SPEIZMAN INDUSTRIES INC, ARS, 1998-10-21

SPEIZMAN INDUSTRIES INC
ARS, 1998-10-21
INDUSTRIAL MACHINERY & EQUIPMENT

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<PAGE>

1998 ANNUAL REPORT

[Photos of Working Employees in Plant]

[Speizman Logo] SPEIZMAN
INDUSTRIES, INC.

<PAGE>

STOCKHOLDERS' LETTER

To Our Stockholders:

During the past two years, Speizman has diversified from its core business of
distributing sock-knitting machines to enable the Company to continue to grow
both in sales and profits. On February 1, 1998, Speizman acquired TMC
Automation, a designer and manufacturer of sock boarding and packaging
machines. TMC allows Speizman to meet the needs of our sock customers by
automating the most labor-intensive area of their operations.

Our major supplier, the Lonati Group of Brescia, Italy, acquired six other
Italian manufacturers of textile machinery during our past fiscal year.
Speizman Industries has been given the exclusive distributorship for each of
these six companies in the U.S.A. and Canada.

Fiscal 1998 saw revenues increase by 14.9% from $79.1 million in fiscal 1997 to
$90.9 million in 1998. The increased revenues resulted in after-tax profits of
$1.9 million in 1998 versus $2.7 million in 1997. After-tax profits declined by
$0.24 per share from our prior fiscal year. The decline in profits is
attributable to a $10.8 million decrease in hosiery related equipment revenues
coupled with increased interest and amortization expenses, both associated with
the recent acquisitions.

Despite this one-year decline, I feel certain our potential for future growth
will reflect our ten-year compounded revenue growth rate of 19.5% and profit
growth rate of 10.3%, for the following reasons:

o Continued diversification of product line.

o Economies of scale.

o Strong people resources.

I would now like to examine each one of these three reasons to show you why I
am so optimistic about our future.

CONTINUED DIVERSIFICATION

The acquisition of TMC Automation creates a substantial potential for
additional sales and profits for our Company. Packaging is the most
labor-intensive part of the sock manufacturing process. We also feel TMC will
allow us to enter other fields of automated packaging, as well.

The Lonati Group acquired Marchisio and Vignoni, both circular fabric knitting
machine manufacturers, as well as MecMor, a circular sweater knitter, during
our current fiscal year. The Lonati Group has allowed us to gain immediate,
significant market share in these industries by allowing us to aggressively
price and finance the equipment with no financial exposure to our Company.
Lonati is applying their special R&D talents to these acquisitions by utilizing
their market dominance and technology for high production with total electronic
controls. Highly competitive new models for Marchisio, Vignoni and MecMor
should be available by the first quarter of fiscal 2000.

In 1998, the Lonati Group along with their associates, the Camozzi Group,
purchased control of Marzoli and Vouk. Both of these companies produce machines
for the yarn processing industry. Speizman was appointed the exclusive
distributor for Marzoli and Vouk in the United States and Canada on August 1,
1998. Our Company took over the existing Marzoli operations in Spartanburg,
South Carolina, and has added personnel to the sales and service departments.
Speizman has also entered the used yarn processing machine business in order to
gain market share of new equipment and generate additional profits. The yarn
processing industry is highly competitive. As in the circular knitting and
circular sweater sectors, the Lonati Group has committed to an aggressive
pricing policy while intensifying development of new models.

On August 1, 1997, Speizman Industries acquired Wink Davis Equipment Company.
Fiscal 1998 was profitable, but far short of our goals for this division. Wink
Davis has now significantly reduced their overhead and has begun to sell some
new lines of equipment which should increase profitability. In addition, we
feel it is reasonable to assume that several large sales projects will conclude
in our favor during the current fiscal year.

The Santoni Company, which has been a long-time supplier of sock and medical
knitting machines, has successfully introduced a new knitting machine for the
production of seamless undergarments, action wear and swim suits. The market
response in the United States and Canada for these products has been
tremendous. Currently, we have a backlog of more than $16 million worth of the
Santoni undergarment machines on order.

<PAGE>

This move toward diversification is a key strategic move for Speizman. The sock
machine business is in a state of transition. Demand for athletic socks remains
good, while demand for other types of socks is fair, at best. Most athletic
sock producers in the United States and Canada are waiting to determine whether
the new technology from Lonati for closing the toe of the sock on the knitting
machine will meet their customers' and consumers' needs. If Lonati's closed toe
is not accepted by our sock customers, we see a continued decline in our sales
of sock knitting equipment.

ECONOMIES OF SCALE

Our recent acquisitions, as well as appointments of additional distributorships
from the Lonati Group, have allowed us to begin to use economies of scale to
eliminate duplications of efforts within our Company. For example, we are now
able to make large-scale purchases which have reduced costs and will continue
to produce efficiencies going forward. In addition, we are well along in the
process of creating coordinated and comprehensive MIS and accounting systems.

STRONG PEOPLE RESOURCES

The most important resource of any company is its people. Through our
acquisitions, we are delighted and fortunate to have introduced to our company
an influx of young, aggressive technical and marketing professionals who bring
fresh ideas and are setting up new and innovative procedures and programs.

Some investment analysts point out that on a quarter to quarter basis,
Speizman's earnings are "lumpy." There may be some truth to that, but I would
like to point out, that in managing our business, we strive for long term
growth -- a goal we have achieved quite impressively over the past ten years.
In fiscal 1988, revenues were $15.2 million and profits were $725,000. In 1998,
revenues were $90.9 million; profits were $1.9 million. With the steps we have
taken in 1998, we believe we have set the stage and positioned ourselves to
continue this performance in the years ahead.

Your management will concentrate on implementing our diversification strategy
by establishing our presence in a broader range of markets. We will continue to
investigate and consider other distributorships and potential acquisitions that
can extend our reach, strengthen our financial position and ensure continued
growth in sales and profits in establishing long-term value for our
stockholders.

Sincerely,

SPEIZMAN INDUSTRIES, INC.

/s/ ROBERT S. SPEIZMAN
- -------------------------
Robert S. Speizman
President

<PAGE>

SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------
June 27, June 28, June 29, July 1, July 2,
1998 1997 1996 1995 1994
------------ ---------- ---------- ----------- ------------
(In thousands, except net income per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues $ 90,886 $79,103 $46,280 $61,597 $ 69,526
Cost of sales 74,034 65,935 40,547 53,986 60,004
- ------------------------------------- -------- ------- ------- ------- --------
Gross profit 16,852 13,168 5,733 7,611 9,522
Selling, general and
administrative expenses 12,855 8,855 6,577 5,478 4,350
- ------------------------------------- -------- ------- ------- ------- --------
Operating income (loss) 3,997 4,313 (844) 2,133 5,172
Interest (income) expense, net 791 (18) (43) (15) 6
- ------------------------------------- -------- ------- ------- ------- --------
Income (loss) before taxes on
income 3,206 4,331 (801) 2,148 5,166
Taxes (benefit) on income 1,273 1,645 (228) 854 1,869
- ------------------------------------- -------- ------- ------- ------- --------
Net income (loss) 1,933 2,686 (573) 1,294 3,297
Preferred stock dividends -- -- -- -- 41
- ------------------------------------- -------- ------- ------- ------- --------
Net income (loss) applicable to
common stock $ 1,933 $ 2,686 $ (573) $ 1,294 $ 3,256
- ------------------------------------- -------- ------- ------- ------- --------
Per Share Data:
Basic earnings (loss) per share $ 0.59 $ 0.83 $ (0.18) $ 0.40 $ 1.16
Diluted earnings (loss) per share 0.56 0.80 (0.18) 0.40 1.10
Weighted average shares
outstanding -- basic 3,284 3,229 3,209 3,209 2,805
Weighted average shares
outstanding -- diluted 3,426 3,353 3,209 3,272 2,949
- ------------------------------------- -------- ------- ------- ------- --------
Balance Sheet Data:
Working capital $ 20,216 $18,741 $16,313 $17,613 $ 16,579
Total assets 50,034 43,174 36,149 35,704 30,160
Short-term debt 4,000 -- -- -- --
Long-term debt, including
current maturity 7,670 112 148 147 293
Stockholders' equity 23,207 20,938 18,203 18,782 17,483
- ------------------------------------- -------- ------- ------- ------- --------
</TABLE>

<PAGE>

BUSINESS OVERVIEW

GENERAL
Speizman Industries, Inc. and subsidiaries (collectively the "Company") is a
major distributor operating through three companies: Speizman Industries, Inc.
("Speizman" or "Speizman Industries"), Wink Davis Equipment Co., Inc. ("Wink
Davis") and Todd Motion Controls, Inc. ("TMC"). Speizman distributes sock
knitting machines, other knitting equipment and related parts. Wink Davis sells
commercial and industrial laundry equipment, including the distribution of
machines and parts as well as installation and after sales service. TMC
manufactures automated boarding, finishing and packaging equipment used in the
sock knitting industry. TMC's products are sold through Speizman's distribution
network.

All references herein are to the Company's 52-or-53 week fiscal year ending on
the Saturday closest to June 30. The fiscal years 1994 through 1998 each
contained 52 weeks and ended on June 27, 1998, June 28, 1997, June 29, 1996,
July 1, 1995 and July 2, 1994.

