PARRAS CONE DE MEXICO, S.A. DE C.V.
                              Financial Statements
                           December 31, 2001 and 2000
                   (With Independent Auditors' Report Thereon)



<PAGE>


                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                              Financial Statements
                           December 31, 2001 and 2000



                                TABLE OF CONTENTS

                                                                       PAGE

Independent Auditors' Report                                            1

Balance Sheets                                                          2

Statements of Income                                                    3

Statements of Stockholders' Equity                                      4

Statements of Cash Flows                                                5

Notes to Financial Statements                                          6-16


<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Parras Cone de Mexico, S.A. de C.V.:


We have audited the accompanying balance sheet of Parras Cone de Mexico, S.A. de
C.V. as of December 31, 2001, and the related statement of income, stockholders'
equity and cash flows for the year then ended.  These  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial  statements  based on our audit.  The accompanying
financial  statements of Parras Cone de Mexico,  S.A. de C.V. as of December 31,
2000 and 1999,  were audited by other  auditors whose report thereon dated March
15, 2001, expressed an unqualified opinion on those statements.

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

In our opinion,  the 2001 financial statements referred to above present fairly,
in all material respects,  the financial position of Parras Cone de Mexico, S.A.
de C.V. as of December 31, 2001,  and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.


                                        KPMG Cardenas Dosal, S.C.



                                        /s/Jose Luis Hernandez Garcia
                                           Jose Luis Hernandez Garcia



February 15, 2002


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                                        2

                      PARRAS CONE DE MEXICO, S. A. DE C. V.
                                 Balance Sheets
                           December 31, 2001 and 2000
                          (In thousands of US Dollars)
<TABLE>
<CAPTION>
                         ASSETS                            2001          2000
                         ------                            ----          ----
<S>                                                     <C>            <C>
Current assets:
  Cash and cash equivalents                             $   3,371         1,421
                                                        ---------      --------
  Accounts receivable:
    Other receivables                                         625           555
    Recoverable taxes                                       4,187         2,776
    Related parties (note 3)                                8,960        10,378
                                                        ---------      --------

            Total accounts receivable                      13,772        13,709
                                                        ---------      --------
  Inventories (note 4)                                     10,484         8,917
  Prepaid expenses                                             49           213
                                                        ---------      --------

            Total current assets                           27,676        24,260
                                                        ---------      --------

Notes receivable                                              130           132
Property, plant and equipment, net (note 5)                79,592        82,539
Deferred income taxes (note 7)                              2,642           -
                                                        ---------      --------

                                                        $ 110,040       106,931
                                                        =========      ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
                       ------------------------------------

Current liabilities:
  Notes payable to bank                                 $     -           4,000
  Current installments of long-term debt (note 6)           5,510         5,968
  Interest payable                                            344           530
  Trade accounts and accrued expenses payable               3,009         5,257
  Compania Industrial de Parras, S.A. de C.V.                 288           -
  Deferred income taxes (note 7)                            3,175         2,716
  Deferred employee statutory profit sharing (note 7)         907           775
                                                        ---------      --------

            Total current liabilities                      13,233        19,246
                                                        ---------      --------

Long-term debt, excluding current installments (note 6)    22,420        14,082
Seniority premiums (note 9)                                    66            49
Deferred income taxes (note 7)                                -             148
Deferred employee statutory profit sharing (note 7)           935           879
                                                        ---------      --------

            Total liabilities                              36,654        34,404
                                                        ---------      --------

Stockholders' equity (note 8):
  Capital stock                                            58,597        58,597
  Retained earnings                                        14,789        13,930
                                                        ---------      --------

            Total stockholders' equity                     73,386        72,527

Commitment and contingencies (note 10)
                                                        ---------      --------
                                                        $ 110,040       106,931
                                                        =========      ========
See accompanying notes to financial statements.

