UNITED STATES
                       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
                                   January 1, 2000

            [ ]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
Form10-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 February
24, 2000) was $1,973,135.

Page 1 of 41
<PAGE>

The number of shares  outstanding of the registrant's only class of common stock
as of March 1, 2000 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 16, 2000,  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 2 of 41
<PAGE>

                     BURKE MILLS, INC.PART I
ITEM 1 - BUSINESS
------------------
     (a) General  Development of Business - General business  development during
fiscal year ended  January 1, 2000,  consisted  of  installing  new  software to
replace  the  Company's   manufacturing  and  accounting  software,   installing
machinery in the dyeing and dry  processing  areas,  and reacting to competitive
pricing pressures in the market.

        On May 29,  1999,  the  Company  went live  with a new fully  integrated
system that replaced its manufacturing and accounting software. The new software
was installed to improve the Company's  information  efficiencies  and bring the
Company into compliance for all critical applications affected by the year 2000.

       During the year the Company installed new machinery in the dyeing process
which consisted of new dyeing,  drying and automated load and unload  machinery.
The dyeing  machinery  was  installed  to replace  some older  equipment  and to
increase  capacities.  The automated load and unload  machinery was purchased to
lower  labor cost.  Although  the  machinery  was  received in 1999,  it will be
approximately  the  second  quarter  of 2000  before  this  machinery  is  fully
operational.

       In its dry process area, the Company  installed  machinery that increased
its intermingling  capacity by approximately  67% and installed  machinery for a
new product.

        During the year the Company  experienced  volatility  in the cost of raw
yarns.  In the first  half of the year raw yarn  prices  declined,  while in the
second half of the year they  increased.  This resulted in the Company  reducing
and then raising prices to its customers.

        (b) Financial  Information  about Industry Segments The Company had only
one industry segment during the fiscal year ended January 1, 2000.

       (c)  Narrative  Description  of  Business  - The  Company  is  engaged in
twisting,  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  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 and Canada, with the bulk of business being primarily in the eastern


Page 3 of 41
<PAGE>
                     BURKE MILLS, INC.PART I

ITEM 1 - BUSINESS (continued)
------------------------------

United States, through three salesmen employed directly by the Company on salary
and a number of  commissioned  sales  agents  working on various  accounts.  The
Company  also has begun to market 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 January 1, 2000
was $3,184,000 and as of January 2, 1999 was $3,832,000.  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 64 days.
On average,  the Company  turns its  inventory  approximately  5 to 7 times each
year. The Company has been able to meet its delivery schedules and has been able
to enjoy a ready supply of raw  materials  from  suppliers.  For the fiscal year
ended  January  1, 2000,  approximately  5.0% of the  Company's  sales were from
dyeing and  processing of yarn for customers who supplied the yarn.  The Company
does not  allow  customers  the  right to return  merchandise  except  where the
merchandise  is  defective.  The  Company  rarely  allows  payment  terms to its
customers beyond sixty (60) days, and the Company 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 and gas.  The  Company  has not  experienced  any  shortages  in
electricity,  oil or gas  during  the  fiscal  year.  The  Company  has  made no
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
the Company's operations.

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

     The Company has made various changes in its plant that regulates  discharge
of  materials  into the  environment.  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


Page 4 of 41
<PAGE>
                     BURKE MILLS, INC.PART I

ITEM 1 - BUSINESS (continued)
------------------------------

changes.  Compliance by the Company during the fiscal year ended January 1, 2000
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 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 Company believes it made an
adequate  provision to earnings in 1997 to cover any future cost.  No additional
provision was made in 1998 or 1999.  This situation will have no material impact
on the capital expenditures, earnings or competitive position of the Company.

       On, February 28, 2000, the Company had 281 employees.  The Company's yarn
division is its only  division.  During the fiscal  year ended  January 1, 2000,
sales to Milliken Company and CMI Industries, Inc., each exceeded ten percent of
the Company's  revenue for that year. The loss of these  customers  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  shareholder  in Fytek  is  Fibras
Quimicas,  S.A., a Mexican Corporation.  The purpose of Fytek is the manufacture
and marketing of yarns.  The Company  acquires yarn from Fytek and uses Fytek to
market  and  distribute  its dyed  yarn in  Mexico,  Central  America  and South
America. Fytek began production in the fourth quarter of 1997.