SPEIZMAN INDUSTRIES

Speizman Industries is the leading distributor of new sock knitting machines in
the United States. It distributes technologically advanced sock knitting
machines manufactured by Lonati, S.p.A., Brescia, Italy ("Lonati"), which
Speizman Industries believes is the world's largest manufacturer of hosiery
knitting equipment. It also distributes Lonati sock and sheer hosiery knitting
machines in Canada. In addition, through sales arrangements with other European
textile machinery manufacturers, Speizman distributes other sock knitting
machines, knitting machines for underwear and other knitted fabrics and other
equipment related to the manufacture of socks, sheer hosiery and other textile
products, principally in the United States and Canada. Speizman sells textile
machine parts and used textile equipment in the United States and in a number
of foreign countries.

Speizman Industries and Lonati entered into their present agreement for the
sale of Lonati machines in the United States in January 1992 (the "Lonati
Agreement"). Speizman and Lonati also entered into a similar agreement relating
to Speizman Industries' distribution of Lonati sock and sheer hosiery knitting
machines in Canada in January 1992 and in Mexico in 1997. Speizman Industries
has distributed Lonati double cylinder machines in the United States
continuously since 1982. Speizman began distributing Lonati single cylinder
machines in 1989.

Pursuant to the Lonati Agreement, Lonati has appointed Speizman Industries as
Lonati's exclusive agent in the United States for the sale of its range of
single and double cylinder sock knitting machines and related spare parts.
Under the Lonati Agreement, Speizman Industries also serves as the distributor
of such equipment in the United States. Although the Lonati Agreement does not
establish Speizman Industries as the exclusive distributor of Lonati sock
machines in the United States, Speizman in fact has exclusively distributed
Lonati double cylinder sock machines continuously since 1982 and Lonati single
cylinder sock knitting machines since 1989. The Lonati Agreement extended to
December 31, 1995 and continues from year to year thereafter, although it may
be terminated on 90 days written notice at any year end or without notice in
the event of a breach. Speizman and Lonati also entered into a similar
agreement relating to Speizman Industries' distribution of Lonati sock and
sheer hosiery knitting machines in Canada in January 1992.

The Lonati Agreement contains certain covenants and conditions relating to
Speizman Industries' sale of Lonati machines, including, among others,
requirements that Speizman Industries, at its own expense, promote the sale of
Lonati machines and assist Lonati in maintaining its competitive position,
maintain an efficient sales staff, provide for the proper installation and
servicing of the machines, maintain an adequate inventory of parts and pay for
all costs of advertising the machines. Speizman is prohibited during the term
of the Lonati Agreement from distributing any machines or parts that compete
with Lonati machines and parts. Speizman believes that it is and will remain in
compliance in all material respects with such covenants. The cost to Speizman
of Lonati machines, as well as the delivery schedule of these machines, are
totally at the discretion of Lonati. The Lonati Agreement allows Lonati to sell
machines directly to the sock manufacturer with any resulting commission paid
to Speizman determined on a case by case basis.

The Lonati single cylinder machines distributed by Speizman Industries are for
the knitting of athletic socks. The Lonati double cylinder machines are for the
knitting of dress and casual socks. The Lonati machines are electronic,
high-speed, and have computerized controls. Lonati single cylinder machines are
capable of knitting pouch heel and toe, reciprocated heel and toe and tube
socks. These and other features allow the rapid change of sock design, style
and size, result in increased production volume and efficiency and simplify the
servicing of the machines.

<PAGE>

Speizman Industries distributes these sock knitting machines as well as Lonati
sheer hosiery knitting machines in Canada and in Mexico. In addition, Speizman
distributes the knitting machines, described below, manufactured by Santoni,
S.r.l. Brescia, Italy ("Santoni"), one of Lonati's subsidiaries, in the United
States, Canada and Mexico. Sales by Speizman Industries in the United States,
Canada and Mexico of new machines manufactured by Lonati, S.p.A., generated the
following percentages of Speizman's net revenues: 41.1% in fiscal 1998, 60.1%
in fiscal 1997 and 46.2% in fiscal 1996. In addition, sales of Santoni machines
in the United States, Canada and Mexico generated 5.3%, 7.0% and 4.8% of
Speizman Industries' net revenues in fiscal 1998, 1997 and 1996, respectively.

In addition to the Lonati machines, Speizman Industries distributes new
knitting and other machines and equipment under written agreements and other
arrangements with the manufacturers. The following table sets forth certain
information concerning certain of these additional distribution arrangements:

<TABLE>
<CAPTION>
Manufacturer Machine Territory
- ------------------------ -------------------------- -------------------------
<S> <C> <C>
Santoni, S.r.l., Circular knitting machines United States, Canada
Brescia, Italy for underwear, men's socks and Mexico
and women's sheer hosiery
and surgical support hose
Conti Complett, S.p.A., Sock toe closing machines United States and Canada
Milan, Italy and sock turning devices
Dinema, Data collection United States and Canada
Brescia, Italy
Marchisio, Fabric knitting machines United States and Canada
Brescia, Italy
Mecmor, Fabric knitting machines United States and Canada
Varese, Italy
Vignoni, Fabric knitting machines United States and Canada
Cividino, Italy
</TABLE>

There can be no assurance that Speizman will not encounter significant
difficulties in any attempt to enforce any provisions of the agreements with
foreign manufacturers, or any agreement that may arise in connection with the
placement and confirmation of orders for the machines manufactured by foreign
manufacturer or obtain an adequate remedy for a breach of any such provision,
due principally to the fact that they are foreign companies.

Speizman Industries sells used machinery and parts to the textile industry.
Speizman Industries carries significant amounts of machinery and parts
inventories to meet customers' requirements and to assure itself of an adequate
supply of used machinery. Speizman acts as a liquidator of textile mills and as
a broker in the purchase and sale of such mills.

Marketing and Sales

Speizman Industries markets and sells knitting machines and related equipment
primarily by maintaining frequent contacts with customers and understanding of
its customers' individual business needs. Salespersons will set up competitive
trials in a customer's plant and allow the customer to use Speizman's machine
in its own work environment alongside competing machines for two weeks to three
months. Speizman Industries also offers customers the opportunity to send their
employees to Speizman Industries for training courses on the operation and
service of the machines and, depending on the number of machines purchased and
the number of employees to train, may offer such training courses at the
customer's facility. In addition, Speizman Industries exhibits its equipment at
trade shows and uses its private showroom to demonstrate new machines. These
marketing strategies are complemented by Speizman's commitment to service and
continuing education. Speizman Industries also produces, at its own expense,
training videos for its major lines of equipment. At September 11, 1998,
Speizman employed approximately 10 salespersons and 28 technical
representatives. In addition to its sales staff, Speizman Industries uses over
40 commission sales agents in a number of foreign countries in connection with
its sales of used machines.

WINK DAVIS

Wink Davis, based in Atlanta, Georgia, distributes commercial laundry equipment
and parts and provides related service. Wink Davis was acquired by Speizman on
August 1, 1997. Wink Davis sells to a wide variety of customers.

5
<PAGE>

A large share of these customers maintain on premise laundries ("OPL's"). OPL's
are commonly found in hotels, nursing homes and other institutions that perform
their laundry services in-house. Some larger installations of equipment are
found in hospitals, prisons and linen processing plants. The largest portion of
Wink Davis' sales are generated from its distributorships of both
Pellerin-Milnor (washer extractor equipment manufacturers based in Kenner, La.)
and Chicago Dryer (commercial ironer/folder manufacturers based in Chicago,
IL). Wink Davis represents both of these companies for the southeastern United
States and Chicago, Illinois areas. Specifically, Wink Davis' territories
include Georgia, South Carolina, North Carolina, Virginia, middle and eastern
Tennessee, Maryland, Washington, D.C., northern and central Florida, and the
Chicago, Illinois areas.

The Pellerin-Milnor agreement appoints Wink Davis as the exclusive agent within
its territories. In some instances, a customer's purchase order may be taken in
one agent's territory, but the equipment is actually delivered to a territory
served by a different Pellerin-Milnor agent. In these instances,
Pellerin-Milnor grants the sale to the territory in which the purchase order
was taken. The dealer servicing the territory in which the equipment is
installed receives a commission for which that dealer must assume
responsibility for installing the equipment. Historically, these sales
involving two separate Pellerin-Milnor dealers have been infrequent and
management feels this issue does not significantly improve or hurt its
operations. The Chicago Dryer agreement does not appoint Wink Davis as the
exclusive agent within its territories. Both the Pellerin-Milnor and Chicago
Dryer agreements are renewed on an annual basis and may be terminated in the
event of a breach. Wink Davis has continuously represented both manufacturers
for most of its current territories since 1972. Since 1980, Pellerin-Milnor has
presented its annual top distributor award to Wink Davis for all but three
years. There can be no assurance that the loss of one or both of these
distributorships would not have a materially adverse impact to Wink Davis'
operations.

The Pellerin Milnor and Chicago Dryer agreements contain certain covenants and
conditions relating to Wink Davis' sales of these products, including, among
other things, that Wink Davis, at its own expense, promote the sale of the
manufacturers' machines and assist the manufacturers in maintaining their
competitive positions, maintain an efficient sales staff, provide for the
proper installation, maintenance and servicing of the machines, maintain
adequate inventory of parts and pay for all costs of advertising the machines.
Wink Davis believes that it is and will remain in compliance in all material
respects with such covenants.

