UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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


For the quarterly period ended June 30, 1999


                                       OR



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


For the transition period from ________ to ________.


                        Commission File Number 333-18755


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



                 North Carolina                               56-1541893
---------------------------------------------           -----------------------
(State or other jurisdiction of incorporation              (I.R.S. Employer
               or organization)                         (Identification Number)

801 Fieldcrest Road, Eden, North Carolina                        27288
--------------------------------------------------------------------------------
(Address of principal executive offices)                      (Zip Code)

                  Registrant's telephone number (336) 635-4000

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


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 8,109,152 shares of common
stock, no par value, as of August 19, 1999.
                                                                               2


<PAGE>




PLUMA, INC.


INDEX TO FORM 10-Q
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                                                                                                 PAGE
<S>                                                                                                            <C>

PART I - FINANCIAL INFORMATION

     Item 1. - Financial Statements
         Balance Sheets - June 30, 1999 and December 31, 1998                                                      4
         Statements of Operations - Three Months and Six Months Ended June 30, 1999 and 1998                       5
         Statements of Cash Flows - Six Months Ended June 30, 1999 and 1998                                        6
         Notes to Financial Statements                                                                             7

     Item 2. - Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                                                    14

PART II - OTHER INFORMATION

     Item 6. - Exhibits and Reports on Form 8-K
</TABLE>


                                                                               3

<PAGE>


                                          PART I - FINANCIAL INFORMATION
                                           ITEM 1 - FINANCIAL STATEMENTS
PLUMA, INC.
BALANCE SHEETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                               <C>              <C>

                                                 (UNAUDITED)
                                                   JUNE 30,       DECEMBER 31,
ASSETS                                               1999             1998

CURRENT ASSETS:
     Cash                                           $ 8,248,821      $ 1,612,087
     Accounts receivable (less allowance -
1999, $4,401,181; 1998, $6,845,714)                  17,886,050       24,844,607


     Income taxes receivable                            330,320        3,039,390

     Inventories, net                                40,048,459       56,690,891
     Other current assets                             1,567,405           83,043
                                               ----------------  ---------------
         Total current assets                        68,081,055       86,270,018
                                               ----  ----------  --   ----------




PROPERTY, PLANT AND EQUIPMENT

     Land                                             1,065,689        1,065,689
     Land improvements                                  832,007          810,419
     Buildings and improvements                      17,800,549       18,916,761
     Machinery and equipment                         47,731,567       48,585,396
     Construction in process                                             486,121
                                               ----------------  ---------------
         Total property, plant and equipment         67,429,812       69,864,386

     Less accumulated depreciation                   29,004,438       26,046,667
                                               ----- ----------  ---- ----------
         Property, plant and equipment, net          38,425,374       43,817,719
                                               ----- ----------  ---- ----------


OTHER ASSETS
     Goodwill (less accumulated amortization-
1998, $1,412,700)                                                     26,308,208
     Other                                              494,621        2,147,465
                                                  -------------     ------------
         Total other assets                             494,621       28,455,673
                                                  -------------     ------------
 TOTAL                                            $ 107,001,050     $158,543,410
                                                  =============     ============






                                                    (UNAUDITED)
                                                     JUNE 30,       DECEMBER 31,
LIABIILITIES AND SHAREHOLDERS' EQUITY                 1999             1998

CURRENT LIABILITIES:
     Current maturities of
      long-term debt                              $106,251,321     $108,723,716
     Accounts payable                               13,299,410       17,838,270
     Accrued expenses                                4,295,184        4,372,255
                                                  ------------     ------------
          Total current liabilities               $123,845,915     $130,934,241
                                                  ------------     ------------





COMMITMENTS AND CONTINGENCIES



SHAREHOLDERS' EQUITY (DEFICIT):

     Preferred stock, no par value,
      1,000,000 shares authorized
     Common stock, no par value,
      15,000,000 shares authorized,
      8,109,152 shares issued and
      outstanding                                   36,849,127       36,849,127

     Retained deficit                              (53,693,992)      (9,239,958)
                                                ---------------  --- -----------
          Total shareholders'
            equity (deficit)                       (16,844,865)      27,609,169






                                                   -----------      -----------
TOTAL                                             $107,001,050     $158,543,410
                                                  ============     ============

</TABLE>

The accompanying notes are an integral part of these statements.
                                                                               4
<PAGE>





PLUMA, INC.

STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>




                                                                     (UNAUDITED)                          (UNAUDITED)
                                                                 THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                                       JUNE 30                              JUNE 30
                                                               1999               1998               1999              1998

<S>                                                         <C>                <C>                <C>                <C>

NET SALES                                                  $36,854,247       $51,059,701         $74,512,206        $90,256,136

COST OF GOODS SOLD                                          38,777,545        46,428,171          76,401,278         81,610,435
                                                          ------------       ------------         ----------        -----------

GROSS PROFIT (LOSS)                                        (1,923,298)         4,631,530         (1,889,072)          8,645,701
                                                          -----------       ------------         -----------      -------------

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                 4,364,382         5,185,240           9,801,610          9,018,065

AMORTIZATION OF GOODWILL                                       346,512           435,729             693,023            871,457

WRITE-OFF OF GOODWILL                                       25,615,185                            25,615,185

(GAIN) LOSS ON VALUATION AND DISPOSAL OF
   ASSETS                                                      768,751           (2,780)           2,243,324            (45,278)
                                                          ------------       -------------      -------------       ------------
         TOTAL OPERATING EXPENSES                           31,094,830         5,618,189          38,353,142          9,844,244
                                                          ------------       -------------      -------------       ------------

LOSS FROM OPERATIONS                                      (33,018,128)         (986,659)        (40,242,214)         (1,198,543)
                                                          ------------      ------------        ------------        -----------

OTHER INCOME  (EXPENSES):
     Interest expense                                      (1,193,393)       (1,862,555)         (3,768,152)         (3,330,837)
     Other income (expenses), net                            (217,688)          147,490            (443,667)            441,362
                                                          ------------       -------------      -------------       ------------


         Total other expenses, net                         (1,411,081)       (1,715,065)         (4,211,819)         (2,889,475)
                                                          ------------       -------------      -------------       ------------

LOSS BEFORE INCOME TAXES                                  (34,429,209)       (2,701,724)        (44,454,033)         (4,088,018)

INCOME TAX BENEFIT                                                             (983,428)                             (1,488,039)
                                                          -----------       -------------      -------------       ------------


NET LOSS                                                 $(34,429,209)      $(1,718,296)       $(44,454,033)        $(2,599,979)
                                                         =============      ============       =============       ============

LOSS PER COMMON SHARE AND COMMON EQUIVALENT -
Basic and diluted
                                                            $   (4.25)         $   (.21)          $   (5.48)          $   (.32)
                                                         =============      ============          ==========          =========

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING               8,109,152          8,109,152          8,109,152           8,109,152
                                                        ==== ========      =============         ===========         ==========

</TABLE>
                                                                               5
The accompanying notes are an integral part of these statements.

