ---------    ---------     ---------      ---------    ---------    ---------      ---------
</TABLE>


         Summarized operating statements information, in thousands, for the nine
         months ended October 4, 1997 is as follows (unaudited):

<TABLE>
<CAPTION>
                                            Glenoit                  Consolidated                                             
                               Glenoit       Asset                     Domestic    Glenoit                           
                             Corporation  Corporation   Eliminations  Operations    Canada   Eliminations  Consolidated
                             -----------  -----------   ------------  ----------    ------   ------------  ------------
<S>                           <C>          <C>          <C>            <C>         <C>         <C>           <C>      
Net sales .................   $ 119,134                                $ 119,134        1,688                  120,822

Cost of sales .............      76,752                        --         76,752        1,207         --        77,959
                              ---------    ---------    ---------      ---------   ---------   ---------     ---------
Gross profit ..............      42,382                                   42,382          481                   42,863
Operating expenses ........      17,755            9                      17,764           95                   17,859

Royalty income (expense)         (3,846)       3,846           --             --           --         --            --
                              ---------    ---------    ---------      ---------   ---------   ---------     ---------
Income from operations ....      20,781        3,837                      24,618          386                   25,004
Interest expense (income) .       9,381       (1,307)                      8,074           20                    8,094
Other expense (income) ....      (3,011)                    3,344            333           52         201          586
Income taxes ..............       4,629        1,800                       6,429          113                    6,542

Extraordinary loss, net ...       2,857           --           --          2,857          --          --         2,857
                              ---------    ---------    ---------      ---------   ---------   ---------     ---------
     Net income ...........   $   6,925    $   3,344    $  (3,344)     $   6,925   $     201   $    (201)    $   6,925
                              ---------    ---------    ---------      ---------   ---------   ---------     ---------
</TABLE>


         Summarized cashflow statement information, in thousands, for the period
         ended October 4, 1997 is as follows (unaudited):

<TABLE>
<CAPTION>
                                                        Glenoit                   Consolidated                             
                                          Glenoit        Asset                      Domestic    Glenoit                           
                                        Corporation   Corporation   Eliminations   Operations    Canada  Eliminations Consolidated
                                        -----------   -----------   ------------   ----------    ------  -------------------------
<S>                                       <C>          <C>                <C>       <C>        <C>                <C>    <C>     
Cashflows from operating activities ...   $  7,352     $  3,508                     $ 10,860   $    854                  $ 11,714
Cashflows used in investing
     activities .......................    (21,201)                                  (21,201)      (101)                  (21,302)
Cashflows from financing activities ...     13,957       (3,531)         --           10,426                     --        10,426
                                          --------     --------       -----         --------   --------        ----      --------
Net decrease in cash ..................        108          (23)                          85        753                       838

Cash at beginning of period ...........        (41)          90          --               49                     --            49
                                          --------     --------       -----         --------   --------        ----      --------
Cash at end of period .................   $     67     $     67           0         $    134   $    753           0      $    887
                                          --------     --------       -----         --------   --------        ----      --------
</TABLE>

                                       14
<PAGE>


                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

4.       LONG-TERM DEBT (Continued)

         On April 1, 1997, the Company utilized the proceeds from the 11% Senior
         Subordinated Notes to retire the Company's existing debt with financial
         institutions, which included the balance of an $80 million senior
         credit facility (the Term A and B Notes and the working capital line of
         credit) (the "Old Facility") and a $15 million 12.5% Senior
         Subordinated Note payable (the $15 Million Senior Subordinated Note").
         Additionally, on April 1, 1997, the Company retired a note to a
         shareholder of Holdings in the amount of approximately $5.8 million. As
         a result of the Company's payoff of these obligations, the Company
         charged to earnings $2,884,000 of net deferred loan costs and a
         $1,500,000 prepayment penalty related to the $15 million Senior
         Subordinated Note. During the first quarter of 1997, the Company
         recognized an extraordinary loss from the early extinguishment of debt
         of $2,857,000, which is net of a tax benefit of $1,527,000 related to
         these charges.



5.       COMMITMENTS AND CONTINGENCIES

         Holdings is a holding company and as a result does not have any
         substantive assets or operations that generate revenues or cash flows.
         Accordingly, Holdings relies on the Company's distribution of dividends
         in order to fund its operations and meet its obligations, including its
         interest and principal payments.

