PARRAS CONE DE MEXICO, S.A. DE C.V.
                              Financial Statements
                           December 31, 2002 and 2001
                   (With Independent Auditors' Report Thereon)

<PAGE>


                       PARRAS CONE DE MEXICO, S.A. DE C.V.
                              Financial Statements
                           December 31, 2002 and 2001



                                Table of Contents

                                                                           Page

Independent Auditors' Report                                                1

Balance Sheets                                                              2

Statements of Income                                                        3

Statements of Stockholders' Equity and Comprehensive income                 4

Statements of Cash Flows                                                    5

Notes to Financial Statements                                              6-18



<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 sheets of Parras Cone de Mexico,  S.A.
de C.V. as of December 31, 2002 and 2001,  and the related  statement of income,
stockholders'  equity and comprehensive income and cash flows for the years 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 audits.  The  accompanying  financial  statements as of
December 31, 2000,  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 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, 2002 and 2001, and the results of its operations and its
cash flows  for the years  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


January 31, 2003


<PAGE>


                                                          2

                                        PARRAS CONE DE MEXICO, S. A. DE C. V.
                                                    Balance Sheets
                                              December 31, 2002 and 2001
                                             (In thousands of US Dollars)
<TABLE>
<CAPTION>

                         Assets                                               2002                2001
<S>                                                                 <C>                  <C>
Current assets:
    Cash and cash equivalents                                       $            9,681   $            3,371
                                                                     -----------------    -----------------
    Accounts receivable:
      Related parties (note 3)                                                   8,910                8,960
      Recoverable taxes                                                          5,811                4,187
      Other receivables                                                            813                  625
                                                                     -----------------    -----------------

                 Total accounts receivable                                      15,534               13,772
                                                                     -----------------    -----------------

    Inventories (note 4)                                                         8,345                9,876
    Prepaid expenses                                                                78                   49
                                                                     -----------------    -----------------

                 Total current assets                                           33,638               27,068
                                                                     -----------------    -----------------

Notes receivable                                                                   154                  130
Property, plant and equipment, net (note 6)                                     75,570               80,200
Deferred income taxes (note 8)                                                   1,814                2,642
                                                                     -----------------    ----------------

                 Total assets                                       $          111,176   $          110,040
                                                                     =================    =================

                       Liabilities and Stockholders' Equity

Current liabilities:
    Notes payable to bank                                           $            1,170   $                -
    Current installments of long-term debt (note 7)                             16,085                5,510
    Interest payable                                                                86                  344
    Trade accounts and accrued expenses payable                                  9,577                3,009
    Compania Industrial de Parras, S.A. de C.V.                                      -                  288
    Deferred income taxes (note 8)                                               2,675                3,175
    Deferred employee statutory profit sharing (note 8)                            787                  907
                                                                     -----------------    -----------------

                 Total current liabilities                                      30,380               13,233
                                                                     -----------------    -----------------

Long-term debt, excluding current installments (note 7)                              -               22,420
Seniority premiums (note 10)                                                        65                   66
Deferred employee statutory profit sharing (note 8)                                952                  935
                                                                     -----------------    -----------------

                 Total liabilities                                              31,397               36,654
                                                                     -----------------    -----------------

Stockholders' equity (note 9):
     Common stock, $0.17345 par value, authorized 337,831,566 shares,
         issued and outstanding                                                 58,597               58,597
     Retained earnings                                                          20,838               14,789
     Accumulated other comprehensive income                                        344                    -
                                                                     -----------------    -----------------

                 Total stockholders' equity                                     79,779               73,386

Commitment and contingencies (note 11)
                                                                     -----------------    -----------------

                 Total liabilities and stockholders' equity         $          111,176   $          110,040
                                                                     =================    =================
</TABLE>
See accompanying notes to financial statements.