Additionally, Wink Davis, under written agreements and other arrangements with
original equipment manufacturers ("OEMs"), distributes other laundry related
equipment. The following table sets forth certain information concerning the
additional distribution agreements:

<TABLE>
<CAPTION>
Manufacturer Machine Territory
- ----------------------- --------------------------------- --------------------
<S> <C> <C>
Ajax Manufacturing, Laundry and Dry Cleaning Presses Southeastern U.S.
Cincinnati, OH & Chicago, IL areas
American Dryer, Commercial Dryers Southeastern U.S.
Fall River, MA & Chicago, IL areas
Cissell Manufacturing, Commercial Dryers, laundry Southeastern U.S.
Louisville, KY and dry cleaning & Chicago, IL areas
pressing equipment
Consolidated Laundry Commercial Dryers Southeastern U.S.
Machinery, & Chicago, IL areas
Los Angeles, CA
Energenics Corp., Lint collectors and automatic Southeastern U.S.
Naples, FL cart wash systems & Chicago, IL areas
Forenta, Inc., Laundry and Dry Cleaning Presses Southeastern U.S.
Morrisville, TN & Chicago, IL areas
Huebsch Originators, Commercial Dryers Southeastern U.S.
Ripon, WI & Chicago, IL areas
Unipress, Inc., Laundry and Dry Cleaning Presses Southeastern U.S.
Tampa, FL & Chicago, IL areas
VIC Manufacturing, Dry Cleaning Equipment Southeastern U.S.
Minneapolis, MN & Chicago, IL areas
</TABLE>

<PAGE>

Marketing and Sales

Wink Davis' primary products include washers, dryers, ironers and other
finishing equipment. Some of the larger installations include continuous batch
washers ("CBW's"), large dryers, pressing and folding equipment and conveyor
systems resulting in the laundering process being substantially automated. The
majority of the sales consist of washers, with less than 165 pound capacity per
load, and corresponding dryers. CBW systems or tunnels are highly customized
with a variety of features depending on the unique needs and constraints of
each customer. Sales orders are generated through a variety of methods
including repeat business referrals, cold calls and unsolicited telephone
orders. Typical sales terms on larger contracts require 15% down with the
balance due 10 days after delivery. At September 11, 1998, Wink Davis employed
approximately 15 sales persons and 32 technical representatives.

Most used equipment in smaller facilities has little value and there is little
demand for that type of used laundry equipment. Accordingly, Wink Davis rarely
accepts trade-ins of low capacity used equipment, nor do they purchase used
equipment of that nature. Some used CBW units can be rebuilt at a substantial
reduction in price to new units. Wink Davis does occasionally find sales
opportunities of this type. Many large orders, especially those at new
construction sites, require newly designed or modified electrical, plumbing,
construction or other work at the customer site. Wink Davis often subcontracts
these tasks for the customer in conjunction with the sale. Wink Davis has a
staff of CAD operators, and service personnel who assist and support outside
contractors to ensure that the facilities are properly prepared prior to the
delivery of equipment. Wink Davis personnel install the equipment and provide
training for the customers' operators. Smaller white sales generally require
less support and frequently consist of matching the specifications of the newly
ordered machine to the existing site.

Additionally, Wink Davis provides repair and maintenance services to OPL
facilities. Customers' OPL facilities are typically operated and managed by the
property, maintenance or janitorial staffs. These staffs are often small with
broad areas of responsibilities and limited technical expertise, especially for
specific maintenance and repair issues of the laundry equipment. Accordingly,
Wink Davis provides a full range of repair and maintenance services. Each sales
office is staffed by four or more technicians. Each technician travels to the
customer's site in a maintenance van, fully stocked with the most commonly
needed parts. Upon notification, Wink Davis will dispatch and commonly have a
technician addressing the problem within 24 hours. If additional parts are
required, they may be ordered from the main Atlanta warehouse or shipped
directly from the manufacturer.

TMC

TMC assembles automated boarding and finishing equipment for the sock
manufacturing industry. Management believes significant potential exists for
automating finishing operations in mills that specialize in high volume
production which is sold through large discount retail chains. Typically, this
denotes athletic socks, but may also include single-color, casual dress socks.

The current technology for athletic sock knitting operations is considered
highly automated and capital intensive. Raw material on yarn cones directly
feeds a machine which knits the entire product. A second off line operation
closes the toe using automated turners and toe closing equipment. Finishing
processes, unlike knitting operations, are significantly labor intensive.
Through a series of steps, socks are boarded, trimmed, paired and bagged.

TMC's machine significantly automates this process. In addition to boarding,
trimming, pairing and bagging, the equipment can also insert j-hooks (a small
plastic hanger for a display case), transfer print and board.

Production

The production process is basically assembly. Many of the electronic,
pneumatic, and structural parts are standard items available from various
distributors. A significant portion of the hardware and structural components
are custom designed and ordered. As of September 11, 1998, TMC employed 15
direct assemblers, 8 indirect laborers, and 9 persons in research and
development. All assembly is done at TMC's leased facility on Patterson Avenue
in Winston-Salem, N.C. Since the acquisition by Speizman Industries on February
6, 1998 through September 11, 1998, TMC has shipped approximately 33 machines.

Historically, most of the products have been built to order based on unique
customer specifications. Currently, research and development, together with
manufacturing, are designing a modularization project. The modularization
project will transform the product from a custom ordered machine to
standardized configurations. Customers will

<PAGE>

have the opportunity to select the most commonly requested features for
addition to the standard product. Management believes that this will continue
to meet virtually all of the potential customers' needs. However, by creating
modular components, management hopes to improve production efficiencies.
Management also hopes to reduce cycle time between receiving the customer order
and delivery of the equipment.

Research and Development

TMC has 9 employees in research and development, including William Todd, the
former owner and current Vice President. Key components of the product have
been patented and several other patents are pending. Currently, the research
and development staff is developing equipment for additional hosiery
manufacturing functions and other packaging applications, possibly outside the
hosiery industry.

Sales and Marketing

TMC was acquired by Speizman on February 6, 1998. Prior to the acquisition,
equipment was sold directly through TMC's sales force. After the acquisition,
all sales are now made through Speizman Industries' sales force. The customer
base for TMC's product significantly overlaps with the customer base for
hosiery knitting machinery.

BACKLOG

The Company's backlog of unfilled orders for new and used machines was $24.5
million, $16.8 million and $19.3 million at June 27, 1998, June 28, 1997 and
June 29, 1996, respectively. Management believes that all Speizman Industries'
unfilled orders at June 27, 1998 will be filled by the end of fiscal 1999. The
period of time required to fill orders varies depending on the machine ordered.

RECEIPT OF MARZOLI AND VOUK PRODUCT LINES

On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Marzoli product line manufactured by
Fratelli Marzoli & C. SpA, an Italian corporation. Lonati has an ownership
interest in Fratelli Marzoli & C. Spa. Operations of this product line are
being conducted through a new, wholly-owned subsidiary of the Company, Speizman
Yarn Equipment, Inc. As part of its agreement with Fratelli Marzoli & C. SpA,
the Company will assume the operations of the current offices, showrooms and
personnel. Fratelli Marzoli & C. SpA manufactures equipment used in the yarn
processing industry. Prior to the Company's receipt of distribution rights,
Fratelli Marzoli & Co. SpA distributed their products in the United States
through its wholly-owned subsidiary, Marzoli International, Inc., a domestic
corporation based in Spartanburg, South Carolina. Revenues of Marzoli
International, Inc. for the twelve months ended December 31, 1997 were
approximately $13.9 million.

On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Vouk product line manufactured by Vouk SpA
Officine Meccanotessili, an Italian corporation in which Lonati has an
ownership interest. Vouk SpA Officine Meccanotessili manufactures equipment
used in the yarn processing industry. Operations of this product line are being
conducted through Speizman Yarn Equipment, Inc. Prior to the Company's receipt
of the distribution rights, Vouk SpA Officine Meccanotessili sold directly in
the United States and Canada through several agents.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL
The Company's revenues are generated primarily from its distribution of textile
equipment (principally knitting equipment and, to a lessor extent, from the
sale of parts used in such equipment and the sale of used equipment) and
commercial laundry equipment and services (principally commercial washers and
dryers and, to a lessor extent, the sale of parts used in such equipment and
related services). The Company began operating in the laundry equipment and
services segment with the purchase of Wink Davis on August 1, 1997.

8
<PAGE>

RESULTS OF OPERATIONS

Year Ended June 27, 1998 Compared to Year Ended June 28, 1997

Net Revenues. Net revenues in fiscal 1998 were $90.9 million as compared to
$79.1 million in fiscal 1997, an increase of $11.8 million or 14.9%. This
increase is primarily due to the acquisition of Wink Davis on August 1, 1997.
Wink Davis recognized revenues in fiscal 1998 of $23.7 million. Additional
components of the increase include $2.0 million increase from sales of TMC
products (acquired on February 6, 1998) and an increase of $0.7 million in
parts sales, offset by an $10.8 million decrease in hosiery related equipment,
a $1.6 million decrease in knitted fabric equipment and a decrease of $2.2
million in products no longer represented, including sweater, and garment wet
processing equipment.

Cost of Sales. In fiscal 1998 cost of sales were $74.0 million an increase of
$8.1 million from $65.9 million in fiscal 1997. Cost of sales as a percentage
of revenues decrease to 81.5% in fiscal 1998 as compared to 83.3% in fiscal
1997. This decrease results from higher margins on hosiery related parts and
equipment and the exclusion of lower margin liquidations of products
discontinued in 1997. This decrease in cost of sales as a percentage of
revenues was slightly offset by lower margins on Wink Davis sales.