<PAGE>



PLUMA, INC.

STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                                  <C>              <C>

                                                                                           (UNAUDITED)
                                                                                         SIX MONTHS ENDED
                                                                                             JUNE 30,
                                                                                        1999            1998
CASH FLOWS FROM OPERATING ACTIVITES:
     Net loss                                                                        $(44,454,033)   $ (2,599,979)
     Adjustments to reconcile net income to net cash used
      in operating activities:
     Provision for depreciation                                                         3,144,105       2,142,293
     Provision for amortization                                                           918,019         921,459
     Write-off of goodwill                                                             25,615,185
     (Gain) loss on valuation and disposal of assets                                    2,243,324         (45,278)
     (Increase) decrease in accounts receivable                                         6,958,557      (4,288,887)
     Increase in deferred income taxes                                                                    499,338
     (Increase) decrease in inventories                                                16,642,432     (13,102,572)
     (Increase) decrease in other current assets                                         (617,080)        248,184
     Increase (decrease) in accounts payable                                           (4,538,860)      6,752,357
     (Increase) decrease in income taxes receivable                                     2,709,070        (626,048)
     Increase (decrease) in other current liabilities                                     (77,071)      1,917,876
                                                                                     ------------    ------------
         Net cash provided by (used in) operating activities                            8,543,648      (8,181,257)
                                                                                     ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment                                           (99,436)     (8,156,286)
     Proceeds from disposal of property                                                   104,352          54,900
     Other, net                                                                           560,565        (195,418)
                                                                                     ------------    ------------
         Net cash provided by (used in) investing activities                              565,481      (8,296,804)
                                                                                     ------------    ------------

CASH FLOWS FROM FINANCING ACTIVIES:
     Repayment of long-term debt                                                          (58,000)       (849,640)
     Proceeds from issuance of long-term debt                                                          58,727,000
     Proceeds from D.I.P. loan                                                          1,500,000
     Net repayments of revolving loan                                                  (3,131,336)    (41,268,342)
     Loan fees                                                                           (783,059)       (772,693)
                                                                                     ------------    ------------
         Net cash provided by (used in) financing activities                           (2,472,395)     15,836,325
                                                                                     ------------    ------------

NET INCREASE (DECREASE) IN CASH                                                         6,636,734        (641,736)

CASH, BEGINNING OF PERIOD                                                               1,612,087       1,875,992
                                                                                     ------------    ------------

CASH, END OF PERIOD                                                                  $  8,248,821    $  1,234,256
                                                                                     ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
         Interest (net of amounts capitalized)                                       $  4,290,806    $  2,591,774
         Income taxes                                                                $      8,309    $     57,500

The accompanying notes are an integral part of these statements.


</TABLE>
                                                                               6
<PAGE>




PLUMA, INC.

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
-----------------------------------------------------------------------------



1.       ACCOUNTING POLICIES

         The accompanying unaudited financial statements of Pluma, Inc. (the
         "Company") have been prepared in accordance with generally accepted
         accounting principles for interim periods.

         In the opinion of management, these financial statements include all
         adjustments, including all normal recurring accruals, necessary for a
         fair presentation of the financial position at June 30, 1999 and
         December 31, 1998, the results of operations for the three months and
         six months ended June 30, 1999 and 1998 and cash flows for the six
         months ended June 30, 1999 and 1998.

         The operating results for the three and six months ended June 30, 1999
         are not necessarily indicative of the results to be expected for the
         full year ending December 31, 1999.

         On May 14, 1999 the Company filed a voluntary petition under Chapter 11
         of the Bankruptcy Code in the United States Bankruptcy Court for the
         Middle District of North Carolina. Pursuant to the provisions of
         Sections 1107 and 1108 of the Bankruptcy Code, the Company will operate
         as a debtor-in-possession during the pending reorganization proceeding.
         As a result of the filing, the Company is no longer accruing interest
         or other fees associated with the pre-petition debt.


2.       INVENTORIES

         Inventories consist of the following:

                                                  (UNAUDITED)
                                                   JUNE 30,       DECEMBER 31,
                                                      1999             1998
         At FIFO cost:
              Raw materials                        $  941,615     $  986,561
              Work-in-process                       6,408,178      6,652,569
              Finished Goods                       42,025,853     64,207,881
              Production supplies                     623,610        870,382
                                                   ---------      ----------
                                                   49,999,256     72,717,393
         Excess of FIFO over LIFO cost             (3,646,392)    (2,804,528)
                                                   ----------      ----------
                                                   46,352,864     69,912,865
         Excess of cost over market                (6,304,405)   (13,221,974)
                                                   ----------    ------------

         Total                                    $40,048,459   $ 56,690,891
                                                  ===========   ============


        Reserves have been recorded against inventory for the estimated excess
        of cost over market related primarily to inventories to be liquidated
        (see Note 12).

                                       7
<PAGE>





3.       LONG-TERM DEBT

         On May 14, 1999, the Company filed for protection under Chapter 11 of
         the U. S. Bankruptcy Code. The Company requested and was granted from
         the Bankruptcy Court The Final Stipulation and Order for the Debtor's
         Use of Cash Collateral and for Adequate Protection (the "Debtor's Use
         of Cash Collateral") authorized the Company to use funds located in the
         cash collateral account for operations. The cash collateral account was
         created through an agreement with the lending agent on November 16,
         1998 whereby funds remitted to this account by the Company's customers
         were for use by the Company only in accordance with an operating budget
         approved by the Company's lenders and filed with the Bankruptcy Court.
         In order for the Company to be in compliance with this stipulation and
         order, the Company must comply with certain covenants, including, but
         not limited to, the following: (1) 85% of eligible receivables (as
         defined) plus 60% of eligible inventory (as defined) plus cash retained
         in the cash collateral account shall not fall below $41.85 million, (2)
         expenditures will not be made, without prior written consent from the
         agent or court, which vary any budget line item amount more than 15%
         from the approved budget or, in the aggregate, exceed such aggregated
         amounts set forth in the applicable budget by more than $50,000, (3)
         aggregate cash receipts less aggregate cash disbursements (the "change
         in cash") should not be less than ($1.8) million in any calendar week
         and the change in cash shall not be negative for each of any four
         consecutive calendar weeks, (4) reports of accounts receivable aging
         will be provided to the agent each Thursday, and, (5) file a motion
         with the applicable parties by June 14, 1999 to dispose of the Stardust
         distributorship and/or its assets. As of June 30, 1999 the Company was
         not in compliance with the stipulation and order authorizing the use of
         cash collateral.