        (d)  Financial  Information  about Foreign and Domestic  Operations  and
Export Sales -- Company sales to Brazil, Canada and Mexico during 1999 accounted
for  approximately  4% of total net sales.  During 1998 sales to these countries
were less than 8%, and such sales aggregated less than 6% in 1997.


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 main plant building used by the


Page 5 of 41
<PAGE>
                     BURKE MILLS, INC.PART I

ITEM 2 - PROPERTIES (continued)
------------------------------

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 January 1, 2000 are as follows:

                                Pounds/Year 1999
     Department                  Capacity         Utilization
     ----------                  --------         -----------
     Winding Machines           21,218,000           52%
     Texturing Machines          2,767,500           37.5
     Dyeing Equipment           20,000,000           76%

        During the year the Company  phased out the  remainder  of its  twisting
machinery.  Texturing  capacity is the average  capacity  available during 1999.
Capacity for 2000 will be 700,000 pounds.


ITEM 3. LEGAL PROCEEDINGS
--------------------------

        The  Company  is not a party  and its  property  is not  subject  to any
material  pending  legal  proceedings  other than  ordinary  routine  litigation
incidental to the business.


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.





Page 6 of 41
<PAGE>
                    BURKE MILLS, INC.PART II

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

         (a) The  principal  United  States  (or  other)  market  on  which  the
Company's  common  stock is being traded is the United  States  over-the-counter
market.  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  January 1,
2000,  and on the latest  practicable  date (as  obtained  from the NASDAQ Stock
Market, Inc., in Washington, DC) is as follows:

                  Quarter Ending
                     1999                  High Bid          Low Bid
                    ------                  ------            -----
                  March 31                  $3.00           $1.625
                  June 30                   $2.297          $1.375
                  September 30              $2.125          $1.563
                  December 31               $2.438          $1.50


               Quarter Ending
                    1998                   High Bid         Low Bid
                  --------                 --------         --------
                  March 31                  $3.125           $2.50
                  June 30                   $4.313           $2.531
                  September 30              $4.438           $2.00
                  December 31               $3.75            $2.00

                  February  24,   2000      $1.75            $1.688

               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 February  28, 2000 there were 404 holders of the common  stock
of the Company.

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


ITEM 6. SELECTED FINANCIAL DATA
--------------------------------

        The selected  financial  data set forth on the following  page,  for the
five years ended  January 1, 2000 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 7 of 41
<PAGE>

                     BURKE MILLS, INC.PART II

ITEM 6.  SELECTED FINANCIAL DATA (continued)
---------------------------------------------
                                   (in thousands except per share data)
                                          Years Ended
                                   Jan. 1     Jan. 2    Jan. 3 Dec. 28  Dec. 30
                                    2000      1999      1998   1996      1995
                                   ----       ----      ----   ----      ----
SELECTED INCOME STATEMENT DATA
  Net Sales                      $42,840    $42,169  $41,156 $40,649  $34,148
  Cost of Sales                   38,779     37,825   36,765 36,887   30,666
                                  ------     ------   ------  -----   ------
  Gross Profit                   $ 4,061    $ 4,344  $ 4,391 $3,762  $ 3,482
                                 -------    -------  -------  ------  -------
  Income (loss) before income
     taxes                       $ (300)    $ 1,087  $ 1,059   $869  $ 1,156
  Income Taxes (credit)             (98)        383      433    284      212
                                  ------     ------   ------   ------   ------
  Net Income (loss)              $ (202)    $   704  $   626   $585  $   944
                                  ======     ======   ======  ======   ======
  Per Share (Note A)
    Net income (loss)            $ (.07)    $   .26  $   .23   $.21  $   .34
                                  ======     ======   ======  ======   ======
    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          $ 4,640     $ 2,162  $ 1,343  $1,025  $ 6,372
                                =======     =======  =======  =======  =======
   Depreciation                 $ 1,839     $ 1,744  $ 1,600  $1,508  $ 1,052
                                =======     =======  =======  =======  =======
  Cash provided by
    operating activities        $    74     $ 1,926  $ 3,646  $1,527  $ 2,004
                                =======     =======  =======  =======  =======

