SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                            For the Fiscal Year Ended
                                December 28, 2002

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

                         For the transition period from
                     _________________ to _________________

                           Commission File No. 0-5680

                                BURKE MILLS, INC.
             (Exact name of registrant as specified in its charter)
                 (I.R.S. Employer Identification No.) 56-0506342

          State or other jurisdiction of incorporation or organization:
                                 North Carolina

                             191 Sterling Street, NW
                          Valdese, North Carolina 28690
               (Address of principal executive offices) (Zip Code)

               Registrant's telephone number, including area code:
                                  828-874-6341

           Securities registered pursuant to Section 12(g) of the Act:
           Common Stock No Par Value (Stated Value of $0.66 Per Share)
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No___

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  (computed  by  reference to the average bid and asked price on as of
the last business day of the registrant's most recently  completed second fiscal
quarter) was $1,458,751.

The number of shares  outstanding of the registrant's only class of common stock
as of March 3, 2003 is 2,741,168 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  Company's  proxy  statement  related to the annual  meeting of
shareholders  of the Company  scheduled  for May 20, 2003,  which is to be filed
pursuant to  Regulation  14A not later than 120 days after the end of the fiscal
year covered by this report,  are  incorporated by reference in Part III of this
report.

Page 1 of 33
<PAGE>


                                BURKE MILLS, INC.
                                     PART I

ITEM 1 - BUSINESS
------------------
(a) General  Development  of Business - The  Company's  general  development  of
business  consisted  of  improving  operating  performance  in all  areas of the
Company,  maintaining  sales in a down economy,  and  strengthening  its balance
sheet.

During 2002, the Company  experienced a very weak textile economy causing a very
competitive market, a shrinking customer base, and an erosion in customer credit
quality.  The Company's  customers were affected by the weak economy and also by
competition from imports.

The Company  made major  improvements  in  efficiencies  and  reduced  labor and
overhead cost.  On-time  deliveries were improved and there was a major decrease
in inventory. As a result of the improvements,  the Company improved its balance
sheet and is poised for any market recovery.

(b) Financial  Information  about  Industry  Segments - The Company had only one
industry segment during the fiscal year ended December 28, 2002.

(c)  Narrative  Description  of Business - The Company is engaged in  texturing,
winding, dyeing, processing and selling of filament, novelty and spun yarns, and
in the dyeing and processing of these yarns for others on a commission basis.

The  principal  markets  served  by the  Company  are  apparel,  upholstery  and
industrial uses through the knitting and weaving industry.

The  Company's  products  are  sold  in  highly  competitive  markets  primarily
throughout the United States. Competitiveness of the Company's products is based
on price,  service and product  quality.  Many of the Company's  competitors are
divisions  or  segments  of larger,  diversified  firms with  greater  financial
resources than those of the Company.

The methods of distribution of the Company's  products consist of the efforts of
the  Company's  sales force which makes  contact with  existing and  prospective
customers.  The  Company  markets its  products  throughout  the United  States,
Caribbean  Basin,  Mexico  and  Canada,  with  the  bulk of the  business  being
primarily in the eastern United States,  through five salesmen employed directly
by the Company on salary and a number of  commissioned  sales agents  working on
various  accounts.  The Company  also  markets its  products in Mexico,  Central
America and South  America  through  its  fifty-percent  (50%) owned  affiliate,
Fytek, S.A. de C.V.

The dollar  amount of backlog of  unshipped  orders as of December  28, 2002 was
$1,017,000 and as of December 30, 2001 was $2,425,000.  Generally, all orders in
backlog at the end of a year are shipped  the  following  year.  The backlog has
been calculated by the Company's  normal practice of including  orders which are
deliverable  over  various  periods  and which may be changed or canceled in the
future.

The most important raw materials used by the Company are  unprocessed  raw yarn,
dyes and  chemicals.  The Company  believes that its sources of supply for these
materials are adequate for its needs and that it is not substantially  dependent
upon any one supplier.

With respect to the practices of the Company  relating to working capital items,
the Company  generally  carries enough  inventory for  approximately 58 days. On
average,  the Company turns its inventory  approximately 5 to 7 times each year.
The Company meets its delivery  schedules on a consistent on-time basis, and has
a ready  supply of raw  materials  from  suppliers.  For the  fiscal  year ended
December 28, 2002,  approximately 3% of the Company's sales were from dyeing and
processing  of yarn for  customers  who supplied the yarn.  The Company does not
allow customers to return merchandise except where the merchandise is defective.

Page 2 of 33
<PAGE>

                             BURKE MILLS, INC.PART I

ITEM 1 - BUSINESS (continued)
------------------------------
The Company rarely extends payment terms to its customers beyond sixty (60) days
and  has  experienced  no  significant   problems  in  collecting  its  accounts
receivable.  The Company  believes that  industry  practices are very similar to
that of the Company in regard to these matters.

Substantially  all of the Company's  manufacturing  operations run by electrical
energy purchased from local utility companies,  and its premises are heated with
oil or gas. The Company has not experienced any shortages in electricity, oil or
gas during the fiscal year,  and has made no other  arrangements  for  alternate
sources of energy. While energy related difficulties are not expected to prevent
the Company  from  achieving  desired  production  levels,  energy  shortages of
extended duration could have an adverse impact on operations.

The Company has established a recycling program for its major waste items: yarn,
cardboard, plastic tubes and cleaning fluid.

The Company  believes its  manufacturing  operations are in compliance  with all
presently  applicable  federal,  state and local legislative and  administrative
regulations concerning environmental protection; and, although it cannot predict
the effect that future changes in such  regulations  may have,  particularly  as
such changes may require capital  expenditures or affect  earnings,  it does not
believe that any competitor subject to the same or similar regulations will gain
any  significant  and  competitive  advantages  as a result of any such changes.
Compliance  by the Company  during the fiscal year ended  December 28, 2002 with
federal, state and local environmental protection laws had no material effect on
capital expenditures, earnings, or the competitive position of the Company.

During  1996 in  connection  with a bank  loan to the  Company  secured  by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property.  The  assessment  indicated  the  presence  of a  contaminant  in  the
groundwater under the Company's property.  The contaminant was a solvent used by
the Company in the past but no longer used. The  contamination was report to the
North Carolina  Department of Environment  and Natural  Resources  (DENR).  DENR
required a Comprehensive Site Assessment that has been completed.  The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR. The Company has identified remediation issues and is
moving toward a solution of natural attenuation.  The cost of monitoring will be
approximately $31,000 per year.

On,  February  20,  2003,  the Company had 167  employees.  The  Company's  yarn
division is its only  division.  During the fiscal year ended December 28, 2002,
sales to one customer,  Quaker Fabric  Corporation,  exceeded ten percent of the
Company's  revenue.  The loss of this  customer  would have a  material  adverse
effect on the Company in the short run, but the Company  believes  that it would
be able to replace the business within a reasonable time.

The Company owns 49.8% of the stock and 50% of the voting control of Fytek, S.A.
de C.V. (Fytek),  a Mexican  corporation with its principal place of business in
Monterrey,  Mexico. The other shareholders in Fytek are Fibras Quimicas, S.A., a
Mexican Corporation,  and Teijin, Inc., a Japanese company. The purpose of Fytek
is the manufacture and marketing of yarns. The Company acquires yarn from Fytek,
and Fytek  markets and  distributes  yarn in Mexico,  Central  America and South
America. Fytek began production in the fourth quarter of 1997.

(d) Financial  Information  about  Geographic  Areas. For each of the last three
fiscal years of the Company,  revenues of the Company from external customers is
as follows:

Page 3 of 33
<PAGE>

                             BURKE MILLS, INC.PART I


     Country of Domicile        2002             2001           2000

                    Mexico    $567,000        $  231,000    $  322,000
                    Canada      66,000         1,340,000     1,896,000
                    Honduras   221,000           786,000       294,000
                    Nicaragua      -0-               -0-        37,000
                    Barbados   140,000           673,000        29,000
                             ----------      ------------   ----------
       Total..........        $994,000        $3,030,000    $2,578,000


The basis  for  attributing  revenues  from  external  customers  to  individual
countries is payment by country of domicile on invoices  from the  Company.  The
Company does not have any long-lived assets,  long-term  customer  relationships
with a financial  institution,  mortgage and other  servicing  rights,  deferred
policy acquisition costs or deferred tax assets located in any foreign country.

The Company  does not deem  material any risks  attendant to foreign  operations
through its  investment in Fytek due to the minimal  amount of revenue  produced
for the Company by Fytek.

(e)      Available Information.  No report required.

(f)      Reports to Securities Holders.  No report required.

(g)      Enforceability of Civil Liabilities Against Foreign Persons.
         No report required.


ITEM 2. PROPERTIES
-------------------
The  executive  offices  and  manufacturing  plant of the Company are located at
Valdese,  North  Carolina,  which  is 75 miles  northwest  of  Charlotte,  North
Carolina,  and 60 miles east of Asheville,  North  Carolina.  The main plant and
executive  offices are  located on an  approximate  nineteen-acre  tract of land
owned by the Company.  Seventeen  acres of this tract are  encumbered by a first
priority lien deed of trust held by First Union National Bank of North Carolina.
The  Company  also owns  approximately  18 acres  adjacent to the plant which is
undeveloped.  The main plant building used by the Company contains approximately
309,000  square feet.  The Company also owns an  auxiliary  building  containing
36,600 square feet located  adjacent to its main plant.  This latter building is
currently used for warehousing yarn and as a distribution center.

The  plant  buildings  are steel and brick  structures  protected  by  automatic
sprinkler systems. The various departments, with the exception of the production
dyehouse,  are heated,  cooled and  humidified.  The Company  considers  all its
properties  and  manufacturing  equipment to be in a good state of repair,  well
maintained and adequate for its present needs.

The Company  utilizes  substantially  all of the space in its main plant for its
offices,  machinery  and  equipment,  storage and receiving  areas.  The Company
utilizes  substantially all of the space in the auxiliary building for warehouse
and distribution purposes.

The approximate  maximum capacity in pounds per year of the Company's  machinery
and equipment,  based upon operating the machinery and equipment  seven (7) days
per  week  fifty  (50)  weeks  per  year,  and  the  approximate  percentage  of
utilization  thereof  during the  fiscal  year ended  December  28,  2002 are as
follows:
                                       Pounds/Year 2002
     Department                  Capacity         Utilization
     ----------                  --------         -----------
     Winding Machines            16,934,000          21%
     Texturing Machines           1,152,050          27%
     Dyeing Equipment            25,800,000          41%

Page 4 of 33
<PAGE>

                             BURKE MILLS, INC.PART I

ITEM 3. LEGAL PROCEEDINGS
--------------------------
The  Company  is not  presently  involved  in any legal  proceedings  other than
ordinary, routine litigation incidental to the business of the Company.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year covered by this report.


                                     PART II
                                      -----

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
--------------------------------------------------------------
(a) The principal  United States (or other) market in which the Company's common
stock is being traded is the Nasdaq  over-the-counter market bulletin board. The
range of high and low bid  quotations  for the  Company's  common stock for each
quarterly  period during the past two fiscal years ended  December 31, 2002, and
on the latest practicable date (as obtained from Commodity Systems,  Inc.) is as
follows:

                  Quarter Ending
                     2002                  High Bid         Low Bid
                  ------------             --------         --------
                  March 31                 $0.92            $0.40
                  June 30                  $1.62            $0.51
                  September 30             $1.30            $1.15
                  December 31              $1.40            $0.64

                  Quarter Ending
                     2001                  High Bid         Low Bid
                  ------------             --------         --------
                  March 31                  $0.25           $0.13
                  June 30                   $0.34           $0.05
                  September 30              $0.60           $0.25
                  December 31               $0.60           $0.41

                  February 28,  2003        $0.61           $0.61

Such  over-the-counter  market quotations reflect inter-dealer  prices,  without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.