         Holdings has obligations with a face amount of approximately $28.6
         million, bearing interest at stated rates between 5% to 12.5%, to
         shareholders ("Shareholder Notes") with principal due in 2004 and 2005.
         These obligations are not reflected in the Company's accompanying
         balance sheets or income statements. Subject to existing debt
         restrictions, Shareholder Notes with a face amount of approximately
         $9.7 million contain certain acceleration clauses. At the option of
         Holdings, subject to the Company's existing debt restrictions, the
         interest may be paid by the issuance of additional notes or in cash.

         However, Holdings must pay interest in cash on certain of the
         Shareholder Notes if defined levels of consolidated cash flows of
         Holdings are attained. Annual interest payments during the next five
         years are approximately $2 million in 1998, and approximately $2.6
         million per year thereafter, excluding interest on notes that may be
         issued to pay interest. Assuming Holdings makes all interest payments
         related to the Shareholder Notes with additional notes, the Company's
         ultimate distribution of dividends in order for Holdings to meet its
         existing debt obligations is expected to be approximately $63 million
         beginning December 2004 through December 2005. However, the Company may
         be required to declare dividends in order for Holdings to fund certain
         of its obligations in cash as discussed above. Such amounts could
         approximate $3 million in the aggregate and are due through December
         2004, if the defined levels of consolidated cash flow of Holdings are
         met.



                                       15
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)


6.       INCOME TAXES

         The Company's and Holdings' federal income tax returns for the years
         ended January 1, 1994 and December 31, 1994, have been examined by the
         Internal Revenue Service ("IRS"). The IRS has assessed taxes, penalties
         and interest relating to the deductibility of certain expenses claimed
         as deductions by the Company. The Company is currently in the process
         of responding to the IRS. In the opinion of management, adequate
         provision has been made in the accompanying financial statements for
         its income tax obligations; however, should the Company be responsible
         for all taxes, penalties and interest assessed by the IRS, the Company
         would be required to pay an additional amount of approximately $1.6
         million over amounts currently accrued. The Company believes that the
         proposed adjustments by the IRS are inappropriate and intends to
         vigorously contest these assessments.

         Holdings has an indemnification agreement with a shareholder with
         respect to certain tax obligations. While tax obligations are the
         expense and liability of the Company and Holdings, the indemnification
         agreement provides for an additional contribution of capital to
         Holdings from this shareholder via reductions of long-term obligations
         due the shareholder from Holdings.

         The Company and Holdings, have entered into a Tax Sharing Agreement
         whereby the Company will pay Holdings its respective pro rata share of
         the total consolidated tax liability or receive its respective pro rata
         share of the total consolidated tax refund, as set forth in the tax
         sharing agreement. Under the Tax Sharing Agreement, the Company and
         Holdings are treated as separate tax groups.



7.       ACQUISITIONS

         On October 2, 1998, the Company acquired all the capital stock of
         American Pacific Enterprises, Inc. ("APE") for approximately $38.2
         million, subject to post-closing adjustment. In addition, approximately
         $16.6 million of indebtedness of APE was extinguished by the Company in
         connection therewith. The purchase agreement also includes additional
         payments to the former owners of APE if certain earning targets for
         APE's operations are met during 1998 and 1999. These payments could
         exceed $5 million per year or $10 million in total if these targets are
         met or exceeded. A portion of these payments may be recorded as
         compensation expense during 1998 and 1999. APE is a leading designer,
         importer and marketer of decorative textile home furnishings,
         principally quilts and specialty decorative bedding items. The
         acquisition has been accounted for as a purchase. Since the acquisition
         closed on the last business day of the


                                       16
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

7.       ACQUISITIONS (Continued)

         third quarter, there was no impact to the earnings of the Company,
         however, APE's assets and liabilities are reflected in the consolidated
         balance sheet as of October 3, 1998.

         The preliminary purchase price allocation attributed approximately
         $31.0 million to net working capital items, approximately $1.4 million
         to property, plant and equipment and approximately $22.4 million to
         goodwill. Goodwill is expected to be amortized over 25 years.

