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

                                    FORM 10-K


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

For the fiscal year ended June 28, 2003

                                       OR

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

For the transition period from ___________ to ____________

Commission File Number 333-37617

                                DELTA MILLS, INC.
          ------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        DELAWARE                                   13-2677657
------------------------              --------------------------------------
  (State of Incorporation)            (I.R.S. Employer Identification No.)

PO Box 6126
100 Augusta Street
Greenville, South Carolina                                29606
--------------------------------------------       --------------------
(Address of principal executive offices)                (Zip code)

                                  864/255-4100
 ------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

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

                                               Name of each exchange
                 Title of each class           on which registered
                 -------------------           ------------------------------

                          None                  Not Applicable

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

                               Title of each class

                                      None


                                       1
<PAGE>


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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].

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

         Yes                        No    X
             --------                  --------

The aggregate market value of the common equity stock held by  non-affiliates of
the registrant as of December 28, 2002 was:

           Common Stock, $.01 par value  - 0

The number of shares  outstanding of each of the registrant's  classes of Common
Stock, as of September 25, 2003 was:

         Common Stock, par value $.01           100

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS  (I)(1)(a)
AND (b) OF FORM  10-K  AND IS  THEREFORE  FILING  THIS  FORM  WITH  THE  REDUCED
DISCLOSURE FORMAT.






                                       2
<PAGE>
<TABLE>
<CAPTION>

                                          FOR THE FISCAL YEAR ENDED JUNE 28, 2003
                                                  FORM 10-K ANNUAL REPORT

                                                     TABLE OF CONTENTS

<S>                                                                                                             <C>
PART I                                                                                                          PAGE

Item 1.        Business                                                                                           4
Item 2.        Properties                                                                                         9
Item 3.        Legal Proceedings                                                                                 10
Item 4.        Submission of Matters to a Vote of Security Holders                                               10

PART II

Item 5.        Market for Registrant's Common equity and Related Stockholder Matters                             10
Item 6.        Selected Financial Data                                                                           11
Item 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations             12
Item 7A.       Quantitative and Qualitative Disclosures about Market Risk                                        20
Item 8.        Financial Statements and Supplementary Data                                                       21
Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure              37
Item 9A.       Controls and Procedures                                                                           37

PART III

Item 10.       Directors and Executive Officers of the Registrant                                                37
Item 11.       Executive Compensation                                                                            37
Item 12.       Security Ownership of Certain Beneficial Owners and Management                                    37
Item 13.       Certain Relationships and Related Transactions                                                    37
Item 14.       Principal Accountant Fees and Services                                                            38

PART IV

Item 15.       Exhibits, Financial Statement Schedules and Reports on Form 8-K                                   39

</TABLE>






<PAGE>

PART I.

ITEM I.  BUSINESS

The following  discussion  contains various  "forward-looking  statements".  All
statements,  other than statements of historical fact, that address  activities,
events or developments that the Company expects or anticipates will or may occur
in the future are  forward-looking  statements.  Examples  are  statements  that
concern future revenues,  future costs,  future capital  expenditures,  business
strategy,   competitive  strengths,   competitive   weaknesses,   goals,  plans,
references to future success or difficulties and other similar information.  The
words  "estimate",  "project",  "forecast",  "anticipate",  "expect",  "intend",
"believe" and similar  expressions,  and  discussions of strategy or intentions,
are intended to identify forward-looking statements.

The  forward-looking  statements  in this  document  are based on the  Company's
expectations and are necessarily dependent upon assumptions,  estimates and data
that the Company  believes are  reasonable  and  accurate but may be  incorrect,
incomplete or imprecise. Forward-looking statements are also subject to a number
of business risks and uncertainties,  any of which could cause actual results to
differ  materially  from those set forth in or  implied  by the  forward-looking
statements.  These risks and uncertainties include, among others, changes in the
retail  demand for  apparel  products,  the cost of raw  materials,  competitive
conditions in the apparel and textile  industries,  the relative strength of the
United States dollar as against other  currencies,  changes in United States and
international  trade regulations,  including without limitation the expected end
of quotas on textile and apparel products amongst WTO member states in 2005, and
the  discovery  of unknown  conditions  (such as with  respect to  environmental
matters and similar items).  Accordingly,  any forward-looking statements do not
purport  to be  predictions  of future  events or  circumstances  and may not be
realized.

The Company does not undertake publicly to update or revise the  forward-looking
statements  even if it becomes  clear  that any  projected  results  will not be
realized.

GENERAL

Delta Mills,  Inc.  ("Delta Mills" or the  "Company") is a Delaware  corporation
with its principal executive offices located at 100 Augusta Street, PO Box 6126,
Greenville, South Carolina 29606 (telephone number:  864-255-4100).  The Company
is a  wholly  owned  subsidiary  of Delta  Woodside  Industries,  Inc.,  a South
Carolina corporation,  the common stock of which is listed on the New York Stock
Exchange  under the symbol "DLW".  Unless the context  otherwise  requires,  all
references  herein to "Delta Mills" or the "Company" refer to Delta Mills,  Inc.
and any of its existing and future subsidiaries.

The Company is a leading  manufacturer  and marketer of woven  finished  cotton,
synthetic  and blended  fabrics,  which are sold for the ultimate  production of
apparel.  The Company sells a broad range of finished apparel fabrics  primarily
to  branded  apparel  manufacturers  and  resellers.   These  manufacturers  and
resellers  include  Levi  Strauss,  Haggar  Corp.,  the  Wrangler (R) and Lee(R)
divisions of V.F. Corporation, and Liz Claiborne, Inc. and private label apparel
manufacturers  for J.C. Penney  Company,  Inc.,  Sears,  Roebuck & Co., Wal Mart
Stores,  Inc. and other  retailers.  The Company  believes  that it is a leading
producer of cotton  pants-weight  woven fabric used in the manufacture of casual
slacks such as Levi  Strauss'  Dockers(R)  and Haggar  Corp.'s  Wrinkle-free(R).
Other  apparel items  manufactured  with the  Company's  woven  fabrics  include
women's chino pants,  women's  blazers,  career apparel  (uniforms),  and battle
dress camouflage military uniforms.

During the year ended June 29, 2003,  the Company  announced  the closing of its
Catawba Plant, a yarn manufacturing  facility located in Maiden, North Carolina.
The equipment run-out schedule was completed in April 2003 and the Company is in
the process of liquidating the assets associated with this facility. The Company
has replaced the production  from this facility with purchased yarn from outside
sources.

During the year ended June 29, 2002,  the Company  announced  the closing of its
Furman Plant, a weaving  facility  located in Fountain Inn, South Carolina.  The
equipment  run-out  schedule was completed in October 2001 and the Company is in
the process of either  liquidating or  transferring  the assets  associated with
this facility. The Company transferred the production for the closed facility to
other  weaving  facilities  in the  Company  to  better  utilize  the  remaining
equipment.

                                       4
<PAGE>

GENERAL - CONTINUED

During  fiscal  year  2000,  the  Company   produced  a  variety  of  unfinished
lightweight woven fabrics that were sold to converters of finished products. Due
to import  pressure,  the  unfinished  fabrics  business  was  discontinued  and
replaced with more profitable  product lines. This move away from the unfinished
fabric production was completed in the first half of fiscal 2000.

During fiscal 1998 the Company made the decision to exit the knit textile market
by closing its Stevcoknit Fabrics Company operating division.

The Company was  incorporated  in Delaware in 1971 and acquired by a predecessor
of Delta Woodside Industries, Inc. in 1986.


PRODUCTS, MARKETING AND MANUFACTURING

The Company produces woven textile fabrics  manufactured from cotton, wool, flax
or synthetic fibers or from synthetic  filament yarns.  Cotton is purchased from
numerous  suppliers.  Wool, flax,  synthetic fibers and synthetic filament yarns
are purchased from a smaller number of competitive suppliers.  The Company spins
the major  portion  of the spun yarns used in its  weaving  operations,  and the
balance is purchased from a small number of domestic spinners.  In manufacturing
these yarns, the cotton and synthetic  fibers,  either  separately or in blends,
are carded  (fibers  straightened  and  oriented)  and then spun into yarn.  The
Company  combs  (removing  short  fibers) some cotton fiber to make high quality
yarns.  In other fabrics,  filament yarns are used. The spun or filament yarn is
then woven into fabric on looms. The unfinished fabric at this stage is referred
to as greige  goods.  Finished  fabric refers to fabric that has been treated by
washing, bleaching, dyeing and applying certain chemical finishes.

The Company  produces  finished woven fabrics used in the production of apparel.
Finished apparel fabric is ready to be cut and sewn into garments.

The Company has focused its marketing  efforts on building  close  relationships
with major apparel companies that have broad distribution  channels and that the
Company believes have positioned  themselves for long-term  growth.  The Company
sells its woven fabrics primarily to numerous apparel  manufacturers and apparel
resellers.  The Company also sells  camouflage  fabric and other fabrics used in
apparel sold to the United States  Department of Defense.  The Company sells its
fabrics  through Delta Mills  Marketing  Inc., a wholly owned  subsidiary with a
marketing  office  based in New York  City  (which  serves  the  United  States,
Canadian  and Mexican  markets),  with sales  agents also  operating in Atlanta,
Dallas, San Francisco and Mexico.

For fiscal year 2003,  the  Company  had three  customers,  Levi  Strauss,  V.F.
Corporation,  and Haggar  Apparel  that each  exceeded 10% of  consolidated  net
sales.   The  Company's  sales  to  these  customers   totaled  $71  million  or
approximately 40% of net sales in fiscal 2003. For fiscal year 2002, only two of
these  customers,  Levi  Strauss  and V.F.  Corporation,  each  exceeded  10% of
consolidated  net sales.  The  Company's  sales to these  customers  totaled $63
million or approximately  36% of net sales in fiscal 2002. For fiscal year 2001,
the Company  again had three  customers,  Levi Strauss,  Haggar Corp.,  and V.F.
Corporation,  which each exceeded 10% of consolidated  net sales.  The Company's
aggregate sales to these customers were $90 million or approximately  42% of net
sales for fiscal 2001. In addition,  during fiscal years 2003,  2002,  and 2001,
sales of military fabrics to apparel customers  accounted for approximately 33%,
31%, and 22%,  respectively,  of the Company's  total sales.  The loss of any of
these  accounts  could  have a  material  adverse  effect on the  results of the
Company.

During  fiscal  years  2003,  2002 and  2001,  approximately  77%,  83% and 82%,
respectively,  of the Company's finished woven fabric sales were of fabrics made
from cotton or cotton/synthetic  blends,  while approximately 23%, 17%, and 18%,
respectively,  of such sales were of fabrics made from spun synthetics and other
natural fibers,  including various blends of rayon,  polyester,  and wool. Woven
fabrics are generally produced and shipped pursuant to specific purchase orders,
which  minimizes  the  Company's  uncommitted  inventory  levels.  The Company's
production  of cotton and  cotton/synthetic  blend and spun  synthetic  finished
woven fabrics is largely vertically integrated, with the Company performing most
of its own spinning, weaving and finishing. The Company's woven finished fabrics
plants are currently operating at less than full capacity.

                                       5
<PAGE>

RAW MATERIALS

The  Company's  principal  raw  material  is  cotton,  although  it  also  spins
polyester,  wool,  linen  fiber,  acrylic,  lyocell,  nylon and rayon fibers and
weaves textured polyester  filament.  Polyester is obtained primarily from three
major suppliers,  all of whom provide competitive  prices.  Polyester prices for
fiscal year 2003 were  volatile  and slightly  higher than in fiscal  2002.  The
Company's  average price per pound of cotton  purchased and consumed,  including
freight and carrying  costs,  was $.463 in fiscal year 2003 as compared to $.594
in fiscal year 2002,  and $.659 in fiscal year 2001.  As of June 28,  2003,  the
Company had contracted to purchase 85% and had fixed the price for approximately
72% of its expected cotton  requirements for fiscal year 2004. The percentage of
the  Company's  cotton  requirements  that the  Company  fixes each year  varies
depending  upon the Company's  forecast of future cotton  prices.  In the fourth
quarter of fiscal 2003,  the Company  increased its cotton  purchases to lock-in
favorable costs as cotton prices were rising.  The Company  believes that recent
cotton  prices have enabled it to contract for cotton at prices that will permit
it to be competitive  with other companies in the United States textile industry
when the cotton purchased for future use is put into  production.  To the extent
that cotton prices decrease before the Company uses these future purchases,  the
Company could be materially and adversely affected, as there can be no assurance
that it would be able to pass  along  its  higher  costs  to its  customers.  In
addition,  to the extent that  cotton  prices  increase  and the Company has not
provided for its  requirements  with fixed price  contracts,  the Company may be
materially and adversely affected, as there can be no assurance that it would be
able to pass along these increased costs to its customers.


COMPETITION

The  cyclical  nature of the textile and apparel  industries,  characterized  by
rapid shifts in fashion,  consumer demand and competitive pressures,  results in
both price and demand  volatility.  The demand for any particular product varies
from time to time based largely upon changes in consumer preferences and general
economic  conditions  affecting  the  textile and  apparel  industries,  such as
consumer  expenditures  for non-durable  goods. In recent years, the Company has
seen a trend toward  shorter lead times for its customers'  orders.  The textile
and  apparel  industries  are also  cyclical  because  the supply of  particular
products changes as competitors enter or leave the market.

The Company sells  primarily to domestic  apparel  manufacturers,  many of which
operate offshore sewing operations.  The Company competes with numerous domestic
and foreign fabric manufacturers,  including companies larger in size and having
greater financial resources than the Company. The principal  competitive factors
in the woven fabrics  markets are price,  service,  delivery  time,  quality and
flexibility,  with the relative  importance  of each factor  depending  upon the
needs of particular  customers  and the specific  product  offering.  Management
believes  that the  Company  maintains  its  ability to compete  effectively  by
providing  its  customers  with  a  broad  array  of  high-quality   fabrics  at
competitive prices on a timely basis.

The Company's  competitive  position  varies by product line.  There are several
major domestic  competitors in the finished  cotton and  cotton/polyester  blend
woven  fabrics  business,  none of  which  dominates  the  market.  The  Company
believes,  however,  that it has a strong competitive position in the all cotton
pants-weight fabrics business. In addition,  the Company believes that it is one
of only two  finishers  successful  in printing  camouflage  for sale to apparel
suppliers  of the U.S.  Government  and the  only  supplier  that is  vertically
integrated for camouflage  production.  Additional  competitive strengths of the
Company  include:  knowledge of its customers'  business  needs;  its ability to
produce  special  fabrics such as textured  blends;  state of the art  spinning,
weaving and fabric  finishing  equipment at most of its facilities;  substantial
vertical  integration;  and its ability to communicate  electronically  with its
customers.