(b) As of March 5, 2003 there were 369 holders of record of the common  stock of
the Company.

(c) The Company has  declared no  dividends  on its common stock during the past
two fiscal years.

(d)  Securities  Authorized  For Issuance Under Equity  Compensation  Plans.  No
equities  securities  of the Company are  authorized  for issuance  under equity
compensation plans.


ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
The following  selected financial data set forth for the five fiscal years ended
December 28, 2002 have been derived from the audited financial statements of the
Company.  The data should be read in conjunction with  "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations"  and the audited
financial  statements and related notes thereto and other financial  information
included therein.

Page 5 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II

ITEM 6. SELECTED FINANCIAL DATA (continued)
--------------------------------
                                   (in thousands except per share data)
                                               Years Ended
                                   ----------------------------------------
                                  Dec. 28  Dec. 29   Dec. 30  Jan. 1   Jan. 2
                                   2002     2001      2000     2000     1999
                                   ----     ----      ----     ----     ----
SELECTED INCOME STATEMENT DATA
  Net Sales                      $29,990  $37,194   $39,456   $42,840  $42,169
  Cost of Sales                   27,968   33,711    37,123    38,779   37,825
                                 -------   -------   -------  -------  -------
  Gross Profit                   $ 2,022  $ 3,483   $ 2,333   $ 4,061  $ 4,344
                                 -------   -------   -------   ------   ------
  Income (loss) before income
     taxes                       $  (641) $   487   $(1,390)  $ (300)  $ 1,087
  Income Taxes (credit)             (322)     172      (540)     (98)      383
                                 -------   -------   -------  -------  -------
  Net Income (loss)              $  (319) $   315   $  (850)  $ (202)  $   704
                                 =======   =======   =======  =======  =======
  Per Share (Note A)
    Net income (loss)            $  (.12) $   .11   $  (.31)  $ (.07)  $   .26
                                 ========  =======   =======  =======  =======
Cash dividends declared
         Per common share          None      None      None     None     None
                                 =======   =======   =======  =======  =======
  Weighted average number
    of common shares outstanding   2,741     2,741     2,741    2,741    2,741
                                 =======   =======   =======  =======  =======


SELECTED CASH FLOW DATA
  Capital expenditures           $   888   $   388   $   631  $ 4,640  $ 2,162
                                 =======   =======   =======  =======  =======
   Depreciation                  $ 2,055   $ 2,203   $ 2,332  $ 1,839  $ 1,744
                                 =======   =======   =======  =======  =======
  Cash provided by
    operating activities         $ 2,110   $ 4,301   $ 1,386  $    74  $ 1,926
                                 =======   =======   =======  =======  =======


SELECTED BALANCE SHEET DATA
  Current assets                $ 8,670    $10,132   $ 9,161  $ 9,988  $11,213
  Current liabilities             2,482      3,322     3,503    4,381    3,383
                                  ------     -----     -----    -----    -----
  Working capital               $ 6,188    $ 6,810   $ 5,658  $ 5,607  $ 7,830
                                 =======   =======   =======  =======   ======
  Current ratio                    3.49       3.05      2.62     2.28     3.31
                                   ====       ====      ====     ====     ====
  Total assets                  $20,225    $22,803   $23,994  $25,995  $24,311
                                 =======   =======   =======  =======  =======
  Long-term debt                $ 2,920    $ 4,098   $ 5,241  $ 5,551  $ 4,563
                                 =======   =======   =======  =======  =======
  Deferred income taxes         $ 1,735    $ 1,977   $ 2,159  $ 2,122  $ 2,221
                                 =======   =======   =======  =======  =======
  Shareholders' equity          $13,088    $13,406   $13,091  $13,941  $14,144
                                 =======   =======   =======  =======  =======

(A) Income per share has been computed  based on the weighted  average number of
common shares outstanding during each period.

Page 6 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
The  following  table  sets  forth  selected  operating  data of the  Company as
percentages of net sales for the periods indicated.

                                        Relationship to Total Revenue
                                             For the Year Ended
                                       ------------------------------
                                        Dec. 28   Dec. 29    Dec. 30
                                         2002      2001       2000
                                         ----      ----       ----
Net Sales                                100.0%    100.0%     100.0%
Cost of Sales                             93.3      90.6       94.0
Gross profit margin                        6.7       9.4        6.0
                                        -------   -------    -------
Selling, general, administrative and
  factoring expenses                       8.6       7.4        8.2
                                        -------   -------    -------
Operating earnings/(loss)                 (1.8)      2.0       (2.2)
Other income                               0.3       0.2        0.3
Other expenses                            (0.6)     (1.0)      (1.9)
                                         ------    ------    -------
Income (loss) before income taxes and
  net equity in affiliates                (2.1)      1.2       (3.8)
Income taxes (credit)                     (1.1)      0.5       (1.3)
                                        -------   -------    -------
                                          (1.0)      0.7       (2.5)
Equity in Net Earnings Of Affiliate        0.1       0.1        0.3
                                        -------    ------   -------
Net income (loss)                         (1.1)      0.8%      (2.2)%
                                        =======    =======   =======


Results of Operations: 2002 Compared to 2001
--------------------------------------------
Net Sales
----------
Net sales for 2002  decreased  to $29.9  million  from $37.2  million in 2001 or
19.4%. The decline in sales was due to lower customer  demand,  primarily in the
third and fourth quarters of 2002. The Company has not lost any major customers,
but as a result of a weak textile  economy and  competition  with  imports,  the
Company's customers have experienced a decrease in sales.

Cost of Sales and Gross Margin
-------------------------------
Cost of sales for 2002  decreased to $27.9 million  compared to $33.7 million in
2001 or 17.0%.

Material cost decreased  $4,182,000 or 19% primarily as a result of lower sales.
Material cost decreased 19% while net sales decreased by 19.4%.

Direct labor decreased by 30.8%. The Company's direct labor decreased  primarily
as a result of increased  volume in direct yarns (there is no winding  process),
more efficient utilization of labor, and lower sales volume.

Overhead cost decreased by 9.2%.  Large  reductions were realized in repairs and
maintenance ($162,113 or 33.2%), indirect labor ($30,287 or 35.7%).

Inasmuch as net sales  decreased by 19.4% and cost of sales  decreased by 17.0%,
the 2002 gross margin decreased to 6.7%, compared to 9.4% in 2001.

Page 7 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
Results of Operations:  2002 Compared to 2001 (continued)
--------------------------------------------
Selling, General and Administrative Expenses
---------------------------------------------
Selling, general and administrative expenses for 2002 aggregated $2.5 million as
compared to $2.6 million in 2001.


Factor's Charges
-----------------
Factor's  charges as a percentage of sales were 0.4% for 2002 and 0.4% for 2001.
There was no change in the factor's agreement.


Interest Expense
-----------------
Interest expense  decreased by $189,300 or 51.6% primarily due to lower existing
interest rates and a lower average long-term debt.


Interest Income
----------------
Interest  income  decreased by $25,423 or 34.4%  primarily due to lower existing
rates.


Other Net Income
----------------
Other net income  increased  $13,670  from 2001 due to an increase in leases and
rents.


Gain (Loss) on Disposal of Equipment
------------------------------------
The loss on disposal of equipment of $5,144 was primarily due to the  retirement
of the outdated computer equipment.


Equity in Net Earnings of Affiliate
-----------------------------------
The Company's  Mexican joint venture,  Fytek,  recorded a loss of ($8,300) after
valuation  reserve,  compared to earnings of $34,000 in 2001.  The joint venture
only began operations in November of 1997.

Fytek sales in 2002 was  $3,827,000  with income  before taxes of $306,000,  and
after  tax  income  of  $228,000.  The  balance  at the end of  2002 in  Fytek's
stockholders  equity was  $1,797,000  compared to $1,753,000 at the end of 2001.
For conservative  purposes the Company is taking a valuation reserve against the
equity investment in Fytek. (See Note 10.)


Provision for Income Taxes
---------------------------
Provision for income taxes for 2002 aggregated a tax credit of $322,400 compared
to a tax provision of $172,000 in 2001. Tax credit for 2002 arose from a pre-tax
loss of $633,000.

Page 8 of 33
<PAGE>

                                BURKE MILLS, INC.
                                    PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
Results of Operations:  2001 Compared to 2000
---------------------------------------------

Net Sales
----------
Net sales for 2001  decreased  to $37.2  million  from $39.5  million in 2000 or
5.8%. The decline in sales was primarily due to lower customer demand, primarily
in the first quarter of 2001.


Cost of Sales and Gross Margin
-------------------------------
Cost of sales for 2001  decreased to $33.7 million  compared to $37.1 million in
year 2000 or 9.2%.

Material cost decreased $1,039,000 or 4.5% primarily as a result of lower sales.
Material cost decreased 4.5% while net sales decreased by 5.8%.

Direct labor decreased by 16.2%. The Company's direct labor decreased  primarily
as a result of increased  volume in direct yarns (there is no winding  process),
more efficient utilization of labor, and lower sales volume.

Overhead cost decreased by 16.1%.  Large reductions were realized in repairs and
maintenance   ($335,000  or  41.0%),   indirect   labor   ($321,000  or  15.9%),
professional services ($301,000 or 79.3%), and supplies ($142,000 or 50.1%).

Inasmuch as net sales decreased by 5.8% and cost of sales decreased by 9.2%, the
2001 gross margin increased to 9.4%, compared to 6.0% in 2000.


Selling, General and Administrative Expenses
---------------------------------------------
Selling, general and administrative expenses for 2001 aggregated $2.6 million as
compared to $3.1 million in 2000.


Factor's Charges
-----------------
Factor's  charges as a percentage of sales were 0.4% for 2001 and 0.4% for 2000.
There was no change in the factor's agreement.


Interest Expense
-----------------
Interest expense  decreased by $225,000 or 38.0% primarily due to lower existing
interest rates and a lower average long-term debt.


Interest Income
----------------
Interest income was approximately the same for 2001 and 2000.


Gain (Loss) on Disposal of Equipment
------------------------------------
The  loss  on  disposal  of  equipment  of  $10,265  was  primarily  due  to the
replacement of the telephone system.

Page 9 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations: 2001 Compared to 2000 (continued)
--------------------------------------------------------
Equity in Net Earnings of Affiliate
-----------------------------------
The Company's  Mexican joint  venture,  Fytek,  contributed  only $34,000 to the
Company's  after income tax earnings in 2001 compared to earnings of $131,000 in
2000. The joint venture only began operations in November of 1997.

Fytek sales in 2001 was  $5,383,000  with income  before taxes of $101,000,  and
after  tax  income  of  $68,000.  The  balance  at the end of  2001  in  Fytek's
stockholders  equity was $1,753,000.  For  conservative  purposes the Company is
taking a valuation  reserve  against the equity  investment in Fytek.  (See Note
10.)

Provision for Income Taxes
---------------------------
Provision for income taxes for 2001 aggregated $172,000 compared to a tax credit
of $540,000 in 2000 based on the loss before income taxes for that fiscal year.


Results of Operations 2002 - 1999 Sales Analysis
-------------------------------------------------
The table below sets forth an  analysis  of sales  volume for the period 1999 to
2002, inclusive.  It discloses that full yarn sales prices decreased from a high
of $3.13 per pound in 1999 to $2.67 in 2002.  Unit prices for  commission  sales
have varied based on mix and market conditions.