         The following unaudited proforma summary of consolidated results of
         operations have been prepared as if the acquisition of APE occurred at
         the beginning of the periods presented. In connection with the
         allocation of purchase price, the Company wrote up APE's inventory by
         an estimated $3.0 million to reflect fair market value. This write-up
         of inventory will negatively impact gross margin during the Company's
         fourth quarter of 1998 and possibly first quarter of 1999 as that
         inventory is sold. This one-time nonrecurring adjustment, currently
         estimated at $1.9 million, net of tax, is not reflected in the proforma
         results presented below. The proforma operating results below do not
         reflect any potential compensation expense related to the additional
         consideration that may be paid as previously discussed. The proforma
         operating results for the nine months ended October 4, 1997 also
         reflect the issuance of the Senior Subordinated Notes as of the
         beginning of the fiscal year.

<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                                                        ---------------------------------
                                                           October 4,         October 3,
                                                              1997               1998
                                                              ----               ----
                                                                    (Unaudited)
<S>                                                       <C>                <C>         
                Net sales                                 $163,200,000       $186,100,000
                                                          ------------       ------------
                Income before extraordinary item            10,400,000         10,000,000
                                                          ------------       ------------
                Net income                                  10,400,000          9,900,000
                                                            ==========          =========
                Basic and diluted income before
                extraordinary item per share                    10,400             10,000
                                                                ------             ------
                Basic and diluted net income per share          10,400              9,900
                                                                ======              =====
</TABLE>


         These proforma results do not purport to be indicative of the results
         that would have actually been obtained if APE had been acquired as of
         January 4, 1997.

         Effective August 30, 1997, Glenoit Corporation through Glenoit Canada,
         acquired certain assets and certain liabilities of Collins & Aikman
         Canada, Inc. for cash consideration of approximately $8.2 million. The
         acquisition has been accounted for as a purchase and, accordingly, the
         operating results of the acquired business have been included in the
         results of operations since the acquisition date. The purchase price
         allocation attributed approximately $3.4 million to net working capital
         items, approximately $4.4 million to property, plant and equipment and
         approximately $ .4 million to goodwill. For the first


                                       17
<PAGE>

                      GLENOIT CORPORATION AND SUBSIDIARIES
             (a wholly-owned subsidiary of Glenoit Universal, Ltd.)
             Notes to Consolidated Financial Statements (Unaudited)

7.       ACQUISITIONS (Continued)

         eight months of 1997, the acquired business had sales of approximately
         $9.7 million. Net income and basic and diluted income per share for the
         nine months ended October 4, 1997 as presented in the accompanying
         unaudited consolidated statements of income would not differ
         significantly on a proforma basis adjusted for this acquisition.


                                       18
<PAGE>

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

Overview

On December 13,1995, Glenoit Universal, Ltd. ("Holdings") formed a wholly owned
subsidiary, Glenoit Corporation (the Company), formerly Glenoit Intermediate,
Inc. and exchanged all of the issued and outstanding stock of Glenoit Mills,
Inc. and subsidiary ("Mills") for all of the issued and outstanding shares of
common stock of Glenoit Corporation. The Company is engaged primarily in the
manufacture of fabric ("Fabric Division") and household rugs ("Consumer Products
Division") with plants in North Carolina, Canada and Tennessee. The Company
offers a wide range of textile products to customers in retail, apparel, and
automotive industries throughout North America.

Recent Developments

On October 2, 1998, the Company acquired all the capital stock of American
Pacific Enterprises, Inc. ("APE") for approximately $38.2 million, subject to
post-closing adjustment. In addition, approximately $16.6 million of
indebtedness of APE was extinguished by the Company in connection therewith. APE
is a leading designer, importer and marketer of decorative textile home
furnishings, principally quilts and decorative bedding items. The Company
believes that the acquisition of APE will expand its current product offerings
to the large retailers, further penetrate the specialty retailing segment and
diversify product sourcing capabilities beyond North America to include Chinese
suppliers. Since the acquisition occurred on the last business day of the third
quarter, there was no impact to the Company's results of operating as discussed
below.

On August 31, 1998, the Company announced that it is expanding its presence in
the home fashions arena with the launch of a new home textiles division, Madison
Landing. This division will supply decorative pillows, table linens, duvets and
other fashion accessories to the retail industry.