<PAGE>


                                                           3

                                        PARRAS CONE DE MEXICO, S. A. DE C. V.
                                                Statements of Income
                                    Years ended December 31, 2002, 2001 and 2000
                                            (In thousands of US Dollars)

<TABLE>
<CAPTION>
                                                                       2002                  2001                2000
                                                                       ----                  ----                ----
<S>                                                          <C>                    <C>                  <C>
Net sales                                                    $           63,960     $          58,469    $         71,097
Cost of goods sold                                                       48,987                50,462              54,778
                                                              ------------------     -----------------    ----------------

                 Gross profit                                            14,973                 8,007              16,319

Operating expenses                                                        5,486                 5,732               6,521
                                                              ------------------     -----------------    ----------------

                 Operating income                                         9,487                 2,275               9,798
                                                              ------------------     -----------------    ----------------

Other income (expense):
    Interest income                                                          70                    72                  83
    Interest expense                                                     (1,561)               (2,281)             (2,647)
    Foreign currency exchange gain (loss), net                             (668)                  163                (159)
    Other, net                                                               24                  (309)                116
                                                              ------------------     -----------------    ----------------
                 Other expense, net                                      (2,135)               (2,355)             (2,607)
                                                              ------------------     -----------------    ----------------
                                                                          7,352
                 Income (loss) before income taxes                                                (80)              7,191

Income tax (expense) benefit (note 8)                                    (1,303)                  939              (1,404)
                                                              ------------------     -----------------    ----------------

                 Net income
                                                             $            6,049     $             859    $          5,787
                                                              ==================     =================    ================
</TABLE>



See accompanying notes to financial statements.


<PAGE>


                                                  4

                                 PARRAS CONE DE MEXICO, S.A. DE C.V.
                     Statements of Stockholders' Equity and Comprehensive Income
                             Years ended December 31, 2002, 2001 and 2000
                                       (Thousands of US Dollars)

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            other                   Total
                                                    Common            Retained          comprehensive           stockholders'
                                                     stock            earnings              income                 equity
                                                 ---------------   ---------------    ------------------    ------------------

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

     Net income                                             -             6,049                     -                6,049

     Hedging transactions, net of
        deferred tax of $269                                -                 -                   344                  344
                                                 ---------------   ---------------    ------------------    ------------------

Comprehensive income                                        -             6,049                   344                6,393
                                                 ---------------   ---------------    ------------------    ------------------

Balances at December 31, 2002                   $      58,597     $      20,838      $            344      $        79,779
                                                 ===============   ===============    ==================    ==================
</TABLE>



ee accompanying notes to financial statements.


<PAGE>


                                                         5

                                       PARRAS CONE DE MEXICO, S. A. DE C. V.
                                              Statements of Cash Flows
                                    Years ended December 31, 2002, 2001 and 2000
                                             (Thousands of US Dollars)

<TABLE>
<CAPTION>
                                                                             2002               2001              2000
                                                                             ----               ----              ----
<S>                                                                <C>                  <C>                <C>
Cash flows from operating activities:
    Net income                                                     $          6,049     $          859     $       5,787
    Adjustments to reconcile net income to net cash provided by
       operating activities:
           Depreciation                                                       7,116              7,130             7,027
           Deferred income taxes                                              1,303               (939)            1,404
           Deferred profit sharing                                             (164)               188               (10)
           Increase in accounts receivable                                   (1,762)               (63)             (350)
           Decrease (increase) in inventories                                 1,531             (1,567)            1,952
           (Increase) decrease in prepaid expenses                              (29)               164                (2)
           Increase (decrease) in accounts and accrued
              expenses payable                                                6,280             (2,248)            2,521
           Decrease in interest payable                                        (258)              (186)             (666)
           Other                                                               (579)            (1,144)           (1,154)
                                                                    ----------------     --------------     -------------

                Net cash provided by operating activities                    19,487              2,194            16,509
                                                                    ----------------     --------------     -------------


Cash flows from investing activities:
    Acquisitions of property, plant and equipment                            (2,486)            (4,183)           (2,504)
                                                                    ----------------     --------------     -------------

                Net cash used in investing activities                        (2,486)            (4,183)           (2,504)
                                                                    ----------------     --------------     -------------

Cash flows from financing activities:
    (Payments on) proceeds from long-term debt                              (11,845)             7,880           (11,155)
    Proceeds from (payments on) notes payables to bank                        1,170             (4,000)           (3,000)
                                                                    ----------------     --------------     -------------

                Net cash (used in) provided by financing
                    activities                                              (10,675)             3,880           (14,155)
                                                                    ----------------     --------------     -------------

Effect of exchange rate changes on cash and cash equivalents
                                                                                (16)                59               (12)
                                                                    ----------------     --------------     -------------

                Net increase (decrease) in cash and cash
                    equivalents                                               6,310              1,950              (162)

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

Cash and cash equivalents at the end of year                       $          9,681     $        3,371     $       1,421
                                                                    ================     ==============     =============

Supplemental disclosures:

      Interest paid                                                $          1,819     $        2,467     $       3,285
                                                                    ================     ==============     =============
</TABLE>



See accompanying notes to financial statements.