The  decrease  in full yarn  average  sales  prices is a result of a shift  from
dyeing and winding  yarn on cones to dyeing and direct  shipping  which began in
1996, and competitive pressure on pricing.

                                                    % of       Sales $
                                     % of         Pounds of    Per
                                   Net Sales      Yarn Sold    Pound
 2002:
     Yarn sales                       97%            97%       $2.67
     Commission sales                  3%             3%        2.60
                                     ----           ----
            Total                    100%           100%
                                     ====           ====

2001:
     Yarn sales                       97%            97%       $2.73
     Commission sales                  3              3         3.47
                                     ----           ----
            Total                    100%           100%
                                     ====           ====

2000:
     Yarn sales                       96%            93%       $3.01
     Commission sales                  4              7         1.55
                                     ----           ----
            Total                    100%           100%
                                     ====           ====
1999:
     Yarn sales                       95%            92%       $3.13
     Commission sales                  5              8         1.94
                                     ----           ----
            Total                    100%           100%
                                     ====           ====
Page 10 of 33

                                BURKE MILLS, INC.
                                     PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------

Liquidity and Capital Resources
-------------------------------
The  Company  sells  a  substantial  portion  of its  accounts  receivable  to a
commercial  factor so that the factor assumes the credit risk for these accounts
and effects the collection of the receivables. At December 28, 2002, the Company
had  $1,669,000  due from its factor  which  matures on January  21,  2003.  The
Company  has the right to borrow  up to 90% of the face  amount of each  account
sold to the factor.

The  Company has an  equipment  line of credit from its bank and under which the
Company may borrow up to $3,000,000 for the acquisition of production machinery.
The Company  borrowed  $3,000,000 from the Line of Credit and converted the Line
of Credit to long-term debt on February 29, 2000 (see Note 7).

The Company had inventories of $2,096,000 as of December 28, 2002. The Company's
average inventories aggregated  approximately  $2,925,000 for 2002, representing
approximately  58  days  inventory  on  hand.  The  Company's  inventories  turn
approximately 5 to 7 times each year.

The Company's  working  capital at December 28, 2002 decreased by  approximately
$462,000 primarily as a result of a reduction in inventories of $1,124,000.  The
working  capital of the  Company and its line of credit with its bank are deemed
adequate for the  operational  needs of the Company.  The  following  table sets
forth the Company's  working  capital and working capital ratios as of the close
of the last three years:
                                      2002         2001         2000
                                      ----         ----         ----
     Working Capital                $6,187,981  $6,810,000    $5,658,000
     Working Capital Ratio           3.49 to 1   3.05 to 1     2.62 to 1

As a measure of current  liquidity,  the Company's  quick position  (cash,  cash
equivalents and receivables over current liabilities) discloses the following at
December 28, 2002 and December 29, 2001:

                                    December 28       December 29
                                       2002              2001
                                       ----              ----
     Cash, cash equivalents
           and receivables          $6,460,000        $6,816,000
     Current liabilities             2,482,000         3,322,000
                                     ---------         ---------
     Excess of quick assets
         over current liabilities   $3,978,000        $3,494,000
                                    ==========        ==========

The  aggregate  long-term  debt at December  28, 2002 and  December 29, 2001 was
$4,098,000 and $5,277,000  respectively.  In order to finance the acquisition of
new property, plant and equipment of $6,372,000 in 1995, and $4,640,000 in 1999,
the Company incurred a long-term debt of $6,000,000 in 1996, $2,000,000 in 1999,
and  $1,000,000 in 2000 as more fully  described in Note 7 of Notes to Financial
Statements.  Pursuant  to an  agreement  with its bank,  the  obligation  had no
principal  maturities  until February 1998.  Thereafter,  principal  payments of
$62,500  are  payable  monthly  for  ninety-six  (96)  consecutive  months.  The
$3,000,000  obligation  principal  maturities  began  February 24, 2000,  and is
payable at $35,714 monthly for eighty-four (84) consecutive months.

During  2002,  the  Company  acquired  and made  deposits on new  machinery  and
equipment of approximately  $888,000 as set forth in the accompanying  statement
of cash  flows.  The  Company  financed  its  capital  from cash  provided  from
operations and bank financing.

Page 11 of 33
<PAGE>

                                BURKE MILLS, INC.
                                    PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Liquidity and Capital Resources (continued)
-------------------------------
The Company's  long-term debt to equity ratios  aggregated 22.3% at December 28,
2002, 30.6% at December 29, 2001, and 40.0% at December 30, 2000.

Planned  capital  budget  expenditures  are estimated at $700,000 for 2003.  The
Company plans to finance its capital  needs from cash  provided from  operations
and bank financing.

Contractual Obligations
-----------------------
The following is a summary of the Company's known contractual  obligations as of
the latest fiscal year end on December 28, 2002.

                                     Payments due by period
                          ----------------------------------------------
                                    Less                                 More
                                    than 1        1-3         3-5        than 5
                         Total      year         years       years       years
                         -----      ------      ------       -----       -----
Contractual Obligations

Long-Term Debt
   Obligations         $4,098,000  $1,179,000  $2,848,000   $ 71,000     $ -0-

Operating Lease
   Obligations         $ 48,586    $ 24,293    $ 24,293     $            $

Purchase Obligations   $  3,450    $  3,450    $            $            $



Environmental Matters
----------------------
During  1996 in  connection  with a bank  loan to the  Company  secured  by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property.  The  assessment  indicated  the  presence  of a  contaminant  in  the
groundwater under the Company's property.  The contaminant was a solvent used by
the Company in the past but no longer used.  The  contamination  was reported to
the North Carolina  Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed.  The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR. The Company has identified remediation issues and is
moving toward a solution of natural attenuation.  The cost of monitoring will be
approximately $31,000 per year.

Inflation
----------
Operation  results  for the  Company  were  affected  in 2000  by  inflation  of
polyester yarn prices,  but no further price  increases of this type occurred in
2001. Also,  natural gas costs rose in 2000 but slightly  decreased in the third
quarter of 2001. A tax revaluation by the local county  management of all county
properties  resulted  in a higher tax being  assessed  for the  company,  rising
approximately 8% from 2000.


Page 12 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Inflation (continued)
----------
The Company is experiencing increased costs for property and liability insurance
and in officer and  director  insurance  as a result of  inflationary  insurance
markets,  which were also  negatively  impacted from the events of September 11,
2001.


Forward Looking Statements
---------------------------
Certain  statements in this  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations,  and other sections of this report, contain
forward-looking  statements within the meaning of federal  securities laws about
the Company's  financial  condition and results of operations  that are based on
management's  current   expectations,   beliefs,   assumptions,   estimates  and
projections  about the  markets  in which the  Company  operates.  Words such as
"expects", "anticipates",  "believes", "estimates", and variations of such words
and other  similar  expressions  are intended to identify  such forward  looking
statements.  These  statements  are not  guarantees  of future  performance  and
involve  certain  risks,  uncertainties  and  assumptions  that are difficult to
predict.  Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements, which reflect management's judgement only as of the date hereof. The
Company   undertakes   no   obligations   to  update   publicly   any  of  these
forward-looking  statements  to  reflect  new  information,   future  events  or
otherwise.

Factors  that may cause  actual  outcome and results to differ  materially  from
those expressed in, or implied by, these forward-looking statements include, but
are not  necessarily  limited  to,  availability,  sourcing  and  pricing of raw
materials, pressures on sales prices due to competition and economic conditions,
reliance on and  financial  viability of  significant  customers,  technological
advancements,  employee relations,  changes in construction spending and capital
equipment  expenditures,  (including  those  related to  unforeseen  acquisition
opportunities),  the timely  completion of construction  and expansion  projects
planned or in process,  continued  availability of financial  resources  through
financing  arrangements and operations,  negotiations of new or modifications of
existing   contracts  for  asset  management  and  for  property  and  equipment
construction and acquisition, regulations governing tax laws, other governmental
and authoritative bodies,  policies and legislation,  and proceeds received from
the sale of  assets  held for  disposal.  In  addition  to these  representative
factors,  forward looking  statements  could be impacted by general domestic and
international  economic and industry conditions in the markets where the Company
competes,  such as changes in currency  exchange  rates,  interest and inflation
rates, recession and other economic and political factors over which the Company
has no control.


7A. Quantitative and Qualitative Disclosures about Market Risk
---------------------------------------------------------------
The Company has not purchased any  instruments or entered into any  arrangements
resulting  in market risk to the Company  for trading  purposes or for  purposes
other than trading purposes.

Page 13 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II

Item 8 - Financial Statements and Supplementary Data
----------------------------------------------------

305 Madison Avenue                                         72 Essex Street
New York, NY 10165                                         Lodi, NJ 07644
(212) 972-9600                                              (201)368-9300
FAX: (212) 972-9605                                    FAX: (201)368-9069



                          Independent Auditors' Report
                          ----------------------------

To the Board of Directors of
Burke Mills, Inc.

We have  audited  the  accompanying  balance  sheets of Burke  Mills Inc.  as of
December  28,  2002,  and  December  29,  2001,  and the related  statements  of
operations,  changes  in  shareholders'  equity,  and cash flows for each of the
three years in the period ended December 28, 2002.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Burke  Mills,  Inc. as of
December 28, 2002 and December 29, 2001,  and the results of its  operations and
its cash flows for each of the three  years in the  period  ended  December  28,
2002, in conformity with U.S. generally accepted accounting principles.

Cole, Samsel & Bernstein LLC
Certified Public Accountants

Lodi, New Jersey
January 24, 2003

Page 14 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                                  BALANCE SHEET

                                               December 28    December 29
                                                  2002           2001
                                                  ----           ----
             ASSETS
Current Assets
  Cash and cash equivalents                    $4,191,173     $4,144,340
  Accounts receivable                           2,269,089      2,671,324
  Inventories                                   2,095,863      3,220,194
  Prepaid expenses, taxes, and other
    current assets                                114,000         96,087
                                                ----------    ----------
Total Current Assets                            8,670,125     10,131,945
                                                ==========    ==========

Equity Investment in Affiliate                    612,275        620,592
                                                ----------    ----------

Property, plant & equipment - at cost          31,161,672     30,962,533
  Less: accumulated depreciation               20,939,167     19,564,639
                                               ----------     ----------
       Property, Plant and Equipment- Net      10,222,505     11,397,894
                                               ----------     ----------
Other Assets
  Deferred income taxes                           703,200        606,800
  Deferred charges and other                       16,575         45,769
                                               ----------     ----------
Total Other Assets                                719,775        652,569
                                               ----------     ----------
                                              $20,224,680    $22,803,000
                                              ===========    ===========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Current maturities of long-term debt         $1,178,571    $ 1,178,571
  Accounts payable                              1,097,131      1,720,067
  Accrued salaries and wages                      100,848        253,582
  Other liabilities and accrued expenses          105,595        168,790
  Income taxes payable                                -0-            503
                                                ----------     ----------

        Total Current Liabilities               2,482,145      3,321,513

Long-Term Debt                                  2,919,643      4,098,214
Deferred Income Taxes                           1,735,400      1,977,000
                                               ----------     ----------
Total Liabilities                               7,137,188      9,396,727
                                               ----------     ----------
Shareholders' Equity
  Common stock, no par value
     (stated value, $.66)
     Authorized - 5,000,000 shares
     Issued and outstanding - 2,741,168 shares   1,809,171      1,809,171
  Paid-in capital                                3,111,349      3,111,349
  Retained earnings                              8,166,972      8,485,753
                                                ----------     ----------
         Total Shareholders' Equity             13,087,492     13,406,273
                                                ----------     ----------
                                               $20,224,680    $22,803,000
                                               ===========    ===========