Results of Operations

Net sales for the quarter ended October 3, 1998, decreased to $45.1 million or
6.5% compared to $48.3 million during the comparable quarter in the prior year.
The decrease in net sales resulted from lower unit volume in the Fabric Division
due to recent retail softness in the product category. Net sales in the Consumer
Products Division increased approximately 8.3% during the third quarter of 1998
compared to 1997 as a result of increased unit volume.

Net sales year to date through October 3, 1998 were $133.1 million compared to
$120.8 million for the first nine months of the prior year. This increase of
$12.2 million or 10.1% related to increased sales in outerwear/activewear fabric
as well as household rugs. Glenoit Canada, which was acquired in September,
1997, reported sales of $8.4 million for the first eight months of 1998 which
also contributed to the year-to-date increase.

Gross profit for the quarter ended October 3, 1998, was $13.2 million or 29.3%
of net sales compared to $18.7 million or 38.7% of net sales for the same period
last year. Gross profit year-


                                       19
<PAGE>

to-date October 3, 1998 was $42.0 million or 31.6% of net sales compared to
$42.9 million or 35.5% of net sales for the first nine months of the prior year.
The decrease of $5.5 million and $ .9 million, respectively, are attributable to
the decreased unit volume in the Fabric Division during the third quarter
slightly offset by gains in the Consumer Products Division. The decrease in unit
volume in the Fabric Division resulted in lower absorption of overhead costs
including increased levels of depreciation as a result of the Company's capital
expenditure program.

Operating expenses for the quarter ended October 3, 1998, were $6.5 million or
14.4% of net sales compared to $6.9 million or 14.2% of net sales in the third
quarter of the prior year. Operating expenses for the nine months ended October
3, 1998 increased to $19.6 million from $17.9 million for the same period in the
prior year. The third quarter of 1997 includes approximately $ .6 million of
costs related to accruals for several unrelated claims made by former employees.
Year-to-date dollar increases over the prior year were primarily in sales
related categories such as commissions and compensation related costs as well as
expenses incurred by Glenoit Canada.

Operating income was $6.7 million for the quarter ended October 3, 1998 compared
to $11.8 million in the prior year. This represents a decrease of $5.1 million
for the quarter and resulted from the factors described above.

Operating income decreased to $22.4 million for the first nine months of 1998
over the same nine months of 1997. This decrease relates to the unit volume
decreases in the Fabric Division during the third quarter of 1998 described
above offset by the improved operating results in the Consumer Products
Division.

Interest expense for the quarter ended October 3, 1998, was $3.3 million
compared to $3.0 million for the same period last year. Interest expense year to
date October 3, 1998 was $9.6 compared to $8.1 million for the first nine months
of 1997. Interest expense has increased, primarily during the first quarter of
1998, due to higher levels of debt and a higher effective borrowing rate
relating to senior subordinated debt issued at the end of the first quarter of
1997.

The Company recognized a loss of approximately $ .1 million, net of an income
tax benefit, during September 1998 related to the purchase of Senior
Subordinated Notes with a face amount of $5 million. The Company recorded an
extraordinary loss on the early extinguishment of debt of $2.9 million related
to the refinancing of the Company's debt which took place on April 1, 1997.

Net income for the quarter ended October 3, 1998, was $1.9 million compared to
net income of $5.4 million the prior year. Net income for the first nine months
of 1998 was $7.6 million compared to $6.9 million for the same period in the
prior year.

Liquidity and Capital Resources


The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor financing
to meet its debt service requirements, capital expenditures and working capital
needs. The Company is highly leveraged.

                                       20
<PAGE>

On April 1, 1997, the Company issued $100 million of senior subordinated notes
(the "Notes"). Concurrently with the issuance of the Notes, the Company entered
into a $70 million senior credit facility ("the New Credit Facility") with a
syndicate of lenders led by BNP, pursuant to which the Company obtained
available credit (i) up to $45.0 million for working capital and general
corporate purposes (the "Working Capital Commitment"), subject to a Borrowing
Base, and (ii) up to $25.0 million for acquisitions (the "Acquisition
Commitment"). The Company also prepaid all outstanding indebtedness under the
Old Facility. On October 2, 1998, the new Credit Facility was amended to
increase the Acquisition Commitment to $76 million. On October 2, 1998, the
Company borrowed approximately $55.7 million under the Acquisition Commitment in
connection with the APE Acquisition. At October 3, 1998, there were borrowings
of $24.0 million under the Working Capital Commitment and approximately $12.0
million available to borrow under the Working Capital Commitment and up to $20.3
million under the Acquisition Commitment. A more detailed description of the
senior subordinated notes and the senior credit agreement may be found in the
notes to consolidated financial statements.