                                       6
<PAGE>

COMPETITION - CONTINUED

Foreign  competition is a significant factor in the United States fabric market.
The  Company   believes  that  its  relatively  small  manual  labor  component,
highly-automated  manufacturing  processes and domestic manufacturing base allow
the Company to compete on a price basis and to respond more quickly than foreign
producers to changing  fashion  trends and to its domestic  customers'  delivery
schedules.  In  addition,  the Company  benefits  from  protections  afforded to
apparel  manufacturers  based in certain Latin American and Caribbean  countries
that ship finished  garments  into the United  States.  The North  American Free
Trade Agreement  (often referred to as "NAFTA") entered into force on January 1,
1994. NAFTA has effectively  eliminated all tariffs and quotas on goods imported
from Mexico if such goods are made from fabric originating in Canada, Mexico, or
the United States.  The Caribbean Basin Trade Partnership Act (often referred to
as  "CBTPA")  became  effective  on  October  1,  2000.  CBTPA  has  effectively
eliminated  tariffs and quotas on apparel products  imported from  participating
Caribbean  and Central  American  nations if such  products are made from fabric
woven in the United  States of U.S.  yarn.  The Andean Trade  Promotion and Drug
Eradication Act (often referred to as "ATPDEA") was signed into force on October
31, 2002, with similar rules of origin.  Because NAFTA, CBTPA, and ATPDEA create
an  incentive  to  use  fabric  manufactured  in the  United  States,  they  are
beneficial to the Company and other domestic  producers of apparel  fabrics.  In
contrast,  apparel not meeting the origin requirements of these trade preference
agreements  is subject to quotas and/or  relatively  higher  tariffs.  If NAFTA,
CBTPA or ATPDEA  were  repealed  or  altered  in whole or in part,  the  Company
believes  that it could be at a serious  competitive  disadvantage  relative  to
textile  manufacturers  in other parts of the world  seeking to enter the United
States  market,  which  would have a  material  adverse  effect on the  Company.
Moreover,  there  can be no  assurance  that the  current  favorable  regulatory
environment  will continue or that other  geographic  areas will not be afforded
similar regulatory advantages.

The World Trade  Organization  (often referred to as the "WTO"),  a multilateral
trade  organization,  was formed in  January  1995 and is the  successor  to the
General  Agreement  on Tariffs  and Trade or  "GATT".  This  multilateral  trade
organization  has set forth mechanisms by which world trade in clothing is being
progressively  liberalized  by  phasing-out  quotas and  reducing  duties over a
period  of time  that  began  in  January  of  1995.  As it  implements  the WTO
mechanisms,  the U.S. government is negotiating  bilateral trade agreements with
developing  countries  (which are  generally  exporters  of textile  and apparel
products)  that are  members of the WTO to get them to reduce  their  tariffs on
imports of textiles and apparel in exchange for  reductions by the United States
in tariffs on imports of textiles and apparel. The elimination of quotas and the
reduction of tariffs  under the WTO may result in  increased  imports of certain
textile and apparel  products into North  America.  These factors could make the
Company's  products less  competitive  against low cost imports from  developing
countries.

A Free Trade Area of the  Americas  agreement  (often  referred to as "FTAA") is
being negotiated,  with expected implementation in the year 2005. FTAA will be a
NAFTA-like  agreement  among  most of the  nations  in the  Americas.  While the
agreement  language is not final,  the rules of origin will likely allow apparel
to be imported into the United States without tariff or quota provided the yarns
and fabrics are formed in any participating country. This agreement would create
an incentive for apparel  manufacturers  to use fabric from the Americas  region
rather than other parts of the world,  which could be  beneficial to the Company
and other domestic textile manufacturers.  Conversely, this agreement may result
in an increase in the production and use of regional  fabrics formed outside the
U.S., which would be a disadvantage to the Company.

The Company expects to face a significant  change in global  competition in 2005
as a result of the impact of  multilateral  agreements  intended  to  liberalize
global trade. The World Trade  Organization  ("WTO") is overseeing the phase-out
of textile and apparel  quotas over a 10-year  period  ending  2004.  Tariffs on
textile/apparel  products are being reduced (but not  eliminated)  over the same
10-year  period.  In  addition,  China's  admission  to  the  WTO  will  have  a
significant  impact on global textile and apparel trade. By gaining admission to
the WTO, China is able to take advantage of the elimination of quota limitations
on access to the U.S. market,  and there could be a significant  negative impact
on the  North  American  textile  industry.  With  the  arrival  of 2005 and the
elimination of quotas for WTO members, certain countries, most particularly, but
not  limited  to,  China,  may have cost  advantages  compared  to the  Company.
Accordingly,  the  Company  believes  it must fully  utilize  other  competitive
advantages  it  believes  it  has  compared  to  Asian  competitors.  Among  the
advantages  of the  Company  are its  well  established  relationships  with its
customers,  its ability to respond quickly to its customers needs as well as the
logistic  advantages  associated with its  manufacturing  being located in North
America. However, there can be no assurance that these advantages will allow the
Company to successfully compete with foreign textile producers.

                                       7
<PAGE>

EMPLOYEES

The Company has approximately  1,600 employees.  The Company's employees are not
represented  by  unions.  The  Company  believes  that  its  relations  with its
employees are good.


ENVIRONMENTAL AND REGULATORY MATTERS

The Company is subject to various federal,  state and local  environmental  laws
and regulations  concerning,  among other things,  wastewater discharges,  storm
water flows,  air  emissions,  ozone  depletion  and solid waste  disposal.  The
Company's  plants  generate very small  quantities of hazardous  waste which are
either  recycled  or disposed of  off-site.  Most of its plants are  required to
possess one or more discharge permits.

The information contained under the subheading "Environmental Matters" under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations " included in Item 7 of this Form 10-K is  incorporated  herein by
reference.

Generally,  the  environmental  rules  applicable  to the Company  are  becoming
increasingly  stringent.  The Company incurs capital and other  expenditures  in
each  year  that are aimed at  achieving  compliance  with  current  and  future
environmental standards.

The Company does not expect that the amount of such  expenditures  in the future
will have a material  adverse effect on its  operations or financial  condition.
There can be no assurance,  however,  that future  changes in federal,  state or
local regulations,  interpretations of existing  regulations or the discovery of
currently unknown problems or conditions will not require substantial additional
expenditures. Similarly, the extent of the Company's liability, if any, for past
failures  to  comply  with  laws,  regulations  and  permits  applicable  to its
operations cannot be determined.









                                       8
<PAGE>

ITEM 2  PROPERTIES

    The following table provides a description of Delta Mills,  Inc.'s principal
facilities.

<TABLE>
<CAPTION>
                                                                           Approximate
                                                                             Square
                      Location                           Utilization         Footage    Owned/Leased
                      --------                           -----------       -----------  ------------


<S>                                                    <C>                  <C>         <C>
Greenville, SC                                         Admin Offices         17,400     Leased (1)
Beattie Plant, Fountain Inn, SC                        spin/weave           390,000        (2)
Estes Plant, Piedmont, SC                              spin/weave           332,000        (2)
Delta 3 Plant, Wallace, SC                             dye/finish           555,000        (2)
Pamplico and Cypress Plants, Pamplico, SC              spin/weave           419,000        (2)
Delta 2 Plant, Wallace, SC                             dye/finish           347,000        (2)

</TABLE>

(1)      Delta Woodside leases corporate offices in Greenville, SC that are used
         by the Company.  The lease  expires on December 31, 2003 with the right
         to renew for one additional five-year period.

(2)      Title  to  these  facilities  and  substantially  all of the  equipment
         located in these  facilities is held by three South  Carolina  counties
         under a  fee-in-lieu-of-taxes  arrangement,  which  has the  effect  of
         substantially  reducing the Company's property taxes in South Carolina.
         Although the Company can reacquire  such  property at a nominal  price,
         this would  currently  cause a  significant  increase  in the amount of
         property taxes paid by the Company.

         Except as noted  above all of the above  facilities  are owned by Delta
Mills, Inc., subject in certain cases to various outstanding liens.

         Delta Mills  Marketing,  Inc. leases sales offices in New York, NY. The
lease on the sales offices expires in December 2004.

         At the date of execution of this Form 10-K,  the Company  believes that
its plants are operating at less than full production capacity.

         At the date of execution of this Form 10-K,  the Company has closed and
plans to dispose of both its Furman facility in Fountain Inn, SC and its Catawba
facility in Maiden, NC.

         The Company  believes that its equipment and  facilities  are generally
adequate to allow it to remain competitive with its principal competitors.

         The Company's  accounts  receivable  and  inventory,  and certain other
intangible property, including the capital stock of Delta Mills Marketing, Inc.,
secure the Company's credit facility.




                                       9
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

All  litigation  to which the  Company is a party is  ordinary  routine  product
liability  litigation,  contract  breach  litigation,  or employment  litigation
incident  to its  business  that does not depart  from the  normal  kind of such
actions.  The Company believes that none of these actions, if adversely decided,
would have a material  adverse  effect on its results of operations or financial
condition taken as a whole.

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

Omitted pursuant to Instruction I (2)(c) to Form 10-K.


PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company is a  wholly-owned  subsidiary of Delta  Woodside  Industries,  Inc.
Accordingly,  there is no  established  public  trading market for the Company's
common stock.

During 2001, the Company declared dividends of $2,900,000.  The Company declared
no  dividends  for  fiscal  year  2002 or  fiscal  year  2003.  The  information
concerning  limitations  on cash  distributions  contained  under the subheading
"Liquidity  and  Sources  of  Capital"  under Item 7 is  incorporated  herein by
reference.










                                       10

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
In Thousands, Except Ratios
<TABLE>
<CAPTION>
                                                                                   Fiscal Year
                                                --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:(1) (2)
                                                          2003             2002             2001             2000          1999
                                                ---------------  ---------------  ---------------  --------------- -------------
<S>                                                   <C>              <C>              <C>              <C>           <C>
Net Sales                                             $177,193         $174,673         $212,960         $276,511      $348,955
Cost of Goods Sold                                     160,243          165,266          196,692          243,254       292,914
                                                ---------------  ---------------  ---------------  --------------- -------------
Gross Profit                                            16,950            9,407           16,268           33,257        56,041

Selling, general and administrative expenses            11,370           11,634           14,609           15,345        16,937
Impairment & restructuring expenses                        398            8,683
Other income                                               582              476              302              446            96
                                                ---------------  ---------------  ---------------  --------------- -------------
Operating Profit (Loss)                                  5,764          (10,434)           1,961           18,358        39,200
Interest expense                                         5,275            9,090           11,064           16,095        17,414
Interest (income)                                                          (192)            (547)            (958)         (185)
Gain on Extinguishment of Debt                           3,643           16,072            2,458            7,414
                                                ---------------  ---------------  ---------------  --------------- -------------
Income (Loss) from Continuing Operations
 Before Income Taxes                                     4,132           (3,260)          (6,098)          10,635        21,971
Income Tax Expense (Benefit)                             1,541           (1,198)          (2,192)           4,035         8,590
                                                ---------------  ---------------  ---------------  --------------- -------------
Income (Loss) from Continuing Operations                 2,591           (2,062)          (3,906)           6,600        13,381
Profit (Loss) from Discontinued Operations                                                                   (174)        3,802
                                                ---------------  ---------------  ---------------  --------------- -------------
Net Income (Loss)                                       $2,591          $(2,062)         $(3,906)          $6,426       $17,183
                                                ===============  ===============  ===============  =============== =============
OTHER DATA:(1)
Depreciation and amortization                           $9,114           $9,544          $11,310          $14,015       $14,815

Capital expenditures                                     6,442            6,496            5,151            4,340         9,075

BALANCE SHEET DATA:
Working Capital                                        $26,657          $37,338          $64,270          $95,158      $101,613

Total assets                                           162,328          158,437          181,747          229,612       260,951

Total long-term debt                                    31,941           47,819           83,815          115,078       150,000

Shareholder's equity                                    49,910           47,319           49,381           56,187        49,761

</TABLE>

NOTES TO SELECTED FINANCIAL DATA
(1)  The  Stevcoknit   knitted   fabrics   business  is  presented  as  part  of
     discontinued operations.

(2)  Certain prior year amounts have been  reclassified to conform to the fiscal
     2003  presentation  that  reflects  the  Company's  adoption  of  SFAS  145
     pertaining  to  the  treatment  of  gain  on  retirement  of  debt.   These
     reclassifications did not effect net income (loss) or shareholders' equity.




                                       11
<PAGE>

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

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

The following  discussion  contain  various  "forward-looking  statements".  All
statements,  other than statements of historical fact, that address  activities,
events,  or  developments  that the Company  expects or anticipates  will or may
occur in the future,  including  such  matters as future  revenues,  future cost
savings, future capital expenditures,  business strategy, competitive strengths,
goals,  plans,  references  to future  success  and other such  information  are
forward-looking  statements.  The  words  "estimate",  "project",  "anticipate",
"expect", "intend",  "believe", and similar expressions are intended to identify
forward-looking statements.

The  forward-looking  statements  in this Form  10-K are based on the  Company's
expectations  and are subject to a number of business  risks and  uncertainties,
any of which  could cause  actual  results to differ  materially  from those set
forth  in or  implied  by  the  forward  looking  statements.  These  risks  and
uncertainties  include,  among others,  changes in the retail demand for apparel
products,  the cost of raw materials,  competitive conditions in the apparel and
textile industries, the relative strength of the United States dollar as against
other currencies,  changes in United States and international trade regulations,
including  without  limitation the expected end of quotas on textile and apparel
products  among  WTO  member  states  in  2005,  and the  discovery  of  unknown
conditions  (such as with respect to  environmental  matters and similar items).
The Company does not undertake publicly to update or revise the  forward-looking
statements  even if it becomes  clear  that any  projected  results  will not be
realized.

During the year ended June 29, 2003,  the Company  announced  the closing of its
Catawba Plant, a yarn manufacturing  facility located in Maiden, North Carolina.
The equipment run-out schedule was completed in April 2003 and the Company is in
the process of liquidating the assets associated with this facility. The Company
has replaced the production  from this facility with purchased yarn from outside
sources.