<PAGE>


                                        6

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




(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.

     (d)  Derivative instruments and hedging activities -

          The Financial  Accounting  Standards Board (FASB) issued  Statement of
          Financial  Accounting Standards (SFAS) No. 138 "Accounting for Certain
          Derivative Instruments and Certain Hedging Activities". This Statement
          amended the  accounting  and reporting  standards of Statement No. 133
          for certain  derivative  instruments and certain  hedging  activities.
          SFAS No.  133  established  accounting  and  reporting  standards  for
          derivative  instruments,   including  certain  derivative  instruments
          embedded in other contracts (collectively referred to as derivatives),
          and for hedging  activities.  It requires that an entity recognize all
          derivatives  as  either  assets or  liabilities  in the  statement  of
          financial  position and measure those  instruments at fair value. This
          Statements also established criteria for designation and effectiveness
          of hedging  relationships.  If the derivative is a hedge, depending on
          the nature of the hedge,  changes in the fair value of the  derivative
          are  either  offset  against  the  change in fair  value of the hedged
          assets, liabilities or firm commitments through earnings or recognized
          in other  comprehensive  income until the hedged item is recognized in
          earnings.  The  ineffective  portion of a derivative's  change in fair
          value is immediately recognized in earnings.


<PAGE>


                                        7

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


          The Company accounts for derivatives  under SFAS 133 and SFAS 138, and
          considers its cotton derivatives to be cash flow hedges of anticipated
          future  transactions.  The effective  portion of derivative  gains and
          losses for these hedges is initially  reported as a component of other
          comprehensive  income (outside results of operations) and subsequently
          reclassified into cost of goods sold when the forecasted  transactions
          being hedged impacts results of operations.

     (e)  Property, plant and equipment -

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

     (f)  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.

     (g)  Transactions in foreign  currency,  exchange  fluctuations and foreign
          currency -

          The Company 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.

          The US dollar is the functional currency for the Company. 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.  Translation  adjustments  are
          recorded as transaction gain or loss in the accompanying  statement of
          income.


<PAGE>


                                        8

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


     (h)  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 (note 10).

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

     (i)  Use of estimates -

          Management  of  the  Company  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 generally accepted accounting
          principles  in the United  States of  America.  Actual  results  could
          differ significantly from those estimates.

     (j)  Impairment of long-lived  assets and long-lived  assets to be disposed
          of -

          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  reported  at the lower of the  carrying
          amount or fair value less costs to sell, and depreciation ceases.

     (k)  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,  2002,  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.


<PAGE>


                                        9

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


     (l)  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 for environmental
          remediation   costs  from  third   parties,   which  are  probable  of
          realization,  are separately recorded,  and are not offset against the
          related   environmental   liability  in  accordance   with   Financial
          Accounting Standards Board Interpretation No. 39 "Offsetting of Amount
          Related to Certain Contracts".

     (m)  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  of Disposal  of  Long-Lived  Assets".  SFAS No. 144 amends
          existing guidance on asset impairment and provides a single accounting
          model for  long-lived  assets to be  disposed  of.  SFAS No.  144 also
          changes the criteria for  classifying an asset as  held-for-sale;  and
          broadens  the scope of  businesses  to be disposed of that qualify for
          reporting  as  discontinued  operations  and  changes  the  timing  of
          recognizing  losses on such  operations.  The Company adopted SFAS No.
          144 on January 1, 2002.  The  adoption  of SFAS No. 144 did not effect
          the Company's financial statements.

(2)  Foreign currency exposure -

     Net assets  denominated  in thousands  of Mexican  pesos as of December 31,
     2002 and 2001, were $58,304 and $14,489 respectively.  The exchange rate of
     the Mexican peso to the US dollar at December 31, 2002 and 2001, was 0.0958
     and 0.1093 pesos, respectively. The exchange rate at January 31, 2003, date
     of the auditor's report is 0.0910 pesos per U.S. dollar.