See notes to financial statements.
Page 15 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                            STATEMENTS OF OPERATIONS

                                              Years Ended
                                 ----------------------------------------
                                December 28    December 29   December 30
                                   2002           2001          2000
                                   ----           ----          ----
Net Sales                       $29,989,912    $37,194,240   $39,456,009
                                -----------    -----------   -----------

Costs and Expenses
  Cost of Sales                 $27,967,612    $33,711,559   $37,122,514
  Selling, general and
    administrative expenses       2,454,973      2,593,320     3,067,594
  Factor's charges                  122,032        155,843       155,151
                                -----------    -----------   -----------
  Total Costs and Expenses       30,544,617     36,460,722    40,345,259
                                -----------    -----------   -----------
Operating Earnings (Loss)          (554,705)       733,518      (889,250)
                                -----------    -----------   -----------
Other Income
  Interest income                    48,378         73,801        74,531
  Gain on disposal of
    property assets                  (5,144)       (10,265)       22,051
  Other, net                         56,523         42,853        23,058
                                -----------    -----------   -----------
           Total Other Income        99,757        106,389       119,640
                                -----------    -----------   -----------
Other Expenses
  Interest expense                  177,916        367,250       592,280
  Loss on disposal of
    property assets                      -             -              -
  Other, net                             -          19,787       158,707
                                -----------    -----------   -----------

Total Other Expenses                177,916        387,037       750,987
                                -----------    -----------   -----------

Income (Loss) Before Provision (credit)
   for income taxes and equity in
   net earnings of affiliate       (632,864)       452,870    (1,520,597)

Provision (Credit)
   for Income Taxes                (322,400)       171,949      (539,578)
                                -----------    -----------   -----------
Income (Loss) Before Equity in
  Net Earnings of Affiliate        (310,464)       280,921      (981,019)

Equity in Net Earnings of
    Affiliate                        (8,317)        33,864       131,000
                                -----------     ----------   -----------
Net Income (Loss)               $  (318,781)    $  314,785   $  (850,019)
                                ============    ==========   ===========

Net Earnings (Loss) per share   $      (.12)    $       .11  $     (.31)
                                ============   ============  ===========

Weighted Average Common
  Shares Outstanding              2,741,168      2,741,168     2,741,168
                                 ===========    ===========   ===========


See notes to financial statements.
Page 16 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                   FOR THE THREE YEARS ENDED December 28, 2002

                                   Common Stock
                                   No Par Value
                                   Stated Value
                                   $.66 Per Share
                                   5,000,000 Shares
                                     AUTHORIZED

                                                                    Total
                     Shares                 Paid-In     Retained   Shareholders
                     Issued     Amount      Capital     Earnings    Equity
                     ------     ------      -------     --------    ------
Balance at Jan. 1,
   2000              2,741,168  $1,809,171 $3,111,349   $9,020,987 $13,941,507

Net Income (loss)
   for the year ended
   Dec. 30, 2000      -              -          -         (850,019)   (850,019)
                     ----------  ---------- ----------  ----------   ----------
Balance at Dec. 30,
   2000             2,741,168  $1,809,171  $3,111,349  $8,170,968  $13,091,488

Net Income
   for the year ended    -          -          -          314,785      314,785
   Dec. 29, 2001    ----------  ---------- ----------   ----------   ----------

 Balance at        $2,741,168  $1,809,171  $3,111,349  $8,485,753  $13,406,273
   Dec. 29, 2001

Net Income
   for the year ended    -       -          -           $ (318,781) $ (318,781)
   Dec. 28, 2002    ----------  ---------- ----------   ----------   ----------

Balance at
   Dec. 28, 2002    $2,741,168  $1,809,171  $3,111,349  $8,166,972  $13,087,492
                    ==========  ==========  ==========  ==========  ===========


See notes to financial statements.

Page 17 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                            STATEMENTS OF CASH FLOWS

                                                       Years Ended
                                            -----------------------------------
                                             Dec. 28      Dec. 29     Dec. 30
                                              2002         2001         2000
                                              ----         ----         ----
Cash flows from operating activities:
  Net income (loss)                        $  (318,781)  $ 314,785   $ (850,019)
                                            ----------   ----------  ----------
Adjustments to reconcile net income to
  net cash provided by operating activities:
    Depreciation                             2,055,226   2,203,324    2,331,632
(Gain) loss on sales of plant & equipment
      including loss on disposals                5,143      15,179      (22,051)
    Deferred income taxes                     (338,000)    144,700     (539,578)
    Equity in net earnings of affiliate          8,317     (33,864)    (131,000)
Changes  in  assets  and  liabilities:
      Accounts receivable                      402,235     416,745      707,450
      Inventories                            1,124,331   1,413,784      428,316
      Prepaid expenses, taxes & other
        current asset                          (17,913)     37,624      404,269
    Other non-current assets                    29,194     (29,194)     101,527
    Accounts payable                          (622,936)   (177,241)  (1,031,909)
    Accrued salaries & wages                  (152,734)     33,520       19,152
    Other liabilities and accrued expenses     (63,699)    (38,510)     (32,137)
Income taxes payable                               -0-         503          -0-
                                            ----------   ---------    ---------
        Total adjustments                    2,429,164   3,986,570    2,235,671
                                            ----------   ---------    ---------

Net cash provided by operating activities    2,110,383   4,301,355    1,385,652
                                            ----------   ---------    ---------

Cash flows from investing activities:
  Acquisition of property, plant
      and equipment                          (887,679)    (387,520)    (631,445)
  Proceeds from sales of plant
      and equipment                             2,700       68,000      101,500
 Investment in affiliate                          -0-          -0-          -0-
                                            ----------   ----------  ----------

Net cash (used) by investing activities      (884,979)    (319,520)    (529,945)
                                           -----------   ----------   ----------

Cash flows from financing activities:
  Proceeds from long-term bank note               -0-          -0-    1,000,000
  Principal payments of long-term debt     (1,178,571)   (1,142,857) (1,142,858)
                                           -----------   ----------- -----------
Net cash provided (used) by financing
  activities                               (1,178,571)   (1,142,857)   (142,858)
                                           -----------   ----------- -----------
Net increase (decrease) in cash and
  cash equivalents                             46,833     2,838,978     712,849
Cash & cash equivalents at beginning
  of year                                   4,144,340     1,305,362      592,513
                                           ----------    ----------   ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR   $4,191,173    $4,144,340   $1,305,362
                                           ==========    ==========   ==========

See notes to financial statements.
Page 18 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------
Accounting period - The Company's fiscal year is the 52 or 53 week period ending
the Saturday  nearest to December 31. Fiscal years 2002, 2001, and 2000 ended on
December 28, December 29, and December 30, respectively.  The three fiscal years
consisted of 52 weeks.

Revenue  recognition - Revenues from sales are  recognized at the time shipments
are made to the customer.  Related  shipping and handling  costs are included in
cost of sales.

Statement of cash flows - For the purposes of the statements of cash flows,  the
Company considers cash and cash equivalents to include cash on hand, deposits in
banks,  interest  bearing demand  matured funds on deposit with factor,  and all
highly  liquid debt  instruments  with a maturity  of three  months or less when
purchased.

Inventories - Inventories are stated at the lower of cost (first-in,  first-out)
or  market.  Cost  elements  included  in  work-in-process  and  finished  goods
inventories are raw materials,  direct labor and manufacturing overhead.  Market
is considered to be net realizable value.

Property,  plant and  equipment - Property,  plant and  equipment  are stated at
cost.

Depreciation  and  amortization  of the property  accounts are provided over the
estimated  useful  lives  of  the  assets.  For  financial  reporting  purposes,
depreciation  on plant and  equipment  is provided  primarily  at  straight-line
rates. For income tax purposes,  depreciation has been provided at straight-line
rates for all  property,  plant  and  equipment  acquired  prior to 1981 and the
accelerated  and modified  accelerated  cost recovery system for property assets
acquired  subsequent to December 31, 1980.  The estimated  useful lives used for
computing depreciation for financial reporting purposes are generally:

         Buildings and improvements         5 - 45 years
         Plant machinery and equipment      5 - 17 years
         Office equipment                   5 - 10 years
         Automotive equipment               3 -  5 years
         Computer equipment                 3 -  5 years

Earnings per share - Earnings  per share are based on the net income  divided by
the weighted average number of common shares  outstanding  during the respective
periods.

Use  of  Estimates  in  Preparing  Financial  Statements  - The  preparation  of
financial statements in conformity with generally accepted accounting principles
requires  management  to make  estimates  and  assumptions  that affect  certain
reported amounts and disclosures.  Accordingly, actual results could differ from
those estimates.


NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
----------------------------------------
The Company is engaged in texturing,  twisting,  winding, dyeing, processing and
selling of filament,  novelty and spun yarns and in the dyeing and processing of
these yarns for others on a commission basis.

With  respect to its  operations,  the  Company's  products and its services for
others on a commission basis are sold and/or  performed for customers  primarily
located in the territorial limits of the United States.

Page 19 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE (continued)
----------------------------------------------------
                 The Company had foreign sales as follows:

                    Country           2002             2001         2000
                    -------           ----             ----         ----
                    Mexico            1.89%             .62%         .82%
                    Canada             .22%            3.60%        4.8%
                    Honduras           .74%            2.11%         .74%
                    Nicaragua          .0%              .0%          .09%
                    Barbados           .47%            1.81%         .07%
                                      ----             ----         ----
       Total..........                3.32%            8.14%        6.52%

Other than  sales as shown  above,  the  Company  had no other  sales in foreign
markets during the three year period ended December 28, 2002. For the three year
period  ended  December  28,  2002,  the  Company has  operated  within a single
industry segment with classes of similar products.  The principal markets served
by the Company are  upholstery  and  industrial  uses  through the  knitting and
weaving industry.

In connection with sales to major  customers,  one customer  exceeded 10% of the
Company's  sales during each of the three years ended December 29, 2001. For the
purpose of this determination, sales to groups of companies under common control
have been  combined and  accounted  for as sales to  individual  companies.  The
following table gives information with respect to these customers:

                                                              % of
           2002                      Amount                 Net Sales
           ----                      ------                 ---------
         Customer 1              $     *                       --
         Customer 2                    *                       --
         Customer 3               10,729,000                 35.8%

                                                              % of
           2001                      Amount                 Net Sales
           ----                      ------                 ---------
         Customer 1              $     *                       --
         Customer 2                    *                       --
         Customer 3               11,200,000                 30.1

                                                              % of
           2000                      Amount                 Net Sales
           ----                      ------                 ---------
         Customer 1              $ 5,608,000                   14.2
         Customer 2                    *                        --
         Customer 3                5,541,000                   14.0

*Less than 10%




Page 20 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 3 - ACCOUNTS RECEIVABLE
--------------------------------
Accounts receivable comprise the following:

                                     December 28         December 29
                                        2002                2001
                                        ----                ----
     Due from factor on
          regular factoring account   $1,669,000         $2,070,000
     Non-factored accounts
          receivable                     600,000            601,000
                                      ----------          ---------
               Total                  $2,269,000         $2,671,000
                                      ==========         ==========


Pursuant to a factoring agreement, the Company sells substantial portions of its
accounts  receivable  to a commercial  factor  without  recourse,  up to maximum
credit limits  established  by the factor for  individual  accounts.  The factor
assumes the credit risks for these  accounts and effects the  collection  of the
receivables.  Amounts invoiced to customers on accounts  receivable  factored in
excess of the  established  maximum  credit  limits are sold to the factor  with
recourse in the event of nonpayment by customers.