During the year ended June 29, 2002,  the Company  announced  the closing of its
Furman Plant, a weaving  facility  located in Fountain Inn, South Carolina.  The
equipment  run-out  schedule was completed in October 2001 and the Company is in
the process of either  liquidating or  transferring  the assets  associated with
this facility. The Company transferred the production for the closed facility to
other  weaving  facilities  in the  Company  to  better  utilize  the  remaining
equipment.


RESULTS OF OPERATIONS FISCAL 2003 VERSUS FISCAL 2002

Net Sales. Net sales for the year ended June 28, 2003 totaled $177.2 million, as
compared  to $174.7  million  for the year ended June 29,  2002,  an increase of
1.4%.  Unit sales were  approximately  the same for each year.  The  increase in
sales  for  fiscal  year 2003 was  principally  due to an  increase  of 2.2 % in
average sales price as a result of a change in product mix. At the end of fiscal
year 2003, there were  approximately $6.0 million in sales order deferments that
remained in finished inventory, accounting for the majority of the $11.4 million
inventory  increase  over  fiscal  year  2002.  Management  believes  that these
deferments  represent  sales  that  will  occur in  future  quarters  but  could
negatively effect capacity utilization in the process.





                                       12
<PAGE>

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

Gross  Profit.  Gross  profit as a percent  of sales for the year ended June 28,
2003 was  9.6%,  as  compared  to 5.4% for the year  ended  June 29,  2002.  The
majority of the gross  profit  improvement  was due to lower cotton raw material
cost. Also  contributing to the gross profit increase was reduced  manufacturing
cost as a result of the cost reduction  program put in place at the beginning of
fiscal year 2003. These cost reductions were somewhat offset by disruption costs
associated  with the  modernization  of the Estes  cotton  weaving  facility and
continued   downward   pressure  on  sales  prices  caused  by  cotton   garment
manufacturers expanding their supplier base to gain more competitive prices.

Selling,  General and  Administrative  Expenses.  During the year ended June 28,
2003,  selling,  general and  administrative  expenses  were $11.4  million,  as
compared to $11.6  million  during the year ended June 29,  2002,  a decrease of
$0.2 million or 2.3%. Expenses in this category were 6.4% of net sales in fiscal
2003 as compared to 6.7% in fiscal 2002.  The  decrease  was due  primarily to a
reduction  in  compensation  expense  that was  somewhat  offset by increases in
insurance, legal and other fixed costs.

Impairment and Restructuring Expenses.  During the year ended June 28, 2003, the
Company incurred  restructuring  expenses of $0.4 million related to the closing
of its Catawba plant, a yarn  manufacturing  facility in Maiden,  NC. During the
year ended June 29, 2002,  the Company  incurred  impairment  and  restructuring
expenses of $8.7 million  related to the closing of its Furman plant,  a weaving
only facility in Fountain  Inn, SC. The net book value of the closed  facilities
is presented  as assets held for sale on the  consolidated  balance  sheet as of
June 28, 2003.

Other Income: Other income was $0.6 million for fiscal year 2003, primarily from
gains on  equipment  sales that  occurred in the first  quarter.  In fiscal year
2002,  other income was $0.5 million,  primarily  from gains on equipment  sales
that occurred in the fourth quarter.

Operating  Profit (Loss).  Operating profit for the year ended June 28, 2003 was
$5.8  million,  as compared to an operating  loss of $10.4  million for the year
ended June 29, 2002.  The $16.2  million  improvement  in  operating  profit was
principally  the  result of a $7.5  million  improvement  in gross  profit and a
reduction of $8.3 million in impairment and restructuring expenses. Gross profit
and impairment and restructuring expenses are discussed above.

Net Interest Expense. For the year ended June 28, 2003, net interest expense was
$5.3 million,  as compared to $8.9 million for the year ended June 29, 2002. The
decrease  in net  interest  expense  was  principally  due to the  purchase of a
portion of the  Company's  9.625%  Senior  Notes and was  somewhat  offset by an
increase in revolver debt at a  substantially  lower rate of interest.  Interest
expense for fiscal year 2003 also reflected $0.4 million of capitalized interest
as a result of the Company's 2003 capital expenditures.

Gain on  Extinguishment of Debt. During fiscal 2003, the Company purchased $15.9
million face amount of its 9.625% Senior Notes for $11.9 million, in addition to
expenses of approximately  $0.2 million.  The Company  recognized a gain of $3.6
million  after the  write-off  of deferred  loan costs of $0.2  million.  During
fiscal  2002,  the Company  purchased  $36.0  million  face amount of its 9.625%
Senior Notes for $19.4 million.  The Company  recognized a gain of $16.1 million
after the write-off of deferred loan costs of $0.5 million.

Taxes.  The  effective  tax rate of 37.3% for the year  ended  June 28,  2003 is
higher  than the 36.7%  effective  tax rate for the year  ended  June 29,  2002,
primarily because of the effect of nondeductible permanent differences on pretax
income in fiscal year 2003 compared to pretax losses in 2002.

Net Income (Loss).  Net Income for the year ended June 28, 2003 was $2.6 million
as compared to a loss of $2.1 million for the year ended June 29, 2002. The $4.7
million improvement in net income was primarily due to the pretax,  year-to-year
changes in each of the following: $7.6 million improvement in gross profit, $8.3
million reduction in impairment and restructuring  expenses,  and a $3.6 million
reduction in net interest  expense.  These items were somewhat offset by a $12.4
million  reduction  in gain on  extinguishment  of debt.  Each of these items is
discussed above.


                                       13
<PAGE>

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

Order Backlog.  The Company's  order backlog at June 28, 2003 was $55.5 million,
an increase of $7.7 million  from the $47.8  million  order  backlog at June 29,
2002.  The majority of this increase was in the uniform  fabrics used in apparel
sold to the United States Department of Defense.  In recent years,  customers in
the industry have shortened lead times for delivery requirements. In response to
this, the Company has implemented a quick response  delivery system.  Because of
this and because the apparel market  continues to be soft,  management  believes
that the order  backlog at any given point in time may not be an  indication  of
future sales.

Adoption of Accounting  Standards.  In August of 2001, the Financial  Accounting
Standards Board (FASB) issued Statement of Financial  Accounting Standard (SFAS)
No. 143,  "Accounting for Asset  Retirement  Obligations".  SFAS 143 requires an
enterprise  to record  the fair  value of an asset  retirement  obligation  as a
liability in the period in which it incurs a legal  obligation  associated  with
the  retirement  of tangible  long-lived  assets,  which assets  result from the
acquisition,  construction,  development  and or normal use of the  assets.  The
enterprise also is to record a corresponding  increase to the carrying amount of
the related long-lived asset (i.e. the associated asset retirement costs) and to
depreciate that cost over the life of the asset. The liability is changed at the
end of each period to reflect the passage of time (i.e.  accretion  expense) and
changes in the  estimated  future cash flows  underlying  the initial fair value
measurement.  This statement was effective for fiscal years beginning after June
15, 2002. The adoption of this standard has not materially impacted the Company.

On  October 3, 2001 the FASB  issued  Statement  No.  144,  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets" that is  applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new rules on asset impairment  supersede FASB Statement No. 121, "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
Of", and provide a single  accounting model for long-lived assets to be disposed
of. The Company adopted the Statement  effective in fiscal 2003. The adoption of
this standard has not materially impacted the Company.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
Nos. 4 and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections".
Among other things,  Statement No. 145,  through the rescission of Statement No.
4, no longer requires extraordinary item treatment for gains and losses from the
extinguishment  of debt,  unless the debt  extinguishment  meets the  unusual in
nature  and  infrequency  of  occurrence  criteria  established  in APB 30.  The
Statement  was  effective  for fiscal  years  beginning  after May 15,  2002 and
requires  the  reclassification  of  prior  period  items  that do not  meet the
extraordinary item classification criteria in APB 30. Upon adoption, the Company
reclassified all extraordinary gains recognized for the early  extinguishment of
debt as a component  of income  (loss)  before  income  taxes for all  financial
statement periods presented.








                                       14
<PAGE>

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

In July 2002, the FASB issued  Statement No. 146,  "Accounting  for  Obligations
Associated  with Disposal  Activities".  Statement  No. 146 addresses  financial
reporting and accounting for costs associated with exit or disposal  activities.
It nullifies EITF Issue No. 94-3,  "Liability  Recognition for Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring.)"  Statement 146 requires that a liability be
recognized  for such  costs only when the  liability  is  incurred,  which is in
contrast to EITF No. 94-3,  which  requires the  recognition of a liability upon
the  commitment to an exit plan. The Statement is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of Statement
No. 146 has not had a material impact on the Company's financial statements.

In December  2002,  the FASB issued  SFAS No. 148,  "Accounting  for Stock Based
Compensation  - Transition and  Disclosure",  an amendment of FASB Statement No.
123.  This  Statement   amends  SFAS  No.  123,   "Accounting  for  Stock  Based
Compensation"  ("SFAS 123") to provide  alternative  methods of transition for a
voluntary change to the fair value method of accounting for stock based employee
compensation.  In addition,  this Statement amends the disclosure requirement of
SFAS 123 to require  prominent  disclosures in both annual and interim financial
statements.  The  disclosure  modifications  are  included in the notes to these
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness to Others,  an  interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB  Interpretation No. 34" ("FIN 45"). This Interpretation
elaborates on the  disclosures to be made by a guarantor  about its  obligations
under guarantees  issued.  FIN 45 also clarifies that a guarantor is required to
recognize,  at inception of a guarantee,  a liability  for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of FIN
45 are applicable to guarantees  issued or modified after December 31, 2002. The
disclosure  requirements  are effective for financial  statements of interim and
annual  reporting  periods  after  December 31, 2002.  The Company  adopted this
Interpretation with no material impact to its consolidated financial statements.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities,  an interpretation of ARB No. 51" ("FIN 46"). This
interpretation  addresses the consolidation by business  enterprises of variable
interest  entities as defined in the  interpretation  and sets forth  additional
disclosures  about such  interests.  FIN 46 is effective for the Company's  2004
fiscal year. The adoption of FIN 46 is not expected to have a material effect on
the Company's consolidated financial statements.


RESULTS OF OPERATIONS FISCAL 2002 VERSUS FISCAL 2001

Net Sales. Net sales for the year ended June 29, 2002 totaled $174.7 million, as
compared  to $213.0  million  for the year ended June 30,  2001,  a decrease  of
18.0%.  The  average  sales  price  decreased  2.8% in 2002 as  compared  to the
previous  fiscal  year.  The decline in sales volume  occurred  during the first
three  quarters of the year due to a weakness in market  demand and some decline
in sales price.  The decline was somewhat  offset  during the fourth  quarter as
market  demand  increased.  Compared to the previous  fiscal year,  sales volume
decreased 18%.

Gross Profit. Gross profit as a percent of net sales for the year ended June 29,
2002 was 5.4%,  as compared to 7.6% for the year ended June 30, 2001.  The gross
profit  decline  occurred  during the first three  quarters of the year as sales
declined.  This  resulted in  decreased  running  schedules  in order to control
inventory  and  conserve  cash.  The  decreased  running  schedules  resulted in
increased costs associated with under absorbed  manufacturing  costs. This trend
was reversed in the fourth quarter of the current fiscal year. Also contributing
to the gross  profit  decline was downward  pressure on sales  prices  caused by
cotton  garment  manufacturers  expanding  their  supplier  base  to  gain  more
competitive prices and by increased import pressure on synthetic products.


                                       15
<PAGE>

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

Selling,  General and  Administrative  Expenses.  During the year ended June 29,
2002,  selling,  general and  administrative  expenses  were $11.6  million,  as
compared to $14.6  million  during the year ended June 30,  2001,  a decrease of
$3.0  million  or 20.4%.  Expenses  in this  category  were 6.7% of net sales in
fiscal  2002 as  compared  to 6.9% in fiscal  2001.  The  decrease  was due to a
reduction  in  compensation  expense and overall  lower  expenses in relation to
lower sales volume.

Impairment and Restructuring Expenses.  During the year ended June 29, 2002, the
Company incurred  impairment and restructuring  expenses of $8.7 million related
to the closing of its Furman plant, a weaving only facility in Fountain Inn, SC.
There were no impairment or restructuring charges in fiscal 2001.

Operating Profit (Loss). The operating loss for the year ended June 29, 2002 was
$10.4  million,  as compared to  operating  profit of $2.0  million for the year
ended  June 30,  2001.  In  addition  to the  decline in gross  profit  that was
somewhat offset by lower selling, general and administrative expenses, operating
profit for fiscal 2002  included an $8.7 million  impairment  and  restructuring
charge that occurred in the first quarter of the 2002 fiscal year as a result of
closing the Furman plant.

Net Interest Expense. For the year ended June 29, 2002, net interest expense was
$8.9 million, as compared to $10.5 million for the year ended June 30, 2001. The
decrease in net  interest  expense  resulted  from the  extinguishment  of $36.0
million  principal  amount of debt  related to the  purchase of a portion of the
Company's 9.625% Senior Notes.

Gain on  Extinguishment of Debt. During fiscal 2002, the Company purchased $36.0
million face amount of its 9.625%  Senior Notes for $19.4  million.  The Company
recognized a gain of $16.1 million after the write-off of deferred loan costs of
$0.5  million.  During  fiscal 2001,  the Company  purchased  $31.3 million face
amount of its 9.625% Senior Notes for $28.0  million.  The Company  recognized a
gain of $2.5 million after the write-off of deferred loan costs of $0.8 million.

Taxes.  The  effective  tax rate of 36.7% for the year  ended  June 29,  2002 is
higher  than the 35.9%  effective  tax rate for the year  ended  June 30,  2001,
primarily because of the effect of nondeductible permanent differences on pretax
losses in fiscal year 2002 and 2001.

Net  Income  (Loss).  The net  loss for the year  ended  June 29,  2002 was $2.1
million,  as compared to a net loss of $3.9  million for the year ended June 30,
2001. For fiscal year 2002,  the loss included an impairment  and  restructuring
charge of  approximately  $5.5  million  on an after tax  basis.  There  were no
impairment and restructuring charges recognized in the previous fiscal year.

Order Backlog. The Company's order backlog at June 29, 2002 was $47.8 million, a
slight increase from the $47.2 million order backlog at June 30, 2001.