<PAGE>


                                         10

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


(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.

     The  transactions  carried  out for the years ended  December  31, 2002 and
     2001, with related parties are, as follows:


                                                    2001               2002
                                                    ----               ----
           Sales                                 $   63,960        $    58,469
           Fixed assets purchases                         -              3,222
           Management services                        2,000              2,000
           Operation expenses                            31                157
                                                  ==========        ===========


     At December 31, 2002 and 2001, the accounts  receivable  and payable,  with
     related parties are as follows:

                                                    2002               2001
                                                    ----               ----
       Accounts receivable:
           Cone Mills Corporation                $    9,530        $     9,100
           Fabrica la Estrella, S.A. de C.V.            109                346
           Cone Mills (Mexico), S.A. de C.V.             12                 16
           Cone Tamaulipas, S. de R.L. de C.V.            1                  9
                                                  ----------        -----------
                      Total accounts receivable       9,652              9,471

       Accounts payable to Cone Mills Corporation       742                511
                                                  ----------        -----------

                      Net accounts receivable    $    8,910        $     8,960
                                                  ==========        ===========


<PAGE>


                                       11

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


(4)  Inventories -

     At December 31, 2002 and 2001, inventories are summarized as follows:

                                                    2002                2001
                                                    ----                ----

           Finished goods                        $  3,909          $    4,871
           Raw material                             1,916               1,929
           Work in process                          1,352               1,804
           Other                                    1,120               1,136
           Advances for cotton purchases               48                 136
                                                  --------          ----------
                                                 $  8,345          $    9,876
                                                  ========          ==========

(5)  Derivative instruments and hedging activities -

     The Company  utilizes  derivative  financial  instruments  to manage  risks
     associated  with  changes  in  cotton  prices.  Cotton is the  primary  raw
     material for Company's fabric manufacturing operations.  The Company has an
     established  cotton  purchasing  program,  administered in conformance with
     policies  approved by the Board of  Directors,  to ensure an  uninterrupted
     supply of appropriate  quality and quantities of cotton, to cover committed
     and  anticipated  fabric sales and to manage margin risks  associated  with
     price  fluctuations  on  anticipated  cotton  purchases.  The Company  uses
     exchange traded futures purchase and sales contracts. The Company considers
     its cotton  derivatives  to be  primarily  cash flow hedges of  anticipated
     future buyout  transactions  under SFAS No. 133. The  effective  portion of
     derivative gains and losses for hedges is initially reported as a component
     of other comprehensive  income (loss) outside the results of operations and
     subsequently  reclassified  into results of operations  when the forecasted
     transactions  being hedged affect  results of  operations.  At December 31,
     2002, the Company recorded in accumulated other comprehensive income (loss)
     cotton  derivative  gains,  net of  deferred  tax  benefits,  of $344,  the
     operation  hedging will  be closed in  the first  quarter of 2003. Gains of
     $608 were credited to cost of goods sold in 2002.


<PAGE>


                                       12

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


(6)  Property, plant and equipment -

     At December  31,  2002 and 2001,  the  investment  in  property,  plant and
     equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                          Useful
                                                        2002              2001            Lives
                                                        ----              ----            -----
<S>                                              <C>                <C>                   <C>
           Land                                  $        2,263     $       2,263             -
           Machinery and equipment                       76,728            76,108         10-15
           Buildings                                     35,139            35,139            39
           Furniture and fixtures                        10,337             8,471          3-10
           Spare parts                                      608               608             -
                                                  --------------     -------------
                                                        125,075           122,589

               Less accumulated depreciation             49,505            42,389
                                                  --------------     -------------

                                                 $       75,570     $      80,200
                                                  ==============     =============
</TABLE>

     Depreciation  expense  amounted  to $ 7,116 and $ 7,130 in 2002,  and 2001,
     respectively.