Selling Expenses. Selling expenses increased to $6.9 million in fiscal 1998 as
compared to $5.8 million in fiscal 1997. This net increase of $1.1 million
results from increased selling expenses of $1.8 million at Wink Davis and TMC,
offset by decreases of $443,000 in textile equipment related salaries and
commissions and other decreases in letter of credit expenses, professional
fees, advertising and other expense decreases generally related to lower
overall sales volume of textile machinery.

General and Administrative. General and administrative expense increased in
fiscal 1998 to $5.9 million from $3.0 million in fiscal 1997. This increase
results primarily from additional administrative expenses of $1.7 million of
Wink Davis and TMC, amortization expenses of $405,000 and rental expense of the
new facility of $324,000.

Interest Expense. Interest expense is expressed net of interest income. In
fiscal 1998, net interest expense was $791,000. This significant increase in
interest expense is related directly to the debt funded acquisitions of Wink
Davis and TMC.

Taxes (Benefit) on Income (Loss). The provision for income taxes in fiscal 1998
is $1,273,000 or 39.7% of income before taxes. The provision for income taxes
in fiscal 1997 is $1,645,000 or 38.0% of income before taxes.

Net Income (Loss). Net income for fiscal 1998 decreased to $1.9 million
compared to net income of $2.7 million for fiscal 1997. Basic earnings per
share decreased to $0.59 and diluted earnings per share decreased to $0.56. In
fiscal 1997, basic earnings per share was $0.83 and diluted earnings per share
was $0.80.

Year Ended June 28, 1997 Compared to Year Ended June 29, 1996

Net Revenues. Net revenues in fiscal 1997 were $79.1 million as compared to
$46.3 million in fiscal 1996, an increase of $32.8 million or 70.9%. This
increase is due to a combination of price and volume increases. This increase
reflects a $32.2 million increase in sales of hosiery equipment, a $0.7 million
increase in sales of dyeing and finishing equipment, a $0.6 million increase in
sales of garment wet processing equipment, a $1.2 million increase in parts and
other sales activities partially offset by a $1.9 million decrease in sales of
sweater manufacturing and related equipment. The market for hosiery equipment
is influenced by the retail sector, changes in technology and general economic
conditions affecting the Company's customers.

Cost of Sales. In fiscal 1997, cost of sales was $65.9 million as compared to
$40.5 million in fiscal 1996, an increase of $25.4 million or 62.6%. Cost of
sales as a percent of revenue decreased to 83.4% in fiscal 1997 from 87.6% in
fiscal 1996. This decrease results from increased demand for hosiery equipment
resulting in increased sales prices and increased field service efficiency
arising from increased volume.

Selling Expenses. Selling expenses increased to $5.8 million in fiscal 1997
from $4.7 million in fiscal 1996, an increase of 23.6%. The increase results
from overall increased selling activity, including salaries, sales commissions,
exhibition expenses and letter of credit expenses. These increases are
partially offset by elimination of expenses of the Copy Guard division, which
was disposed in fiscal 1996.

General and Administrative Expenses. General and administrative expenses for
fiscal 1997 totaled $3.0 million, an increase of $1.1 million from $1.9 million
in fiscal 1996. The increase results primarily from additional salaries and
management bonuses.

9
<PAGE>

Interest Income. Interest income is expressed net of interest expense. In
fiscal 1997, interest income exceeded interest expense by $18,000. Net interest
income was $43,000 in fiscal 1996.

Taxes (Benefit) on Income (Loss). The provision for income taxes in fiscal 1997
is $1,645,000 or 38.0% of income before taxes. In fiscal 1996 the provision for
income taxes is a tax benefit of $228,000 or 28.5% of loss before taxes. The
higher effective tax rate in fiscal 1997 results from the combined effects of
non-deductible entertainment and life insurance expenses and U.S. profits taxed
at rates higher than foreign tax rates.

Net Income (Loss). Net income for fiscal 1997 increased to $2.7 million
compared to a net loss of $0.6 million for fiscal 1996. Basic earnings per
share increased to $0.83 and diluted earnings per share increased to $0.80 in
fiscal 1997. In fiscal 1996, basic and diluted loss per share was $0.18.

LIQUIDITY AND CAPITAL RESOURCES

The Company has a credit facility with NationsBank, opened on August 1, 1997,
in conjunction with the purchase of Wink Davis, amended on February 6, 1998, in
conjunction with the purchase of TMC and expiring on July 31, 2000. This
facility furnished term loan financing for these acquisitions and also provides
a line of credit for direct borrowings and issuance of documentary letters of
credit. The line of credit provides up to $38.3 million, subject to current
collateral balances, including up to a maximum of $8.5 million for direct
borrowings, with the balance available for documentary letters of credit and
term debt. Amounts outstanding under the line of credit bear interest at the
greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base rate
loans and the Eurodollar Rate plus 2.0% for Eurodollar loans. In connection
with this line of credit, the Company granted a security interest in accounts
receivable and inventory, as defined in the loan agreement.

Working capital at June 27, 1998 was $20.2 million as compared to $18.7 million
at June 28, 1997, an increase of $1.5 million. Operating activities in fiscal
1998 used $1.3 million. In fiscal 1997 operating activities used $3.4 million.
Significant funds were used in investing activities, primarily the purchases of
Wink Davis and TMC for $9.5 million and $1.8 million respectively. Funds for
these acquisitions were provided from financing activities, primarily through
the issuance of $8.3 million in long term notes and $4.0 million of borrowings
on the revolving line of credit. Cash flows from investing and financing
activities in fiscal 1997 were significantly less.

SEASONALITY AND OTHER FACTORS

There are certain seasonal factors that may affect the Company's business.
Traditionally, manufacturing businesses in Italy close for the month of August,
and the Company's hosiery customers close for one week in July. Consequently,
no shipments or deliveries, as the case may be, of machines distributed by the
Company that are manufactured in Italy are made during these periods which fall
in the Company's first quarter. In addition, manufacturing businesses in Italy
generally close for two weeks in December, during the Company's second quarter.
Fluctuations of customer orders or other factors may result in quarterly
variations in net revenues from year to year.

EFFECTS OF INFLATION AND CHANGING PRICES

Management believes that inflation has not had a material effect on the
Company's operations.

DISCLOSURE ABOUT FOREIGN CURRENCY RISK

Generally, the Company's purchases of foreign manufactured machinery for resale
are denominated in Italian lira. In the ordinary course of business, the
Company enters into foreign exchange forward contracts to mitigate the effect
of foreign currency movements between the Italian lira and the U.S. dollar from
the time of placing the Company's purchase order until final payment for the
purchase is made. The contracts have maturity dates that do not generally
exceed 12 months. Substantially all of the increase or decrease of the lira
denominated purchase price is offset by the gains and losses of the foreign
exchange contract. The unrealized gains and losses on these contracts are
deferred and recognized in the results of operations in the period in which the
hedged transaction is consummated.

A substantial portion of the Company's textile machine and spare part purchases
are denominated and payable in Italian lira. Currency fluctuations of the lira
could result in substantial price level changes and therefore impede or promote
import/export sales and substantially impact profits. However, to reduce
exposure to adverse foreign currency fluctuations during the period from
customer orders to payment for goods sold, the Company enters

10
<PAGE>

into forward exchange contracts. The Company is not able to assess the
quantitative effect that such currency fluctuations could have upon the
Company's operations. There can be no assurance that fluctuations in foreign
currency exchange rates will not have a significant adverse effect on future
operations.

At June 27, 1998, the Company had contracts maturing through March 1999 to
purchase approximately 24.3 billion Lira for approximately $13.7 million, which
approximates the spot rate on that date.

NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT

Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking
statements. All such forward looking statements are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Important
factors that could cause financial performance to differ materially from past
results and from those expressed and implied in this document include, without
limitation, the risks of acquisition of businesses (including limited knowledge
of the businesses acquired and misrepresentations by sellers) availability of
financing, competition, management's ability to manage growth, loss of
customers, and a variety of other factors.

YEAR 2000 COMPLIANCE

The Company has reviewed its computer and business systems to identify those
areas that could be adversely affected by Year 2000 software failures. The
primary information system used by both Speizman Industries and TMC has been
reviewed and all known issues related to the Year 2000 issues have been
resolved. Costs incurred were not significant. The primary information system
used by Wink Davis is not Year 2000 compliant. In conjunction with the purchase
of Wink Davis on August 1, 1997, management planned to integrate Wink Davis'
information into the existing system used by Speizman Industries. The
integration project, which was not accelerated due to the Year 2000 issue, is
scheduled to be completed in December 1998. The estimated project cost of
integrating Wink Davis' information system is approximately $100,000.

A substantial portion of the equipment distributed by the Company has
computerized controls and features. However, to the Company's knowledge, no
operating features of the equipment are dependent on any time or date
information, such as the Year 2000 issue.

The Company is aware of one subsidiary's voice mail system and there may be
other computer-based systems which may require upgrading to ensure operational
continuity beyond December 31, 1999. The Company has substantially completed
identification of all such systems and believes that all significant systems
will be compliant in time to ensure no disruption to the Company's operations.
The cost of bringing these minor systems into compliance is not anticipated to
be material.

Currently, the Company cannot predict the effect of the Year 2000 problem on
entities with which it transacts business and there can be no assurance it will
not have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows. The Company will be formulating
a contingency plan to address the possible effects of any of its customers
experiencing Year 2000 problems.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.

SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementations of this standard.

11
<PAGE>

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS No. 14, Financial Reporting For Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance.

SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, it may have on future financial
statement disclosures. Results of operations and financial position, however,
will be unaffected by implementation of this standard.

Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management is presently assessing the impact of the adoption of
SFAS No. 133, on its consolidated financial statements.

In May, 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP
98-5 requires that entities expense start-up costs and organization costs as
they are incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. Management does not anticipate SOP 98-5 having a material
impact on its consolidated financial statements.

12
<PAGE>

MARKET AND DIVIDEND INFORMATION

The Company's Common Stock has been included for quotation on the NASDAQ
National Market System under the NASDAQ symbol "SPZN" since October 1993. The
following table sets forth, for the periods indicated, the high and low sale
prices as reported by the NASDAQ National Market System.

<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C>
Fiscal 1997
First Quarter (ended September 28, 1996) $ 5.75 $ 3.75
Second Quarter (ended December 28, 1996) 6.88 4.38
Third Quarter (ended March 29, 1997) 7.13 4.50
Fourth Quarter (ended June 28, 1997) 6.25 3.88
Fiscal 1998
First Quarter (ended September 27, 1997) 9.50 4.88
Second Quarter (ended December 27, 1997) 9.19 5.38
Third Quarter (ended March 28, 1998) 7.25 5.38
Fourth Quarter (ended June 27, 1998) 7.13 5.00
- ------------------------------------------ ------- -------
</TABLE>

As of June 27, 1998, there were approximately 241 stockholders of record of the
Common Stock.

The Company has never declared or paid any dividends on its Common Stock.

Future cash dividends, if any, will be at the discretion of the Company's Board
of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, surplus, restrictive covenants in agreements
to which the Company may be subject, general business conditions and such other
factors as the Board of Directors may deem relevant. The Company's present
credit facility contains certain financial and other covenants that could limit
the Company's ability to pay cash dividends on its capital stock.

13
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Speizman Industries, Inc.

We have audited the accompanying consolidated balance sheets of Speizman
Industries, Inc. and Subsidiaries as of June 27, 1998 and June 28, 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 27, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Speizman
Industries, Inc. and Subsidiaries at June 27, 1998 and June 28, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 27, 1998, in conformity with generally accepted
accounting principles.

/s/ BDO SEIDMAN, LLP
------------------------
BDO SEIDMAN, LLP

Charlotte, North Carolina
August 27, 1998

14
<PAGE>

SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
June 27, June 28,
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 2,193,329 $ 3,832,534
Accounts receivable (Notes 1, 2 and 7) 19,817,834 21,075,138
Inventories (Notes 3 and 7) 15,934,745 12,970,134
Prepaid expenses and other current assets 3,372,266 2,988,786
- ------------------------------------------------------------------ ------------ ------------
Total Current Assets 41,318,174 40,866,592
- ------------------------------------------------------------------ ------------ ------------
Property and Equipment: (Note 7)
Leasehold improvements 552,655 750,140
Machinery and equipment 1,825,959 1,770,886
Furniture, fixtures and transportation equipment 1,341,728 1,078,429
- ------------------------------------------------------------------ ------------ ------------
3,720,342 3,599,455
Less accumulated depreciation and amortization (1,632,367) (1,811,183)
- ------------------------------------------------------------------ ------------ ------------
Net Property and Equipment 2,087,975 1,788,272
- ------------------------------------------------------------------ ------------ ------------
Other long-term assets 517,352 518,957
Intangibles, net of accumulated amortization (Note 4) 6,110,410 --
- ------------------------------------------------------------------ ------------ ------------
$50,033,911 $43,173,821
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable -- bank line of credit (Note 7) $ 4,000,000 $ --
Accounts payable 10,809,976 19,075,766
Customers' deposits 2,158,512 1,380,621
Accrued expenses 2,188,557 1,667,621
Current maturities of long-term debt (Note 8) 1,945,000 1,769
- ------------------------------------------------------------------ ------------ ------------
Total Current Liabilities 21,102,045 22,125,777
Long-Term Debt (Note 8) 5,725,000 110,344
- ------------------------------------------------------------------ ------------ ------------
Total Liabilities $26,827,045 $22,236,121
- ------------------------------------------------------------------ ------------ ------------
Commitments and Contingencies (Notes 5, 10, 11, 12 and 13)
Stockholders' Equity (Notes 9 and 10):
Common Stock -- par value $.10; authorized 20,000,000 shares,
issued 3,357,406, outstanding 3,319,806; and issued 3,262,866,
outstanding 3,235,266, respectively 335,741 326,287
Additional paid-in capital 12,889,546 12,512,299
Retained earnings 10,143,226 8,209,911
Foreign currency translation adjustment -- (11,000)
- ------------------------------------------------------------------ ------------ ------------
Total 23,368,513 21,037,497
Treasury stock, at cost, 37,600 shares and 27,600 shares (161,647) (99,797)
- ------------------------------------------------------------------ ------------ ------------
Total Stockholders' Equity 23,206,866 20,937,700
- ------------------------------------------------------------------ ------------ ------------
$50,033,911 $43,173,821
- ------------------------------------------------------------------ ------------ ------------
</TABLE>

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

15
<PAGE>

SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended
--------------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---------------- -------------- --------------
<S> <C> <C> <C>
Net Revenues (Note 1) $90,886,285 $79,103,225 $46,279,969
- ------------------------------------------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 74,033,817 65,934,696 40,546,962
Selling expenses 6,944,079 5,810,360 4,699,280
General and administrative expenses 5,911,007 3,045,269 1,878,193
- ------------------------------------------- ----------- ----------- -----------
Total costs and expenses 86,888,903 74,790,325 47,124,435
- ------------------------------------------- ----------- ----------- -----------
3,997,382 4,312,900 (844,466)
Interest (Income) Expense, net of interest
income of $102,968, $113,137 and
$ 126,522 791,067 (17,651) (43,400)
- ------------------------------------------- ----------- ----------- -----------
Net Income (Loss) Before Taxes 3,206,315 4,330,551 (801,066)
Taxes (Benefit) on Income (Note 6) 1,273,000 1,645,000 (228,000)
- ------------------------------------------- ----------- ----------- -----------
Net Income (Loss) $1,933,315 $2,685,551 (573,066)
- ------------------------------------------- ----------- ----------- -----------
Earnings (loss) per share:
Basic 0.59 0.83 (0.18)
Diluted 0.56 0.80 (0.18)
Weighted average shares outstanding:
Basic 3,284,278 3,228,745 3,208,599
Diluted 3,425,899 3,353,419 3,208,599
- ---------- ----------- ----------- -----------
</TABLE>

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

<PAGE>

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

<TABLE>
<CAPTION>
Foreign
Additional Currency
Common Common Paid-In Retained Translation Treasury Stockholders'
Shares Stock Capital Earnings Adjustment Stock Equity
----------- ----------- -------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 2, 1995 3,236,199 $323,620 $12,459,965 $ 6,097,426 $ 731 $ (99,797) $18,781,945
Net loss -- -- -- (573,066) -- -- (573,066)
Foreign currency translation
adjustment -- -- -- -- (5,954) -- (5,954)
- -------------------------------- --------- -------- ----------- ----------- ---------- ---------- -----------
Balance, June 29, 1996 3,236,199 323,620 12,459,965 5,524,360 (5,223) (99,797) 18,202,925
Net income -- -- -- 2,685,551 -- -- 2,685,551
Exercise of stock options 26,667 2,667 52,334 -- -- -- 55,001
Foreign currency translation
adjustment -- -- -- -- (5,777) -- (5,777)
- -------------------------------- --------- -------- ----------- ----------- ---------- ---------- -----------
Balance, June 28, 1997 3,262,866 326,287 12,512,299 8,209,911 (11,000) (99,797) 20,937,700
Net income -- -- -- 1,933,315 -- -- 1,933,315
Exercise of stock options 94,540 9,454 275,547 -- -- -- 285,001
Purchase of treasury stock -- -- -- -- -- (61,850) (61,850)
Foreign currency translation
adjustment -- -- -- -- 11,000 -- 11,000
Tax effect of exercise of stock
options -- -- 101,700 -- -- -- 101,700
- -------------------------------- --------- -------- ----------- ----------- ---------- ---------- -----------
Balance, June 27, 1998 3,357,406 $335,741 $12,889,546 $10,143,226 $ -- $ (161,647) $23,206,866
- -------------------------------- --------- -------- ----------- ----------- ---------- ---------- -----------
</TABLE>