LIQUIDITY AND SOURCES OF CAPITAL

The Company  generated $4.5 million of cash from operations in fiscal 2003. This
included a change in operating  assets and  liabilities  that resulted in a $6.0
million  use of cash due to an  increase  in  inventory  of $11.4  million and a
decrease in accounts  receivable of $5.4 million.  The increase in inventory was
primarily  due to  customer  sales  deferments  that  occurred at the end of the
fourth quarter as well as the acceleration of cotton raw material purchases that
took place during the fourth  quarter in order to minimize the future  impact of
increasing cotton prices. During fiscal year 2003, the Company used $6.4 million
to fund capital  expenditures  and received $0.8 million in proceeds from excess
equipment  sales.  The Company  increased  borrowings  on the  revolving  credit
facility  $13.5 million.  The Company used $11.9 million in borrowings  from its
revolving  credit facility to purchase a portion of the Company's  9.625% Senior
Notes and $1.6 million to fund a portion of its capital expenditures.


                                       16
<PAGE>

LIQUIDITY AND SOURCES OF CAPITAL - CONTINUED

During fiscal year 2002, the Company  generated $2.4 million from operating cash
flow, used $6.1 million for capital  expenditures,  net of $0.4 million proceeds
from equipment  sales, and used $8.0 million from financing  activities.  During
fiscal year 2002, the Company's financing activities resulted in the use of $8.0
million  net of $11.4  in  borrowings  from its  revolving  credit  facility  to
purchase a portion of the Company's 9.625% Senior Notes for $19.4 million.

During fiscal year 2001, the Company generated $29.1 million from operations and
used $4.7 million for capital  expenditures net of proceeds of $0.5 million from
equipment sales.  Financing  activities  during fiscal year 2001 resulted in the
use of $30.9  million  primarily  for the purchase of a portion of the Company's
9.625% Senior Notes.

On August 25, 1997, the Company issued $150 million of unsecured ten-year Senior
Notes at an interest rate of 9.625%.  These notes will mature in August 2007. At
June 28, 2003, the outstanding balance of the notes was $31,941,000,  a decrease
of $15,878,000 from the balance of $47,819,000 at June 29, 2002. During the year
ended June 28, 2003, the Company acquired for $12,060,000, including expenses of
approximately  $172,000,  a portion of its 9.625%  Senior  Notes.  The aggregate
principal face amount of the acquired Senior Notes was  $15,878,000.  The future
annual  reduction in the Company's  interest expense because of this Senior Note
repurchase  will be  approximately  $1,179,725,  net of variable  rate  revolver
interest  on the  portion  of the  revolver  balance  attributable  to the  note
repurchase. At June 28, 2003, the interest rate on the revolver was 2.932%.

On March 20, 2003,  the  Company's  $50 million  credit  facility  with GMAC was
amended. The facility remains a $50 million committed revolving credit facility.
Among other things, the amendment removed the minimum  availability  requirement
of $12.5 million,  added financial  covenants for a maximum leverage ratio and a
minimum fixed charge  coverage ratio and extended the term of the facility until
March of 2007. The amended credit  facility also includes  GMAC's consent to the
sale of the Company's Catawba Plant, the closing of which was announced March 5,
2003,  and allows the  Company to exclude  from the  calculation  of EBITDA (for
purposes of financial covenant ratios) the restructuring  charge associated with
the closing of the Catawba  Plant.  Borrowings  under this credit  facility  are
based on eligible accounts receivable and inventory of the Company. The facility
is  secured by the  accounts  receivable,  inventory  and  capital  stock of the
Company.  The interest  rate on the credit  facility was 2.932% at June 28, 2003
and is based on a spread over either LIBOR or a base rate. Borrowings under this
facility  were $24.9  million and $11.4 million as of June 28, 2003 and June 29,
2002,  respectively.  As  of  June  28,  2003,  the  revolver  availability  was
approximately  $24 million and the Company was in compliance with all covenants.
There is a  substantial  likelihood  that Delta Mills will not be in  compliance
with the  financial  covenants  of the credit  agreement at the end of the first
quarter of fiscal  2004.  As a  precaution,  Delta Mills has already  obtained a
waiver of  compliance  with these  covenants  from GMAC for the first quarter of
fiscal 2004.  Management  believes the  availability  under Delta Mills'  credit
facility is adequate for the foreseeable future.

The Company's  credit  facility  contains  restrictive  covenants  that restrict
additional  indebtedness,  dividends,  and capital expenditures.  The payment of
dividends  with respect to Delta Mills,  Inc.  stock is permitted if there is no
event of default and there is at least $1 of availability under the facility. At
June 28, 2003, under the most restrictive of these covenants,  no dividends were
available for distribution by Delta Mills to Delta Woodside Industries, Inc. The
indenture  pertaining to the Company's 9.625% Senior Notes contains  restrictive
covenants that restrict additional  indebtedness,  dividends, and investments by
the Company and its subsidiaries. The payment of dividends with respect to Delta
Mills,  Inc.  stock is  permitted  if there is no  event of  default  under  the
indenture and after payment of the dividend, the Company could incur at least $1
of additional  indebtedness  under a fixed  coverage  ratio.  Dividends are also
capped  based on  cumulative  net  income  and  proceeds  from the  issuance  of
securities and liquidation of certain investments. Delta Mills may loan funds to
Delta  Woodside  Industries,  Inc.  if there is no event of default  and a fixed
charge coverage ratio test is satisfied. During the year ended June 28, 2003 and
the year ended June 29,  2002,  Delta Mills did not pay any  dividends  to Delta
Woodside Industries,  Inc. Industries, Inc. During the year ended June 30, 2001,
Delta Mills paid $2.9 million of dividends to Delta Woodside Industries, Inc.

                                       17
<PAGE>

LIQUIDITY AND SOURCES OF CAPITAL - CONTINUED

The Company  assigns a substantial  portion of its trade accounts  receivable to
GMAC  Commercial  Finance  LLC  (the  Factor)  under  a  factor  agreement.  The
assignment of these  receivables is primarily  without  recourse,  provided that
customer  orders are approved by the Factor prior to shipment of goods,  up to a
maximum for each individual account.  The assigned trade accounts receivable are
recorded  on the  Company's  books at full value and  represent  amounts due the
Company  from the  Factor.  There are no  advances  from the Factor  against the
assigned receivables.  All factoring fees are recorded on the Company's books as
incurred as a part of selling, general and administrative expense.

On November 6, 2002,  the Company  announced that it had started a major capital
project to  modernize  its Delta 3 cotton  finishing  plant in Wallace,  SC. The
first phase of this project was  completed in June of 2003.  During fiscal years
2004 and 2005,  the  Company  plans  additional  capital  expenditures  for this
project to make the finishing  facility  better prepared for growth and improved
product  quality.  The  cost  of  this  project  makes  up the  majority  of the
approximately $6.4 million in capital  expenditures for fiscal year 2003 and the
majority  of  the  approximately  $7.0  to  $8.0  million  planned  for  capital
expenditures in each of fiscal years 2004 and 2005.

The Company has  entered  into  agreements,  and has fixed  prices,  to purchase
cotton  for use in its  manufacturing  operations.  At  June  28,  2003  minimum
payments  under these  contracts  with  non-cancelable  contract terms were $8.1
million.

During  1998,  the Company  received  notices  from the State of North  Carolina
asserting  deficiencies  in state  corporate  income and franchise taxes for the
Company's  1994 - 1997 tax years.  The total  assessment  proposed  by the State
amounts to $1.5 million,  which includes interest and penalties.  The assessment
was  delayed  pending  an  administrative  review of the case by the  State.  In
October  2002,  the State  proposed a settlement in which the Company would have
paid  approximately  90% of  the  assessed  amount  plus a  portion  of  certain
penalties  for the Company's  tax years 1994 - 2000.  The Company  rejected this
offer and continued with its appeal due to management's  belief that the State's
legal   position  is  in  conflict  with   established   principles  of  federal
constitutional  law.  The  Company  believes  that its  reserves  for any likely
settlement  are adequate and any payment in  settlement  of this matter will not
result in a material impact on the Company's results of operations.

The Company  believes that the cash flow  generated by its  operations and funds
available  under its credit line should be  sufficient  to service its debt,  to
satisfy its  day-to-day  working  capital needs and to fund its planned  capital
expenditures for the next twelve months.

Commitments. As of June 28, 2003, the Company had contractual obligations in the
form of leases, cotton commitments, and debt as follows (in thousands):
<TABLE>
<CAPTION>

                           Payments Due by Fiscal Year

      Contractual Obligations           2004         2005        2006        2007         2008     Thereafter     Total
                                     ------------ ----------- ----------- ------------ ----------- ----------- ------------

<S>                                       <C>           <C>           <C>      <C>         <C>                     <C>
Cotton Commitments                        $8,051                                                                    $8,051
Non-Cancelable Operating Leases              433         203           8            4           2                      650
Revolving Credit Facility                                                      24,856                               24,856
Long-Term Debt                                                                             31,941                   31,941
                                     ------------ ----------- ----------- ------------ ----------- ----------- ------------
Total                                     $8,484        $203          $8      $24,860      31,943                  $65,498
                                     ============ =========== =========== ============ =========== =========== ============

</TABLE>






                                       18
<PAGE>

CRITICAL ACCOUNTING POLICIES

Critical  accounting  policies  are  defined  as those  that are  reflective  of
significant  judgements and uncertainties,  and potentially result in materially
different results under different assumptions and conditions.

Impairment of Long - Lived Assets:  In  accordance  with  Statement of Financial
Accounting  Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," long-lived assets such as property,  plant and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  Recoverability  of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated  future cash
flows,  an  impairment  charge is recognized by the amount by which the carrying
amount of the asset  exceeds the fair value of the asset.  Assets to be disposed
of are  separately  presented in the balance  sheet and reported at the lower of
the  carrying  amount  or fair  value  less  costs  to sell,  and are no  longer
depreciated.

Prior to June 30, 2002, the impairment of long-lived assets was accounted for in
accordance  with SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
Assets and Long-Lived Assets to be Disposed Of."

Income  Taxes:  The  Company  accounts  for  income  taxes  under  the asset and
liability  method  in  accordance  with  Financial   Accounting   Standard  109,
Accounting for Income Taxes ("SFAS 109"). The Company recognizes deferred income
taxes,  net of valuation  allowances,  for the  estimated  future tax effects of
temporary  differences  between  the  financial  statement  carrying  amounts of
existing  assets and  liabilities and their tax bases and net operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment  date.  Changes in deferred tax
assets and  liabilities  are recorded in the provision  for income taxes.  As of
June 28, 2003 and June 29,2002,  the Company had approximately  $6.9 million and
$8.0 million, respectively, in net deferred tax liabilities.

The Company  evaluates on a regular basis the  realizability of its deferred tax
assets for each  taxable  jurisdiction.  In making this  assessment,  management
considers  whether it is more  likely  than not that some  portion or all of its
deferred tax assets will be realized.  The ultimate  realization of deferred tax
assets is  dependent  on the  generation  of future  taxable  income  during the
periods in which  those  temporary  differences  become  deductible.  Management
considers all  available  evidence,  both positive and negative,  in making this
assessment.


ENVIRONMENTAL MATTERS

Two of the Company's  South Carolina  plants,  the Delta 2 and Delta 3 Finishing
Plants,  have  experienced  high  nitrate  levels at the  spray  field for these
plants. The Company is working with the South Carolina  Department of Health and
Environmental  Control  ("DHEC") to address this issue. In addressing this issue
in the method and within the time frame required by DHEC, a report was submitted
in June 2001 to DHEC  detailing  four options for dealing with this  groundwater
situation.  At the date of this  filing,  DHEC has  still not  responded  to the
Company's  proposal.  Although  there is no  assurance  that the Company will be
successful and it could face administrative  penalties if it is not, the Company
does not currently believe that this matter would have a material adverse impact
on the Company's financial position.

On June 30, 2000, the Company sold its  Greensboro,  North Carolina plant to the
City of Greensboro.  The Company had been working with environmental consultants
in assessing  groundwater  contamination at this site. Because of these studies,
one-half of the proceeds from the sale of the plant, consisting of approximately
$400,000,  were placed in an interest  bearing  escrow account to cover expenses
related  to this  contamination.  As of the date of this  filing,  approximately
$308,000 remains in this escrow account.  The Company believes that this balance
is adequate to cover any remaining  expenses related to this matter. The Company
recorded the sale net of estimated costs to remediate the property.


                                       19
<PAGE>

ENVIRONMENTAL MATTERS - CONTINUED

On January 10, 2000,  the North Carolina  Department of Environment  and Natural
Resources requested that the Company accept responsibility for investigating the
discharge of hazardous  substances  at a hazardous  waste site known as the Glen
Raven Mills Site, Kings Mountain,  North Carolina (the "Site"). A predecessor by
merger of the Company,  Park Yarn Mills Company,  Inc. ("Park Yarn"),  owned the
Site for approximately six (6) years, from  approximately 1977 to 1983 (prior to
the time the Company became a subsidiary of Delta Woodside Industries, Inc.) The
Company is aware of no  evidence  that Park Yarn  discharged  or  deposited  any
hazardous  substance at the Site or is otherwise a  "responsible  party" for the
Site.  Further,  Park Yarn filed bankruptcy and was discharged in 1983. Although
no assurance  can be provided,  any liability of Park Yarn for the Site may have
been discharged by the bankruptcy order. Accordingly, the Company has denied any
responsibility at the Site, declined to undertake any activities  concerning the
Site,   and  has  not  provided  for  any  reserves  for  costs  or  liabilities
attributable to Park Yarn.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY RISK SENSITIVITY

As a part of the Company's  business of converting fiber to finished fabric, the
Company makes raw cotton purchase  commitments and then fixes prices with cotton
merchants who buy from producers and sell to textile manufacturers.  Under these
contracts,  nonperformance  by either  the buyer or the seller may result in net
cash settlement of the difference between the current market price of cotton and
the contract price. The Company has not utilized the net settlement provision in
the past, and does not anticipate  using it in the future.  The Company may seek
to fix prices up to 18 months in advance of delivery.  Daily price  fluctuations
are minimal,  yet long-term  trends in price  movement can result in unfavorable
pricing of cotton for the  Company.  In recent  months,  the price of cotton has
trended upward,  and the Company has increased its cotton  inventory in order to
obtain its cotton at a lower price.  Before fixing prices,  the Company looks at
supply and demand  fundamentals,  recent  price  trends and other  factors  that
affect  cotton  prices.  The  Company  also  reviews  the backlog of orders from
customers as well as the level of fixed price cotton commitments in the industry
in general.  At June 28,  2003,  a 10% decline in the market price of the cotton
covered by the Company's  fixed price  contracts would have a negative impact of
approximately  $0.8 million on the value of the contracts.  At the end of fiscal
2002, a 10% decline in the market price of the Company's  fixed price  contracts
would have had a negative impact of  approximately  $1.5 million on the value of
the contracts. The decline in the potential negative impact from 2002 to 2003 is
due  principally  to current cotton  commitments  being at  significantly  lower
average prices than in fiscal 2002.