</TABLE>
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                                        3

                      PARRAS CONE DE MEXICO, S. A. DE C. V.
                              Statements of Income
                        December 31, 2001, 2000 and 1999
                          (In thousands of US Dollars)
<TABLE>
<CAPTION>

                                                           2001         2000          1999
                                                           ----         ----          ----
<S>                                                     <C>           <C>           <C>

Net sales                                               $  58,469        71,097        74,963
Cost of goods sold                                         50,462        54,778        62,048
                                                        ----------    ----------    ----------

            Gross profit                                    8,007        16,319        12,915

Operating expenses                                          5,732         6,521         5,177
                                                        ----------    ----------    ----------

            Operating income                                2,275         9,798         7,738
                                                        ----------    ----------    ----------

Other income (expense):
  Interest income                                              72            83           -
  Interest expense                                         (2,281)       (2,647)       (4,137)
  Foreign currency exchange gain (loss), net                  163          (159)         (183)
  Other, net                                                 (309)          116           228
                                                        ----------    ----------    ----------

            Other expense, net                             (2,355)       (2,607)       (4,092)
                                                        ----------    ----------    ----------

            (Loss) income before income taxes                 (80)        7,191         3,646

Income taxes (note 7)                                         939        (1,404)         (677)
                                                        ----------    ----------    ----------

            Earnings before cumulative effect
              of change in accounting principle               859         5,787         2,969

Cumulative effect on prior year (December 31, 1998)
  of change in accounting principle for pre-operating
  expenses                                                    -             -          (2,535)
                                                        ----------    ----------    ----------

            Net income                                  $     859         5,787           434
                                                        ==========    ==========    ==========


See accompanying notes to financial statements.

</TABLE>
<PAGE>

                                        4

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                       Statements of Stockholder's Equity
                        December 31, 2001, 2000 and 1999
                            (Thousands of US Dollars)

<TABLE>
<CAPTION>
                                                                                     Total
                                                         Capital       Retained   Stockholders'
                                                          Stock        Earnings     equity
                                                        ---------      --------   -------------

<S>                  <C> <C>                            <C>               <C>            <C>
Balances at December 31, 1998                           $  58,597         7,709          66,306

Net income                                                    -             434             434
                                                        ---------      --------   -------------

Balances at December 31, 1999                              58,597         8,143          66,740

Net income                                                    -           5,787           5,787
                                                        ---------      --------   -------------

Balances at December 31, 2000                              58,597        13,930          72,527

Net income                                                    -             859             859
                                                        ---------      --------   -------------

Balances at December 31, 2001                           $  58,597        14,789          73,386
                                                        =========      ========   =============

</TABLE>

See accompanying notes to financial statements.


<PAGE>

                                        5

                      PARRAS CONE DE MEXICO, S. A. DE C. V.
                            Statements of Cash Flows
                        December 31, 2001, 2000 and 1999
                            (Thousands of US Dollars)
<TABLE>
<CAPTION>
                                                          2001          2000          1999
                                                          ----          ----          ----
<S>                                                     <C>               <C>             <C>
Cash from operating activities:
  Net income                                            $     859         5,787           434
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation                                          7,130         7,027         7,288
      Cumulative effect of change in accounting
        principle for pre-operating expenses                  -             -           3,053
      Deferred income taxes                                  (939)        1,404           677
      Deferred profit sharing                                 188           (10)         (607)
      Increase in accounts receivable                         (63)         (350)       (9,095)
      (Increase) decrease in inventories                   (1,567)        1,952         7,533
      Decrease (increase) in prepaid expenses                 164            (2)         (187)
      (Decrease) increase in accounts and accrued
         expenses payable                                  (2,248)        2,521         1,770
      Decrease in interest payable                           (186)         (666)         (555)
      Other                                                (1,144)       (1,154)         (897)
                                                        ----------    ----------    ----------

            Net cash provided by operating activities       2,194        16,509         9,414
                                                        ----------    ----------    ----------