The  Company  pays a service  charge to its  factor  to cover  credit  checking,
assumption of credit risk, record keeping and similar services.  In addition, if
the Company takes advances from its factor prior to the average  maturity of the
receivables  sold (as defined),  it is required to pay interest to the factor on
these  advances.  The Company  incurred no interest  costs during 2002 and 2001,
inasmuch as it borrowed no funds from its factor during these years.

The Company's factor is  collateralized  by the accounts  receivable sold to the
factor,  and  the  factor  has  filed  a  UCC-1  to  evidence  ownership  of the
receivables and to separate the  receivables  from the Company's  creditors.  No
interest in inventory, other than returned goods, has been granted to the factor
under the factoring contract.

On  April  1,  2002,  the  Company  began  using  the  credit  insurance  of the
Export-Import  Bank of the  United  States on  qualified  export  sales.  Annual
exposure will be limited to $15,000 in total on these export sales.


NOTE 4 - INVENTORIES
----------------------
Inventories are summarized as follows:

                                     December 28,      December 29,
                                        2002              2001
                                        ----              ----
     Finished & in process          $1,359,000         $2,263,000
     Raw materials                     445,000            635,000
     Dyes & chemicals                  203,000            208,000
     Other                              89,000            114,000
                                    ----------         ----------
     Total                          $2,096,000         $3,220,000
                                    ==========         ==========




Page 21 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS


NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
------------------------------------------
Major classifications of property, plant and equipment are as follows:

                              December 28, 2002        December 29, 2001
                              ------------------       ----------------
                                     Accumulated                Accumulated
                            Cost     Depreciation     Cost      Depreciation
                            ----     ------------     ----      ------------

Land                     $   156,425  $   --       $  156,425   $     --
Land improvements            182,913      107,291     182,913       100,972
  Building & improvements  6,385,441    4,839,589   6,385,441     4,691,487
  Plant machinery &
    equipment             23,300,323   15,111,127  22,577,821    13,525,915
  Office equipment           955,624      769,285   1,476,498     1,114,440
  Automotive equipment       180,946      111,875     183,435       131,824
                           ---------   ----------  ----------    ----------
Total                    $31,161,672  $20,939,167 $30,962,533   $19,564,638
                         ===========  =========== ===========   ===========


NOTE 6 - LINE OF CREDIT LOAN
--------------------------------
Pursuant to a loan agreement dated March 29, 1996, and a second  amendment dated
January 20, 2000, the Company  secured an Equipment Loan facility of $3,000,000.
The  Equipment  Loan shall be evidenced by the  Equipment  Note,  and shall bear
interest at a rate that varies with the LIBOR rate.  The Equipment Note would be
payable in 84 installments.  The Company has borrowed $3,000,000 under this line
of credit.  Also under the  Company's  factoring  arrangement,  the  Company may
borrow from the factor up to 90% of the face amount of each  account sold to the
factor. During 2002 the Company had no borrowings from its factor.

NOTE 7 - LONG-TERM DEBT
-----------------------
On March 29,  1996,  the Company  entered  into a loan  agreement  with its bank
providing  for a term  loan of  $6,000,000.  The term  loan  refinanced  the two
formerly  existing  term  loans,  and  accordingly,  all term  obligations  were
consolidated into the one $6,000,000 obligation. This new loan is secured by:

(1) a first Deed of Trust on property  and  buildings  located at the  Company's
manufacturing  sites in North  Carolina,  (2) a first lien  position  on the new
equipment and machinery  installed at these  manufacturing sites and (3) a first
lien position on the existing  machinery and equipment  located at the Company's
manufacturing sites.

Under the term loan agreement,  interest only was payable monthly until February
1998. Thereafter,  principal maturities are payable in the amount of $62,500 per
month for ninety-six (96) consecutive months plus interest at the floating LIBOR
rate plus 1.90%.

Among other things,  covenants include a debt service coverage ratio, a limit on
annual property asset acquisitions  exclusive of property acquired with the loan
proceeds  under this new loan  agreement,  the  retirement or acquisition of the
Company's  capital  stock in excess of a stated  amount,  the  maintenance  of a
minimum tangible net worth which shall increase by a stated amount  annually,  a
minimum quick ratio, and a maximum debt to tangible net worth ratio.

Page 22 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM DEBT (continued)
-----------------------------------
The annual principal maturities of long-term debt at December 28, 2002 are
as follows:

                  Current portion                       $  750,000
                  2004                    $  750,000
                  2005                       750,000
                  Thereafter                  62,500     1,562,500
                                           ---------     ---------
                                                        $2,312,500

Under the loan  agreement,  the  Equipment  Line of Credit  was  converted  to a
$3,000,000 long-term note payable in 84 installments of $35,714 plus interest at
the floating LIBOR rate plus 1.90%. The Company converted the Line of Credit and
began installments on February 29, 2000.

The annual  principal  maturities  of this  long-term  debt at December 28, 2002
based on the current amount owned are as follows:

                 Current Portion                         $  428,571
                 2004                    $  428,571
                 2005                       428,571
                 2006                       428,571
                 Thereafter                  71,430       1,357,143
                                            -------       ---------
                                                         $1,785,714


NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES
----------------------------------------------
Other liabilities and accrued expenses consist of the following:

                                       December 28     December 29
                                         2002           2001
                                         ----            ----
Employee insurance                     $ 70,000       $ 70,000
Payroll taxes payable                     4,000         70,000
Other                                    32,000         29,000
                                        --------      --------
       Total                           $106,000       $169,000
                                       =========      ========


NOTE 9 - INCOME TAXES
----------------------
The  Company  uses the  liability  method  as  required  by FASB  Statement  109
"Accounting  for Income  Taxes".  Under  this  method,  deferred  tax assets and
liabilities are determined based on the differences  between financial reporting
and tax bases of assets and  liabilities  and are measured using the enacted tax
rates and laws.

Page 23 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES (contd.)
----------------------
    The items that comprise deferred tax assets and liabilities are as follows:
                                               Dec. 28       Dec. 29
                                                2002          2001
                                                ----          ----
Deferred tax assets:
  Alternative minimum taxes paid            $  349,000     $  349,000
Net operating loss carryover                   342,700        247,600
Charitable contributions carryover              11,500         10,200
                                              ---------      ---------
                                            $  703,200     $  606,800
                                             ==========     ==========
Deferred tax liabilities:
  Accelerated depreciation for
     tax purposes                            1,725,000     $1,972,300
  Undistributed earnings of foreign
     affiliate, net of tax credit               10,400          4,700
                                             ---------      ---------
                                            $1,735,400     $1,977,000
                                            ==========     ==========

Provision for taxes consist of:
                                           Dec. 28       Dec. 29      Dec.30
                                            2002          2001         2000
                                            ----          ----         ----
Current:
     Federal                             $    -         $   -       $      -
     State                                    -             -              -
Deferred                                  (322,400)      171,949     (539,578)
                                           -------       --------     -------
    Total                                $(322,400)     $171,949    $(539,578)
                                          =========     =========    =========

The  provision for income taxes on  historical  income  differs from the amounts
computed  by  applying  the  applicable  Federal  statutory  rates,  due  to the
following:
                                                 Years Ended
                                   -----------------------------------------
                                    December 28   December 29     December 30
                                      2002           2001            2000
                                      ----           ----            ----
Income (loss) before income taxes
   (credit)                         $(641,180)    $  452,870     $(1,520,597)
Federal income taxes                    34%            34%            34%
                                     --------      ----------      ---------
Computed taxes (credit) at maximum
     statutory tax                   (218,001)       154,000        (517,003)
State income taxes (credit), net of
     Federal income tax benefits      (50,886)            --         (23,885)
Total adjustment for foreign
     affiliate earnings                   -0-         17,949           1,310
Adjustment for deferred income taxes  (53,513)
Prior year tax examination and other       --            --               --
                                     ---------       ---------     ---------
     Provision for income taxes    $ (322,400)      $ 171,949     $ (539,578)
                                     =========       =========     =========

The net operating loss  carryforward  is $889,000  expiring  2019-2022.  The tax
effect at the maximum tax rate would be $302,300.

The Company has paid and has set forth  $349,000 for  alternative  minimum taxes
paid,  which may only be used to offset normal income taxes that may be incurred
in future years.

Page 24 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 10 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
-------------------------------------------------------------------
The company owns 49.8% of Fytek,  S.A. de C.V. (Fytek),  a Mexican  corporation.
Fytek began  operation in the fourth quarter of 1997.  The company  accounts for
the ownership  using the equity method.  Due to the Mexican  economy,  sales are
down.  Since  repatriation  of cash is not expected from the joint venture,  the
Company believes it is prudent to record a valuation  allowance for Fytek.  This
allowance amounts to $113,400  year-to-date 2002. The Company had purchases from
Fytek of  $1,357,212  compared  to  $1,325,000  in 2001.  Burke  Mills  does not
guarantee any debt for it's joint  venture,  Fytek.  Financial  information  for
Fytek is as follows:

                             Statement of Income
                         (In thousands of U.S. Dollars)

                                           December 31
                                         ---------------
                                         2002        2001
                                         ----        ----
Net Sales                               $3,827      $5,383
Gross Profit                               680         497
Income from operating income               208         129
Income before income taxes                 306         101
Income taxes                               (78)        (33)
                                          ----        ----
Net income                              $  228       $  68
                                         =====       =====

                               Balance Sheet
                       (In thousands of U.S. Dollars)

                                                December 31
                                              ---------------
                                              2002       2001
                                              ----       ----
Current assets                               $2,448    $3,137
Non-current                                     139       167
                                               ----      ----
Total assets                                 $2,587    $3,304
                                             ======    ======

Current liabilities                          $  788    $1,551
Non-current liabilities                           2       -0-
                                             ------    ------
Total liabilities                            $  790    $1,551

Stockholder's equity                          1,797     1,753
                                             ------    ------
Total liabilities and stockholder's equity   $2,587    $3,304
                                             ======    ======

NOTE 11 - STATEMENTS OF CASH FLOWS
----------------------------------
FASB  No.  95  requires  that  the  following  supplemental  disclosures  to the
statements  of cash  flows be  provided  in related  disclosures.  Cash paid for
interest  was  $178,000 in 2002,  $367,000 in 2001,  and  $592,000 in 2000.  The
Company had no cash  payments for income taxes in 2002  compared to $12,000 cash
payments  during 2001,  and no cash payments  during 2000 for income taxes.  The
company received $23,000 for a refund in 2000.

NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS
-----------------------------------------------
Rental  expenses  under all lease  commitments  for the three fiscal years ended
December 28, 2002, aggregated $53,000, $40,000, and $45,000, respectively.