         After the May 14, 1999 filing for bankruptcy protection, the Company
         entered into a Debtor-in-Possession Financing and Security Agreement
         (the "DIP") in order to continue operations without causing
         irreparable damage to the organization. The interim DIP financing,
         approved by the Bankruptcy Court on June 23, 1999, authorizes, but does
         not require, the financial institutions which are party to the
         syndicated credit agreement to give additional financing to the
         Company of up to $2.0 million. The Company must comply with various
         covenants in order to maintain the DIP financing. These covenants
         include, but are not limited to, (1) refraining from obtaining any
         future debt, (2) refraining from incurring any additional liens on any
         of its property, (3) only investing in permissible investments, (4)
         refraining from paying dividends on or purchasing its capital stock,
         (5) restrictions on transactions with affiliates, and (6) limiting
         capital expenditures to not more than $30,000 in any calendar month
         and $78,000 through August 27, 1999. The final DIP financing agreement
         was approved by the Bankruptcy Court on July 9, 1999 and increased the
         amounts of funds which could be borrowed to up to $3.0 million. As of
         June 30, 1999 the Company was not in compliance with the DIP agreement
         and had not obtained waivers relating to its non-compliance. The
         Company actually borrowed $1.5 million under the DIP financing. All
         amounts borrowed are fully due and payable on August 27, 1999 at which
         time the DIP facility will expire.

4.       CAPITAL STOCK

         Effective March 31, 1999, the Company reached an agreement with its
         lenders whereby the lenders agreed to forbear from exercising their
         rights and remedies under the Credit Agreement. Among the provisions of
         the Forbearance Agreement, the lenders may request stock purchase
         warrants to acquire 10% of the diluted common equity of the Company
         (901,017 shares as of March 31, 1999). These warrants vest and become
         exercisable as follows: 25% beginning March 31, 1999; 25% beginning
         October 1, 1999; 25% beginning April 1, 2000; and 25% beginning October
         1, 2000. If the debt under the Credit Agreement is paid in full, all
         unvested warrants are forfeited. Furthermore, the Company may redeem
         the warrants for a price of $5.00 per share through December 31, 1999
         and $10.00 per share thereafter. The estimated fair value of these
         warrants at the date of agreement was $0.50 per share using the
         Black-Scholes option-pricing model with the following assumptions:
         dividend yield of 0.0%, expected volatility of 243.7%, risk-free
         interest rate of 4.6% and expected lives of 2 years. Subsequent to
         March 31, 1999, the lenders have requested the Company to issue stock
         purchase warrants totaling 688,513 shares. The warrants have an
         exercise price of $0.01 per share.

         Effective May 10, 1999, the Company entered into an employment contract
         with a certain individual. As part of this employment contract, the
         Company will grant to the individual 300,000 warrants to purchase the
         Company's stock at a price equal to the closing price of the Company's
         common stock on the New York Stock Exchange on May 10, 1999. The
         closing price at May 10, 1999 was $.50 per share. The estimated fair
         value of these warrants at the date of the employment contract was
         $0.46 per share using the Black-Scholes option-pricing model with the
         following assumptions: dividend yield of 0.0%, expected volatility of
         239.0%, risk-free interest rate of 5.2% and expected lives of 2 years.
                                                                               8
<PAGE>

5.       STOCK OPTIONS

         In May 1995, the Company adopted the 1995 Stock Option Plan in which
         515,200 shares of the Company's Common Stock may be issued. The
         exercise price of the options may not be less than the fair value of
         the Common Stock on the date of grant. The options granted become
         exercisable at such time or times as shall be determined by the
         Compensation Committee of the Board of Directors (the "Committee"). The
         Committee may at any time accelerate the exercisability of all or any
         portion of any stock option. These options expire, if not exercised,
         ten years from the date of grant. Participants in the Plan may be
         independent contractors or employees of independent contractors, full
         or part-time officers and other employees of the Company, or
         independent directors of the Company.

         The Company applies APB No. 25 and related interpretations in
         accounting for the 1995 Stock Option Plan. Accordingly, no compensation
         cost has been recognized since the exercise price approximates the fair
         value of the stock price at the grant dates. Had compensation cost been
         determined based on the fair value at the grant dates consistent with
         the method of SFAS No. 123, the Company's net loss and loss per share
         would have been as follows:

<TABLE>
<CAPTION>


                                                  THREE MONTHS ENDED JUNE 30,              SIX MONTHS ENDED JUNE 30
                                                     1999           1998                   1999             1998
<S>                                              <C>              <C>                 <C>                <C>

         Net Loss:
              As Reported                       $ (34,429,209)   $(1,718,296)         $(44,454,033)      $(2,599,979)
              Pro forma                           (34,259,701)    (1,746,466)          (44,354,279)       (2,658,740)


         Loss per share - basic and dilutive:
              As reported                              $(4.25)        $(0.21)               $(5.48)           $(0.32)
              Pro forma                                $(4.23)        $(0.22)               $(5.47)           $(0.33)

</TABLE>

         A summary of the status of the Company's Stock Option Plan as of June
         30, 1999 and December 31, 1998 and changes during the periods ending on
         those dates is presented below:
                                               SHARES          WEIGHTED-AVERAGE
                                                                EXERCISE PRICE

         Outstanding, January 1, 1998           380,365             13.077
         Granted                                123,000              2.000
         Forfeited                              (15,309)            13.077
                                                -------
         Outstanding, December 31, 1998         488,056             10.285
         Forfeited                              (57,113)            13.077
         Forfeited                              (26,500)             2.000
                                                -------

         Outstanding, June 30, 1999             404,443             10.434
                                                =======


                                         SIX MONTHS ENDED        YEAR ENDED
                                           JUNE 30, 1999      DECEMBER 31, 1998

  Options exercisable at period end            353,808              364,999
                                             ==========        ============
  Weighted-average fair value
    of options granted during the
    period                                  $     0.00           $     0.90
                                             ==========         ============


9
<PAGE>



         The following table summarizes information about fixed stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>


                                            OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                        ----------------------------------------------------------- ---------------------------------------
          EXERCISE             NUMBER             WEIGHTED-           WEIGHTED-            NUMBER             WEIGHTED-
           PRICES           OUTSTANDING            AVERAGE             AVERAGE           EXERCISABLE           AVERAGE
                                 AT               REMAINING           EXERCISE               AT               EXERCISE
                             6/30/1999        CONTRACTUAL LIFE          PRICE             6/30/1999             PRICE
<S>          <C>              <C>                   <C>                <C>                  <C>               <C>
             $13.077          307,943               6.5                $13.077              257,308           $13.077
               2.000           96,500               9.5                  2.000               96,500             2.000
                            ---------                                                     ---------
           $2.000 to
              13.077          404,443               7.2                 10.434              353,808            10.056
                           ===========                                                    =========
</TABLE>


         The fair value of each option grant is estimated on the date of grant
         using the Black-Scholes option-pricing model with the following
         weighted-average assumptions used for grants in 1998 and 1996,
         respectively; dividend yield of 0.0% and 0.08%, expected volatility of
         123.0% and 40.9%, risk-free interest rates of 4.7% and 5.9%, and
         expected lives of 5 years.

         On April 27, 1999, the Board of Directors authorized the award of
         qualified incentive options in the amount of 25,000 shares. However, at
         June 30, 1999, these options had not been granted.