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

<PAGE>

SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 1,933,315 $ 2,685,551 $ (573,066)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on disposal of fixed assets (4,980) -- --
Depreciation and amortization 1,184,724 484,152 173,336
Provision for losses on accounts receivable 189,545 214,521 113,500
Provision for inventory obsolescence 275,000 154,133 139,436
Provision for deferred income taxes (187,000) (121,000) (58,000)
Provision for deferred compensation 379 (25,220) 6,782
Foreign currency translation adjustment 11,000 (5,777) (5,954)
(Increase) decrease in:
Accounts receivable 5,304,947 (9,129,210) 3,804,734
Inventories (337,132) (1,484,715) 1,649,026
Prepaid expenses 22,717 (701,675) 159,244
Other assets 590,564 229,728 (69,076)
Increase (decrease) in:
Accounts payable (9,302,942) 4,211,199 (192,360)
Accrued expenses and customers' deposits (985,393) 114,895 1,214,580
- -------------------------------------------------------- ----------- ------------ ----------
Net cash provided by (used in) operating
activities (1,305,256) (3,373,418) 6,362,182
- -------------------------------------------------------- ----------- ------------ ----------
Cash Flows From Investing Activities:
Acquisition of Wink Davis Equipment Company, Inc. (9,467,677) -- --
Acquisition of Todd Motion Controls, Inc (1,841,304) -- --
Capital expenditures (470,221) (846,845) (1,159,659)
Proceeds from property and equipment disposals 76,304 27,125 347,557
- -------------------------------------------------------- ----------- ------------ ----------
Net cash used in investing activities (11,702,898) (819,720) (812,102)
- -------------------------------------------------------- ----------- ------------ ----------
Cash Flows From Financing Activities:
Net borrowings on line of credit agreement 4,000,000 -- --
Principal payments on long term debt (1,154,202) (11,052) (5,216)
Issuance of common stock upon exercise of stock
options 285,001 55,001 --
Purchase of treasury stock (61,850) -- --
Proceeds from issuance of long term notes due to
bank 8,300,000 -- --
- -------------------------------------------------------- ----------- ------------ ----------
Net cash provided by (used in) financing activities 11,368,949 43,949 (5,216)
- -------------------------------------------------------- ----------- ------------ ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (1,639,205) (4,149,189) 5,544,864
Cash and Cash Equivalents, at beginning of year 3,832,534 7,981,723 2,436,859
- -------------------------------------------------------- ----------- ------------ ----------
Cash and Cash Equivalents, at end of year $ 2,193,329 $ 3,832,534 $7,981,723
- -------------------------------------------------------- ----------- ------------ ----------
</TABLE>

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

<PAGE>

SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Speizman Industries, Inc. and
subsidiaries (collectively the "Company") include all of its subsidiaries, all
of which are wholly owned. All material intercompany transactions (domestic and
foreign) have been eliminated. The financial statements of the Company's United
Kingdom subsidiary were translated from pounds sterling to U.S. dollars in
accordance with generally accepted accounting principles. The United Kingdom
subsidiary was liquidated on June 28, 1997. Wink Davis Equipment Company, Inc.
("Wink Davis") was acquired on August 1, 1997. Todd Motion Controls, Inc.
("TMC") was acquired on February 6, 1998.

REVENUE RECOGNITION

The major portion of the Company's revenues consists of sales and commissions
on sales of machinery and equipment. The profit derived therefrom is recognized
in full at the time of shipment.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents. The carrying amount of cash equivalents approximates fair
value due to the short-term maturity of these instruments.

INVENTORIES

Inventories are carried at the lower of cost or market. Cost is computed, in
the case of machines, on an identified cost basis and, in the case of other
inventories, on an average cost basis.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes.

FOREIGN EXCHANGE CONTRACTS

The Company enters into foreign currency contracts to reduce the foreign
currency exchange risks. Foreign currency hedging contracts obligate the
Company to buy a specified amount of a foreign currency at a fixed price in
specific future periods. Realized and unrealized gains and losses are
recognized in net income in the period of the underlying transaction. As of
June 27, 1998, the Company had contracts maturing through March 1999 to
purchase approximately 24.3 billion Lira for approximately $13.7 million, which
approximates the spot rate on that date.

TAXES ON INCOME

The Company has adopted the SFAS Statement No. 109, "Accounting for Income
Taxes." Accordingly, deferred tax assets or liabilities at the end of each
period are determined using the tax rate expected to be in effect when taxes
are actually paid or recovered. Income tax expense will increase or decrease in
the same period in which a change in tax rates is enacted.

INCOME PER SHARE

The Company has adopted SFAS Statement no. 128, "Earnings per Share."
Accordingly, basic net income per share includes no dilution and is calculated
by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted net income per share reflects the potential
dilution of securities that could share in the net income of the Company which
consists of stock options (using the treasury stock method).

FISCAL YEAR

The Company maintains its accounting records on a 52-53 week fiscal year. The
fiscal year ends on the Saturday closest to June 30. Years ending June 27,
1998, June 28, 1997 and June 29, 1996 included 52 weeks.

<PAGE>

ADVERTISING

The Company expenses advertising costs as incurred. Total advertising expense
approximated $97,000, $95,000 and $80,000 for fiscal years 1998, 1997 and 1996,
respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS

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

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance.

Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management is presently assessing the impact of the adoption of
SFAS No. 133 on its consolidated financial statements.

<PAGE>

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

NOTE 1 -- BUSINESS AND CREDIT RISK CONCENTRATION
The Company is engaged in the distribution of machinery for the textile and
commercial laundry industries. With operations in the United States, Canada,
Mexico and formerly the United Kingdom, the Company primarily sells to
customers located within the United States. Export sales from the United States
were approximately $15,992,000, $12,433,000 and $7,196,000 during fiscal 1998,
1997 and 1996, respectively. There were no export sales by the Canadian
operations or the commercial laundry operations.

Financial instruments which potentially subject the Company to credit risk
consist principally of temporary cash investments and trade receivables. The
Company places its temporary cash investments with high credit quality
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution.

The Company reviews a customer's credit history before extending credit. An
allowance for doubtful accounts is established based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
To reduce credit risk the Company generally requires a down payment on large
equipment orders.

A substantial amount of the Company's revenues are generated from the sale of
sock knitting and other machines manufactured by Lonati, S.p.A. and one of its
wholly owned subsidiaries (Santoni). Sales by the Company in the United States
and Canada of machines manufactured by Lonati, S.p.A., generated the following
percentages of the Company's net revenues: 41.1% in 1998, 60.1% in 1997 and
46.2% in 1996. In addition, sales of Santoni machines in the United States and
Canada generated 5.3%, 7.0% and 4.8% of the Company's net revenues in fiscal
1998, 1997 and 1996, respectively. In 1998, approximately 12% and 4% of
revenues consisted of sales to the Company's two largest customers. In 1997,
approximately 11% and 10% of revenues consisted of sales to the Company's two
largest customers. In 1996, approximately 9% and 6% of revenues consisted of
sales to the Company's two largest customers. Generally, the customers
contributing the most to the Company's net revenues vary from year to year.

NOTE 2 -- ACCOUNTS RECEIVABLE

Accounts receivable are summarized as follows:

<TABLE>
<CAPTION>
June 27, June 28,
1998 1997
-------------- --------------
<S> <C> <C>
Trade receivables $20,671,045 $21,549,615
Less allowance for doubtful accounts (853,211) (474,477)
- -------------------------------------- ----------- -----------
Net accounts receivable $19,817,834 $21,075,138
- -------------------------------------- ----------- -----------
</TABLE>

NOTE 3 -- INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
June 27, June 28,
1998 1997
------------- -------------
<S> <C> <C>
Machines
New $ 3,051,280 $ 3,961,362
Used 6,414,845 4,807,479
Parts and supplies 6,468,620 4,201,293
- -------------------- ----------- -----------
Total $15,934,745 $12,970,134
- -------------------- ----------- -----------
</TABLE>

NOTE 4 -- INTANGIBLES

Goodwill is calculated as the excess of the cost of purchased businesses over
the value of their underlying net assets and is amortized on a straight-line
basis over fifteen years. Goodwill is net of accumulated amortization of
$327,500 at June 27, 1998.

<PAGE>

NOTE 5 -- LEASES

The Company conducts its operations from leased real properties which include
offices, warehouses and manufacturing facilities. The primary operating
facility of the textile operations and corporate offices is leased from a
partnership in which Mr. Robert S. Speizman, the Company's President, has a 50%
interest. The lease extends through March 1999. Lease payments to the
partnership approximated $356,000, $356,000 and $323,000 in fiscal years 1998,
1997 and 1996, respectively.

The Company plans to consolidate several textile machinery warehouses and the
corporate offices into a single location. After renovating this new facility,
the Company plans to complete this consolidation in the spring of 1999. This
new facility is leased from a corporation owned by Robert S. Speizman, his wife
and their children. This lease extends through September 2012. Lease payments
to the corporation, net of sublease payments received from the former lessor,
approximated $307,000 in fiscal 1998.

The primary operating facility and certain sales offices of the laundry
equipment and services operations are leased from a partnership in which Mr. C.
Alexander Davis, President of Wink Davis, has a 50% interest. The leases extend
through July 1999. Lease payments to the partnership approximated $128,000 in
fiscal 1998.

As of June 27, 1998, future minimum rental payments required under operating
leases that have initial or remaining noncancelable terms in excess of one year
are as follows:

<TABLE>
<CAPTION>
Operating
Leases
-------------
<S> <C>
1999 $ 1,239,816
2000 920,929
2001 744,327
2002 684,179
2003 664,012
Beyond 6,101,389
- ---- -----------
Total minimum lease payments $10,354,652
- ------------------------------ -----------
</TABLE>

Total rent expense for operating leases approximated $1,566,000, $1,021,600 and
$791,400 for fiscal years 1998, 1997 and 1996, respectively.