Page 25 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS


NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS (continued)
-----------------------------------------------
Minimum commitments under terms of all non-cancelable leases, which consist only
of leased equipment, are as follows as of December 28, 2002:

                    2003                   $24,293
                    2004                   $24,293


NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
----------------------------------------------
                    (in thousands of dollars except for per share amounts)
                                                    QUARTER
                                      ------------------------------------
  2002                                 First     Second     Third    Fourth
  ----                                 -----     ------     ------   ------
  Net sales                           $ 8,976   $ 8,191    $ 6,997  $ 5,825
  Cost of sales                         7,919     7,610      6,710    5,728
  Gross profit                          1,057       581        287       97
  Net income (loss)                       288      (217)      (138)    (252)
  Net income (loss) per common share  $   .11   $  (.08)    $ (.05)  $ (.09)


  2001                                 First     Second    Third     Fourth
  ----                                 -----     ------    ------    ------
  Net sales                          $ 9,428    $10,372   $ 9,255   $ 8,139
  Cost of sales                        8,827      9,251     8,447     7,186
  Gross profit                           601      1,121       808       953
  Net income (loss)                     (113)       220        85       123
  Net income (loss) per common share    (.04)       .08       .03       .04


  2000                                 First     Second    Third     Fourth
  ----                                 -----     ------    ------    ------
  Net sales                           $11,058   $10,457   $ 9,279   $ 8,662
  Cost of sales                        10,361     9,681     8,958     8,123
  Gross profit                            697       776       321       539
  Net income (loss)                      (186)      (68)     (247)     (349)
  Net income (loss) per common share  $  (.07)  $  (.02)  $  (.09)  $  (.13)


NOTE 14 - EMPLOYEE BENEFIT PLAN
-----------------------------------
The Company is a participating  employer in the Burke Mills,  Inc.,  Savings and
Retirement  Plan and Trust that has been  qualified  under Section 401(k) of the
Internal  Revenue  Code.  This plan allows  eligible  employees to  contribute a
salary  reduction  amount  of not  less  than  1% nor  greater  than  25% of the
employee's  salary but not to exceed  dollar limits set by law. The employer may
make a discretionary  contribution  for each employee out of current net profits
or accumulated  net profits in an amount the employer may from time to time deem
advisable. No provision was made for a discretionary contribution in 2002, 2001,
or 2000.


NOTE 15 - CONCENTRATIONS OF CREDIT RISK
--------------------------------------------
Financial  instruments that potentially  subject the Company to concentration of
credit risk consist  principally of occasional  temporary cash  investments  and
amounts due from the factor on receivables sold to the factor on a non-recourse

Page 26 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 15 - CONCENTRATIONS OF CREDIT RISK (continued)
----------------------------------------
basis.  The  receivables  sold to the  factor  during a month  generally  have a
maturity  date on the 21st to the 30th of the following  month.  At December 28,
2002,  the Company had  $1,669,000  due from its factor which matures on January
21, 2003. Upon maturity,  the funds are automatically  transferred by the factor
to the Company's bank.


NOTE 16 - OTHER COMMITMENTS
------------------------------
a) The Company and Titan Textile Company, Inc., signed an agreement which became
effective  April 1,  1999,  whereby  the  Company  sold its  friction  texturing
equipment  to Titan and in turn will  purchase  textured  yarns from Titan.  The
agreement  states that the Company will purchase  70,000 pounds per week as long
as the  Company  has a  requirement  for  textured  yarns.  When  the  Company's
requirements exceeds 140,000 pounds per week, the Company will purchase at least
50% of its requirements  from Titan. The textured yarn pricing structure will be
reviewed  every six months and when POY prices  increase  or  decrease  by 5% or
more.

b) During 1996 in  connection  with a bank loan to the  Company  secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property.  The  assessment  indicated  the  presence  of a  contaminant  in  the
groundwater under the Company's property.  The contaminant was a solvent used by
the Company in the past but no longer used. The  contamination was report to the
North Carolina  Department of Environment  and Natural  Resources  (DENR).  DENR
required a Comprehensive Site Assessment that has been completed.  The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR. The Company has identified remediation issues and is
moving toward a solution of natural attenuation.  The cost of monitoring will be
approximately $31,000 per year.


NOTE 17 - RECLASSIFICATIONS
---------------------------
The deferred income tax assets for January 1, 2000, have been  reclassified from
current assets to non-current assets to conform to presentations utilized in the
December 30, 2000 balance sheet.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
        ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------------------------
There have been no changes in nor  disagreements  with accountants on accounting
and  financial  disclosure  during the Company's two most recent fiscal years or
during any  subsequent  interim  period.  The  current  accounting  firm for the
Company,  Cole,  Samsel & Bernstein  LLC of New York,  New York,  and Lodi,  New
Jersey,  has served as  accountants  for the Company  during the last two fiscal
years.


                                BURKE MILLS, INC.
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------------------
The  information  required  for  Part  III  of  this  report  (Items  10-13)  is
incorporated  by reference from the Company's  definitive  proxy statement to be
filed  pursuant  to  Regulation  14A  for the  annual  meeting  of  shareholders
scheduled  for May 20,  2003,  involving  the  election of  directors,  which is
expected  to be filed not later than 120 days  after the end of the fiscal  year
covered by this report.

Page 27 of 33
<PAGE>

                                BURKE MILLS, INC.
                                    PART III


ITEM 14.  CONTROLS AND PROCEDURES
----------------------------------
Within  the 90 days  prior  to the  date of this  report,  the  Company's  chief
executive  officer and chief financial  officer with the  participation of other
person's  in  the  Company's  management,  carried  out  an  evaluation  of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedure.  The term "disclosure controls and procedures" means the controls
and other procedures of the Company that are designed to insure that information
required to be  disclosed  by the Company in its reports to the  Securities  and
Exchange  Commission  ("SEC") is recorded,  processed,  summarized and reported,
within the time period  specified in the rules and forms of the SEC.  Disclosure
controls and procedures  include,  without  limitation,  controls and procedures
designed to insure that  information  required to be disclosed by the Company in
the reports  that it files or submits to the SEC under the  Securities  Exchange
Act of  1934  is  accumulated  and  communicated  to the  Company's  management,
including  its chief  executive  officer  and its  chief  financial  officer  as
appropriate, to allow timely decisions regarding required disclosure. Based upon
that  evaluation,  the chief executive  officer and the chief financial  officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material  information relating to the Company (including
its consolidated subsidiaries) required to be included in the reports filed with
the SEC by the Company.  There have been no significant changes in the Company's
internal controls or in other factors that could  significantly  affect internal
controls  subsequent to the date of such  evaluation,  including any  corrective
actions with regard to significant deficiencies and material weaknesses.



                                BURKE MILLS, INC.
                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
--------------------------------------
(a) The following documents are filed as a part of this report.

    (a) 1.  Report of Independent Certified Public Accountants.
            ---------------------------------------------------

The  following  financial  statements  of  Burke  Mills,  Inc.  and the  related
auditors' report required to be included in Part II Item 8, are listed below:

                  Independent auditors' report

                  Balance sheets
                    December 28, 2002
                    December 29, 2001

                  Statements of operations
                    Year ended December 28, 2002
                    Year ended December 29, 2001
                    Year ended December 30, 2000

                  Statements of changes in shareholders' equity
                    Year ended December 28, 2002
                    Year ended December 29, 2001
                    Year ended December 30, 2000

                  Statements of cash flows
                    Year ended December 28, 2002
                    Year ended December 29, 2001
                    Year ended December 30, 2000

                  Notes to financial statements

Page 28 of 33
<PAGE>

                                BURKE MILLS, INC.
                                     PART IV



                                BURKE MILLS, INC.

Financial statement  schedules have been omitted since the required  information
is not present in amounts sufficient to require submission of the schedules,  or
because the required  information is included in the financial statements or the
notes thereto.

(a) 2. The exhibits  required by Item 601 of Regulation S-K and paragraph (c) of
Item 14 are the articles of  incorporation  and by-laws of the Company which are
incorporated  herein by  reference  from the  Amendment on Form 8K to the annual
report on Form 10-K of the  Company  for the fiscal  year ended  January 2, 1982
previously filed with the Commission.

(b) During the last  quarter of the period  covered by this  report no report on
Form 8-K was filed.

(c) See sub-Item (a)2 above.

(d) Exhibit 99 Audited Financial  Statement  referred to in Note 10 of Financial
Statements.

                                   SIGNATURES
                                   ----------

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

Date:March 27, 2003                          BURKE MILLS, INC.

                                        By: s/ Humayun N. Shaikh
                                            ----------------------
                                            Humayun N. Shaikh,
                                            Chairman of the Board
                                            (Principal Executive Officer)


Date: March 27, 2003                    By: s/ Thomas I. Nail
                                            -----------------------
                                            Thomas I. Nail
                                            President and COO
                                           (Principal Financial Officer)

Page 29 of 33
<PAGE>

                                BURKE MILLS, INC.

                                   SIGNATURES
                                   ----------

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

Date: March 27, 2003                       By: s/Humayun N. Shaikh
                                                ---------------------------
                                                Humayun N. Shaikh, Director



Date: March 27, 2003                       By: s/Thomas I. Nail
                                               ---------------------------
                                               Thomas I. Nail, Director



Date: March 27, 2003                       By: s/Richard F. Byers
                                               ---------------------------
                                               Richard F. Byers, Director



Date: March 27, 2003                       By: s/William T. Dunn
                                               ---------------------------
                                               William T. Dunn, Director



Date: March 27, 2003                       By: s/Robert P. Huntley
                                               ---------------------------
                                               Robert P. Huntley, Director



Date: March 27, 2003                       By: s/Robert T. King
                                               ---------------------------
                                               Robert T. King, Director


Date: March 27, 2003                       By:  s/Aehsun Shaikh
                                                ---------------------------
                                                Aehsun Shaikh, Director


Page 30 of 33
<PAGE>

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

   I, Humayun N. Shaikh, certify that:

   1. I have reviewed this annual report on Form 10-K of Burke Mills, Inc.;

   2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

   3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

   4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         (b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         (c) presented in this annual report our conclusions about the
effectiveness  of the disclosure  controls and procedures based on our
evaluation as of the Evaluation Date;

   5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

         (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

   6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


                                            s/ Humayun N. Shaikh
Date: March 27, 2003                        ---------------------------
                                            Humayun N. Shaikh
                                            Chairman and CEO
                                           (Principal Executive Officer)

Page 31 of 33
<PAGE>

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
                  --------------------------------------------

   I, Thomas I. Nail, certify that:

   1. I have reviewed this annual report on Form 10-K of Burke Mills, Inc.;

   2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made,  not misleading with respect to the period covered by this annual
report;

   3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

   4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         (b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         (c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

   5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

         (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         (b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

   6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could  significantly  affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


                                            s/ Thomas I. Nail
Date: March 27, 2003                        ---------------------------
                                            Thomas I. Nail
                                            President and COO
                                           (Principal Financial Officer)

Page 32 of 33
<PAGE>

       CERTIFICATION PURSUANT TO ss. 906 OF THE SARBANES-OXLEY ACT OF 2002


The  undersigned  Chief Executive  Officer of Burke Mills,  Inc., (the "Issuer")
hereby  certifies  that  the  foregoing  periodic  report  containing  financial
statements of the issuer fully complies with the  requirements of sections 13(a)
or 15(d) of the Securities  Exchange Act of 1934 (15 USC 78m or 78o(d)) and that
the  information  contained in the  foregoing  report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
issuer.


                                           s/ Humayun N. Shaikh
Date: March 27, 2003                       ---------------------------
                                           Humayun N. Shaikh
                                           Chairman and CEO



       CERTIFICATION PURSUANT TO ss. 906 OF THE SARBANES-OXLEY ACT OF 2002

The  undersigned  Chief Financial  Officer of Burke Mills,  Inc., (the "Issuer")
hereby  certifies  that  the  foregoing  periodic  report  containing  financial
statements of the issuer fully complies with the  requirements of sections 13(a)
or 15(d) of the Securities  Exchange Act of 1934 (15 USC 78m or 78o(d)) and that
the  information  contained in the  foregoing  report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
issuer.