6.       EARNINGS (LOSS) PER COMMON SHARE

         In February 1997, the Financial Accounting Standards Board issued SFAS
         No. 128, "Earnings per Share." SFAS No. 128 is effective for financial
         statements for periods ending after December 15, 1997 and early
         adoption is not permitted. This statement changes the method of
         computing and presenting earnings (loss) per common share. SFAS No. 128
         requires the presentation of basic earnings (loss) per common share and
         diluted earnings (loss) per common share ("EPS") on the face of the
         income statement for all entities with complex capital structures and
         requires a reconciliation of the numerator and denominator of the basic
         EPS computation to the numerator and denominator of the diluted EPS
         computation. Basic EPS is computed by dividing the net income available
         to common shareholders by the weighted average shares of outstanding
         common stock. The calculation of diluted EPS is similar to basic EPS
         except that the denominator includes dilutive potential common shares
         such as stock options and warrants and the numerator is adjusted to add
         back (a) any convertible preferred dividends and (b) the after tax
         amount of interest recognized in the period associated with any
         convertible debt.

         Options to purchase shares of common stock were outstanding during 1999
         and 1998 (see Note 5) but were not included in the computation of
         diluted EPS because the options' exercise prices were greater than the
         average market prices of the common shares during those years. Warrants
         to purchase shares of common stock were outstanding during 1999 but
         were not included in the computation of diluted EPS because the assumed
         exercise of these warrants would have been anti-dilutive. Accordingly,
         there were no differences in the numerators and denominators used in
         the basic EPS and diluted EPS computations.


7.       COMMITMENTS AND CONTINGENCIES

         The Company has employment agreements with three of its senior
         executive officers. The term of one of the agreements expires in
         December 2000. Under this agreement, upon termination of the employment
         agreement after a change of control in the Company, as defined, the
         Company would be liable for (i) a maximum of the employee's annual
         salary, as defined, plus (ii) any bonuses, as defined. In addition,
         under the employment agreement, the senior executive officer is
         entitled to a minimum annual bonus payment to be paid at such time as
         bonuses to other executive officers. In another agreement, the term of
         the agreement expires in December 2002. Under this agreement, upon
         termination after a change of control in the Company, as defined, the
         Company would be liable for a maximum of three times the eligible
         employee's current base salary plus the average of the annual bonuses
         paid to the employee. The term of another agreement expires in December
         2000. Upon leaving the Company involuntarily, the Company would be
         liable for the amount of the employee's base salary for one year.
                                                                              10
<PAGE>

         WATER TAKE-OR-PAY - At June 30, 1999, the Company had an outstanding
         take-or-pay agreement for the purchase of treated water and wastewater
         treatment for its Eden, North Carolina facilities. The committed amount
         is for 450 million gallons per year through June 30, 2011. Under this
         contract, the Company is committed at June 30, 1999 to purchase treated
         water and wastewater treatment, assuming current price levels, as
         follows:

         Fixed and Determinable Portion of Take-or-Pay Obligations:

         YEAR                                 COMMITTED AMOUNT

         1999                                         $509,062
         2000                                        1,002,375
         2001                                          988,875
         2002                                          975,375
         2003                                          959,625
         Thereafter                                  6,887,250
                                                 -------------

         Total                                     $11,322,562
                                                 =============

         Arising out of the conduct of its business, on occasion, various
         claims, suits and complaints have been filed or are pending against the
         Company. In the opinion of management, all matters are adequately
         covered by insurance or, if not covered, are without merit or are of
         such kind, or involve such amounts, as would not have a material effect
         on the financial position or results of operations taken as a whole if
         disposed of unfavorably.

8.       RELATED PARTY TRANSACTIONS

         On March 31, 1999, the Company amended an operating lease agreement for
         a building being leased from certain shareholders. Per the amendment,
         the Company agreed to vacate the entire premises with the exception of
         1,116 sq. ft. The amended lease is in affect through December 31, 1999.
         Rents will total $5,022. Upon vacating the premises, the Company
         abandoned leasehold improvements with a total net loss of $688,276.

9.       SALES TO MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

         A substantial amount of sales and receivables are to relatively few
         customers. Credit limits, ongoing credit evaluations and account
         monitoring procedures are utilized to minimize the risk of loss.
         Collateral is generally not required.

         Certain customers have accounted for significant percentages of the
         Company's net sales as follows:
<TABLE>
<CAPTION>

                                              THREE MONTHS ENDED                         SIX MONTHS ENDED
                                      JUNE 30, 1999       JUNE 30, 1998         JUNE 30, 1999       JUNE 30, 1998
<S>                                     <C>                  <C>                 <C>                 <C>

         Customer A                         28.8%              27.4%                 28.6%               29.9%
         Customer B                          7.5%              12.1%                  6.8%                7.2%

         Gross sales by type of
          product were as follows
         (in millions):


         Fleece                            $11.4               $13.1                 $20.2               $30.5
         Jersey                             19.9                31.4                  41.6                49.9
         Closeouts/Irregulars                3.0                  .7                   6.9                 1.2
         Other                               4.2                 8.2                   8.6                11.5

  </TABLE>


                                                                              11

<PAGE>



         The geographic location of property, plant and equipment, net, was as
follows (in millions):

                                        JUNE 30, 1999          DECEMBER 31, 1998
                         `
         U.S.                                $38.2                     $42.8
         Mexico                                 .2                       1.0


10.      FINANCIAL INSTRUMENTS

         The Company entered into an interest rate swap agreement to reduce the
         impact of changes in interest rates on some of its variable rate debt.
         The agreement was terminated on May 14, 1999 as a result of the
         Company's filing for bankruptcy protection. The swap agreement was a
         contract to exchange variable rate for fixed rate interest payments
         over the life of the agreement without the exchange of the underlying
         notional amounts. The notional amount of the interest rate swap
         agreement was used to measure interest to be paid or received and does
         not represent the amount of exposure to credit loss. The differential
         paid or received on the interest rate swap agreement was recognized as
         an adjustment to interest expense. This interest rate swap agreement
         was held for purposes other than trading. The Company entered into an
         interest rate swap transaction pursuant to which it exchanged its
         variable rate interest obligation on $45,000,000 notional principal
         amount for a fixed rate payment obligation of 5.89% per annum for the
         four year period beginning April 30, 1999. The fixing of the interest
         rate for these periods was to minimize in part the Company's exposure
         to the uncertainty of variable interest rates during this four-year
         period. The carrying value of the interest rate swap at May 14, 1999
         and December 31, 1998 was $0 and the fair value was ($345,000) and
         ($841,465), respectively. The fair value of the interest rate swap was
         based on an average quoted market price. The interest rate swap
         contract was with one of the members of the financial members of the
         Credit Agreement.