(7)  Long-term debt-

     Long-term debt at December 31, 2002 and 2001 consists of the following:

<TABLE>
<CAPTION>
                                                                          2001              2002
                                                                          ----              ----
<S>                                                                <C>              <C>
     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.                                        $     16,085     $      27,930

      Less current installments                                          16,085             5,510
                                                                    ------------     -------------

      Long-term debt, excluding current installments               $          -     $      22,420
                                                                    ============     =============
</TABLE>
     The weighted  average interest rate was 6.91% and 6.21% for the years ended
     December 31, 2002 and 2001, respectively.


<PAGE>


                                       13

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


     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.
     As of December 31, 2002, the Company was in compliance with all covenants.

(8)  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 2002, 2001 and 2000 were 5.7%,
     4.4%  and  8.6%  respectively.  The  Company  determines  its  tax  results
     individually.

     Income tax expense  attributable to income from  continuing  operations for
     the years  ended  December  31,  2002 and 2001,  differed  from the amounts
     computed  by  applying  the  income tax rate of 35% to pretax  income  from
     continuing operations as a result of the following:

<TABLE>
<CAPTION>
                                                                                     2002               2001
                                                                                     ----               ----
<S>                                                                          <C>                <C>
         Computed expected tax expense (benefit)                             $       2,573      $         (28)
         Increase (reduction) in income tax resulting from:
             Adjustment to deferred tax assets and  liabilities  for
                 enacted changes in tax laws and rates                                (252)                 -
              Effects of tax inflation, net                                            161               (781)
              Difference  between  book  and  tax  depreciation  for
                 US GAAP conversion                                                 (1,755)              (854)
             Change in the  beginning-of-the-year  balance of the
                 valuation allowance  for deferred tax assets
                 allocated to income tax expense                                       461              1,177
             Non deductible expenses                                                    75                 23
             Other, net                                                                 40               (476)
                                                                              -------------      -------------

                   Income tax expense (benefit)                              $       1,303      $        (939)
                                                                              =============      =============
</TABLE>

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


<PAGE>


                                       14

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


     The tax  effects of  temporary  differences  that give rise to  significant
     portions  of the  deferred  tax  assets and  deferred  tax  liabilities  at
     December 31, 2002 and 2001, are presented below:

<TABLE>
<CAPTION>
                                                                              2002                2001
                                                                              ----                ----
<S>                                                                   <C>               <C>
           Deferred tax assets:
            Assets tax                                                $       3,265     $         2,082
            Net operating loss and assets tax carryforwards                   3,231               5,009
            Accrued expenses                                                    513                 465
                                                                       -------------     ---------------

                     Total gross deferred tax assets                          7,009               7,556

           Less valuation allowance                                          (1,638)             (1,177)
                                                                       -------------     ---------------

                     Net deferred tax assets                          $       5,371     $         6,379
                                                                       =============     ===============

           Deferred tax liabilities:
            Inventories                                               $      (2,927)    $        (3,623)
            Property, plant and equipment                                    (3,044)             (3,272)
            Prepaid expenses                                                    (53)                (17)
            Other                                                              (208)                  -
                                                                       -------------     ---------------

                     Total gross deferred liabilities                        (6,232)             (6,912)
                                                                       -------------     ---------------

                     Net deferred tax liabilities                     $        (861)    $          (533)
                                                                       =============     ===============

     The deferred  rollforward for the net deferred income tax liability for the
     year ended December 31, 2002 is presented below:
                                                                              2002                2001
                                                                              ----                ----
         Initial balance of deferred income tax                       $        (533)    $        (2,864)
         Deferred income tax (expenses) benefit                              (1,303)                939
         Change in refundable tax on assets                                   1,183               1,392
         Other comprehensive income                                            (208)                  -
                                                                       -------------     ---------------

                     Ending balance                                   $        (861)    $          (533)
                                                                       =============     ===============
</TABLE>


<PAGE>


                                       15

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



     The deferred  (benefit) expense related to profit sharing has been recorded
     in operating  expenses.  The deferred (benefit) expense for the years ended
     December 31, 2002, 2001 and 2000 was $(103), $188 and $(10), respectively.