NOTE 6 -- TAXES ON INCOME

Provisions for federal and state income taxes in the consolidated statements of
operations are made up of the following components:

<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $1,206,000 $1,482,000 $ (70,000)
State 251,000 282,000 (15,000)
Foreign 3,000 2,000 (85,000)
- --------------------------------- ---------- ---------- ----------
1,460,000 1,766,000 (170,000)
- --------------------------------- ---------- ---------- ----------
Deferred:
Federal (152,000) (87,000) (50,000)
State (35,000) (34,000) (8,000)
- --------------------------------- ---------- ---------- ----------
(187,000) (121,000) (58,000)
- --------------------------------- ---------- ---------- ----------
Total taxes (benefit) on income $1,273,000 $1,645,000 $ (228,000)
- --------------------------------- ---------- ---------- ----------
</TABLE>

<PAGE>

Deferred tax benefits and liabilities are provided for the temporary
differences between the book and tax bases of assets and liabilities. Deferred
tax assets (liabilities) are reflected in the consolidated balance sheets as
follows:

<TABLE>
<CAPTION>
June 27, June 28,
1998 1997
---------- -----------
<S> <C> <C>
Net current assets $647,000 $383,000
Net noncurrent assets 147,000 152,000
- ----------------------- -------- --------
$794,000 $535,000
-------- --------
</TABLE>

Principal items making up the deferred income tax assets (liabilities) are as
follows:

<TABLE>
<CAPTION>
Year Ended
-----------------------------
June 27, June 28,
1998 1997
------------- -------------
<S> <C> <C>
Inventory valuation reserves $ 195,000 $ 162,000
Depreciation (110,000) (107,000)
Deferred charges 161,000 107,000
Inventory capitalization 224,000 191,000
Accounts receivable reserves 324,000 182,000
- ------------------------------ ---------- ----------
Net deferred tax asset $ 794,000 $ 535,000
- ------------------------------ ---------- ----------
</TABLE>

The Company's effective income tax rates are different than the U.S. Federal
statutory tax rate for the following reasons:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit 5.1 4.3 3.6
Non-deductible expenses 1.2 1.5 (5.3)
Foreign tax rates -- (0.8) (4.9)
Net tax effect of prior year adjustments -- -- 2.5
Other (0.6) (1.0) (1.4)
- ------------------------------------------------------- ---- ---- ----
Effective tax rate 39.7% 38.0% 28.5%
- ------------------------------------------------------- ---- ---- ----
</TABLE>

NOTE 7 -- LINE OF CREDIT

The Company has a credit facility with NationsBank, opened on August 1, 1997,
in conjunction with the purchase of Wink Davis, amended on February 6, 1998, in
conjunction with the purchase of TMC and expiring on July 31, 2000. This
facility furnished term loan financing for these acquisitions and also provides
a line of credit for direct borrowings and issuance of documentary letters of
credit. The line of credit provides up to $38.3 million, subject to current
collateral balances, including up to a maximum of $8.5 million for direct
borrowings, with the balance available for documentary letters of credit and
term debt. Amounts outstanding under the line of credit bear interest at the
greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base rate
loans and the Eurodollar Rate plus 2.0% for Eurodollar loans. At June 27, 1998,
the interest rate on the line of credit was 9.50%. In connection with this line
of credit, the Company granted a security interest in accounts receivable and
inventory, as defined in the loan agreement. (See Note 8)

This credit facility contains certain covenants that require, among other
things, the Company to maintain levels of current assets to current
liabilities, gross borrowings to EBITDA, working capital, tangible net worth,
restrictions on dividends, and certain fixed charge coverage. As of June 27,
1998, the Company was in compliance with such covenants.

<PAGE>

NOTE 8 -- LONG-TERM DEBT

Long-term debt consists primarily of a term loan with NationsBank which
provided $8.3 million used for financing the acquisitions of Wink Davis and
TMC. The repayment schedule requires quarterly principal payments of $380,000,
a single annual prepayment calculated as a percentage of the prior year's
adjusted earnings, and the balance due on the loan's expiration date, July 31,
2000.

The term loan agreement permits the Company to select either a base interest
rate or a Eurodollar interest rate plus 2.0%. The base interest is the greater
of prime plus 1.0% or the Federal Funds Effective Rate plus 1.5%. At June 27,
1998, $7,250,000 of the term loan was borrowed under the Eurodollar selection
bearing interest at 7.625% and the balance of $420,000 was borrowed under the
base rate selection bearing interest at 9.5%.

The term loan agreement requires that the Company enter an interest rate swap
agreement for a portion of the outstanding principal. The swap agreement is an
interest rate hedge which, in effect, converts the interest rate from a
variable to a fixed rate over a three-month period. At June 27, 1998,
$7,250,000 was fixed at an interest rate of 7.625% through August 15, 1998.

Long-term debt consists of:

<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
--------------- --------------
Total Total
--------------- --------------
<S> <C> <C>
Term loan $ 7,670,000 $ --
Other -- 112,113
- -------------------- ------------ --------
Total 7,670,000 112,113
Current maturities (1,945,000) (1,769)
- -------------------- ------------ --------
$ 5,725,000 $110,344
------------ --------
</TABLE>

Annual maturities of long-term debt are 1999, $1,945,000; 2000, $1,520,000; and
2001, $4,205,000.

NOTE 9 -- STOCK OPTIONS

The Company has reserved 125,000, 250,000 and 450,000 shares of Common Stock
under employee stock plans adopted in 1981, 1991 and 1995, respectively. As of
June 27, 1998, options to purchase 4,000, 85,385 and 371,000 were outstanding
under the 1981, 1991 and 1995 Plans, respectively. Currently, outstanding
options become exercisable in two to four years from the grant date. All
options, subject to certain exceptions with regard to termination of employment
and the percentage of outstanding shares of common stock owned, must be
exercised within ten (10) years of the grant date. The option price under the
1981 and 1991 Plans, subject to certain exceptions, may not be less than 100%
of the fair market value per share of Common Stock on the date of the grant of
the option or 110% of such value for persons who control 10% or more of the
voting power of the Company's stock on the date of the grant. The option price
under the 1995 Plan is not limited and may be less than 100% of the fair market
value on the date of the grant. A summary of employee stock option transactions
and other information for 1998, 1997, and 1996 follows:

<PAGE>

<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------
Weighted Weighted Weighted
June 27, Average June 28, Average June 29, Average
1998 Price/Sh. 1997 Price/Sh. 1996 Price/Sh.
------------ ----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Shares under option, beginning of year 466,925 $ 4.17 334,092 $ 3.13 150,429 $ 3.15
Options granted 88,000 6.31 159,500 6.00 183,663 3.10
Options exercised (94,540) 3.01 (26,667) 2.06 -- --
Options expired -- -- -- -- -- --
- ---------------------------------------- ------- ------- ------- ------- ------- -------
Shares under option, end of year 460,385 $ 4.81 466,925 $ 4.17 334,092 $ 3.13
- ---------------------------------------- ------- ------- ------- ------- ------- -------
Options exercisable 236,410 141,668 117,086
- ---------------------------------------- ------- ------- -------
Prices of options exercised $ .75 to $ 2.063 --
$ 5.50
Prices of options outstanding, $ .75 to $ .75 to $ .75 to
end of year $ 6.31 $ 6.00 $ 5.50
- ---------------------------------------- --------- --------- ---------
</TABLE>

The Company has reserved 15,000 shares of Common Stock under a non-employee
directors stock option plan adopted in 1995. Each option granted under the Plan
becomes exercisable in cumulative increments of 50% and 100% on the first and
second anniversaries of the date of the grant, respectively, and subject to
certain exceptions must be exercised within ten (10) years from the date of the
grant. The option price equals the fair market value per share of Common Stock
on the date of the grant. Options to purchase 9,000 shares were granted and
outstanding at the end of the year at a price of $2.88 to $6.13.

A summary of non-employee directors stock option and other information for
1998, 1997 and 1996 follows:

<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------
Weighted Weighted Weighted
June 27, Average June 28, Average June 29, Average
1998 Price/Sh. 1997 Price/Sh. 1996 Price/Sh.
------------- ----------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares under option, beginning of year 6,000 $ 4.16 3,000 $ 2.88 -- $ --
Options granted 3,000 6.13 3,000 5.44 3,000 2.88
Options exercised -- -- -- -- -- --
Options expired -- -- -- -- -- --
- ---------------------------------------- ----- ------- ----- ------- ----- -----
Shares under option, end of year 9,000 $ 4.81 6,000 $ 4.16 3,000 $ 2.88
- ---------------------------------------- ----- ------- ----- ------- ----- ------
Options exercisable 4,500 1,500 --
- ---------------------------------------- ----- ----- -----
Prices of options exercised -- -- --
Prices of options outstanding, $ 2.88 to $ 2.88 to
end of year $ 6.13 $ 5.44 $ 2.88
- ---------------------------------------- --------- --------- -------
</TABLE>

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. 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 for grants: expected lives of 10.0 years, expected
volatility of 0.574, risk-free interest rate of 6.5% and dividend yield of
0.0%.

The Black-Scholes option valuation model was developed for estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions and changes in these assumptions can materially impact the fair
value of the options and the Company's options do not have the characteristics
of traded options, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options. The estimated fair value of
stock options granted during fiscal 1998 and 1997 was $4.69 and $4.46 per
share, respectively.