11.      EMPLOYEE BENEFIT PLANS

         The Company has initiated three incentive plans during the second
         quarter of 1999: the Combat Pay Plan, the Accrued Incentive Plan, and
         the Performance Bonus Plan. Most all of the plans are offered to
         individuals which are considered key to the successful implementation
         of the Company's turnaround plan. The Combat Pay Plan is based on
         continued employment with the Company. To be eligible for the
         incentive, the employee must be employed by the Company on the last day
         of the month. The term of this incentive plan is May 1999 through
         December 1999. Expenses for this plan were $22,000 through June 30,
         1999. The Accrued Incentive Plan is also based on continued employment
         with the Company. To be eligible for this incentive, the employee must
         be employed with the Company on September 30, 1999 and December 31,
         1999. The Performance Bonus Plan is based on attainment of specified
         financial goals. This incentive will be paid on December 31, 1999, if
         those certain financial goals are achieved and the employee is employed
         with the Company on that date. There were no expenses accrued for or
         paid for the Accrued Incentive Plan and the Performance Bonus Plan as
         of June 30, 1999.

         The Company maintains a Sales Incentive Plan payable to the sales staff
         if specified sales volume is reached. There were no expenses accrued
         for or paid for this plan as of June 30, 1999.

12.      GOING CONCERN MATTERS

         Although the Company filed for protection under Chapter 11 of the U. S.
         Bankruptcy Code on May 14, 1999, the accompanying financial statements
         have been prepared on a going concern basis, which contemplates the
         realization of assets and the satisfaction of liabilities in the normal
         course of business. As shown in the financial statements, the Company
         incurred a net loss of $44,454,033 for the six months ended June 30,
         1999 and has classified all of its debt as current. The Company also
         has negative working capital of $55,764,860 and $44,664,223 at June 30,
         1999 and December 31, 1998, respectively. These factors among others
         indicate that the Company will be unable to continue as a going concern
         for a reasonable period of time. The financial statements do not
         include any adjustments relating to the recoverability and
         classification of liabilities that might be necessary should the
         Company be unable to continue as a going concern.

         In response to the Company's poor performance and its liquidity
         problems experienced during 1998, the Company undertook to develop a
         business plan (the "Business Plan") designed to return the Company to
         profitability and to provide the Company with the ability to service
         its debt.

                                                                              12
<PAGE>

         In order to reduce overhead and other costs, the Company has eliminated
         certain management positions, reduced management salaries, and has
         suspended management bonuses for an indefinite period. Additional
         personnel and overhead cost reduction measures have been and are
         planned to be taken related to the closing of certain facilities. In
         December 1998, management announced its intention to close the Rocky
         Mount production facility which was sold on August 5, 1999 at a price
         of approximately $1.2 million for the facility and the equipment
         located therein. In addition, the Company has downsized its corporate
         and administrative positions and has discontinued its Eden sewing
         operations. As of March 31, 1999, all outlet stores had been closed.
         The Company has also decided to sell its sales office in Martinsville,
         Virginia. On April 26, 1999, management announced its intention to
         close the Chatham and Altavista production facilities. The Chatham
         facility closed on July 30, 1999 and the Altavista facility is expected
         to close at the end of August, 1999. Due to these planned dispositions,
         property, plant and equipment have been reduced by approximately
         $2,846,000 to reflect their estimated net realizable value.

         Because of the closing of the sewing facilities noted above and due to
         the down-sizing at other sewing facilities, the Company has shifted a
         significant portion of its sewing operations to outside contractors,
         primarily in Mexico. The Company has experienced lower overhead costs
         associated with the use of outside sewing contractors. In March 1999,
         the Company also announced the closing of the Frank L. Robinson, Inc.
         distributorship (FLR). As a result of this closing, the Company moved
         certain FLR inventories to Stardust to be sold as part of the Stardust
         operations. Approximately $2,000,000 of other FLR inventories were
         liquidated to generate cash. The inventory liquidation was complete at
         June 30, 1999. The inventories to be liquidated were reported at their
         estimated net realizable value in the balance sheet December 31, 1998.

         The Company had a relationship with a certain contractor in Mexico
         whereby the Company provided sewing equipment to be used by this
         contractor to assemble the Company's products. The Company is no longer
         using this contractor. The equipment is still located in Mexico. Due to
         the uncertainty as to the disposition of this equipment, the Company
         has reduced the carrying value of the equipment by approximately
         $665,000.

         The Company is in the process of eliminating certain less profitable
         product styles. The Company believes that this will reduce its product
         mix to a more manageable level. Due to this reduction, closeout
         inventories of approximately $12,500,000 have been identified for
         liquidation. These inventories are also reported in the balance sheet
         at their estimated net realizable value at June 30, 1999.

         On August 3, 1999 the Company obtained permission from the bankruptcy
         court to sell the Stardust distributorship. The Company expects to
         close on the sale in August 1999 and receive a payment of approximately
         $10.5 million after adjustments. Upon review of the sale and purchase
         price to be obtained, the Company has determined that there is no
         longer any goodwill associated with the Stardust division. The
         unamortized goodwill in the amount of $25,615,185 was written off at
         June 30, 1999.


         As a result of lower than projected sales and Court Orders described
         hereafter, the Company faces a severe cash crisis. On May 17, 1999 an
         Order was entered by the Bankruptcy Court, with the consent of the
         Company's lenders, authorizing the Company to use cash collateral in
         accordance with an agreed upon budget. The Cash Collateral Order had
         certain default provisions which, when triggered, would allow the
         Company's lenders to withdraw their consent to the Company's continued
         use of cash collateral and make it incumbent upon the Company to seek
         additional relief from the Court. A final Cash Collateral Order was
         entered by the Court on June 8, 1999.

         Among other covenants and restrictions contained in the Cash Collateral
         Order is a requirement which limits the Company's use of cash
         collateral to the extent that aggregate of the Company's eligible
         accounts and eligible inventory falls below $41.85 million (the Cash
         Collateral Coverage Amount). Because of faster than anticipated
         collections, inventory write downs and accounts receivable aging the
         Cash Collateral Coverage Amount soon fell below the required $41.85
         million and the Company's ability to use funds in the Cash Collateral
         Account was severely restricted. Other events of default under the Cash
         Collateral Order have occurred but formal notice of default has not
         been given the Company by its lenders.

         On June 21, 1999 the Company and its lenders entered into a Debtor In
         Possession Financing and Security Agreement ("DIP Financing Agreement")
         pursuant to which the Lenders extended the company a $3.0 million
         post-petition line of credit. The DIP Financing Agreement had a number
         of conditions and the ability of the Company to borrow funds under the
         DIP Financing Agreement was subject to termination at any time at the
         discretion of the lenders. On June 23, 1999 the DIP Financing Agreement
         was approved by the Court on an interim basis and the Company was
         authorized to borrow up to $2.0 million. The Company in fact borrowed
         $1.5 million from its lenders pursuant to the DIP Financing Agreement
         and Order. The DIP Financing Agreement terminates on August 27, 1999
         and full repayment of amounts outstanding are required at that time.
         Without additional borrowings thereafter the Company will be unable to
         sustain its operations at their current level by mid-September.