Cash from investing activities:
  Acquisitions of property, plant and equipment, net       (4,183)       (2,504)       (1,272)
                                                        ----------    ----------    ----------
            Net cash used in investing activities          (4,183)       (2,504)       (1,272)
                                                        ----------    ----------    ----------
Cash from financing activities:
  Proceeds from (payments on) long-term debt                7,880       (11,155)      (12,301)
  (Payments on) proceeds from notes payables to bank       (4,000)       (3,000)        5,000
                                                        ----------    ----------    ----------
            Net cash provided by (used in) financing
              activities                                    3,880       (14,155)       (7,301)
                                                        ----------    ----------    ----------
Effect of exchange rate changes on cash and cash
  equivalents                                                  59           (12)           31
                                                        ----------    ----------    ---------
            Net increase (decrease) in cash and cash
              equivalents                                   1,950          (162)          872

Cash and cash equivalents at the beginning of year          1,421         1,583           711
                                                        ----------    ----------    ----------
Cash and cash equivalents at the end of year            $   3,371         1,421         1,583
                                                        ==========    ==========    ==========

Supplemental disclosures:

  Interest paid                                         $   2,467         3,285         4,655
                                                        ==========    ==========    ==========
</TABLE>

See accompanying notes to financial statements.


<PAGE>

                                       6

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                           December 31, 2001 and 2000
                      (All US Dollars amounts in thousands)


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES -

       (A)    DESCRIPTION OF BUSINESS -

              Parras  Cone  de  Mexico,  S.A.  de  C.V.  is a  Mexican  company
              established as a 50/50 joint venture between Compania  Industrial
              de Parras, S.A. de C.V. (CIPSA) and Cone Mills (Mexico),  S.A. de
              C.V.,   which  is  a   wholly-owned   subsidiary  of  Cone  Mills
              Corporation.  The Company is engaged in the  production  of denim
              for sale in Mexico and the United States of America.

              The joint venture has entered into  agreements  which require that
              substantially  all  manufactured  products  be sold  to the  joint
              venture partners or other related parties.

       (B)    CASH EQUIVALENTS -

              Cash equivalents consists of overnight  repurchase  agreements and
              certificates  of deposit  with an initial  term of less than three
              months.  For purposes of the statements of cash flows, the Company
              considers  all  highly  liquid  debt   instruments  with  original
              maturities of three months or less to be cash equivalents.

       (C)    INVENTORIES -

              Inventories  are  stated at the lower of cost or  market.  Cost is
              determined  using the first-in,  first-out  method.  To ensure the
              supply of the main raw  material  and its cost,  the  Company  has
              purchase   agreements  with  the   intermediation  of  Cone  Mills
              Corporation.  The  contracts  stipulate  purchase  commitments  of
              volumes, fixed prices and predetermined dates by common agreement.

       (D)    PROPERTY, PLANT AND EQUIPMENT -

              Property, plant and equipment are stated at cost. Depreciation and
              amortization   on  plant  and  equipment  are  calculated  on  the
              straight-line  method,  based on the estimated useful lives of the
              assets. Repairs and maintenance costs are expensed as incurred.

       (E)    INCOME TAXES -

              Income  taxes are  accounted  for  under  the asset and  liability
              method. Deferred tax assets and liabilities are recognized for the
              future tax  consequences  attributable to differences  between the
              financial  statement  carrying  amounts  of  existing  assets  and
              liabilities and their  respective tax bases and 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.


<PAGE>

                                       7

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


       (F)    TRANSACTIONS IN FOREIGN CURRENCY AND EXCHANGE FLUCTUATIONS -

              The joint venture  maintains its official  accounting  records and
              prepares  its  financial  statements  for  statutory  purposes  in
              Mexican pesos using generally  accepted  accounting  principles in
              Mexico (Mexican GAAP). The accompanying  financial statements have
              been prepared in thousands of US dollars ($), in  conformity  with
              accounting  principles  generally accepted in the United States of
              America (US GAAP), which differ from Mexican GAAP.

              Inventories,  property,  plant  and  equipment  and  stockholders'
              equity are  remeasured at the historical  exchange rate.  Monetary
              assets and  liabilities are translated at exchange rates in effect
              at the end of the year.  Revenues and expenses are  translated  at
              the average exchange rates in effect during the reporting period.