Principal and interest payments in respect of the Notes and the New Credit
Facility will represent significant liquidity requirements for the Company. In
addition, the Company will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal and
interest of the Seller Notes, (ii) to cover certain administrative and operating
expenses of Holdings and (iii) to cover certain tax liabilities allocable to the
Company, subject in each case to certain conditions as described in the Notes
and the New Credit Facility.

The Company believes that cash generated from operations, together with vendor
financing and amounts available under the New Credit Facility, will be adequate
to meet its debt service requirements, capital expenditures and working capital
needs for the foreseeable future, although no assurance can be given in this
regard. The Company's future operating performance and ability to service or
refinance the Notes and to extend or refinance its other indebtedness will be
subject to future economic conditions and to financial, business and other
factors beyond the Company's control.

Holdings is a holding company and as a result does not have any substantive
assets or operations that generate revenues or cashflows. Accordingly, Holdings
relies on the Company's distribution of dividends to meet its obligations,
including interest and principal payments. As of October 3, 1998, Holdings has
obligations with a face amount of $28.6 million, bearing interest at stated
rates between 5% to 12.5%, to shareholders with principal due in 2004 and 2005.
For further discussion see Note 5 of the Unaudited Consolidated Financial
Statements.

On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million to a shareholder of Holdings in
satisfaction of a contingent earnout obligation of Holdings as discussed in Note
2 to the Unaudited Consolidated Financial Statements.

In July 1998, Holdings settled a dispute regarding additional purchase price
owed to a shareholder associated with the recapitalization in December 1995
discussed in Note 2 to the Consolidated Financial Statements as of January 3,
1998. Accordingly, Holdings paid approximately $1.9 million to the shareholder
during July 1998. These funds were paid to Holdings by the Company as a
dividend.

                                       21
<PAGE>

During September 1998, the Company acquired $5 million of the Senior
Subordinated Notes in the open market. These notes were subsequently retired. In
connection with this transaction, the Company recorded an extraordinary loss of
approximately $117,000, net of a tax benefit, which consisted of the write off
of a pro rata share of deferred financing costs associated with the Senior
Subordinated Notes.

During the nine months ended October 3, 1998, net cash used in operating
activities was $1.7 million, which resulted from the Company increasing its
working capital to meet its seasonal requirements. Excluding the purchase of
APE, receivables increased by $17.3 million, inventories and other assets
increased by $2.5 million. Accrued liabilities increased by $4.8 million, due
primarily to sales and compensation related costs. Accounts payable decreased by
$1.0 million related to decreased raw material purchases and tax related
accruals increased $2.6 million.


Capital Improvements

Capital expenditures for the nine months ended October 3, 1998 were $13.2
million. These additions were primarily in the Fabric Division for additions of
knitting and blending equipment as well as updating the manufacturing technology
in the newly acquired Canadian operation. Expenditures were also made for
upgrades to management information systems.


Seasonality

The Company's business is seasonal in nature. Generally, there is increased
retail demand for garments and rugs during the fall (back-to-school) and
December holiday selling seasons. Consequently, demand for the Company's
products is generally higher during the Company's second and third fiscal
quarters when such products are produced for these selling seasons.


Inflation

The Company believes that inflation has not had a material impact on the results
of operations presented.


Impact of Year 2000 Compliance

The Company has evaluated its Year 2000 risk in three separate categories,
information technology systems ("IT"), non-IT systems ("Non-IT") and third party
relationships in which the Company has a material relationship ("Third Party
Risk"). The Company has developed a plan in which the risks in each of these
categories are being addressed and reviewed by the appropriate level of
management as follows:

Due to conversions already in progress to improve operating performance, the
Company considers the IT systems risk to be minimal. Management expects the
conversions and the review of its IT systems to be completed by March 1999 and,
accordingly, a contingency plan for IT risks


                                       22
<PAGE>

has not been developed. However, should the remaining review indicate a
contingency plan is needed, the Company will react accordingly.