         The Company's ability to reorganize under Chapter 11 and emerge as a
         going concern is dependent upon a number of factors. The Company needs
         to obtain a source of financing sufficient to satisfy the lenders'
         secured claim and provide the Company with a source of working capital.
         Without the infusion of significant new equity in the Company it is
         doubtful that the Company will be able to secure such financing.
         Moreover, the Company must be able to demonstrate the feasibility of
         its reorganization by the maintenance of a solid customer base which
         will provide sufficient revenues to sustain its operations. Because of
         the uncertainty of the Company's future, it has been difficult for the
         Company to obtain firm commitments for future sales from existing
         customers. Without firm financing commitments or new equity investment
         it is likely that the Company will be forced to discontinue its
         operations as a going concern and liquidate its assets.

                                                                              13
<PAGE>


                  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         GENERAL

         The following discussion and analysis should be read in conjunction
         with the financial statements and related notes of the Quarterly Report
         on Form 10-Q and should be read in conjunction with the Company's 1998
         Annual Report.

         Although the Company filed for protection under Chapter 11 of the U. S.
         Bankruptcy Code on May 14, 1999, the accompanying financial statements
         have been prepared on a going concern basis, which contemplates the
         realization of assets and the satisfaction of liabilities in the normal
         course of business. As shown in the financial statements, the Company
         incurred a net loss of $44,454,033 for the six months ended June 30,
         1999 and has classified all of its debt as current as of June 30, 1999.
         The Company also has negative working capital of $55,764,860 and
         $44,664,223 at June 30, 1999 and December 31, 1998, respectively. These
         factors among others indicate that the Company will be unable to
         continue as a going concern for a reasonable period of time. The
         financial statements do not include any adjustments relating to the
         recoverability and classification of liabilities that might be
         necessary should the Company be unable to continue as a going concern.

         In response to the Company's poor performance and its liquidity
         problems experienced during 1998, the Company undertook to
         develop a business plan (the "Business Plan") designed to return the
         Company to profitability and to provide the Company with the ability
         to service its debt.

         In order to reduce overhead and other costs, the Company has eliminated
         certain management positions, reduced management salaries, and has
         suspended management bonuses for an indefinite period. Additional
         personnel and overhead cost reduction measures have been and are
         planned to be taken related to the closing of certain facilities. In
         December 1998, management announced its intention to close the Rocky
         Mount production facility which was sold on August 5, 1999 at a price
         of approximately $1.2 million for the plant and equipment located
         therein. In addition, the Company has downsized its corporate and
         administrative positions and has discontinued its Eden sewing
         operations. As of March 31, 1999, all outlet stores had been closed.
         The Company has also decided to sell its sales office in Martinsville,
         Virginia. On April 26, 1999, management announced its intention to
         close the Chatham and Altavista production facilities. The Chatham
         facility closed on July 30, 1999 and the Altavista facility is expected
         to close at the end of August 1999. Due to these planned dispositions,
         property, plant and equipment have been reduced by approximately
         $2,846,000 to reflect their estimated net realizable value.

         Because of the closing of the sewing facilities noted above and due to
         the down-sizing at other sewing facilities, the Company has shifted a
         significant portion of its sewing operations to outside contractors,
         primarily in Mexico. The Company has experienced lower overhead costs
         associated with the use of outside sewing contractors. In March 1999,
         the Company also announced the closing of the Frank L. Robinson, Inc.
         distributorship (FLR). As a result of this closing, the Company moved
         certain FLR inventories to Stardust to be sold as part of the Stardust
         operations. Approximately $2,000,000 of other FLR inventories were
         liquidated to generate cash. The inventory liquidation was complete at
         June 30, 1999. The inventories to be liquidated were reported at their
         estimated net realizable value in the balance sheet at December 31,
         1998.

         The Company had a relationship with a certain contractor in Mexico
         whereby the Company provided sewing equipment to be used by this
         contractor to assemble the Company's products. The Company is no longer
         using this contractor. The equipment is still located in Mexico. Due to
         the uncertainty as to the disposition of this equipment, the Company
         has reduced the carrying value of the equipment by approximately
         $665,000.

         The Company is in the process of eliminating certain less profitable
         product styles. The Company believes that this will reduce its product
         mix to a more manageable level. Due to this reduction, closeout
         inventories of approximately $12,500,000 have been identified for
         liquidation. These inventories are also reported in the balance sheet
         at their estimated net realizable value at June 30, 1999.

         On August 3, 1999 the Company obtained permission from the bankruptcy
         court to sell the Stardust distributorship. The Company expects to
         close on the sale in August 1999 at a purchase price, after adjustment,
         approximating $10.5 million. Upon review of the sale and purchase price
         to be obtained the Company has determined that there is no longer any
         goodwill associated with the Stardust division. The unamortized
         goodwill in the amount of $25,615,185 was written off at June 30, 1999.

         As a result of lower than projected sales and Court Orders described
         hereafter, the Company faces a severe cash crisis. On May 17, 1999 an
         Order was entered by the Bankruptcy Court, with the consent of the
         Company's lenders, authorizing the Company to use cash collateral in
         accordance with an agreed upon budget. The Cash Collateral Order had
         certain default provisions which, when triggered, would allow the
         Company's lenders to withdraw their consent to the Company's continued
         use of cash collateral and make it incumbent upon the Company to seek
         additional relief from the Court. A final Cash Collateral Order was
         entered by the Court on June 8, 1999.

         Among other covenants and restrictions contained in the Cash Collateral
         Order is a requirement which limits the Company's use of cash
         collateral to the extent that the aggregate of the Company's eligible
         accounts and eligible inventory falls below $41.85 million (the Cash
         Collateral Coverage Amount). Because of faster than anticipated
         collections, inventory write downs and account receivable aging the
         Cash Collateral Coverage Amount soon fell below the required $41.85
         million and the Company's ability to use funds in the Cash Collateral
         Account was severely restricted. Other events of default under the Cash
         Collateral Order have occurred but formal notice of default has not
         been given the Company by its lenders.

         On June 21, 1999 the Company and its lenders entered into a Debtor In
         Possession Financing and Security Agreement ("DIP Financing
         Agreement") pursuant to which the Lenders extended the company a $3.0
         million post-petition line of credit. The DIP Financing Agreement had
         a number of conditions and the ability of the Company to borrow funds
         under the DIP Financing Agreement was subject to termination at any
         time at the discretion of the lenders. On June 23, 1999 the DIP
         Financing Agreement was approved by the Court on an interim basis and
         the Company was authorized to borrow up to $2.0 million. The Company
         in fact borrowed $1.5 million from its lenders pursuant to the DIP
         Financing Agreement and Order. The DIP Financing Agreement terminates
         on August 27, 1999 and full repayment of amounts outstanding are
         required at that time. Without additional borrowings thereafter the
         Company will be unable to sustain its operations at their current
         level by mid-September.