       (G)    SENIORITY PREMIUMS -

              Substantially  all  employees  in Mexico are entitled to seniority
              premium rights payable.  Accumulated seniority premium rights have
              been  recognized in the  financial  statements on the basis of the
              present   value  of  the  future   benefits   based  on  actuarial
              estimations.  The amortization of unrecognized  prior service cost
              is based on the employees'  estimated active service lives,  15.87
              years at December 31, 2001 (note 10).

              Compensation for labor  termination is recognized as an expense in
              the year in which the termination plan is made.

       (H)    USE OF ESTIMATES -

              Management has made a number of estimates and assumptions relating
              to the reporting of assets and  liabilities  and the disclosure of
              contingent  assets  and  liabilities  to prepare  these  financial
              statements  in conformity  with  accounting  principles  generally
              accepted in the United  States of America.  Actual  results  could
              differ significantly from those estimates.

       (I)    IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
              DISPOSED OF -

              The Company accounts for long-lived  assets in accordance with the
              provisions  of SFAS No. 121,  "Accounting  for the  Impairment  of
              Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of".
              This  Statement   requires  that  long-lived  assets  and  certain
              identifiable  intangibles  be  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 the asset to future net cash flows expected to
              be generated by the assets.  If such assets are  considered  to be
              impaired,  the  impairment  to be  recognized  is  measured by the
              amount by which the carrying amount of the assets exceeds the fair
              value of the assets.  Assets to be disposed of are reported at the
              lower of the carrying amount or fair value less costs to sell.


<PAGE>

                                       8

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


       (J)    REVENUE RECOGNITION AND BUSINESS CONCENTRATIONS -

              The  Company  recognizes  revenues  from sales when  products  are
              shipped and the customer  takes  ownership and assumes the risk of
              loss. The Company provides for sales commissions, and discounts at
              the time the related revenue is recognized.  These  provisions are
              deducted from sales.

              As of December  31,  2001,  the  Company  has a contract  with the
              shareholders, which stipulates that all sales will be made to Cone
              Mills  Corporation,  which has a direct  contract  with clients in
              foreign markets to sell these  products.  The Company makes direct
              billing  to  some  of  the  clients  of  Cone  Mills  Corporation.
              Nevertheless,  Cone  Mills  Corporation  maintains  the rights and
              obligations  with the  clients,  assuming  the risk of loss in the
              event that the client defaults on its obligations.

       (K)    COMMITMENTS AND CONTINGENCIES -

              Liabilities  for  loss  contingencies,   including   environmental
              remediation costs, arising from claims,  assessments,  litigation,
              fines and  penalties  and other  sources are  recorded  when it is
              probable  that a liability has been incurred and the amount of the
              assessment  and/or   remediation  can  be  reasonably   estimated.
              Recoveries from third parties,  which are probable of realization,
              are  separately  recorded,  and are not offset against the related
              environmental liability.

       (L)    RECENTLY ISSUED ACCOUNTING STANDARDS -

              In June 2001,  the FASB issued SFAS No. 143,  Accounting for Asset
              Retirement  Obligations  (SFAS No. 143). SFAS No. 143 requires the
              Company 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 that
              result  from the  acquisition,  construction,  development  and/or
              normal use of the assets. The Company also records a corresponding
              asset which is depreciated over the life of the asset.  Subsequent
              to the initial measurement of the asset retirement obligation, the
              obligation  will be  adjusted at the end of each period to reflect
              the passage of time and changes in the estimated future cash flows
              underlying the  obligation.  The Company is required to adopt SFAS
              No. 143 on January 1, 2003.

              In August,  2001, the FASB issued SFAS No. 144, Accounting for the
              Impairment or Disposal of Long-Lived  Assets (SFAS No. 144).  SFAS
              No. 144  addresses  financial  accounting  and  reporting  for the
              impairment  or  disposal  of  long-lived  assets.  This  Statement
              requires  that  long-lived   assets  be  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 future net cash flows  expected to
              be generated by the asset.