                                Jan. 1      Jan. 2   Jan. 3   Dec.28   Dec.30
                                 2000         1999    1998    1996      1995
                                 ----        ----     ----    ----     ----
SELECTED BALANCE SHEET DATA
  Current assets                $10,345     $11,213  $11,785  $9,905   $7,641
  Current liabilities             4,381       3,383    3,378   1,738    2,171
                                  -----       -----    -----   -----    -----
  Working capital               $ 5,964     $ 7,830  $ 8,407   $8,167   $5,470
                                =======     =======  =======   =======  =======
  Current ratio                    2.36        3.31     3.49   5.70     3.52
                                   ====        ====     ====   ====     ====
  Total assets                  $25,995     $24,311  $24,348  $22,554  $20,769
                                =======     =======  =======  =======  =======
  Long-term debt                $ 5,551     $ 4,563  $ 5,313  $6,000  $ 4,964
                                =======     =======  =======  =======  =======
  Deferred income taxes         $ 2,122     $ 2,221  $ 2,218  $2,003  $ 1,406
                                =======     =======  =======  =======  =======
  Shareholders' equity          $13,942     $14,144  $13,440  $12,813  $12,228
                                =======     =======  =======  =======  =======

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

Page 8 of  41
<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
                     ------------------------------   Period toPeriod
                       Jan. 1  Jan. 2   Jan. 3        Increase(Decrease)
                        2000    1999    1998          1998-1999    1997-1998
                        ----    ----     ----         ------------  -------
Net Sales              100.0%  100.0%   100.0%         1.6%         2.5%

Cost of Sales           90.5    89.7     89.3          2.5          2.9

Gross profit margin      9.5    10.3     10.7         (6.5)        (1.1)
                       -----   -----    -----         -----        -----

Selling, general,
 administrative and
    factoring expenses   9.8     7.1      6.9         40.6         5.8
                        -----   -----    -----        -----       ----

Operating earnings/
   (loss)              (0.3)    3.2      3.8        (111.7)     (13.6)

Other income             0.6     0.4      0.4          66.9      6.8

Other expenses          (1.3)   (1.3)    (1.7)         (1.8)    (16.7)
                        -----   -----    -----        -----     -----
Income (loss) before
  income taxes and net
  equity in affiliates  (1.0)    2.3      2.5        (146.1)    (8.5)

Income taxes (credit)   (0.2)    0.9      1.0        (125.5)   (11.4)
                        -----   -----    -----        -----    -----
                        (0.8)    1.4      1.5        (160.1)   (6.4)

Equity in Net Earnings
Of Affiliate             0.3     0.3      0.1          (5.6)   539.6
                        -----   -----    -----        -----   -----

Net income (loss)       (0.5)%   1.7%     1.5%       (128.7)%  12.5%
                        =====   =====    =====        =====   =====



Page 9 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations 1999 Compared to 1998
--------------------------------------------

Net Sales
----------

     Net sales for 1999 increased to $42.8 million from $42.2 million in 1998 or
1.6%. Total pounds shipped increased by 2.1%.  Full-yarn sales dollars increased
by 2.0% and full-yarn  pounds  increased by 5.0% Sales of commission  yarns (the
dyeing and  processing  of customer  owned yarns)  decreased in both dollars and
pounds  by 7.1%  and  1.1%  respectively.  The  increase  in  sales  was  mainly
attributable to the  introduction of new products in 1998. In the fourth quarter
of 1998, the Company experienced a weakening market and pricing pressures. These
conditions forced reductions in prices to retain customers. After lowering sales
prices in the fourth  quarter of 1998,  the Company  experienced  a volatile raw
yarn market.  In the first half of 1999,  raw yarn prices  declined  forcing the
Company again to lower sales prices to its customers. Then in the second half of
1999,  raw yarn prices  increased and the Company began to increase sales prices
to its customers.


Cost of Sales and Gross Margin
-------------------------------

      Cost of sales for 1999  increased to $38.8  million or 2.5% as compared to
37.8 million in 1998.

     Material  cost  decreased  $549,000 or 2.2%  primarily as a result of lower
yarn cost in the first half of 1999.

     Direct labor  increased by 13.3% and overhead cost increased by 11.0%.  The
increase in labor and overhead cost was primarily the result of the installation
and  start-up of the new ERP  software,  and  installation  and  start-up of new
dyehouse equipment which replaced a portion of older equipment.

      In the first half of 1999 the Company experienced a lag from the time yarn
prices  declined to the time the Company  lowered  sales prices to the customer.
This lag increased the Company's profit margin on materials.  Conversely, in the
second  half of the year,  especially  the  fourth  quarter,  when  yarn  prices
increased, there was a lag in increasing the sales prices to the customers which
decreased the Company's profit margin on materials.