         The Company's ability to reorganize under Chapter 11 and emerge as a
         going concern is dependent upon a number of factors. The Company needs
         to obtain a source of financing sufficient to satisfy the lenders'
         secured claim and provide the Company with a source of working
         capital. Without the infusion of significant new equity in the Company
         it is doubtful that the Company will be able to secure such financing.
         Moreover, the Company must be able to demonstrate the feasibility of
         its reorganization by the maintenance of a solid customer base which
         will provide sufficient revenues to sustain its operations. Because of
         the uncertainty of the Company's future, it has been difficult for the
         Company to obtain firm commitments for future sales from existing
         customers. Without firm financing commitments or new equity investment
         it is likely that the Company will be forced to discontinue its
         operations as a going concern and liquidate its assets.


                                                                              14
<PAGE>

         RESULTS OF OPERATIONS

         The following table presents the major components of the Company's
         statements of operations as a percentage of net sales:
<TABLE>
<CAPTION>

                                             (UNAUDITED)                      (UNAUDITED)
                                            THREE MONTHS ENDED              SIX MONTHS ENDED
                                               JUNE 30, 1999                 JUNE 30, 1999
                                            -------------------          --------------------
                                          1999              1998           1999           1998
          <S>                           <C>            <C>            <C>               <C>

         Net Sales                        100.0%          100.0%          100.0%          100.0%
         Cost of goods sold              105.2            90.9           102.5            90.4
                                         -----          ------           -----          ------
         Gross profit (loss)              (5.2)            9.1            (2.5)            9.6

         Operating expenses               84.4            11.0            51.5            10.9
                                        ------          ------           -----          ------
         Loss from operations            (89.6)           (1.9)          (54.0)           (1.3)
         Other expenses, net               3.8             3.4             5.7             3.2
                                       -------         -------          ------         -------
         Loss before income taxes        (93.4)           (5.3)          (59.7)           (4.5)
         Income tax benefit                               (1.9)                           (1.6)
                                        -------        -------          -------        --------

         Net loss                        (93.4)%          (3.4)%         (59.7)%          (2.9)%
                                        ========         =======        ========         =======


</TABLE>


         THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 ("1999"), COMPARED TO
         THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 ("1998")

         NET SALES - Net sales for the six months ended June 30, 1999 were $74.5
         million, a decrease of $15.7 million, or 17.4% over net sales of $90.2
         million for the first six months of 1998. Net sales for the second
         quarter of 1999 were $36.9 million, a decrease of $14.2 million, or
         27.8% from net sales of $51.1 million for the second quarter of 1998.
         The dollar value of sales is down due to high volume of closeout sales
         at reduced selling prices, lower average selling prices resulting from
         competitive markets, lost or delayed sales as a result of disruptions
         in production due to the startup associated with contractor production,
         and the closing of the Frank L. Robinson (FLR) distributorship.

         During the first half of 1999, because of the downward trend in product
         prices due to an overall market decline, inflation had a minimal effect
         on the Company's net sales. The Company is exposed to inflationary
         pressures from the purchases of raw materials and labor. However,
         during the first half of 1999, these markets were relatively stable and
         inflation did not have a material effect on income from continuing
         operations.

         GROSS MARGINS - Gross margins declined to (5.2)% and (2.5)% of net
         sales for the second quarter and first six months of 1999,
         respectively, from 9.1% and 9.6% in the comparable periods of 1998. The
         decline was primarily the result of lower operating efficiencies and
         high percentage of sales of closeout inventory previously written down
         to net realizable value. Also, second quarter margins were impacted by
         additional write-downs to net realizable value of excess inventories to
         be liquidated at reduced prices.

         The Company anticipates a substantial reduction in inventories by
         year-end. As a result of this reduction, a liquidation of previous
         years' LIFO increments is expected to occur. The Company also
         anticipates a liquidation of base year costs. In the event that these
         liquidations occur, the resulting impact will be to lower cost of sales
         and increase gross margin by reducing the LIFO valuation reserve.

         OPERATING EXPENSES - Operating expenses increased 290% to $38.4 million
         in the first six months of 1999 from $9.8 million in the first six
         months of 1998 and to $31.0 million or 453% from $5.6 million in the
         second quarter of 1999 compared to the second quarter of 1998. The
         increase is due primarily to the write off of goodwill associated with
         the Stardust division in the amount of $25.6 million in the second
         quarter of 1999.

                                                                              15
<PAGE>

         OTHER EXPENSES, NET - Other expenses, net, increased 45.8% to $4.2
         million in the first six months of 1999 from $2.9 million in 1998. This
         increase was primarily due to an increase in interest expense.

         INCOME TAXES - The effective tax rate was 0% in 1999 compared to 36.4%
         in 1998. The 0% effective rate in 1999 is due to the uncertain ability
         of the Company to generate future taxable income and the resulting
         uncertain realization of tax loss carryforwards and other deferred tax
         assets.

         LIQUIDITY AND CAPITAL RESOURCES

         PRINCIPAL SOURCES OF LIQUIDITY - As a result of the inability of the
         Company to increase the amount of funds available for borrowing under
         its credit facility and as a result of its operating losses during 1998
         and 1999, the Company experienced severe liquidity shortages. The
         inadequate liquidity subsequently resulted in the Company failing to
         pay its suppliers in a timely manner, causing delays in the delivery of
         raw materials. This caused some disruptions and delays in production
         and, at times, resulted in lost sales.

         At June 30, 1999, the Company had a working capital deficiency of $55.8
         million, a decrease of $11.1 million as compared to December 31, 1998.
         This decrease is primarily attributable to a net decrease in
         receivables, refundable taxes and inventory of $26.3 million. These
         reductions in working capital were partially offset by reductions in
         accounts payable and debt of $7.7 million and an increase in cash of
         $6.6 million.

         CASH FLOWS FROM OPERATING ACTIVITIES - For the six months ended June
         30, 1999, net cash provided by operations totaled $8.5 million as
         compared to net cash used for the six months ended June 30, 1998 of
         $8.1 million. Accounts receivable, net, decreased $7.0 million due to
         collections and low sales volume. Inventory decreased $16.6 million
         from efforts to liquidate excess and closeout product. Taxes receivable
         decreased $2.7 million from refunds. These increases in cash were
         offset by the net loss of $44.5 million less non-cash charges of $31.9
         million for depreciation, amortization, write-off of goodwill and
         losses on disposal of property, as well as a decrease in accounts
         payable of $4.5 million.

         CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures were $ .1
         million for the six months ended June 30, 1999. Other assets, net,
         increased $ .5 million.

         CASH FLOWS FROM FINANCING ACTIVITIES - For the six months ended June
         30, 1999 the Company had net repayments of debt of $3.2 million and
         proceeds from additional financing of $1.5 million provided through the
         bankruptcy proceedings.

         CREDIT AGREEMENT

          In April 1998, the Company entered into a syndicated credit agreement
          (the "Credit Agreement") with a group of financial institutions (the
          "Banks") for the purpose of refinancing its then existing credit
          facility. Prior to the Company's bankruptcy filing, the Credit
          Agreement had been amended ten times. As a result of the Company's
          Chapter 11 filing, the Company's obligations to its lenders on an
          ongoing basis are determined by the Bankruptcy Court.