<PAGE>

                                       9

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)

              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.  SFAS No. 144 requires  companies to separately  report
              discontinued  operations and extends that reporting to a component
              of  an  entity  that  either  has  been   disposed  of  (by  sale,
              abandonment,  or in a distribution  to owners) or is classified as
              held for sale.  Assets to be disposed of are reported at the lower
              of the  carrying  amount or fair  value  less  costs to sell.  The
              Company is required to adopt SFAS No. 144 on January 1, 2002.

      (M)     RECLASSIFICATIONS -

              Some 2000  financial  statements  amounts  were  reclassified  to
              conform their presentation to 2001 amounts.

(2)   FOREIGN CURRENCY EXPOSURE -

      Net assets  denominated  in thousands of Mexican  pesos as of December 31,
      2001 and 2000, were $109,077 and $65,783,  respectively. The exchange rate
      of the Mexican  peso to the US dollar at December  31, 2001 and 2000,  was
      0.1093 and 0.1050 pesos,  respectively.  The exchange rate at February 15,
      2002, date of the auditor's report is 0.1103 pesos per U.S. dollar.

(3)   RELATED PARTIES -

      As mentioned in note 1, the joint venture transacts significant volumes of
      business  with  related  entities and is  economically  dependent on these
      entities.

      The joint venture sells  products to affiliated  companies  through common
      ownership.  Prices of goods  sold to  affiliated  companies  and  services
      provided by the joint venture partners are determined by management of the
      joint venture and its affiliates  based on market prices.  Changes in such
      prices,  rates,  or  methods  may  significantly  affect  the  results  of
      operations of the joint venture and their comparability from year to year.

      Since July 31, 2001, the Company stopped  commercializing  its products to
      the national  market through its related party,  Distribuidora  CMUSA,  it
      currently commercializes its products directly to its clients.

      The  transactions  carried out for the years ended  December  31, 2001 and
      2000, with related parties are, as follows:


                                                           2001          2000
                                                           ----          ----
           Sales                                        $  58,469        71,097
           Fixed assets purchases                           3,222           -
           Management services                              2,000         2,000
           Operation expenses                                 157           172
                                                        =========     =========


<PAGE>

                                       10

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


      At December  31,  2001 and 2000,  the  accounts  receivable  with  related
      parties are as follows:

                                                          2001          2000
                                                          ----          ----

           Cone Mills Corporation                       $   8,589        10,335
           Fabrica la Estrella, S.A. de C.V.                  346            26
           Cone Mills (Mexico), S.A. de C.V.                   16             9
           Cone Tamaulipas, S. de R.L. de C.V.                  9             8
                                                        ---------     ---------
                                                        $   8,960        10,378
                                                        =========     =========

(4)   INVENTORIES -

      At December 31, 2001 and 2000, inventories are summarized as follows:

                                                          2001           2000
                                                          ----           ----
           Finished goods                               $   4,871         3,067
           Raw material                                     1,929         2,340
           Work in process                                  1,804         1,297
           Spare parts                                      1,696         1,707
           Advances for cotton purchases                      136           370
           Other                                               48           136
                                                        ---------     ---------

                                                        $  10,484         8,917
                                                        =========     =========

      As of December 31, 2001, Cone Mills  Corporation had open future inventory
      commitments on the behalf of the joint venture totaling $ 15,802.

(5)   PROPERTY, PLANT AND EQUIPMENT -

      At December  31, 2001 and 2000,  the  investment  in  property,  plant and
      equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                     USEFUL
                                                          2001          2000         LIVES
                                                          ----          ----         -----
<S>                                                    <C>             <C>           <C>
           Land                                         $   2,263         2,228        -
           Machinery and equipment                         76,108        75,721      10-15
           Buildings                                       35,139        35,139         39
           Furniture and fixtures                           8,471         4,852       3-10
                                                        ---------      --------
                                                          121,981       117,940

               Less accumulated depreciation               42,389        35,401
                                                        ---------      --------
                                                        $  79,592        82,539
                                                        =========      ========
</TABLE>

      Depreciation  expense  amounted to $ 7,130 and $ 7,027 in 2001,  and 2000,
      respectively.