Non-IT systems involve embedded technologies such as microcontrollers or
microprocessors. Examples of Non-IT systems include telephones, security systems
and computer controlled manufacturing equipment. The Company's review of Non-IT
systems is ongoing with expected completion by May 1999. To date, management
believes the Non-IT risks are minimal. Any costs of addressing Non-IT risks are
included in normal upgrade and replacement expenditures which were planned
outside of the Company's Year 2000 review. Since these risks are believed to be
minimal, a contingency plan for Non-IT risks has not been developed. However,
should the remaining review indicate a contingency plan is needed, the Company
will react accordingly.

The Company's review of its Third Party Risk includes detailed reviews of
critical relationships with suppliers and business partners, such as banking
institutions and key raw material suppliers. The Third Party Risk review is
ongoing and is expected to be completed by June 1999. The Company presently does
not expect the risk associated with or costs of addressing the Company's Third
Party Risk to be material.

The Company is currently in the process of analyzing APE's system in the same
manner discussed above. In connection with its due diligence work, the Company
is aware of system improvements needed to enhance operating performance.
Year 2000 Compliance will be ancillary in connection with these enhancements.

The Company's greatest Year 2000 risk would manifest itself in a critical third
party's system malfunction where the Company would suffer business interruption
until the supplier corrected the problem or an alternative supply was found. At
this point in the Company's review, it is not aware of any potential situations
which may cause this scenario to occur, but will formulate a contingency plan
should its review indicate it is necessary to do so.

There can be no assurance that these conclusions will be achieved and actual
results could differ from those anticipated. Specific factors that might cause
differences include, but are not limited to, the ability of the third parties
with which the Company has material relationships to modify or convert their
systems to be Year 2000 compliant, the ability of the Company to complete its
conversions on schedule, and similar uncertainties.

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including in
particular, the likelihood of the Company's success in developing and expanding
its business. These statements are based upon a number of assumptions and
estimates, which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results. The forward looking statements in this Form 10-Q
are intended to be subject to the safe harbor protection provided by Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 (the
"Safe Harbor Acts").


                                       23
<PAGE>

PART II - Other Information

ITEM 2:  Legal Proceedings

     There have been no material developments in legal proceedings involving the
     Company or its subsidiaries since the Company's Annual Report on Form 10-K
     for the year ended January 3, 1998.

ITEM 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

      3.1     Certificate of Incorporation of Glenoit Corporation is hereby
              incorporated by reference to Exhibit 3.1 to Glenoit Corporation's
              Registration Statement on Form S-4 (Registration No. 333-42411)
              filed on December 16, 1997.
      3.2     By-Laws of Glenoit Corporation are hereby incorporated by
              reference to Exhibit 3.2 to Glenoit Corporation's Registration
              Statement on Form S-4 (Registration No. 333-42411) filed on
              December 16, 1997.
      3.3     Certificate of Incorporation of Glenoit Asset Corporation is
              hereby incorporated by reference to Exhibit 3.3 of Amendment No. 1
              to Glenoit Asset Corporation's Registration Statement of Form S-4
              (Registration No. 333-42411-01) filed February 4, 1998.
      3.4     By-Laws of Glenoit Asset Corporation are hereby incorporated by
              reference to Exhibit 3.4 of Amendment No. 1 to Glenoit Asset
              Corporation's Registration Statement of Form S-4 (Registration No.
              333-42411-01) filed February 4, 1998.
      4.1     Indenture dated as of April 1, 1997 between Glenoit Corporation,
              the Subsidiary Guarantors (as defined therein) and United States
              Trust Company of New York is hereby incorporated by reference to
              Exhibit 4.1 to Glenoit Corporation's Registration Statement on
              Form S-4 (Registration No. 333-42411) filed on December 16, 1997.
      4.2     Purchase Agreement dated as of March 26, 1997 among Glenoit
              Corporation, the Subsidiary Guarantors (as defined therein),
              Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is
              hereby incorporated by reference to Exhibit 4.2 to Glenoit
              Corporation's Registration Statement on Form S-4 (Registration No.
              333-42411) filed on December 16, 1997.
      4.3     Registration Agreement dated as of March 26, 1997 among Glenoit
              Corporation, the Subsidiary Guarantors (as defined therein),
              Salomon Brothers Inc. and CIBC Wood Gundy Securities Corp. is
              hereby incorporated by reference to Exhibit 4.3 to Glenoit
              Corporation's Registration Statement on Form S-4 (Registration No.
              333-42411) filed on December 16, 1997.