                                              s/ Thomas I. Nail
Date: March 27, 2003                          ---------------------------
                                              Thomas I. Nail
                                              President and COO
                                             (Chief Financial Officer)



Page 33 of 33
<PAGE>


                              FYTEK, S. A. DE C. V.
                             -----------------------
                             (a Mexican corporation)

                              FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 AND 2001


                                    CONTENTS

                                                               Page

Report of independent accountants                               1

Financial statements:
Balance sheets                                                  2
Statements of income                                            3
Statements of changes in stockholders' equity                   3
Statements of cash flows                                        4


Notes to financial statements                                   4



REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------
Monterrey, N. L., March 13, 2003


To the Stockholders of Fytek, S. A. de C. V.

We have audited the  accompanying  balance sheets of Fytek, S. A. de C. V. as of
December 31, 2002 and 2001, and the related  statements of income, of changes in
stockholders'  equity 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.

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

In our opinion the aforementioned  financial  statements,  after the restatement
described in Note 10, present fairly,  in all material  respects,  the financial
position of Fytek, S. A. de C. V. at December 31, 2002 and 2001, and the results
of its operations,  the changes in its  stockholders'  equity and its cash flows
for the years then ended,  in conformity with  accounting  principles  generally
accepted in the United States of America.

s/Alejandro Moreno A.
Alejandro Moreno A.
Pricewaterhouse Coopers

Page 1 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

                                 BALANCE SHEETS
                            Thousands of U.S. dollars

                                                  December 31,
                                                 ---------------
                                                  2002      2001
                                                  ----      ----
Assets:
Cash and cash equivalents                       $  623    $  325
Accounts receivable, net (Note 3)                1,095     1,959
Burke Mills, Inc. (Stockholder)                    147        89
Inventories, net (Note 4)                          583       764
                                                -------    ------
Total current assets                             2,448     3,137
Deferred income tax asset                                      1
Machinery and equipment, net (Note 7)              139       166
                                                -------   -------

Total assets                                    $2,587    $3,304
                                                ========  =======
Current liabilities:
Suppliers                                       $  274    $  515
Payable to related parties (Note 8)                385       894
Deferred income tax liability (Note 7)              61
Sundry creditors and accrued expenses               68       142
                                                 -------   ------
Total current liabilities                          788     1,551

Long-term liabilities:
Deferred income tax                                  2
                                                 -------   ------
Total liabilities                                  790     1,551
                                                 -------   ------
Stockholders' equity:
Capital stock                                      307       307
Retained earnings                                1,450     1,222
Cumulative translation adjustment                   40       224
                                                 ------    -----

Total stockholders' equity                       1,797     1,753
                                                 -----     -----

Total liabilities and stockholders' equity      $2,587    $3,304
                                                =======   =======

The accompanying notes are an integral part of these financial statements.


Page 2 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

                              STATEMENTS OF INCOME
                            Thousands of U.S. dollars

                                               Years ended
                                               December 31,
                                              ---------------
                                              2002       2001
                                              ----       ----
Net sales                                    $3,827     $5,383
Cost of sales                                (3,147)    (4,886)
                                             -------    -------
Gross margin                                    680        497
Selling, general and administrative
   expenses                                    (472)      (368)
                                             -------    -------
Operating income                                208        129
                                             -------    -------

Interest income                                   2          2
Interest expense                                 (1)       (10)
Exchange gain (loss), net                        84        (25)
                                              ------     ------
                                                 85        (33)
                                              ------     ------
                                                293         96
Other income, net                                13          5
                                              ------     ------
Income before income tax                        306        101
Income taxes, net (Note 7)                      (78)       (33)
                                              ------     ------
Net income                                     $228      $  68
                                              ======     =======

The accompanying notes are an integral part of these financial statements.


                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                            Thousands of U.S. dollars

                                             Cumulative            Cumulative
                        Capital   Retained   translation           comprehensive
                         Stock    Earnings   adjustment    Total     income
                        -------   --------   ----------   ------- --------------
Balances at
   December 31, 2000     $307     $1,154       $  142      $1,603    $1,152

Net income                            68                       68        68
Foreign currency translation
   adjustment                                      82          82        82
                                                                     -------
Comprehensive income                                                   150
                        -------   -------     -------      -------   -------
Balances at
   December 31, 2001      307      1,222         224       1,753     1,302

Net income                           228                     228       228
Foreign currency translation
   adjustment                                   (184)       (184)     (184)
                                                                    -------
Comprehensive income                                                    44
                        -------  -------      -------     -------   -------
Balances at
   December 31, 2002     $307     $1,450      $   40      $1,797    $1,346
                        =======   =======     =======     ======    =======

The accompanying notes are an integral part of these financial statements.

Page 3 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

                            STATEMENTS OF CASH FLOWS
                            Thousands of U.S. dollars

                                                     Years ended
                                                     December 31,
                                                    --------------
                                                    2002     2001
                                                    ----     ----

Net income                                         $ 228      $ 68
Adjustments to reconcile net income to net
cash provided by operating activities:
Allowance for doubtful accounts                      120        16
Depreciation                                           8         8
Deferred income taxes (Note 7)                        64        (6)

Changes in operating assets and liabilities:
Accounts receivable                                  290        913
Inventories                                          101        306
Related parties, net                                (508)      (861)
Suppliers                                           (196)      (186)
Sundry creditors and accrued expenses                195         36
                                                   ------     ------
Net cash provided by operating activities            302        294
                                                   ------     ------
Effect of exchange rate changes on
   cash and cash equivalents                         (4)          8
                                                   ------     ------
Increase in cash and cash equivalents                298        302
Cash and cash equivalents at
   beginning of the year                             325         23
                                                   ------     ------
Cash and cash equivalents at end of the year       $ 623      $ 325
                                                   ======     ======

Income tax paid                                    $  39      $ 212
Interest paid                                      $   1      $  10

The accompanying notes are an integral part of these financial statements.


                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 AND 2001

               (Thousands of U.S. dollars, except exchange rates)

NOTE 1 - INCORPORATION AND DESCRIPTION OF BUSINESS
---------------------------------------------------
Fytek, S. A. de C. V. (the "Company") is a company  incorporated  under the laws
of Mexico.  The Company is primarily  engaged in manufacturing  chemical fibers.
For purposes of its operations  the Company leases  machinery and equipment from
related  parties (see Note 8). The Company has no employees  and  technical  and
administrative  services are provided to it by a related  party.  The Company is
owned 50.01% by Akra Teijin, S. A. de C. V. and 49.99% by Burke Mills, Inc.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
The  accompanying  financial  statements  have been prepared in accordance  with
accounting  principles  generally  accepted in the United  States of America (US
GAAP).
Page 4 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

Following is a summary of the most significant accounting policies:

a.   Basis of presentation
     ---------------------
     The records of the Company are maintained in Mexican pesos ("Ps." or
     "pesos").  The accompanying financial statements were derived from the
     Company's financial statements under accounting principles generally
     accepted in Mexico ("Mexican GAAP"). The financial statements under
     Mexican GAAP constitute a suitable basis for adjustment and translation
     into US dollars for purposes of expressing them in conformity with
     accounting principles generally accepted in the United States of America.

     Certain reclassifications have been made to the prior year amounts to
     conform to the current year presentation.

b.   Foreign currency transactions and translation
     ----------------------------------------------
     The Company's functional currency is the Mexican peso (Ps).

     The current method requires the translation of all assets and liabilities
     using the current year end exchange rate.  Capital stock are to be
     translated at historical exchange rates and income statement components
     are translated at average rates. The effect of the difference between the
     exchange rate at the beginning and the end of the reporting periods is
     reflected as a component of other comprehensive income within stockholders'
     equity.

     Provided below is a summary of the year end and average exchange rates
     experienced during 2002 and 2001.

                                                           Ps per $
                                                           ------
     At December 31, 2002                  Year end        10.3125
     Year ended December 31, 2002          Average          9.6607
     At December 31, 2001                  Year end         9.1423
     Year ended December 31, 2001          Average          9.3409

c.   Cash and cash equivalents
     -------------------------
     Cash and cash equivalents are stated at cost, which approximates the fair
     value.  The Company considers all highly and temporary cash investments
     with original maturities of three months or less to be cash equivalents.

d.   Inventories and cost of sales (Note 4)
     --------------------------------------
     Inventories are stated at the lower of average cost or market.

e.   Machinery, equipment and depreciation (Note 5)
     ------------------------------------------------
     Machinery and equipment are stated at acquisition cost, and depreciated
     using the straight-line method over the estimated useful lives, at an
     annual rate of 4% (3.3% in 2001).

f.   Long lived assets
     -------------------
     The Company evaluates potential impairment loss relating to long-lived
     assets by assessing whether the unamortized carrying amount can be
     recovered over the remaining life of the assets through undiscounted

Page 5 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.


     future expected cash flows generated by the assets and without interest
     charges. If the sum of the expected future undiscounted cash flows is less
     than the carrying amount of the asset, a loss is recognized for the
     difference between the fair value and carrying value of the asset.  Assets
     to be disposed of are recorded at the lower of carrying amount or fair
     value less cost to sell.  Testing whether an asset is impaired and for
     measuring the impairment loss is performed for assets groupings at the
     lowest level for which there are identifiable cash flows that are largely
     independent of the cash flows generated by other asset groups.

     Long-lived assets are reviewed for impairment whenever events or changes in
     circumstances indicate that the carrying amount may not be recoverable.

g.   Income tax
     ----------
     The Company accounts for income taxes under the liability method in
     accordance with Statement of Financial Accounting Standards ("SFAS") No.
     109, "Accounting for Income Taxes".

     This statement requires an asset and liability approach for financial
     accounting and reporting for income tax under the following basic
     principles: (a) a current tax liability or asset is recognized for the
     estimated taxes payable or refundable on tax returns for the current year,
     (b) a deferred tax liability or asset is recognized for the estimated
     future tax effects attributable to temporary differences, (c) the
     measurement of current and deferred tax liabilities and assets is based on
     provisions of the enacted tax law and the effects of future changes in tax
     laws or rates are not anticipated, and (d) the measurement of deferred tax
     assets is reduced, if necessary, by the amount of any tax benefits for
     which available evidence indicates that it is more likely than not that
     they will not be realized.  Under this method, deferred tax is recognized
     with respect to all temporary differences.

     The temporary differences under FAS No. 109 are determined based on the
     difference between the tax-basis amount of the asset or liability and the
     related historical amount reported in the financial statements.

h.   Revenue recognition
     --------------------
     The Company recognizes revenue when merchandise is delivered to customers
     and accepted.  The allowance for returns and doubtful accounts is
     sufficient to cover any possible loss.

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

j.   Comprehensive income
     --------------------
     Comprehensive income is the change in equity of a business enterprise
     during a period from transactions and other events and circumstances from
     nonowner sources.  It includes all changes in equity during a period except
     those resulting from investments by owners and distributions to owners.

k.   Concentration of credit risk
     ------------------------------
     The Company's financial statements do not include any financial instruments
     that represent a significant concentration of credit risk. Cash in banks
     are held by U. S. and Mexican financial institution are denominated in
     pesos and U. S. dollars.