INTEREST RATE SENSITIVITY

The $50 million secured four-year  revolving credit facility expiring in 2007 is
sensitive to changes in interest rates. Interest is based on a spread over LIBOR
or a base rate. An interest rate  increase  would have a negative  impact to the
extent the Company borrows  against the revolving  credit  facility.  The impact
would be dependent on the level of borrowings incurred.  As of June 28, 2003, an
increase  in  the  interest  rate  of  1%  would  have  a  negative   impact  of
approximately $249,000. As of June 29, 2002, an increase in the interest rate of
1% would have had a negative impact of approximately  $114,000.  The increase in
the  negative  impact is due to the  increased  borrowings  under the  revolving
credit facility in fiscal 2003.

An interest rate change would not impact the  Company's  cash flows on the fixed
rate ten year Senior Notes.



                                       20
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                -------
<S>                                                                                               <C>
Report of KPMG  LLP                                                                               22
Consolidated Balance Sheets as of June 28, 2003 and June 29, 2002                                 23
Consolidated Statements of Operations for the fiscal years ended June 28, 2003,
                      June 29, 2002 and June 30, 2001                                             25
Consolidated Statements of Shareholder's Equity  for the fiscal years ended June 28, 2003,
                      June 29, 2002 and June 30, 2001                                             26
Consolidated Statements of Cash Flows for the fiscal years ended June 28, 2003,
                      June 29, 2002 and June 30, 2001                                             27
Notes to Consolidated Financial Statements                                                        28

</TABLE>


















                                       21
<PAGE>


         INDEPENDENT AUDITORS' REPORT

         THE BOARD OF DIRECTORS
         DELTA MILLS, INC.

         We have audited the accompanying  consolidated  balance sheets of Delta
         Mills,  Inc. and subsidiaries as of June 28, 2003 and June 29, 2002 and
         the  related  consolidated  statements  of  operations,   shareholder's
         equity,  and cash flows for each of the years in the three-year  period
         ended June 28, 2003. These  consolidated  financial  statements are the
         responsibility of the Company's  management.  Our  responsibility is to
         express an opinion on these consolidated  financial statements based on
         our audits.

         We conducted our audits in accordance with auditing standards generally
         accepted in the United States of America.  Those standards require that
         we plan and perform  the audits 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
         Delta  Mills,  Inc. and  subsidiaries  as of June 28, 2003 and June 29,
         2002, and the results of their operations and their cash flows for each
         of the years in the three-year period ended June 28, 2003 in conformity
         with accounting  principles  generally accepted in the United States of
         America.

         As discussed in Note A to the  consolidated  financial  statements,  on
         June 30, 2002, the Company  adopted  Statement of Financial  Accounting
         Standards  No.  145,  "Rescission  of FASB  Statements  Nos.  4 and 64,
         Amendment of FASB Statement No. 13, and Technical Corrections."


                                              /s/KPMG LLP
                                              KPMG LLP

         Greenville, South Carolina
         July 25, 2003




                                       22
<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS Delta Mills, Inc.
(In Thousands, except share amounts)

                                                              June 28, 2003             June 29, 2002
                                                       ---------------------    ----------------------
<S>                                                                 <C>                        <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                            $520                       $52
  Accounts receivable:
     Factor and other                                                44,628                    49,887
    Less allowances for returns                                         180                        32
                                                       ---------------------    ----------------------
                                                                     44,448                    49,855
  Inventories
     Finished goods                                                   7,711                     7,085
     Work in process                                                 25,765                    19,878
     Raw materials and supplies                                      10,659                     5,784
                                                       ---------------------    ----------------------
                                                                     44,135                    32,747

  Deferred income taxes                                               1,517                     1,347
  Other assets                                                          520                        25
                                                       ---------------------    ----------------------
                      TOTAL CURRENT ASSETS                           91,140                    84,026
                                                       ---------------------    ----------------------

ASSETS HELD FOR SALE                                                  3,948                     3,141

PROPERTY, PLANT AND EQUIPMENT, at cost
     Land and land improvements                                       1,587                     1,702
     Buildings                                                       30,943                    32,171
     Machinery and equipment                                        109,623                   114,070
     Furniture, fixtures and office equipment                         9,789                     9,599
     Lease improvements                                               1,030                     1,030
     Construction in progress                                         4,427                     1,025
                                                       ---------------------    ----------------------
                                                                    157,399                   159,597
     Less accumulated depreciation and amortization                  90,618                    89,096
                                                       ---------------------    ----------------------
                                                                     66,781                    70,501

DEFERRED LOAN COSTS
             less accumulated amortization of $ 5,634
             and $5,324 in 2003 and 2002 respectively                   459                       769

                                                       ---------------------    ----------------------
                                                                   $162,328                  $158,437
                                                       =====================    ======================
</TABLE>












                                       23
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS Delta Mills, Inc.
(In Thousands, except share amounts)


                                                              June 28, 2003           June 29, 2002
                                                          ------------------      ------------------

<S>                                                                 <C>                     <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
  Trade accounts payable                                            $14,217                 $11,689
  Revolving credit facility                                          24,856                  11,365
  Payable to Affiliates                                               3,517                   3,321
  Accrued employee compensation                                       1,414                   1,696
  Accrued and sundry liabilities                                     20,479                  18,617

                                                          ------------------      ------------------
                    TOTAL CURRENT LIABILITIES                        64,483                  46,688

LONG-TERM DEBT                                                       31,941                  47,819
DEFERRED INCOME TAXES                                                 8,421                   9,340
DEFERRED COMPENSATION                                                 7,573                   7,271
SHAREHOLDER'S EQUITY
  Common Stock - par value $.01 a share -  authorized
    3000 shares, issued and outstanding 100 shares
  Additional paid-in capital                                         51,792                  51,792
  Retained earnings (accumulated deficit)                            (1,882)                 (4,473)
                                                          ------------------      ------------------
                                                                     49,910                  47,319
COMMITMENTS AND CONTINGENCIES
                                                          ------------------      ------------------
                                                                   $162,328                $158,437
                                                          ==================      ==================

</TABLE>




See notes to consolidated financial statements.


                                       24
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS
Delta Mills, Inc.
(In Thousands)

                                                                     Year Ended        Year Ended       Year Ended
                                                                   June 28, 2003     June 29, 2002     June 30, 2001
                                                                 ----------------  ---------------- -----------------

<S>                                                                     <C>               <C>               <C>
Net sales                                                               $177,193          $174,673          $212,960
Cost of goods sold                                                       160,243           165,266           196,692
                                                                 ----------------  ---------------- -----------------
Gross profit                                                              16,950             9,407            16,268
Selling, general and administrative expenses                              11,370            11,634            14,609
Impairment and restructuring expenses                                        398             8,683
Other income                                                                 582               476               302
                                                                 ----------------  ---------------- -----------------
  OPERATING PROFIT (LOSS)                                                  5,764           (10,434)            1,961
Other (expense) income:
  Interest expense                                                        (5,275)           (9,090)          (11,064)
  Interest income                                                                              192               547
  Gain on extinguishment of debt                                           3,643            16,072             2,458
                                                                 ----------------  ---------------- -----------------
                                                                          (1,632)            7,174            (8,059)
                                                                 ----------------  ---------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES                                          4,132            (3,260)           (6,098)
Income tax expense (benefit)                                               1,541            (1,198)           (2,192)
                                                                 ----------------  ---------------- -----------------

NET INCOME (LOSS)                                                         $2,591           $(2,062)          $(3,906)
                                                                 ================  ================ =================





See notes to consolidated financial statements.

</TABLE>








                                       25
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Delta Mills, Inc.
(In Thousands)


                                                              Additional            Retained               Total
                                      Common Stock             Paid-In              Earnings             Shareholder's
                                Shares          Amount         Capital       (Accumulated Deficit)         Equity
                             --------------  -------------  ---------------  -----------------------  -----------------
<S>                                    <C>             <C>         <C>                       <C>               <C>
Balance at July 1, 2000                100             $0          $51,792                   $4,395            $56,187
  Net Loss                                                                                   (3,906)            (3,906)
  Cash dividends paid                                                                        (2,900)            (2,900)
                             --------------  -------------  ---------------  -----------------------  -----------------
Balance at June 30, 2001               100              0           51,792                   (2,411)            49,381
  Net Loss                                                                                   (2,062)            (2,062)
                             --------------  -------------  ---------------  -----------------------  -----------------
Balance at June 29, 2002               100              0           51,792                   (4,473)            47,319
  Net Income                                                                                  2,591              2,591
                             --------------  -------------  ---------------  -----------------------  -----------------
Balance at June 28, 2003               100             $0          $51,792                  $(1,882)           $49,910
                             ==============  =============  ===============  =======================  =================



</TABLE>







See notes to consolidated financial statements.








                                       26
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Delta Mills, Inc.
(In Thousands)
                                                                      Year Ended           Year Ended            Year Ended
                                                                     June 28, 2003        June 29, 2002         June 30, 2001
                                                                   ------------------   ------------------    ------------------
OPERATING ACTIVITIES
<S>                                                                           <C>                <C>                   <C>
  Net income (loss)                                                           $2,591             $(2,062)              $(3,906)
  Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation                                                              8,979                9,174                10,886
     Amortization                                                                135                  370                   424
     Decrease in deferred loan costs                                             175                  541                   784
     Discount to face value on repurchase of bonds                            (3,818)             (16,613)               (3,242)
     Impairment and restructuring expenses                                       398                8,683
     Change in deferred income taxes                                          (1,089)              (1,225)               (1,888)
     Gains on disposition of property
        and equipment                                                           (433)                (356)                 (342)
     Changes in operating assets and liabilities:
        Accounts receivable                                                    5,407              (12,251)               33,579
        Inventories                                                          (11,388)              10,455                   717
        Other current assets                                                    (495)                 522                   (80)
        Deferred compensation                                                    306                  672                   786
        Accounts payable and accrued expenses                                  3,732                4,512                (8,668)
                                                                   ------------------   ------------------    ------------------
          NET CASH PROVIDED BY OPERATING ACTIVITIES                            4,500                2,422                29,050
                                                                   ------------------   ------------------    ------------------

INVESTING ACTIVITIES Property, plant and equipment:
     Purchases                                                                (6,442)              (6,496)               (5,151)
     Proceeds of dispositions                                                    807                  429                   450
                                                                   ------------------   ------------------    ------------------
           NET CASH USED IN INVESTING ACTIVITIES                              (5,635)              (6,067)               (4,701)
                                                                   ------------------   ------------------    ------------------

FINANCING ACTIVITIES
  Proceeds from revolving lines of credit                                    195,461               44,979                 3,003
  Repayments on revolving lines of credit                                   (181,970)             (33,614)               (3,003)
  Repurchase and retirement of long-term debt                                (11,888)             (19,383)              (28,021)
  Dividends paid                                                                                                         (2,900)
                                                                   ------------------   ------------------    ------------------
          NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                  1,603               (8,018)              (30,921)
                                                                   ------------------   ------------------    ------------------

INCREASE (DECREASE) IN CASH AND
         CASH EQUIVALENTS                                                        468              (11,663)               (6,572)

Cash and cash equivalents at beginning of year                                    52               11,715                18,287
                                                                   ------------------   ------------------    ------------------
         CASH AND CASH EQUIVALENTS AT END OF YEAR                               $520                  $52               $11,715
                                                                   ==================   ==================    ==================
See notes to consolidated financial statements.
</TABLE>


                                       27
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:  The Company  manufactures woven fabrics which are sold
through a separate sales subsidiary.  The Company's  operations,  all within the
textile industry, are considered a single business segment.

BASIS  OF  PRESENTATION:  The  consolidated - financial statements  include  the
accounts of Delta Mills, Inc. and Delta Mills Marketing, Inc. (collectively, the
"Company").  All significant  intercompany  balances and transactions  have been
eliminated in consolidation.  Delta Mills, Inc. and Delta Mills Marketing , Inc.
are wholly-owned subsidiaries of Delta Woodside Industries, Inc. ("DWI").

CASH  EQUIVALENTS:  The Company  considers  all highly liquid  investments  with
initial   maturities  of  three  months  or  less  when  purchased  to  be  cash
equivalents.

INVENTORIES:  Inventories  are stated at the lower of cost or market  determined
using the first-in , first-out (FIFO) method.

PROPERTY,  PLANT AND EQUIPMENT:  Property,  plant and equipment is stated on the
basis  of  cost.  Depreciation  is  computed  by the  straight-line  method  for
financial  reporting  based on  estimated  useful  lives of three to  thirty-two
years,  but  predominantly  over seven to  fourteen  years,  and by  accelerated
methods for income tax reporting.

IMPAIRMENT  OF LONG-LIVED  ASSETS:  In  accordance  with  Statement of Financial
Accounting  Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," long-lived assets such as property,  plant and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  Recoverability  of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated  future cash
flows,  an  impairment  charge is recognized by the amount by which the carrying
amount of the asset  exceeds the fair value of the asset.  Assets to be disposed
of are  separately  presented in the balance  sheet and reported at the lower of
the  carrying  amount  or fair  value  less  costs  to sell,  and are no  longer
depreciated.

Prior to June 30, 2002, the impairment of long-lived assets was accounted for in
accordance  with SFAS No. 121,  "Accounting for the Impairment of Long-Lived and
Long-Lived Assets to be Disposed Of."

REVENUE RECOGNITION: Sales are recorded upon shipment or designation of specific
goods for later  shipment at  customers'  request with related risk of ownership
passing to such customers.

DEFERRED LOAN COSTS:  Deferred loan costs are being  amortized  over the life of
the related debt which is primarily ten years.

INCOME TAXES:  Deferred income taxes are recognized for the tax  consequences of
"temporary  differences" by applying  enacted  statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and  liabilities  and net operating  losses and
tax credit carryforwards.  The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date. Accruals
for tax  exposures are recorded  when they are probable and  estimable,  and tax
valuation  allowances are established  when management  cannot conclude that the
realization of deferred tax assets are more likely than not.

ENVIRONMENTAL   COSTS:   Environmental   compliance  cost,   including   ongoing
maintenance,   monitoring   and  similar   costs,   are  expensed  as  incurred.
Environmental  remediation costs are accrued,  except to the extent costs can be
capitalized,  when remedial efforts are probable, and the cost can be reasonably
estimated.