<PAGE>

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. Had compensation cost
for the Company's stock option plans been determined based on the fair value at
the grant date for awards consistent with the provisions of SFAS No. 123, the
Company's net earnings and earnings per share would have been changed to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
Year Ended
---------------------------------
June 27, June 28,
1998 1997
--------------- ---------------
<S> <C> <C>
Pro forma net income $ 1,480,353 $ 2,512,366
Pro forma basic earnings per share $ 0.45 $ 0.78
Pro forma diluted earnings per share 0.43 0.75
- -------------------------------------- ----------- -----------
</TABLE>

The following table summarizes information about stock options outstanding at
June 27, 1998:

<TABLE>
<CAPTION>
<S> <C>
Range of exercise prices $ 0.75 to $6.31
Outstanding options
Number outstanding 469,385
Weighted average remaining contractual life (years) 7.2
Weighted average exercise price $ 4.81
Exercisable options
Number outstanding 264,609
Weighted average exercise price $ 4.07
- ------------------------------------------------------- ----------------
</TABLE>

NOTE 10 -- STOCK REDEMPTION AGREEMENTS

The Company has an agreement with its principal stockholder whereby, upon his
death, the Company is obligated to redeem a portion of the stock in the Company
held by the estate. The redemption price for common stock is to be the fair
market value of common stock, less 5%, plus any accrued dividends. In no case
will the Company pay out more than the amount of life insurance proceeds
received by the Company as a result of the death of the stockholder, nor will
the Company redeem a number of shares that would reduce the principal holder's
estate's percentage of the outstanding common stock of the Company to less than
16%.

At June 27, 1998, there were 673,475 common shares covered by the above
agreement. The face value of life insurance carried by the Company under this
agreement amounts to $1,150,000.

NOTE 11 -- DEFERRED COMPENSATION PLANS

The Company has deferred compensation agreements with two employees providing
for payments amounting to $2,056,680 upon retirement and from $1,546,740 to
$2,181,600 upon death prior to retirement. One agreement, as modified, has been
in effect since 1972 and the second agreement was effective October 1989. Both
agreements provide for monthly payments on retirement or death benefits over
fifteen year periods. Both agreements are funded under trust agreements whereby
the Company pays to the trust amounts necessary to pay premiums on life
insurance policies carried to meet the obligations under the deferred
compensation agreements.

Charges to operations applicable to those agreements were approximately
$50,362, $48,885 and $53,885 for the fiscal years 1998, 1997 and 1996,
respectively.

NOTE 12 -- EMPLOYEES' RETIREMENT PLAN

The Company adopted a 401(k) retirement plan, effective October 7, 1989, for
all qualified employees of the Company to participate in the plan. Employees
may contribute a percentage of their pretax eligible compensation to the plan,
and the Company matches 50% (25% prior to September 13, 1996) of each
employee's contribution up to 4% of pretax eligible compensation. The Company's
matching contributions totaled approximately $107,000, $47,000 and $21,000 in
fiscal years 1998, 1997 and 1996, respectively.

<PAGE>

NOTE 13 -- COMMITMENTS AND CONTINGENCIES

The Company had outstanding commitments backed by letters of credit of
approximately $8,220,000 and $16,631,000 at June 27, 1998 and June 28, 1997,
respectively, relating to the purchase of machine inventory for delivery to
customers.

The Company is presently the Defendant in a lawsuit filed by a former employee
of the Company who lost his job in 1997, pursuant to a reduction in workforce.
At the present time, both Plaintiff and the Company are engaged in discovery
processes including depositions, and it is the Company's position that it will
defend vigorously against all claims brought by this former employee through
trial, if necessary.

While the amount claimed may be substantial, the ultimate liability cannot now
be determined because of a number of considerable uncertainties, both factual
and legal, that presently exist. Therefore, it is possible that results of
operations in a particular period could be materially affected. Based on facts
currently available, management believes that the disposition of this matter
will not have a materially adverse effect on the financial position of the
Company.

NOTE 14 -- SUBSEQUENT EVENT

On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Marzoli product line manufactured by
Fratelli Marzoli & C. SpA, an Italian corporation. As part of its agreement
with Fratelli Marzoli & C. SpA, the Company will assume the operations of the
current offices, showrooms and personnel. Fratelli Marzoli & C. SpA
manufactures equipment used in the yarn processing industry. Prior to the
Company's receipt of distribution rights, Fratelli Marzoli & Co. SpA
distributed its products in the United States through its wholly-owned
subsidiary, Marzoli International, Inc., a domestic corporation based in
Spartanburg, South Carolina. Revenues of Marzoli International, Inc. for the
twelve months ended December 31, 1997 were approximately $13.9 million.

NOTE 15 -- BUSINESS ACQUISITIONS

On August 1, 1997, the Company acquired all of the outstanding stock of Wink
Davis, a Georgia corporation. For financial statement purposes, the acquisition
was accounted for as a purchase and accordingly, Wink Davis' results for the
eleven months since the date of acquisition are included in the consolidated
financial statements. The aggregate purchase price was approximately
$9,467,677. There is a possible additional conditional payment of up to $1.5
million in cash over a five-year period based on certain pre-tax earnings
calculations. These contingent payments, if any, will be capitalized as
increases to the original purchase price and amortized accordingly. The
aggregate purchase price, which was financed through available cash resources,
borrowings on the revolving line of credit and issuance of a term loan, has
been allocated to the assets based upon their respective fair market values.
The excess of the purchase price over assets acquired (Goodwill) approximated
$4,343,662 and is being amortized over fifteen years.

On February 6, 1998, the Company acquired all of the outstanding stock of TMC,
a North Carolina corporation. For financial statement purposes the acquisition
was accounted for as a purchase and, accordingly, TMC's results are included in
the consolidated financial statements since the date of acquisition. The
aggregate purchase price was approximately $1,841,304. The aggregate purchase
price, which was financed through available cash resources, borrowings on the
revolving line of credit and issuance of a term loan, has been allocated to the
assets based upon their respective fair market values. The excess of the
purchase price over assets acquired (Goodwill) approximated $2,094,247 and is
being amortized over fifteen years.

The following unaudited pro forma consolidated results of operations for fiscal
1997 have been prepared as if the acquisition of Wink Davis occurred as of the
beginning of fiscal 1997. Pro forma operating results for fiscal 1998 as though
the enterprises had been combined as of the beginning of the fiscal year would
not differ materially from actual results for fiscal 1998. The acquisition of
Wink Davis occurred early in fiscal 1998, and, accordingly, operating results
for the incremental period of approximately one month would not be significant.
The incremental operating results of TMC for fiscal 1997 and incremental period
of approximately seven months in fiscal 1998 would not be significant.

<PAGE>

<TABLE>
<CAPTION>
Pro Forma Results for the
Year Ended June 28, 1997
--------------------------
<S> <C>
Net sales $ 111,739,000
Net income $ 2,589,000
Net income per share -- basic $ 0.80
Net income per share -- diluted $ 0.77
- --------------------------------- -------------
</TABLE>

The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.

NOTE 16 -- SEGMENT INFORMATION

The Company operates primarily in two segments of business, textile equipment
and laundry equipment and services. Prior to the acquisition of Wink Davis on
August 1, 1997, the Company operated only in the textile segment. TMC is
included in the textile equipment classification. The table below summarizes
financial data by segment.

<TABLE>
<CAPTION>
<S> <C>
Total revenues
Textile equipment $67,229,741
Laundry equipment and services 23,656,544
- --------------------------------- -----------
$90,886,285
- --------------------------------- -----------
Total assets
Textile equipment $38,744,098
Laundry equipment and services 11,289,813
- --------------------------------- -----------
$50,033,911
- --------------------------------- -----------
Income before interest and taxes
Textile equipment $ 3,915,662
Laundry equipment and services 81,720
- --------------------------------- -----------
$ 3,997,382
- --------------------------------- -----------
</TABLE>

NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
Year Ended
----------------------------------------
June 27, June 28, June 29,
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Cash paid during year for:
Interest $ 776,544 $ 101,315 $ 81,578
Income taxes 1,381,196 1,440,696 120,086
- --------------------------- --------- --------- --------
</TABLE>

<PAGE>

CORPORATE INFORMATION

OFFICERS
Robert S. Speizman
Chairman of the Board
and President

Josef Sklut
Vice President-Finance,
Treasurer and Secretary

James H. McCorkle, III
Controller and
Assistant Secretary

Bryan D. Speizman
Senior Vice President- Non-Hosiery

Mark A. Speizman
Senior Vice President- Hosiery

TRANSFER AGENT AND
REGISTRAR

First-Citizens Bank
& Trust Co.
Corporate Trust Dept.
P.O. Box 29522
Raleigh, N.C. 27626

DIRECTORS
Robert S. Speizman
Chairman of the Board
and President

Steven P. Berkowitz
Chairman of the Board
of Marwen Foundation

William Gorelick
Private Investor

Scott C. Lea
Chairman of the Board,
Lance, Inc.

Josef Sklut
Vice President-Finance,
Treasurer and Secretary

GENERAL COUNSEL
Odom & Groves, P.C.
Charlotte, N.C.

INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

BDO Seidman, LLP
Charlotte, N.C.

LOCATIONS
Speizman Industries, Inc.
Executive Offices:
508 W. Fifth Street
Charlotte, N.C. 28202

Wink Davis Equipment
Company, Inc.
800 Miami Circle, NE
Atlanta, GA 30324

Speizman Canada, Inc.
5205 boul. Metropolitain est,
Suite 3
Montreal, Quebec H1R 1Z7
Canada

Todd Motion Controls, Inc.
5511 Reynolda Road
Winston-Salem, NC 27106

LISTING
Speizman Industries, Inc.
Common Stock is listed
on the NASDAQ National
Market System under the
symbol "SPZN."

FORM 10-K
Copies of the Company's Annual Report on Form 10-K for the year ended June
27, 1998, may be obtained without charge by writing:

Mr. Josef Sklut
Speizman Industries, Inc.
P.O. Box 31215
Charlotte, N.C. 28231
<PAGE>

Speizman Industries, Inc. logo appears here.