Page 6 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

NOTE 3 - ACCOUNTS RECEIVABLE
-----------------------------
At December 31, this caption comprised the following:
                                                     2002        2001
                                                     ----        ----
Politel, S. A. de C. V.                            $  108      $  275
Vicza, S. A. de C. V.                                 221         202
Nova Distex, S. A. de C. V.                            21         186
Fariel, S. A. de C. V.                                260         182
Diltex, S. A. de C. V.                                 97         122
Bermatex, Inc.                                                      2
Other customers                                       557         640
Other accounts receivable                              42         441
                                                    -----       -----
                                                    1,306       2,050
Allowance for doubtful accounts                       211          91
                                                    -----       -----
                                                   $1,095      $1,959
                                                   =======     =======

NOTE 4 - INVENTORIES
--------------------
At December 31, this caption comprised the following:

                                                    2002         2001
                                                    ----         ----
Finished products                                  $ 537        $ 784
Work in process                                      181          285
Spare parts and others                                             69
                                                    ----         ----
                                                     718        1,138
Less - Allowance for slow-moving inventories         135          374
                                                    ----        -----
                                                   $ 583        $ 764
                                                   ======       ======


NOTE 5 - MACHINERY AND EQUIPMENT
--------------------------------
At December 31, this caption comprised the following:

                                                      2002       2001
                                                      ----       ----
Machinery and equipment                               $152       $170
Computer equipment                                       7          7
Construction in progress                                            1
                                                      ----       ----
                                                       159        178
Less - Accumulated depreciation                         20         12
                                                      ----       ----
                                                      $139       $166
                                                      =====      =====


NOTE 6 - STOCKHOLDERS' EQUITY
-----------------------------
As of December 31, 2002 and 2001 capital  stock is variable with a fixed minimum
of $6 and an unlimited  maximum.  At December 31, 2002 and 2001,  the subscribed
and paid-in  nominal capital stock of $307, was represented by 24,450 Series "B"
common, nominative shares of one hundred nominal pesos par value each.

Dividends paid from retained  earnings which have not previously  been taxed are
subject to an income tax payable by the Company,  which may be credited  against
the Company's taxable income in the three following years.

Page 7 of 11 (EX-99)
<PAGE>


                              FYTEK, S. A. DE C. V.

NOTE 7 - INCOME TAX
--------------------
The components of income tax benefit  (expense) for the years ended December 31,
are as follows:

                                                       2002      2001
                                                       ----      ----
Current income tax expense                            ($ 14)    ($ 39)
Deferred income tax (expense) benefit                   (64)        6
                                                      ------    -----
                                                      ($ 78)    ($ 33)
                                                      ======    ======

The primary  components  of the deferred tax asset and liability at December 31,
are as follows:
                                                      2002     2001
                                                      ----     ----

Inventory                                            ($187)    ($268)
Machinery and equipment                                 (2)
Allowance for doubtful accounts                        102        33
Accrued expenses and provision                          24        36
                                                      ------   ------
Net deferred income tax (liability) asset             ($63)     $  1
                                                      ======   ======

Net current deferred income tax asset                           $  1
                                                                =====
Net current deferred income tax liability             ($61)
                                                      ======

Net non-current deferred income tax liability         ($ 2)
                                                      ======


The  following  is a  reconciliation  of the  statutory  income  tax rate to the
effective income tax rate for the years ended December 31.

                                                      2002       2001
                                                      -----      -----
Income tax computed at statutory tax
   rate (35%)                                        ($107)     ($ 35)
                                                     ------     ------
Permanent differences:
Non-deductible items                                    (1)        (1)
Other permanent differences                                         5
Inflationary and translation adjustments                26         (2)
                                                      ------    ------
                                                       (82)       (33)
Effect of reduction on income tax
   statutory rate                                        4
                                                     ------     ------
Income tax expense                                   ($ 78)     ($ 33)
                                                     =======    =======

Page 8 of 11 (EX-99)
<PAGE>


                              FYTEK, S. A. DE C. V.

NOTE 8 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES
--------------------------------------------------------
Accounts payable with related parties at December 31, are as follows:

                                                      2002      2001
                                                      ----      ----
Fibras Quimicas, S. A. de C. V.                       $385      $894
                                                      =====     =====


The financial statements include the following significant transactions with
related parties:
                                                      2002       2001
                                                      ----       ----
Sale of finished products                            $1,500     $1,389
Purchase of raw and other materials                  (1,787)    (2,908)


Administrative and technical services:
----------------------------------------
During the years ended December 31, 2002 and 2001 the Company accrued $1,079 and
$1,336,  respectively for  administrative  and technical  services due to Fibras
Quimicas, S. A. de C. V., an affiliated company of one of the shareholders.

Operating lease:
----------------
In November  1996,  the Company  entered into a five year lease  agreements  for
buildings,  machinery and equipment from one of its  stockholders  (Burke Mills)
and  an  affiliated   company  (Fibras   Quimicas,   S.  A.  de  C.  V.),  under
non-cancellable operating lease agreements. These agreements expired in November
2001; however, during 2002 the Company kept paying rentals under the same terms.
During the years ended  December 31, 2002 and 2001,  the Company paid rentals of
$549, and $537, respectively, under the terms of these agreements.

Purchase and supply agreements:
--------------------------------
In 1996, the Company entered into a five year supply agreement with Burke Mills,
Inc.  to supply  approximately  $1,800,  annually  of  polyester  twisted  yarn,
beginning  November  1997.  This agreement  expired in November  2001;  however,
during 2002 the Company  kept  supplying  polyester  twisted yarn under the same
terms.  During the years ended  December 31, 2002 and 2001 the Company  supplied
$1,317 and $1,272,  respectively,  of polyester twisted yarn to Burke Mills Inc.
At  December  31,  2002  and  2001,  the  balances  shown in the  balance  sheet
correspond to these transactions.

In 1996,  the  Company  entered  into a five year supply  agreement  with Fibras
Quimicas,  S. A. de C. V. (an  affiliated  company)  to  purchase  approximately
$3,500,  annually of polyester  natural yarn,  beginning in November 1997.  This
agreement  expired in November  2001;  however,  during  2002 the  Company  kept
supplying  polyester  natural yarn under the same terms.  During the years ended
December 31, 2002 and 2001 the Company acquired $1,144 and $1,837  respectively,
of polyester natural yarn under the terms of this agreement.

During 2002 and 2001, the Company  purchased raw materials from Nylon de Mexico,
S. A. de C.  V.,  subsidiary  of a  previous  shareholder,  for  $591  and  $917
respectively.

Page 9 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

Adjustment to related parties liabilities
------------------------------------------
During  2002,  the  Company   entered  into  a  negotiation  of  its  commercial
liabilities  accrued as the end of  preceding  years with related  parties.  The
Company  reached an  agreement  about the  balances  with  related  parties  and
adjusted  its  liabilities  as of December 31, 2002 and recorded a gain of $ 411
($267 net of taxes),  which is presented net of cost of sales.  See deferred tax
effect in note 10.


NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
--------------------------------------
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS 140")
which  supersedes  APB Opinion  No. 16,  "Business  Combinations"  and amends or
supersedes  a number of  related  interpretations  of APB 16. The  statement  is
effective for all business  combinations  initiated  after June 30, 2001 and for
all  business  combinations  accounted  for  by the  purchase  method  that  are
completed  after June 30, 2001.  SFAS 141  addresses  financial  accounting  and
reporting for business combinations,  eliminates the pooling-of-interests method
of accounting for business combinations,  and prescribes the initial recognition
and measurement of goodwill and other intangible assets, accounting for negative
goodwill and the required disclosures in respects of business combinations.  The
adoption of SFAS 141 did not have a material effect on the financial statements.

Also in July 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
Assets" ("SFAS 142") which supersedes APB Opinion No. 17,  "Intangible  Assets".
SFAS 142 addresses how intangible assets that are acquired  individually or with
a group of other  assets  (but not those  acquired  in a  business  acquisition)
should be accounted for in financial statements upon their acquisition. SFAS 142
also addresses how goodwill and other intangible  assets should be accounted for
after they have been  initially  recognized  in the  financial  statements.  The
provisions  of SFAS 142 are  required to be applied  starting  with fiscal years
beginning  after  December 15,  2001.  SFAS 142 is required to be applied at the
beginning of an entity's fiscal year and to be applied to all goodwill and other
intangible  assets  recognized  in its financial  statements  at that date.  The
adoption of SFAS 142 did not have a material effect on the financial statements.

In June 2001,  the FASB issued  SFAS No. 143  "Accounting  for Asset  Retirement
Obligations"  ("SFAS 143"). SFAS 143 requires the recognition of a liability for
the legal  obligations  associated with the retirement of a tangible  long-lived
asset that results from the acquisition,  construction and (or) normal operation
of the asset.  The  liability is recognized at fair value in the period in which
it  is  incurred  if a  reasonable  estimate  of  fair  value  can  be  made.  A
corresponding  asset  retirement  cost is  added  to the  carrying  value of the
long-lived  asset and is  depreciated to expense using a systematic and rational
method over its useful  life.  SFAS 143 is effective  for fiscal year  beginning
after June 15,  2002.  Upon initial  adoption,  a liability  is  recognized  for
existing asset  retirement  obligations and the associated asset retirement cost
is capitalized as an increase to the carrying value of the asset. The recognized
liability  and asset are  adjusted  for  cumulative  accretion  and  accumulated
depreciation,  respectively,  from the time  period  when the  asset  retirement
obligation  would have  originally  been  recognized  had this statement been in
effect  to the date of  initial  adoption.  The  cumulative  effect  of  initial
adoption of SFAS 143 is recorded as a change in accounting principle. Management
is  currently  evaluating  the impact that the adoption of SFAS 143 will have on
the financial statements.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or
Disposal of Long-Lived  Assets" ("SFAS 144").  SFAS 144 supersedes SFAS No. 121,
"Accounting for the Impairnment of Long-Lived  Assets and for Long-Lived  Assets
to be Disposed of" and the  accounting  and reporting  provisions of APB Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of  a  Segment  of a  Business,  and  Extraordinary,  Unusual  and  Infrequently
Occurring Events and Transactions".  SFAS 144 retains the fundamental provisions
of SFAS 121 for  recognition  and  measurement  of the  impairment of long-lived
assets to be held and used, but resolves a number of  implementation  issues and
establishes  a single  accounting  model for assets to be disposed  of. SFAS 144
also retains the requirements to report discontinued  operations separately from
continuing  operations  and extends  that  reporting to a component of an entity

Page 10 of 11 (EX-99)
<PAGE>

                              FYTEK, S. A. DE C. V.

that either has been disposed of by sale,  abandonment or distribution to owners
or is classified as held for sale.  The provisions of SFAS 144 are effective for
financial  statements  issued for fiscal years beginning after December 15, 2001
and their interim periods.  The provisions of SFAS 144 for long-lived  assets to
be  disposed of by sale or  otherwise  are  effective  for  disposal  activities
initiated after the effective date of SFAS 144 or after its initial application.
The  adoption  of SFAS  144 did not  have a  material  effect  on the  financial
statements.


NOTE 10 - RESTATEMENT OF PRIOR YEAR INCOME TAX AMOUNTS
------------------------------------------------------
The deferred tax asset and  liability as of December 31, 2000 and 2001 have been
restated due to the previous omission of a taxable temporary  difference related
to certain  accruals  established  in 1998,  which under  Mexican  tax law,  are
deductible when paid.

The retained  earnings  and deferred tax asset and  liability as of December 31,
2000 and 2001 before and after the restatement are as follows:

                                                2001
                                    ------------------------------
                                    Reported as
                                    originally          As restated
                                    -----------         -----------


Retained earnings                     $1,078              $1,222
                                       =====               =====

Net deferred tax (liability) asset   ($ 143)              $   1
                                      ======               =====

                                                  2000
                                      ------------------------------
Retained earnings                     $1,010              $1,154
                                      ======              ======

Net deferred tax liability           ($  149)             ($  5)
                                     ========             ======


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