                                       28
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE A--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

COTTON  PROCUREMENT:  The Company  contracts to buy cotton with future  delivery
dates at fixed  prices in order to reduce  the  effects of  fluctuations  in the
prices of cotton used in the  manufacture of its products.  These  contracts are
settled by delivery and are not used for trading  purposes.  The Company commits
to fixed prices on a percentage of its cotton requirements up to eighteen months
in the future.  If market prices for cotton fall below the  Company's  committed
fixed costs and it is estimated  that the cost of cotton is not  recoverable  in
future sales of finished  goods,  the  differential is charged to income at that
time. The Company's  management has determined that its cotton buying  contracts
meet the  criteria for  exclusion  under the normal  purchases  and normal sales
exemption of SFAS 133 and its related amendments.

STOCK OPTIONS:  The Company  participates in the Delta Woodside  Industries Inc.
Stock Option  Plan.  The Company  applies the  intrinsic  value-based  method of
accounting  for these  stock  options,  in  accordance  with the  provisions  of
Accounting  Principles Board (APB) Opinion No. 25,  "Accounting for Stock Issued
to  Employees",  and related  interpretations.  Under this method,  compensation
expense is recorded on the date of the grant only if the current market price of
the underlying  stock exceeded the exercise price. If the Company had determined
compensation  expense at fair  value,  as under SFAS No.  123,  "Accounting  for
Stock-Based  Compensation,"  the  Company's net income (loss) would have been as
follows:
<TABLE>
<CAPTION>

(In thousands)                                              Year Ended               Year Ended              Year Ended
                                                            June 28, 2003            June 29, 2002           June 30, 2001
                                                            -----------------        ------------------      -----------------

<S>                                                           <C>                      <C>                      <C>
Net income (loss), as reported                                $        2,591           $        (2,062)         $      (3,906)

Add stock based employee compensation expense
included in reported net income (loss), net of tax                       174                       136

Less total stock based compensation expense
   determined under fair value based method, net
   of related tax effects                                               (496)                     (491)                 (331)
                                                            -----------------        ------------------      -----------------

Pro forma net income (loss)                                   $        2,269          $         (2,417)         $     (4,237)
                                                            -----------------        ------------------      -----------------


</TABLE>

RECENT ACCOUNTING  PRONOUNCEMENTS:  In April 2002, the FASB issued Statement No.
145,  "Rescission of FASB Statements Nos. 4 and 64,  Amendment of FASB Statement
No. 13, and  Technical  Corrections."  Among other  things,  Statement  No. 145,
through the rescission of Statement No. 4, no longer requires extraordinary item
treatment for gains and losses from the  extinguishment of debt, unless the debt
extinguishment  meets  the  unusual  in nature  and  infrequency  of  occurrence
criteria  established  in APB 30. The  Statement  was effective for fiscal years
beginning after May 15, 2002 and requires the  reclassification  of prior period
items that do not meet the extraordinary item classification criteria in APB 30.
Upon adoption,  the Company  reclassified all extraordinary gains recognized for
the early  extinguishment  of debt as a component of income (loss) before income
taxes for all financial statement periods presented.

ESTIMATES: The preparation of financial statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  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.

                                       29
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE A--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

FAIR  VALUE OF  FINANCIAL  INSTRUMENTS:  The  carrying  values of the  Company's
financial  instruments,  except for those disclosed in Note C, approximate their
estimated  fair  values  due  to  either  the  short-term   maturities  of  such
instruments or minor interest rate differentials.

RECLASSIFICATIONS:  Certain prior year amounts in the accompanying  consolidated
financial  statements  have been  reclassified  to conform  to the  fiscal  2003
presentation.  These  reclassifications  did not  effect  net  income  (loss) or
shareholders' equity.

FISCAL YEAR:  The Company's  operations  are based on a fifty-two or fifty-three
week fiscal year ending on the Saturday  closest to June 30.  Fiscal years 2003,
2002 and 2001 each consisted of 52 weeks.


NOTE B--ACCOUNTS RECEIVABLE

The Company  assigns a substantial  portion of its trade accounts  receivable to
GMAC Commercial Credit LLC (the Factor) under a factor agreement. The assignment
of these  receivables  is primarily  without  recourse,  provided  that customer
orders are  approved by the Factor  prior to shipment of goods,  up to a maximum
for each individual account. The assigned trade accounts receivable are recorded
on the Company's  books at full value and  represent  amounts due to the Company
from the Factor.  There are no  advances  from the Factor  against the  assigned
receivables.  All factoring fees are recorded on the Company's books as incurred
as a part of selling, general and administrative expense.

For fiscal year 2003,  the  Company  had three  customers,  Levi  Strauss,  V.F.
Corporation,  and Haggar  Apparel  that each  exceeded 10% of  consolidated  net
sales.  The  Company's  sales to these  customers  totaled $71 million in fiscal
2003. For fiscal year 2002, only two of these  customers,  Levi Strauss and V.F.
Corporation, each exceeded 10% of consolidated net sales. The Company's sales to
these  customers  totaled $63 million in fiscal 2002.  For fiscal year 2001, the
Company  again  had  three  customers,  Levi  Strauss,  Haggar  Corp.,  and V.F.
Corporation,  which each exceeded 10% of consolidated  net sales.  The Company's
aggregate  sales to these  customers  were  $90  million  for  fiscal  2001.  In
addition, during fiscal years 2003, 2002, and 2001, sales of military fabrics to
apparel customers  accounted for approximately 33%, 31%, and 22%,  respectively,
of the Company's  total sales.  The loss of any of these  accounts  could have a
material adverse effect on the results of the Company.

The  Company's  accounts  receivable  are due from many  companies  that produce
apparel  products  located  throughout  the United  States.  Credit risk for the
receivables  generally  remains with the Factor under the terms of the factoring
agreement.

NOTE C--LONG-TERM DEBT AND LEASES

On August 25, 1997, the Company issued $150 million of unsecured ten-year Senior
Notes at an interest rate of 9.625%.  These notes will mature in August 2007. At
June 28, 2003, the outstanding balance of the notes was $31,941,000,  a decrease
of $15,878,000 from the balance of $47,819,000 at June 29, 2002.

At June 28, 2003, the carrying value of the Senior Notes was $31,941,000 and the
fair value, based on quoted market prices was $25,233,000. The fair value of the
revolving  credit facility  approximates  its carrying value as of June 28, 2003
due to the variable interest rate provision of the facility.


                                       30
<PAGE>

NOTE C--LONG-TERM DEBT AND LEASES - CONTINUED

On March 20, 2003,  the  Company's  $50 million  credit  facility  with GMAC was
amended. The facility remains a $50 million committed revolving credit facility.
Among other things, the amendment removed a minimum availability  requirement of
$12.5  million,  added  financial  covenants for a maximum  leverage ratio and a
minimum fixed charge  coverage ratio and extended the term of the facility until
March of 2007. The amended credit  facility also includes  GMAC's consent to the
sale of the Company's Catawba Plant, the closing of which was announced March 5,
2003,  and allows the  Company to exclude  from the  calculation  of EBITDA (for
purposes of financial covenant ratios) the restructuring  charge associated with
the closing of the Catawba  Plant.  Borrowings  under this credit  facility  are
based on eligible accounts receivable and inventory of the Company. The facility
is  secured by the  accounts  receivable,  inventory  and  capital  stock of the
Company.  The interest  rate on the credit  facility was 2.932% at June 28, 2003
and is based on a spread over either LIBOR or a base rate. Borrowings under this
facility  were $24.9  million and $11.4 million as of June 28, 2003 and June 29,
2002,  respectively.  As  of  June  28,  2003,  the  revolver  availability  was
approximately  $24 million and the Company was in compliance with all covenants.
There is a  substantial  likelihood  that Delta Mills will not be in  compliance
with the  financial  covenants  of the credit  agreement at the end of the first
quarter of fiscal 2004. As a precaution,  the Delta Mills has already obtained a
waiver of  compliance  with these  covenants  from GMAC for the first quarter of
fiscal 2004.  Management  believes the  availability  under Delta Mills'  credit
facility is adequate for the foreseeable future.

The Company's  credit  facility  contains  restrictive  covenants  that restrict
additional  indebtedness,  dividends,  and capital expenditures.  The payment of
dividends  with respect to Delta Mills,  Inc.  stock is permitted if there is no
event of default and there is at least $1 of availability under the facility. At
June 28, 2003, under the most restrictive of these covenants,  no dividends were
available for distribution by Delta Mills to Delta Woodside Industries, Inc. The
indenture  pertaining to the Company's 9.625% Senior Notes contains  restrictive
covenants that restrict additional  indebtedness,  dividends, and investments by
the Company and its subsidiaries. The payment of dividends with respect to Delta
Mills,  Inc.  stock is  permitted  if there is no  event of  default  under  the
indenture and after payment of the dividend, the Company could incur at least $1
of additional  indebtedness  under a fixed  coverage  ratio.  Dividends are also
capped  based on  cumulative  net  income  and  proceeds  from the  issuance  of
securities and liquidation of certain investments. Delta Mills may loan funds to
Delta  Woodside  Industries,  Inc.  if there is no event of default  and a fixed
charge  coverage  ratio test is satisfied.  Certain prior year amounts have been
reclassified  to conform to the  fiscal  2003  presentation  that  reflects  the
Company's adoption of SFAS 145 pertaining to the treatment of gain on retirement
of debt.  During the year ended June 28, 2003 and the year ended June 29,  2002,
Delta  Mills  did not pay any  dividends  to  Delta  Woodside  Industries,  Inc.
Industries,  Inc.  During the year ended June 30,  2001,  Delta  Mills paid $2.9
million of dividends to Delta Woodside Industries, Inc.

Total interest  expense  incurred by the Company was $5,275,000,  $9,090,000 and
$11,064,000 for fiscal years 2003, 2002, and 2001, respectively, net of $386,000
of capitalized  interest in fiscal 2003. Total interest paid during fiscal years
2003, 2002, and 2001 was $5,778,000, $10,252,000 and $12,099,000, respectively.

Rent expense relating to operating leases was approximately $435,000, $1,733,000
and $ 3,165,000 for fiscal years 2003, 2002 and 2001 respectively.

Aggregate principal  maturities of all long-term debt and minimum payments under
non-cancelable operating leases are as follows:

                                  Long-term         Operating
                 Fiscal Year          Debt             Leases

                          2004                            433,000
                          2005                            203,000
                          2006                              8,000
                          2007                              4,000
                          2008       $31,941,000            2,000
                              ------------------------------------
                                     $31,941,000         $650,000
                              ====================================


                                       31
<PAGE>

NOTE D--EMPLOYEE BENEFIT PLANS

The Company  participates  in the Delta Woodside  Industries,  Inc. 40l(k) Plan.
During fiscal 2003, 2002 and 2001, the Company contributed  $617,000,  $574,000,
and $411,000, respectively, to the 401(k) plan to match employee contributions.

The Company participates in a Deferred  Compensation Plan, managed by DWI, which
permits certain management  employees to defer a portion of their  compensation.
Deferred  compensation  accounts are credited with interest and are  distributed
after retirement,  disability or employment termination. As of June 28, 2003 and
June  29,  2002,   the  Company's   liability  was   $7,573,000  and  $7,271,000
respectively.

The Company also participates in the Delta Woodside  Industries,  Inc. Incentive
Stock Award Plan and Stock Option Plan.  Including  associated  tax  assistance,
under the Incentive Stock Award Plan the Company recognized expense of $280,000,
$198,000, and $0 for fiscal years 2003, 2002 and 2001, respectively. The Company
has adopted the disclosure only provisions of Statement of Financial  Accounting
Standards No. 123, "Accounting for Stock-Based  Compensation." SFAS 123 requires
pro  forma  disclosures  for  option  grants  when  accounting  for  stock-based
compensation  plans  in  accordance  with  APB 25.  The pro  forma  effects  are
determined as if  compensation  costs were  recognized  using a fair value based
accounting method.  The fair value of each option granted,  as disclosed in Note
A, is  estimated  on the date of grant  using the  Black-Scholes  option-pricing
model with the following weighted-average assumptions:

                                                 2003      2002       2001
                                                 ----      ----       ----
Risk free interest rate                           N/A       N/A       5.0%
Expected lives for options                        N/A       N/A   10 Years
Expected volatility                               N/A       N/A        62%
Dividend yield                                    N/A       N/A        N/A
Fair value per option at grant date               N/A       N/A      $4.00


NOTE E--AFFILIATED PARTY TRANSACTIONS

The Company is the only  operating  division of DWI.  Actual  corporate  service
costs for management,  treasury, auditing, and shareholder relations are charged
to the  Company  as  incurred.  Receivable  or payable  to  affiliates  bears no
interest  and includes  amounts  payable to or  receivable  from DWI for current
activity as described.


NOTE F--INCOME TAXES

The Company  reports  federal  income  taxes in the  consolidated  return of its
parent  Delta  Woodside  Industries,  Inc.  (DWI)  and  had  taxable  income  of
approximately   $6.6  million   which  will  be  reported  in  the  fiscal  2003
consolidated  Federal income tax return with its parent,  DWI. The  consolidated
tax  group  had  regular  taxable  income  of  approximately  $5.8  million  and
alternative  minimum  taxable income (AMT) of  approximately  $3.4 million.  The
Federal  income tax  obligation  or refund that is  allocated  to the Company is
determined  as if the Company was filing a separate  Federal  income tax return.
The Company's  Federal tax liability or receivable is paid to or is a receivable
from the parent company.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the  financial  statement  amounts and amounts  reported  for income tax
purposes.  The  company  anticipates  that  the  reversal  of  existing  taxable
temporary  differences  will provide  sufficient  taxable  income to realize the
remaining  deferred tax assets.  Accordingly,  no valuation  allowance  has been
provided for 2003 or 2002.