<PAGE>

                                       11

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


(6)   LONG-TERM DEBT-

      Long-term debt at December 31, 2001 and 2000 consists of the following:


                                                          2001          2000
                                                          ----          ----

      Secured loan contract and line of credit in dollars
        payable with maturity in August 2003, bearing
        variable interest equivalent to Libor plus a
        differential of 2.5 to 6.0 percentage  points
        payable in semiannual,four-monthly and
        quarterly installments. The loan and line of
        credit are secured by a first and second
        mortgage  on the plant.                         $  27,930        20,050

             Less current installments                      5,510         5,968
                                                        ---------     ---------

             Long-term debt, excluding current
               installments                             $  22,420        14,082
                                                        =========     =========

      The  weighted  average  interest  rate was 6.21% and  10.26% for the years
      ended December 31, 2001 and 2000, respectively.

      Based on contract terms the long term debt installments in each one of the
      years following 2001 are as follows:

                              2002                      $   5,510
                              2003                         22,420
                                                        ---------
                                                        $  27,930
                                                        =========

      Bank loans contain certain  restrictive  covenants,  the most important of
      which refer to limitations on dividend  payments,  compliance with certain
      financial ratios,  comprehensive insurance on pledged assets,  commitments
      not to sell,  pledge or dispose of the assets,  as well as with respect to
      acquiring direct or contingent liabilities or any other contractual debts.
      The Company was in compliance with all covenants at December 31, 2001.

(7)   INCOME TAXES-

      In accordance  with present tax legislation in Mexico,  corporations  must
      pay either Income Tax or Business  Assets Tax depending on which amount is
      greater for their operations in Mexico.  Both taxes recognized the effects
      of  inflation.  Employees'  Statutory  Profit  Sharing is  calculated on a
      similar basis as Income Tax but without the  recognition of the effects of
      inflation.  The  inflation  rates in Mexico  for 2001,  2000 and 1999 were
      4.4%, 8.6% and 15%  respectively.  The Company  determines its tax results
      individually.


<PAGE>

                                       12

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


      Income tax expense  attributable to income from continuing  operations for
      the year ended  December 31, 2001,  differed from the amounts  computed by
      applying  the U.S.  federal  income tax rate of 35% to pretax  income from
      continuing operations as a result of the following:

                                                                        2001
                                                                        ----

           Computed "expected" tax benefit                            $     (28)
           Increase (reduction) in income tax resulting from:
             Effects of tax inflation, net                                 (781)
             Difference between book and tax depreciation
               for US GAAP conversion                                      (854)
             Change in the beginning-of-the-year balance
                of the valuation allowance for deferred tax assets        1,177
             Non deductible expenses                                         23
             Other, net                                                    (476)
                                                                      ----------
                Income tax benefit                                    $    (939)
                                                                      ==========

      Beginning  in 2003,  the 35% tax rate  will  gradually  be  reduced  by 1%
      annually until it is 32% in 2005.

      The tax effects of  temporary  differences  that give rise to  significant
      portions  of the  deferred  tax assets and  deferred  tax  liabilities  at
      December 31, 2001 and 2000 are presented below:

                                                          2001          2000
                                                          ----          ----
           Deferred tax assets:
             Assets tax                                 $   2,082           690
             Net operating loss and assets tax
               carryforwards                                5,009         2,240
             Accrued expenses                                 465           229
                                                        ----------    ----------

                Total gross deferred tax assets             7,556         3,159

           Less valuation allowance                        (1,177)          -
                                                        ----------    ----------

                Net deferred tax assets                 $   6,379         3,159
                                                        =========     ==========

           Deferred tax liabilities:
             Inventories                                $  (3,623)       (2,945)
             Property, plant and equipment                 (3,272)       (3,078)
             Prepaid expenses                                 (17)          -
                                                        ----------    ----------

                Total gross deferred liabilities           (6,912)       (6,023)
                                                        ----------    ----------

                Net deferred tax liabilities            $    (533)       (2,864)
                                                        ==========    ==========


<PAGE>

                                       13

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


      The deferred rollforward for the net deferred income tax liability for the
      year ended December 31, 2001 is presented below:

                                                          2001
                                                          ----

           Initial balance of deferred income tax       $  (2,864)
           Deferred income tax benefit                        939
           Change in refundable tax on assets               1,392
                                                        ----------

                Ending balance                          $    (533)
                                                        ==========

      The  deferred  expense  (benefit)  related to profit  sharing tax has been
      recorded in operating  expenses.  The deferred expenses  (benefit) for the
      years ended December 31, 2001,  2000 and 1999 was $188,  $(10) and $(607),
      respectively.