     Total deferred profit sharing assets,  and liabilities at December 31, 2002
     and 2001 are presented below:

                                                           2002          2001
                                                           ----          ----

     Deferred profit sharing liabilities:
       Inventories                                    $       861   $     1,035
       Property, plant and equipment                          952           935
       Other                                                   77             -
                                                       -----------   -----------
                   Total deferred tax liabilities           1,890         1,970

     Deferred profit sharing assets:
       Accrued liabilities                                    151           128
                                                       -----------   -----------
                   Total deferred tax assets                  151           128
                                                       -----------   -----------
                   Net deferred tax liability         $     1,739   $     1,842
                                                       ===========   ===========

     The valuation allowance for deferred tax assets as of December 31, 2002 and
     2001 was  $1,638  and  $1,177  respectively.  The net  change  in the total
     valuation  allowance for the years ended  December 31, 2002 and 2001 was an
     increase of $461 and $1,177 respectively. 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,  2002.  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.

     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.


<PAGE>


                                       16

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


     At December 31, 2002, the Company has net operating loss  carryforwards for
     federal income tax purposes of $9,472, 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  $8,911 which
     are  available to reduce  future  Federal  regular  income  taxes,  if any,
     through 2012.

     At December 31, 2002,  tax loss  carryforwards  and  recoverable  Tax Asset
     expire as follows:

                                                   Restated through
                                                  December 31, 2002
                                       ---------------------------------------
                                            Tax loss              Recoverable
          Expiring in                     carryforwards            tax asset
          -----------                     -------------          -------------
              2005                    $         1,759         $             -
              2008                              2,542                      35
              2009                                  -                     367
              2010                                  -                   2,610
              2011                              5,171                   3,014
              2012                                  -                   2,885
                                       ----------------        ---------------

                                      $         9,472         $         8,911
                                       ================        ===============

(9   Stockholders' equity -

     (a)  Structure of capital stock -

          Shares of common stock are represented 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 -

          Five  percent of net income for the year must be  appropriated  to the
          statutory  reserve,  until it reaches  one-fifth of capital stock,  at
          December 31, 2002 the amount is $1,622.

          Retained earnings of $38,362, on which no income taxes have been paid,
          are subject to income taxes in the event of distribution,  at the rate
          of 34%,  payable by the Company;  consequently,  the  stockholders may
          only receive 66% of such amounts.

          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.


<PAGE>


                                       17

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



(10) Seniority premiums -

     The  following  tables  set  forth  information  related  to the  Company's
     seniority premium obligation at December 31, 2002 and 2001:

                                                          2002            2001
                                                          ----            ----

      Component of net periodic benefit cost
      --------------------------------------
         Service cost                                $      17      $       17
         Interest cost                                       4               4
         Amortization of transition (asset) liability        2               2
                                                      ----------     ----------

         Net periodic benefit cost                   $      23      $       23
                                                      ==========     ==========



      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:

                                                             2002         2001
                                                             ----         ----

      Actuarial present value of benefit obligations      $    74     $     76
      Excess of projected benefit obligations over
         present value of benefit obligations                  12            8
                                                           -------     --------

          Projected benefit obligation                         86           84

      Unrecognized net transition asset                       (11)         (13)
      Changes is assumptions and experience adjustments       (10)          (5)
                                                           -------     --------

          Net liability recognized in the balance sheet   $    65     $     66
                                                           =======     ========



<PAGE>


                                       18

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


(11) Commitment and contingencies -

     At  December  31,  2002,  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, 2002 and
          2001, was $198 and $198, respectively.

          Future minimum lease payments under a  non-cancelable  operating lease
          as of December 31, 2002 are:

                                                                Operating
             Year ending December 31                              lease
          -----------------------------                      -------------
                   2003                                      $     198
                   2004                                            198
                   2005                                            198
                                                             -------------
             Total minimum lease payments                    $     594
                                                             =============

          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 a number of lawsuits and claims  arising in
          the normal  course of business.  It is expected that the final outcome
          of these  matters  will not have  significant  adverse  effects on the
          Company's financial position and results of operations.

     c)   The five-year  period prior to the most recent income tax return filed
          is open to governmental tax examination.

     d)   According to the Income Tax Law,  companies  carrying out transactions
          with related  parties,  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  adjustment  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 (h).

     f)   To ensure the supply of the cotton  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,  appropriate  quality  and  predetermined  delivery  dates by
          common  agreement.  As of December 31, 2002,  the Company has purchase
          commitments of cotton for volumes of 42,095,000 pounds.