                                       32
<PAGE>

Significant  components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>

---------------------------------------------------------------------------------------
                                                           2003               2002
<S>                                                     <C>                <C>
Assets:
Deferred compensation                                   $  3,026,000       $  2,799,000
Accrued and sundry liabilities                             1,389,000          1,696,000
Net operating loss carryforwards                             284,000            749,000
Inventories                                                   62,000
Other                                                         68,000             14,000
                                                        ------------       ------------
Gross deferred tax assets                                  4,829,000          5,258,000
Valuation allowance                                     ------------       ------------
Deferred tax assets                                        4,829,000          5,258,000

Liabilities:
Depreciation                                              11,733,000         12,888,000
 Inventories                                                                    363,000
                                                       -------------      -------------
Deferred tax liabilities                                  11,733,000         13,251,000
                                                       -------------      -------------
      Net deferred tax liabilities                       $(6,904,000)      $ (7,993,000)
                                                       ==============     =============
</TABLE>

Significant  components of the provision for income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>

                                                             2003               2002                2001
                                               ----------------------------------------------------------
<S>                                                    <C>                 <C>                 <C>
Current:
     Federal income taxes                              $2,230,000
     State income taxes                                   400,000            $15,000            $105,000
                                               ----------------------------------------------------------
           Total current                                2,630,000             15,000             105,000
Deferred:
      Federal income taxes                               (804,000)        (1,009,000)         (2,056,000)
      State income taxes                                 (285,000)          (204,000)           (241,000)
                                               ----------------------------------------------------------
           Total deferred                              (1,089,000)        (1,213,000)         (2,297,000)

                                               ----------------------------------------------------------
Total income tax expense (benefit)                     $1,541,000        $(1,198,000)        $(2,192,000)
                                               ==========================================================
</TABLE>

The  reconciliation  of income tax  expense  (benefit)  computed  at the Federal
statutory tax rates is as follows:
<TABLE>
<CAPTION>

                                                             2003                 2002                   2001
                                                      ------------------   ------------------      -------------

<S>                                                   <C>                  <C>                    <C>
Income tax expense (benefit) at statutory rates       $     1,446,000      $    (1,141,000)       $  (2,134,000)
State tax expense (benefit), net of federal benefit            75,000             (123,000)             (88,000)
Other                                                          20,000               66,000               30,000
                                                      ---------------      ----------------       --------------
                                                      $     1,541,000      $    (1,198,000)       $  (2,192,000)
                                                      ===============      ================       ==============
</TABLE>


The Company  made tax  payments of $0, $0 and $1,000  during  fiscal years 2003,
2002 and 2001, respectively.



                                       33
<PAGE>

NOTE G--SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY

Delta Mills  Marketing,  Inc.  (the  "Guarantor")  does not  comprise a material
portion of the Company's  assets or operations.  The Guarantor is a wholly-owned
subsidiary  of the Company  and has fully and  unconditionally  guaranteed  (the
"Guarantee") the Company's payment of principal,  premium,  interest and certain
liquidated  damages,  if any, on the Company's  Senior Notes (the "Notes").  The
Guarantor's liability under the Guarantee is limited to such amount, the payment
of which would not have left the guarantor  insolvent or with unreasonably small
capital at the time its Guarantee  was entered into,  after giving effect to the
incurrence of existing indebtedness immediately prior to such time.

The Guarantor is the sole subsidiary of the Company.  All future subsidiaries of
the Company  will  provide  guarantees  identical  to the one  described  in the
preceding paragraph unless such future subsidiaries are Receivables Subsidiaries
(as defined in the indenture relating to the Notes). Such additional  guarantees
will be joint and several with the Guarantee of the Guarantor.

The Company has not presented separate financial statements or other disclosures
concerning the Guarantor  because  Company  management has determined  that such
information is not material to investors.

Summarized financial information for the Guarantor is as follows (in thousands):

                                     JUNE 28, 2003          JUNE 29, 2002
                                     -------------          -------------

Current assets                            $ 88                  $  33
Noncurrent assets                           38                     61
Current Liabilities                      1,912                  1,902
Noncurrent liabilities                   1,047                    978
Stockholders' deficit                   (2,833)                (2,786)

Summarized   results  of  operations  for  the  Guarantor  are  as  follows  (in
thousands):


<TABLE>
<CAPTION>
                                                                    Year Ended
                                             --------------------------------------------------
                                             June 28, 2003      June 29, 2002     June 30, 2001
                                             -------------      -------------     -------------


<S>                                              <C>                <C>               <C>
Net sales -intercompany commissions              $3,986             $3,930            $3,602
Cost and expenses                                 4,033              4,250             4,155
Net loss                                           (47)               (320)             (553)

</TABLE>


NOTE H--COMMITMENTS AND CONTINGENCIES

The Company has  entered  into  agreements,  and has fixed  prices,  to purchase
cotton  for use in its  manufacturing  operations.  At June  28,  2003,  minimum
payments  under  these  contracts  with   non-cancelable   contract  terms  were
approximately $8.1 million.

Two of the Company's  South Carolina  plants,  the Delta 2 and Delta 3 Finishing
Plants,  have  experienced  high  nitrate  levels at the  spray  field for these
plants. The Company is working with the South Carolina  Department of Health and
Environmental  Control  ("DHEC") to address this issue. In addressing this issue
in the method and within the time frame required by DHEC, a report was submitted
in June 2001 to DHEC  detailing  four options for dealing with this  groundwater
situation.  At the date of this  filing,  DHEC has  still not  responded  to the
Company's  proposal.  Although  there is no  assurance  that the Company will be
successful, and it could face administrative penalties if it is not, the Company
does not currently believe that this matter would have a material adverse impact
on the Company's financial position or results of operations.


                                       34
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE H--COMMITMENTS AND CONTINGENCIES - CONTINUED

On June 30, 2000, the Company sold its  Greensboro,  North Carolina plant to the
City of Greensboro.  The Company had been working with environmental consultants
in assessing  groundwater  contamination at this site. Because of these studies,
one-half of the proceeds from the sale of the plant, consisting of approximately
$400,000,  were placed in an interest  bearing  escrow account to cover expenses
related  to this  contamination.  As of the date of this  filing,  approximately
$308,000 remains in this escrow account.  The Company believes that this balance
is adequate to cover any remaining  expenses related to this matter. The Company
recorded the sale net of estimated costs to remediate the property.

On January 10, 2000,  the North Carolina  Department of Environment  and Natural
Resources requested that the Company accept responsibility for investigating the
discharge of hazardous  substances  at a hazardous  waste site known as the Glen
Raven Mills Site, Kings Mountain,  North Carolina (the "Site"). A predecessor by
merger of the Company,  Park Yarn Mills Company,  Inc. ("Park Yarn"),  owned the
Site for approximately six (6) years, from  approximately 1977 to 1983 (prior to
the time the Company became a subsidiary of Delta Woodside Industries, Inc.) The
Company is aware of no  evidence  that Park Yarn  discharged  or  deposited  any
hazardous  substance at the Site or is otherwise a  "responsible  party" for the
Site.  Further,  Park Yarn filed bankruptcy and was discharged in 1983. Although
no assurance  can be provided,  any liability of Park Yarn for the Site may have
been discharged by the bankruptcy order. Accordingly, the Company has denied any
responsibility at the Site, declined to undertake any activities  concerning the
Site,   and  has  not  provided  for  any  reserves  for  costs  or  liabilities
attributable to Park Yarn.

From time to time the Company is a defendant  in other legal  actions  involving
claims  arising in the normal course of business,  including  product  liability
claims.  The Company  believes  that, as a result of legal  defenses,  insurance
arrangements  and  indemnification   provisions  with  parties  believed  to  be
financially capable,  none of these actions should have a material effect on its
results of operations or financial condition.



NOTE I--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited  quarterly results of operations for
the years ended June 28, 2003 and June 29, 2002:

<TABLE>
<CAPTION>
2003 Quarter Ended
(In thousands)                             September 28        December 28      March 30          June 28
                                           ------------        -----------      --------          -------

<S>                                         <C>                 <C>              <C>               <C>
Net sales                                   $46,179             $35,853          $46,489           $48,672

Gross profit                                  5,545               3,695            2,840             4,870

Net income (loss)                             1,432                 293          (1,100)             1,966


2002 Quarter Ended
(In thousands)                             September 29        December 29      March 30          June 29
                                           ------------        -----------      --------          -------

Net sales                                   $36,977             $44,140          $41,190           $52,366

Gross profit                                  1,074               1,708            1,062             5,558

Net income (loss)                           (8,153)             (2,402)          (2,447)            10,940

</TABLE>



                                       35
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE J--GAIN ON EXTINGUISHMENT OF DEBT

During fiscal 2003, the Company purchased  $15,878,000 face amount of its 9.625%
Senior Notes for $12,060,000 including expenses of approximately  $172,000.  The
Company  recognized a gain of  $3,643,000  after the  write-off of deferred loan
costs of $175,000.  During fiscal 2002, the Company  purchased  $35,996,000 face
amount  of its  9.625%  Senior  Notes  for  $19,383,000  including  expenses  of
approximately  $500,000.  The Company recognized a gain of $16,072,000 after the
write-off of deferred loan costs of $541,000.  During  fiscal 2001,  the Company
purchased  $31,263,000  face amount of its 9.625% Senior Notes for  $28,021,000.
The Company recognized a gain of $2,458,000 after the write-off of deferred loan
costs of $784,000.


NOTE L-- RESTRUCTURING AND IMPAIRMENT CHARGES

During the year ended June 28, 2003, the Company recorded a restructuring charge
of $0.4 million on a pre-tax  basis  associated  with the closing of its Catawba
facility  as  announced  on  March  5,  2003.  The  charge  reflected   employee
termination costs of approximately $354,000.  Production at the Catawba facility
ceased in April of 2003 and the  Company is in the  process of  liquidating  the
assets associated with this facility.

During the year ended June 29,  2002,  the Company  recorded an  impairment  and
restructuring  charge of $8.7 million,  on a pretax basis,  associated  with the
closing  of the  Furman  Plant as  announced  on August 22,  2001.  The  Company
recorded an $8.2 million  non-cash asset  write-down to reflect the property and
equipment at the Furman Plant at its estimated  fair value,  less selling costs.
The carrying amount of these assets was reduced to approximately $3,923,000. The
balance of the charge was  approximately  $0.5  million of accrued  expenses for
involuntary  termination costs associated with the 122 employees terminated as a
result of the plant closing. Production at the Furman facility ceased in October
of 2001 and the Company is in the process of liquidating  the assets  associated
with this facility.

During  fiscal 2003 and fiscal  2002,  the Company paid  $196,000 and  $345,000,
respectively,  in restructuring  costs and has a remaining liability of $342,000
and $140,000 as of June 28, 2003 and June 29, 2002, respectively.

As of June 28,  2003 and June 29,  2002 the  Company  had $3.9  million and $3.1
million,  respectively,  in assets  held for sale  related to the closing of the
Catawba facility and the Furman plant.








                                       36
<PAGE>

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

Not applicable.


ITEM 9A.  CONTROLS AND PROCEDURES

(a)      Evaluation  of  disclosure  controls  and  procedures.   The  Company's
         principal executive officer and its principal financial officer,  after
         evaluating the effectiveness of the Company's  disclosure  controls and
         procedures (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e)),
         have  concluded  that, as of June 28, 2003,  the  Company's  disclosure
         controls and  procedures  were  adequate  and  effective to ensure that
         material  information  relating  to the  Company  and its  consolidated
         subsidiaries  would  be  made  known  to them by  others  within  those
         entities.

(b)      Changes in internal controls.  There were no significant changes in the
         Company's   internal   controls   or  in  other   factors   that  could
         significantly  affect the Company's  disclosure controls and procedures
         subsequent  to the  date  of  their  evaluation,  nor  were  there  any
         significant  deficiencies  or  material  weaknesses  in  the  Company's
         internal controls.  As a result, no corrective actions were required or
         undertaken.




                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to instructions I (2)(c) to Form 10-K.


ITEM 11.  EXECUTIVE COMPENSATION

Omitted pursuant to instructions I (2)(c) to Form 10-K.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to instructions I (2)(c) to Form 10-K.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Omitted pursuant to instructions I (2)(c) to Form 10-K.






                                       37
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES & SERVICES

The table below and the  accompanying  footnotes  set forth the fees paid by the
Company  to its  independent  auditors  KPMG,  LLP  for the  periods  and in the
categories indicated.
<TABLE>
<CAPTION>

AUDIT FEES AND SERVICES                       FISCAL 2003                    FISCAL 2002

<S>                                                    <C>                             <C>
Audit Fees                                             $115,000                        $99,500
Audit Related Fees                                       12,500  (1)                    14,000    (1)
Tax Fees                                                 92,045  (2)                    74,000    (2)
All Other Fees                                                0                              0
                                         -----------------------        -----------------------
TOTAL FEES FOR ALL SERVICES                            $219,545                       $187,500
                                         =======================        =======================
</TABLE>


1)   Audit  related  fees for both  fiscal 2003 and 2002  consisted  of fees for
     employee  benefit plan audits and responses to inquiries  that arise in the
     normal course of business related to accounting and auditing pronouncements
     and SEC rules and regulations.
2)   Tax fees for both fiscal 2003 and 2002 consisted of fees for preparation of
     returns and estimates,  responding to miscellaneous state notices, research
     of tax matters, and preparation of prior year amended returns.

The item "Audit Committee Pre-Approval Policies and Procedures" is effective for
filings for fiscal years ending after  December 15, 2003,  and has therefore not
been included in this filing.  The Company's Audit Committee has not yet adopted
the  pre-approval  policies and procedures  described in paragraph  (c)(7)(i) of
Rule 2-01 of Regulation  S-X.  However,  since May 6, 2003, the Company's  Audit
Committee has approved all services of KPMG, LLP prior to the rendering of these
services.












                                       38
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

     (a) (1) and (2)   Financial Statements and Financial Statement Schedules

The following  consolidated  financial statements of Delta Mills, Inc. as of the
Year ended June 28, 2003 are included in Item 8.

         Consolidated balance sheets--June 28, 2003 and June 29, 2002.

         Consolidated  statements of operations--Years ended June 28, 2003, June
29, 2002, and June 30,2001.

         Consolidated  statements of shareholder's equity-- Years ended June 28,
2003, June 29, 2002, and June 30,2001.

         Consolidated statements of cash flows-- Years ended June 28, 2003, June
29, 2002, and June 30,2001.

         Notes to consolidated financial statements.

The following  consolidated  financial  statement schedules of Delta Mills, Inc.
are included in Item 15a (2):

         Schedule II -- Valuation and qualifying accounts

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related  instructions  or are  inapplicable,  and  therefore  have been omitted.
Columns  omitted from schedules  filed have been omitted because the information
is not applicable.