      Total deferred profit sharing assets, and liabilities at December 31, 2001
      and 2000 are presented below:

                                                          2001          2000
                                                          ----          ----
      Deferred profit sharing liabilities:
        Inventories                                     $   1,035           840
        Property, plant and equipment                         935           879
                                                        ----------    ----------
                Total deferred tax liabilities              1,970         1,719

      Deferred profit sharing assets:
        Accrued liabilities                                   128            65
                                                        ----------    ----------
                 Total deferred tax assets                    128            65
                                                        ----------    ----------
                 Net deferred tax liability             $   1,842         1,654
                                                        ==========    ==========

      The  valuation  allowance  for deferred tax assets as of December 31, 2001
      was $1,177. The net change in the total valuation  allowance for the years
      ended  December  31,  2001 was an  increase of $1,177.  In  assessing  the
      realizability of deferred tax assets,  management  considers whether it is
      more likely than not that some  portion or all of the  deferred tax assets
      will not be realized.  The ultimate  realization of deferred tax assets is
      dependent  upon the generation of future taxable income during the periods
      in  which  those  temporary  differences  become  deductible.   Management
      considers the scheduled  reversal of deferred tax  liabilities,  projected
      future  taxable  income,  and  tax  planning  strategies  in  making  this
      assessment.

      Based upon the level of  historical  taxable  income and  projections  for
      future taxable  income over the periods,  in which the deferred tax assets
      are deductible, management believes it is more likely than not the Company
      will  realize the  benefits of these  deductible  differences,  net of the
      existing  valuation  allowances  at December 31,  2001.  The amount of the
      deferred tax asset considered realizable, however, could be reduced in the
      near term if estimates of future  taxable  income during the  carryforward
      period are reduced.


<PAGE>

                                       14

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


      The Business Assets Tax Law establishes a 1.8% tax levy on assets, indexed
      for  inflation in the case of  inventory,  property,  plant and  equipment
      after deducting certain liabilities.  Business Assets Tax levied in excess
      of Income Tax for a year may be recovered,  indexed for inflation,  in any
      of the succeeding  ten years,  provided that the Income Tax levied exceeds
      Business Assets Tax levied in such period.

      At December 31, 2001, the Company has net operating loss carryforwards for
      federal  income tax  purposes of $14,311,  which are  available  to offset
      future federal  taxable  income,  if any,  through 2011. In addition,  the
      Company has tax  carryforwards  from business assets tax of  approximately
      $6,026 which are available to reduce future Federal  regular income taxes,
      if any, through 2011.

      At December 31, 2001, tax loss  carryforwards  and  recoverable  Tax Asset
      expire as follows:

                                                      RESTATED THROUGH
                                                      DECEMBER 31, 2001
                                             -----------------------------------
                                                TAX LOSS             RECOVERABLE
              EXPIRING IN                    CARRYFORWARDS            TAX ASSET
              -----------                    -------------           -----------
                 2005                        $      5,837                   -
                 2008                               2,793                    35
                 2009                                 -                     367
                 2010                                 -                   2,610
                 2011                               5,681                 3,014
                                             ------------           -----------
                                             $     14,311                 6,026
                                             ============           ===========

(8)   STOCKHOLDERS' EQUITY -

      (A)  STRUCTURE OF CAPITAL STOCK -

           Shares of common stock are integrated by 168,915,783 shares Serie "A"
           may be  subscribed,  acquired  or owned  by  Mexican  investors,  and
           168,915,783  shares  Serie "B" may be  subscribed,  acquired or owned
           both Mexican and foreign investors. Each share has a par value of one
           Mexican peso.