                                       24
<PAGE>

      10.1    Second Amended and Restated Credit Agreement dated as of April 1,
              1997 among Glenoit Corporation, the banks, financial institutions
              and other institutional lenders listed on the signature pages
              thereto as the Restatement Lenders, the Banque Nationale de Paris,
              as Administrative Agent for the Lender Parties (as defined
              therein) is hereby incorporated by reference to Exhibit 10.1 to
              Glenoit Corporation's Registration Statement on Form S-4
              (Registration No. 333-42411) filed on December 16, 1997.
      10.2    Supply Agreement dated February 1, 1997 by and between the Company
              and Sterling Fibers, Inc. is hereby incorporated by reference to
              Exhibit 10.2 of Amendment No. 1 to Glenoit Corporation's
              Registration Statement on Form S-4 (Registration No. 333-42411)
              filed on February 4, 1998.
      10.3    Employment Agreement dated October 28, 1997 by and among the
              Company, Glenoit Universal, Inc. and Thomas J. O'Gorman is hereby
              incorporated to reference to Exhibit 10.3 of Amendment No. 1 to
              Glenoit Corporation's Registration Statement on Form S-4
              (Registration No. 333-42411) filed on February 4, 1998.
      10.4    Employment Agreement dated August 5, 1996 by and between the
              Company and Lester D. Sears is hereby incorporated by reference to
              Exhibit 10.4 of Amendment No. 1 to Glenoit Corporation's
              Registration Statement on Form S-4 (Registration No. 333-42411)
              filed on February 4, 1998.
      10.5    Stockholders Agreement dated as of December 14, 1995 by and among
              Glenoit Universal, Inc., Citicorp Venture Capital, John Mowbray
              O'Mara, Banque Nationale de Paris, The Equitable Life Assurance
              Society of the United States, the Seller, Soannes Investment
              Corporation, Thomas J. O'Gorman and certain other parties thereto
              to is hereby incorporated by reference to Exhibit 10.5 of
              Amendment No. 1 to Glenoit Corporation's Registration Statement on
              Form S-4 (Registration No. 333-42411) filed on February 4, 1998.
      10.6    Second Amendment and Waiver to the Credit Agreement, dated October
              2, 1998, among Glenoit Corporation, the banks, financial
              institutions and other institutional lenders parties to the Credit
              Agreement and Banque Nationale de Paris as Agent is hereby
              incorporated by reference to Exhibit 4.1 of Glenoit Corporation's
              Form 8-K filed on October 16, 1998.
      10.7    Stock Purchase Agreement dated October 2, 1998 among Glenoit
              Corporation, American Pacific Enterprises, Inc., Steven J. Block,
              Jeffrey J. Block and Gregory D. Block is hereby incorporated by
              reference to Exhibit 2.1 of Glenoit Corporation's Form 8-K filed
              on October 16, 1998.
      21.1    Subsidiaries of Glenoit Corporation is hereby incorporated by
              reference to Exhibit 21.1 to Glenoit Corporation's Registration
              Statement on Form S-4 (Registration No. 333-42411) filed on
              December 16, 1997.
      27.1    Financial Data Schedules.


(b)      Reports on Form 8-K

          On October 16, 1998, the Company filed on Form 8-K information
          regarding the acquisition of the capital stock of American Pacific
          Enterprises, Inc. which occurred on October 2, 1998.


                                       25
<PAGE>

                                   SIGNATURES

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


Dated:   November 11, 1998
                                              GLENOIT CORPORATION


                                              By   /s/ Lester D. Sears
                                                  ----------------------------
                                                   Lester D. Sears
                                                   Executive Vice President and
                                                   Chief Financial Officer
                                                   (On behalf of the  Registrant
                                                   and as Principal  Financial
                                                   and Accounting Officer)




                                   SIGNATURES

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


Dated:   November 11, 1998
                                              GLENOIT ASSET CORPORATION


                                              By   /s/ Lester D. Sears
                                                  ----------------------------
                                                   Lester D. Sears
                                                   Executive Vice President and
                                                   Chief Financial Officer
                                                   (On behalf of the  Registrant
                                                   and as Principal  Financial
                                                   and Accounting Officer)

                                       26