                  (3) Listing of Exhibits:


3.1               Restated  and  Amended  Certificate of Incorporation  of Delta
                  Mills, Inc.:  Incorporated by reference to Exhibit 3.1 to  the
                  Registration Statement on  Form  S-4  of the Company and Delta
                  Mills  Marketing, Inc., File No. 333-37617 (the "S-4").
3.2               Bylaws of Delta Mills, Inc.:  Incorporated  by  reference   to
                  Exhibit 3.2 to the S-4.
4.1               See Exhibits 3.1 and 3.2.
4.2               Indenture,  dated as of  August  25,  1997,  by and  among the
                  Company, Delta Mills Marketing, Inc. and The Bank of New York,
                  as Trustee,  with respect to the Company's Series A and Series
                  B 9-5/8%  Senior  Notes due 2007,  $150,000,000  in  aggregate
                  principal  amount,  together  with  forms of  certain  related
                  instruments,   agreements  and  documents:   Incorporated   by
                  reference to Exhibit 4.2.6 to the Current Report on Form 8-K/A
                  of Delta Woodside Industries, Inc.
                  with the date of September 25, 1997 (the "DWI 8-K/A").*
4.3.1             Revolving Credit and Security Agreement, dated as of March 31,
                  2000,  between GMAC Commercial Credit LLC as agent and lender,
                  and Delta Mills,  Inc. as borrower:  Incorporated by reference
                  to Exhibit 99.1 to the  Company's  Current  Report on Form 8-K
                  dated  March  31,  2000  and  filed  with the  Securities  and
                  Exchange Commission on April 13, 2000
4.3.1.1           Letter,  dated July 28, 2000,  amending  Revolving  Credit and
                  Security  Agreement:  Incorporated  by  reference  to  Exhibit
                  4.3.1.1 to Form 10-K of Delta Mills,  Inc. for the fiscal year
                  ended June 30, 2001 (the "DMI 2000 10-K").*
4.3.1.2           Consent and Amendment to Credit Agreement and Other Documents,
                  dated as of October  5, 2001:  Incorporated  by  reference  to
                  Exhibit 4.3.1.2 to the Company's Quarterly Report on Form 10-Q
                  for the fiscal quarter ended September 29, 2001 and filed with
                  the Securities and Exchange Commission on November 9, 2001.

                                       39
<PAGE>


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - CONTINUED

4.3.1.3           Consent and Amendment to Credit Agreement and Other Documents,
                  dated  as of  March  31,2002:  Incorporated  by  reference  to
                  Exhibit 4.3.1.3 to the Company's Quarterly Report on Form 10-Q
                  for the fiscal quarter ended March 30, 2002 and filed with the
                  Securities and Exchange Commission on May 14, 2002.
4.3.1.4           Consent and Amendment to Credit Agreement and Other Documents,
                  dated  as of  March  20,2003:  Incorporated  by  reference  to
                  Exhibit 4.3.1.4 to the Company's Quarterly Report on Form 10-Q
                  for the fiscal quarter ended March 29, 2003 and filed with the
                  Securities and Exchange Commission on May 13, 2003.
4.3.2             Guarantee,  dated  as  of  March  31,  2000,  of  Delta  Mills
                  Marketing,  Inc.  in favor of GMAC  Commercial  Credit  LLC as
                  agent:  Incorporated  by  reference  to  Exhibit  99.2  to the
                  Company's  Current Report on Form 8-K dated March 31, 2000 and
                  filed with the Securities and Exchange Commission on April 13,
                  2000.
4.3.3             General  Security  Agreement,  dated  as of  March  31,  2000,
                  between Delta Mills Marketing, Inc. and GMAC Commercial Credit
                  LLC as agent: Incorporated by reference to Exhibit 99.3 to the
                  Company's  Current Report on Form 8-K dated March 31, 2000 and
                  filed with the Securities and Exchange Commission on April 13,
                  2000.
4.3.4             Stock  Pledge and  Security  Agreement,  dated as of March 31,
                  2000,  by  Alchem   Capital   Corporation  in  favor  of  GMAC
                  Commercial  Credit LLC as agent:  Incorporated by reference to
                  Exhibit 99.4 to the Company's Current Report on Form 8-K dated
                  March 31,  2000 and filed  with the  Securities  and  Exchange
                  Commission on April 13, 2000.
4.3.5             Stock  Pledge and  Security  Agreement,  dated as of March 31,
                  2000, by Delta Mills,  Inc. in favor of GMAC Commercial Credit
                  LLC as agent: Incorporated by reference to Exhibit 99.5 to the
                  Company's  Current Report on Form 8-K dated March 31, 2000 and
                  filed with the Securities and Exchange Commission on April 13,
                  2000
4.3.6             Stock Pledge and Security Agreement, dated as of May 11, 2000,
                  by Delta Woodside Industries, Inc. in favor of GMAC Commercial
                  Credit  LLC as agent:  Incorporated  by  reference  to Exhibit
                  4.3.6 to the DWI 2000 10-K.*
4.4               The Company  hereby agrees to furnish to the  Commission  upon
                  request  of the  Commission  a copy  of  any  instrument  with
                  respect to long-term debt not being  registered in a principal
                  amount  less than 10% of the total  assets of the  Company and
                  its subsidiaries on a consolidated basis.
10.1**            Delta Woodside  Deferred  Compensation  Plan for Key Managers,
                  Amended and Restated Effective  June 30, 2000: Incorporated by
                  reference  to  Exhibit  10.2 to the Delta Woodside Industries,
                  Inc. Report on Form 10-K dated July 1, 2000 and filed with the
                  Securities and Exchange Commission on  September 29, 2000. *
10.3.1**          Delta Woodside Industries, Inc. Stock Option Plan effective as
                  of July 1, 1990: Incorporated by reference to Exhibit 10.11 to
                  the  Form  10-K of Delta  Woodside  Industries,  Inc.  for the
                  fiscal year ended June 30, 1990.*
10.3.2**          Amendment  No. 1  to  Stock  Option  Plan:   Incorporated   by
                  reference  to Exhibit 10.1 to the Form 10-Q of Delta  Woodside
                  Industries, Inc. for the  quarterly period ended  December 29,
                  1990 (the "DWI 12/90 10-Q").*
10.3.3**          Amendment to Stock  Option  Plan:  Incorporated  by  reference
                  to  Exhibit  10.9.2  to  the  Form  10-K  of  Delta   Woodside
                  Industries, Inc. for the  fiscal year ended June 29, 1991 (the
                  "DWI 1991 10-K").*
10.3.4**          1995 Amendment to  Stock Option Plan  effective as of November
                  9, 1995:  Incorporated by reference to Exhibit 10.4.4  to  the
                  Form 10-Q of Delta Woodside Industries, Inc. for the quarterly
                  period   ended  December   30,  1995   (the  "Delta   Woodside
                  Industries, Inc. 12/95 10-Q".)*
10.3.5**          1997  Amendment  to Stock Option Plan effective as of November
                  6, 1997:  Incorporated  by reference to  Exhibit  99.1  to the
                  Registration  Statement   on   Form  S-8  of  Delta   Woodside
                  Industries, Inc. (File No. 333-45767).

                                       40
<PAGE>

ITEM 15.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES  AND  REPORTS ON FORM 8-K -
CONTINUED

10.3.6**          Amendment  to  Stock  Option  Plan  adopted  April  25,  2000:
                  Incorporated  by  reference  to Exhibit 10.4.6 to Form 10-Q of
                  Delta Woodside Industries, Inc.  for  the fiscal quarter ended
                  April 1, 2000.*
10.3.7**          Amendments to Stock Option Plan:  Incorporated by reference to
                  Exhibit 10.4.7 to the DWI 2000 10-K.*
10.4**            Form of Amendment of Certain  Rights and Benefits  Relating to
                  Stock  Options and  Deferred  Compensation  by and between the
                  Company   and   certain    pre-spin-off   plan   participants:
                  Incorporated  by  reference  to  Exhibit  10.7 to the DWI 2000
                  10-K.*
10.4.1            List of  directors  and officers of the Company who signed the
                  document described in Exhibit 10.7:  Incorporated by reference
                  to Exhibit 10.7.1 to DWI 2000 10-K.*
10.4.2**          Form of Amendment  of  Stock  Options  by  and  between  Delta
                  Woodside  Industries,  Inc.  and  certain  pre-spin-off   plan
                  participants. Incorporated by reference to Exhibit  10.7.2  to
                  DWI 2000 10-K.*
10.5.1**          Directors Stock Acquisition Plan: Incorporated by reference to
                  Exhibit 10.14 to the DWI 1991 10-K.*
10.5.2**          Amendment to Directors Stock Acquisition Plan, dated April 30,
                  1992:  Incorporated by reference to Exhibit 10.12.2 to the DWI
                  1992 10-K.*
10.6**            2000 Stock Option  Plan  of  Delta  Woodside Industries, Inc.:
                  Incorporated by reference to Exhibit 10.10  to  the  DWI  2000
                  10-K.*
10.6.1            Amendment  of  2000  stock  option  plan  of  Delta   Woodside
                  Industries, Inc: Incorporated by reference to Item 6(a) of the
                  Delta Woodside  Industries,  Inc.  report on Form 10-Q for the
                  quarter ended September 30, 2000 and filed with the Securities
                  and Exchange Commission on November 14, 2000.
10.7**            2000 Incentive Stock Award Plan of Delta  Woodside Industries,
                  Inc.:  Incorporated by reference to Exhibit 10.11  to  the DWI
                  2000 10-K.*
10.8              Tax Sharing  Agreement, dated as of June 30, 2000 by and among
                  Delta  Woodside  Industries,  Inc.  Duck Head Apparel Company,
                  Inc. and Delta  Apparel,  Inc.:  Incorporated  by reference to
                  Exhibit 2.2 to the Report on Form 8-K of the Company  with the
                  date of June 30, 2000.
10.8.1            Amendment to tax sharing agreement dated as of August 6, 2001:
                  Incorporated  by  reference  to   Exhibit   10.17.2   to   the
                  Company's  Report on Form 10-K for the fiscal  year ended June
                  30, 2001 and filed with the Securities and Exchange Commission
                  on September 24, 2001, the "2001 10-K."
10.9**            Letter dated June 28, 2000 to William F. Garrett: Incorporated
                  by reference to Exhibit 10.l4 to the DWI 2000 10-K.*
10.10             See Exhibits 4.2, 4.3.1, 4.3.2, 4.3.3, 4.3.4, 4.3.5 and 4.3.6.
23                Report on Schedule by Independent Auditors.
31.1              Certification of CEO Pursuant  to Section 302 of the Sarbanes-
                  Oxley Act of 2002.
31.2              Certification of CFO Pursuant  to Section 302 of the Sarbanes-
                  Oxley Act of 2002.
32.1              Certification of CEO Pursuant  to Section 906 of the Sarbanes-
                  Oxley Act of 2002.
32.2              Certification of CFO Pursuant  to Section 906 of the Sarbanes-
                  Oxley Act of 2002.


*                 All  reports  previously  filed with the  Commission  by Delta
                  Woodside  Industries,  Inc.  pursuant to the  Exchange Act and
                  rules and  regulations  promulgated  thereunder,  exhibits  of
                  which are  incorporated  by reference  into this Report,  were
                  filed under Commission File No. 1-10095.

** This is a management contract or compensatory plan or arrangement.


                                       41
<PAGE>

         The registrant  agrees to furnish  supplementally to the Securities and
         Exchange Commission a copy of any omitted schedule or exhibit to any of
         the above filed exhibits upon request of the Commission.

                  (b)      Reports on Form 8-K

                  On April 4, 2003,  the Company filed a Current  Report on Form
                  8-K dated April 3, 2003 reporting information under Item 5 and
                  Item 7.

         (c)      Exhibits
                  The  response to this  portion of Item 15 is  incorporated  by
                  reference from Item 15(a)(3) above.

         (d)      Financial Statement Schedules
                  Not applicable







                                       42
<PAGE>

SIGNATURES

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


                                         DELTA MILLS, INC.
                                         (Registrant)


     September 25, 2003                  By:  /s/ William F. Garrett
-------------------------------          -----------------------------------
            Date                         William F. Garrett
                                         President, Chief Executive Officer
                                              and Director



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

<TABLE>

<S>                                   <C>              <C>                                                      <C>
/s/ E. Erwin Maddrey, II              9/25/2003        /s/ William F. Garrett                                   9/25/2003
------------------------------------- ------------     -------------------------------------------------------- ------------
E. Erwin  Maddrey,  II                Date             William F. Garrett                                       Date
Director                                               President,  Chief Executive Officer and Director

/s/ Buck A. Mickel                    9/25/2003        /s/ William H. Hardman, Jr.                              9/25/2003
------------------------------------- ------------     -------------------------------------------------------- ------------
Buck A. Mickel                        Date             William H. Hardman, Jr.                                  Date
Director                                               Vice President, Treasurer, and Chief Financial Officer

                                                       /s/ Donald C. Walker                                     9/25/2003
                                                       -------------------------------------------------------- ------------
                                                       Donald C. Walker                                         Date
                                                       Vice President, Assistant Secretary, and Controller




</TABLE>







                                       43

<PAGE>


                                  EXHIBIT INDEX


23                Report on Schedule by Independent Auditors.

31.1              Certification of CEO Pursuant  to Section 302 of the Sarbanes-
                  Oxley Act of 2002.

31.2              Certification of CFO Pursuant  to Section 302 of the Sarbanes-
                  Oxley Act of 2002.

32.1              Certification of CEO Pursuant  to Section 906 of the Sarbanes-
                  Oxley Act of 2002.

32.2              Certification of CFO Pursuant  to Section 906 of the Sarbanes-
                  Oxley Act of 2002.
































                                       44
<PAGE>

<TABLE>
<CAPTION>

                                                    SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                                                         DELTA MILLS, INC.

-----------------------------------------------------------------------------------------------------------------------------------
                 COL. A              COL. B              COL. C                                   COL. D                COL. E
-----------------------------------------------------------------------------------------------------------------------------------
                                                       ADDITIONS
                                                  ----------------------------------------
                                   Balance at                                                       (2)
               DESCRIPTION         Beginning              (1)                (2)                Deductions          Balance at End
                                   of Period        Charged to Costs  Charged to Other           Describe              of Period
                                                      and Expenses    Accounts-Describe
-----------------------------------------------------------------------------------------------------------------------------------
Deducted from asset accounts
  Allowance for Returns:

<S>                                      <C>                                   <C>                <C>                       <C>
Year ended June 28 2003                  $ 32,000                              $1,751,000 (1)    ($1,603,000) (2)         $180,000
                                 =================                    ====================    =================    ================

Year ended June 29, 2002                 $ 51,000                              $1,795,000 (1)    ($1,814,000) (2)          $32,000
                                 =================                    ====================    =================    ================

Year ended June 30, 2001                 $173,000                              $2,998,000 (1)    ($3,222,000) (2)          $51,000
                                 =================                    ====================    =================    ================

</TABLE>





NOTES:
1) The change in the reserve for returns and  allowances is charged to income as
a  reduction  of  net  sales.  2)  Deductions  represent  customer  returns  and
allowances during the period.








                                       45