                                                                              16
<PAGE>


         CASH COLLATERAL AND SECURITY AGREEMENT AND DEBTOR-IN-POSSESSION
         FINANCING

         On May 14, 1999, the Company filed for protection under Chapter 11 of
         the U. S. Bankruptcy Code. The Company requested and was granted from
         the Bankruptcy Court The Final Stipulation and Order for the Debtor's
         Use of Cash Collateral and for Adequate Protection (the "Debtor's Use
         of Cash Collateral") authorizing the Company to use funds located in
         the cash collateral account for operations. The cash collateral account
         was created through an agreement


                                                                              17
<PAGE>


         with the lending agent on November 16, 1998 whereby funds remitted to
         this account by the Company's customers were for use by the Company
         only in accordance with an operating budget approved by the Company's
         lenders and filed with the Court. In order for the Company to be in
         compliance with this stipulation and order, the Company must comply
         with certain covenants, including, but not limited to, the following:
         (1) 85% of eligible receivables (as defined) plus 60% of eligible
         inventory (as defined) plus cash retained in the cash collateral
         account shall not fall below $41.85 million, (2) expenditures will not
         be made, without prior written consent from the agent or court, which
         vary any budget line item amount more than 15% from the approved
         budget or, in the aggregate, exceed such aggregated amounts set forth
         in the applicable budget by more than $50,000, (3) aggregate cash
         receipts less aggregate cash disbursements (the "change in cash")
         should not be less than ($1.8) million in any calendar week and the
         change in cash shall not be negative for each of any four consecutive
         calendar weeks, (4) reports of accounts receivable aging will be
         provided to the agent each Thursday, and, (5) file a motion with the
         applicable parties by June 14, 1999 to dispose of the Stardust
         distributorship and/or its assets. As of June 30, 1999 the Company was
         not in compliance with the stipulation and order authorizing the use
         of cash collateral.

         After the May 14, 1999 filing for bankruptcy protection, the Company
         entered into a Debtor-in-Possession Financing and Security Agreement
         (the "DIP") in order to continue operations without causing irreparable
         damage to the organization. The interim DIP financing, approved by the
         Bankruptcy Court on June 23, 1999, authorizes, but does not require the
         financial institutions which are party to the syndicated credit
         agreement to give additional financing to the Company of up to $2.0
         million. The Company must comply with various covenants in order to
         maintain the DIP financing. These covenants include, but are not
         limited to, (1) refraining from obtaining any future debt, (2)
         refraining from incurring any additional liens on any of its property,
         (3) only investing in permissible investments, (4) refraining from
         paying dividends on or purchasing its capital stock, (5) restrictions
         on transactions with affiliates, and (6) limiting capital expenditures
         to not more than $30,000 in any calendar month and $78,000 through
         August 27, 1999. The final DIP financing agreement was approved by the
         Bankruptcy Court on July 9, 1999 and increased the amounts of funds
         which could be borrowed to up to $3.0 million. As of June 30, 1999, the
         Company was not in compliance with the DIP financing agreement and had
         not obtained waivers related to its non compliance. The Company
         actually borrowed $1.5 million under its DIP financing facility. All
         amounts borrowed are due and payable in full on August 27, 1999, at
         which time the DIP financing facility will expire.



         YEAR 2000 COMPLIANCE

         The Company recognizes that the arrival of the Year 2000 poses a unique
         worldwide challenge to the ability of all systems to recognize the date
         change from December 31, 1999 to January 1, 2000 and, like other
         companies, has assessed its computer applications and business
         processes to provide for their continued functionality. The Company
         believes that its current management information systems will
         consistently and properly recognize the Year 2000. The Company is in
         the process of completing its implementation of its new management
         information systems to improve its production planning, scheduling and
         distribution, as well as its financial reporting capabilities. This new
         management information system will be Year 2000 compliant. Many of the
         Company's other systems include new hardware and packaged software
         recently purchased from large vendors who have represented that these
         systems are Year 2000 compliant. The Company is in the process of
         obtaining assurances from vendors that timely updates will be made
         available to make all remaining purchased software Year 2000 compliant.
         The Company does not believe anticipated expenditures to assure Year
         2000 compliance will be material. In addition, the Company plans to
         communicate with others with whom it does significant business to
         determine their Year 2000 compliance readiness and the extent to which
         the Company is vulnerable to any third party Year 2000 issues. Although
         the Company expects to be Year 2000 compliant when necessary, failure
         of the Company or significant key suppliers or customers to be fully
         compliant could potentially have a material adverse impact on the
         results of the Company's operations. However, due to the many factors
         involved, including factors impacting third parties, which the Company
         cannot readily ascertain, the Company is currently unable to estimate
         the potential impact. However, there can be no guarantee that a failure
         to convert by another company would not have a material adverse effect
         on the Company.

         The Company considers the likelihood of the Company not being ready for
         the Year 2000 to be remote, but is currently unable to determine the
         likelihood of its key suppliers and customers not being ready for the
         Year 2000. Contingency plans are not being developed in the event that
         critical operations become interrupted as the result of key suppliers
         or customers failing to resolve their respective Year 2000 issues in a
         timely manner.

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<PAGE>


         FORWARD LOOKING STATEMENTS

         Information in this Form 10-Q may contain certain forward-looking
         statements. These statements involve risks and uncertainties that could
         cause actual results to differ materially, including without
         limitation, the actual costs of operating the Company's business,
         actual operating performance, the ability to maintain large client
         contracts, or to enter into new contracts and the level of demand for
         the Company's products. Additional factors that could cause actual
         results to differ materially are the ability to maintain adequate
         borrowing capability to operate as discussed above and in the Company's
         previous filings with the Securities and Exchange Commission.

                                                                              19
<PAGE>


                           PART II - OTHER INFORMATION
                            ITEM L. LEGAL PROCEEDINGS


At 8:00 a.m. on May 14, 1999, Pluma, Inc. filed a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Middle District of North Carolina. The case has been assigned the following
number: 99-11104. Pursuant to the provisions of Sections 1107 and 1108 of the
Bankruptcy Code, Pluma, Inc. will operate as a debtor-in-possession during the
pending reorganization proceeding.

                          ITEM 2. CHANGES IN SECURITIES


The Company's credit agreement with its several lenders prohibits the Company
from declaring and paying a dividend on its common stock. Any such dividend
payment constitutes a default under the credit agreement.


                    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.   Exhibits
                                                                     FILED
         EXHIBIT NUMBER                                           HEREWITH(*)
         10.1 Form of Employment Agreement between Pluma and John Wigodsky
         10.2 Form of Incentive Package between Pluma and William H. Watts
         11.1 Computation of Earnings per Share
         27.0 Financial Data Schedule
b.   Reports on Form 8-K
         None



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.

PLUMA, INC.
                                        /s/ John Wigodsky
                                      -----------------------------------------
                                      John Wigodsky
                                      President & Chief Executive Officer


                                        /s/ William Watts
                                      -----------------------------------------
                                      William Watts
                                      Vice President and Chief Financial Officer


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