      (B)  RESTRICTIONS ON STOCKHOLDERS' EQUITY -

           Net earnings for any year are subject to an  appropriation of 5% to a
           legal reserve, until such reserve equals one fifth of capital stock.

           Retained earnings on which no income tax has been paid,  amounting to
           $40,539  will be  subject  to  income  taxes in  accordance  with the
           Mexican  Income Tax Law,  payable by the Company;  consequently,  the
           stockholders may only receive the difference of such amounts.


<PAGE>

                                       15

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


           Stockholders'  contributions  restated as provided for by the tax law
           aggregate may be refunded to the stockholders' tax-free to the extent
           that  the  tax   bases  of  such   contributions   equal  or   exceed
           stockholders' equity.

(9)   SENIORITY PREMIUMS -

      The  following  tables  set forth  information  related  to the  Company's
      seniority premium obligation at December 31, 2001 and 2000:

                                                          2001          2000
                                                          ----          ----
      COMPONENT OF NET PERIODIC BENEFIT COST
         Service cost                                   $      17            16
         Interest cost                                          4             3
         Amortization of transition (asset) liability           2             2
                                                        ---------     ---------
         Net periodic benefit cost                      $      23            21
                                                        =========     =========



      WEIGHTED-AVERAGE ASSUMPTIONS


      Discount rate                                           4.5%         4.5%
                                                          ========     ========

      Rate of compensation increase                           1.5%         1.5%
                                                          ========     ========

      The following  table  represents the  reconciliation  of the present value
      labor obligations unfunded:

                                                          2001          2000
                                                          ----          ----

      Actuarial present value of benefit obligations    $      76            67
      Excess of projected benefit obligations over
        present value of benefit obligations                    8             4
                                                        ---------     ---------
          Projected benefit obligation                         84            71

      Unrecognized net transition asset                        13            15
      Changes is assumptions and experience adjustments         5             7
                                                        ---------     ---------
          Net liability recognized in the balance sheet $      66            49
                                                        =========     =========


<PAGE>

                                       16

                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                          Notes to Financial Statements
                      (All US Dollars amounts in thousands)


(10)  COMMITMENT AND CONTINGENCIES -

      At  December  31,  2001,  the  Company had the  following  commitment  and
      contingencies:

      a)    The Company has a non-cancelable operating lease, for equipment used
            in its operation that have a duration of 6 years. Total rent expense
            associated with this lease for the years ended December 31, 2001 and
            2000, was $199 and $199, respectively.

            Future minimum lease payments under a non-cancelable operating lease
            as of December 31, 2001 are:

                                                                OPERATING
                YEAR ENDING DECEMBER 31                           LEASE
               ------------------------                         ---------
                        2002                                    $   199
                        2003                                        199
                        2004                                        199
                        2005                                        199
                                                                ---------
                        Total minimum lease payments            $   796
                                                                =========

            The lease is for an initial  six-year  term expiring in 2005 with an
            annual renewal  thereafter.  It has been  classified as an operating
            lease and is included in the data presented above.

      b)    The Company is involved in various  other  claims and legal  actions
            arising  in the  ordinary  course of  business.  In the  opinion  of
            management,  the ultimate disposition of these matters will not have
            a  material  adverse  effect on the  Company's  financial  position,
            results of operations or liquidity.

      c)    In accordance with the tax law in force,  tax  authorities  have the
            right to review up to the five tax periods  prior to the last income
            tax return filed.

      d)    According to the Income Tax Law, companies carrying out transactions
            with related parties,  whether  domestic or foreign,  are subject to
            certain  requirements as to the determination of prices,  since such
            prices  must be similar to those that would be used in  arm's-length
            transactions.

            Should the tax authorities  examine the  transactions and reject the
            related-party  prices,  they could assess  additional taxes plus the
            related restatement and interest,  in addition to penalties of up to
            100% of the omitted taxes.

      e)    There is a contingency with respect to personnel  termination  costs
            mentioned in note 1 (g).