     Inasmuch  as net sales  increased  by 1.6% and cost of sales  increased  by
2.5%, the 1999 gross margin decreased to 9.5%, as compared to 10.3% in 1998.


Selling, General and Administrative Expenses
---------------------------------------------

       Selling,  general and  administrative  expenses for 1999  aggregated $4.1
million as compared to $2.8 million in 1998. The primary reason for the increase
was  $1,186,000  of cost  related to the  implementation  of the  Company's  ERP
software.

Page 10 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations: 1999 Compared to 1998 (continued)
--------------------------------------------------------

Factor's Charges
-----------------

      Factor's charges decreased slightly as the percentage of factored accounts
declined. There was no change in the factor's agreement during 1999.


Interest Income
----------------

     Interest  income  decreased to $76,000 from $164,000 in 1998.  The decrease
was primarily due to lower average  investment of cash during the year. The 1999
and 1998  interest  income was  primarily  interest  earned on  short-term  cash
equivalents invested with the Company's bank.


Interest Expense
-----------------

     Interest  expense  decreased  slightly due to lower average  long-term debt
during the year.


Gain on Disposal of Equipment
---------------------------

        During  the  thirty-nine  week  period  the  Company  sold its  friction
texturing equipment,  which had a gross value of $1,342,000 and a net book value
of $230,000 for $446,000 (also see Note 16 Commitments),  resulting in a gain on
disposal of $216,000.

       Also, the Company replaced dyeing equipment with a gross value of $86,000
and a net book value of $26,000, resulting in a loss on disposal of $26,000.

       These  were the major  transactions  that  netted a gain on  disposal  of
equipment.


Equity in Net Earnings of Affiliate
-----------------------------------

     The Company's  Mexican joint venture,  Fytek,  contributed  earnings to the
Company of $135,000 in 1999 compared to $143,000 in 1998. The joint venture only
began operations in November of 1997.

      Fytek  had  sales in 1999 of $7.6  million  with  income  before  taxes of
$709,000,  and after tax income of  $270,000.  The balance at the end of 1999 in
Fytek's stockholders equity was $934,000.
(See Note 10.)


Page 11 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations: 1999 Compared to 1998(continued)
--------------------------------------------------------

Provision for Income Taxes
---------------------------

      Provision  for income  taxes for 1999 was a credit of $97,705  compared to
tax provision of $383,000 in 1998.  The credit in the provision for income taxes
was primarily due to a loss in 1999.  The provision for income taxes includes an
amount which  represents the tax rate difference of approximately 5% between the
United States and Mexico as applied to the Company's share of undistributed  net
earnings of affiliate.









Page 12 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations 1998 Compared to 1997
--------------------------------------------

Net Sales
----------

     Net sales for 1998  increased to $42.2  million from $41.2 million in 1997.
The net sales dollars  increased by 2.5%, and total pounds shipped  increased by
3.4%.  Full yarn sales  dollars  increased  2.0%,  and full yarn pounds  shipped
increased  by 2.8%.  Sales of  commission  yarns (the dyeing and  processing  of
customer  owned  yarns)  increased in both dollars and pounds by 19.2% and 23.0%
respectively.  The increase in sales was mainly attributable to the introduction
of new  products.  In the fourth  quarter of 1998,  the  company  experienced  a
weakening market and pricing  pressures.  These conditions  forced reductions in
prices to retain customers and resulted in lower gross profits.


Cost of Sales and Gross Margin
------------------------------

     Cost of sales for 1998 increased to $37.8 million,  or 2.9%, as compared to
$36.8 million in 1997.

     Material cost increased $1,162,000 or 4.9%.

     Direct labor increased by 5.7%,  primarily as a result of increased  pounds
produced and an annual wage increase.

     Manufacturing  overhead  declined  by  2.2%  mainly  as a  result  of  cost
controls.

     Inasmuch  as net  sales  for  1998  increased  by 2.5%  and  cost of  sales
increased by 2.9%, the 1998 gross margin decreased to 10.3% as compared to 10.7%
in 1997.


Selling, General and Administrative Expenses
--------------------------------------------

     Selling,  general and  administrative  expenses  for 1998  aggregated  $2.8
million as compared to $2.7 million in 1997.  Expenses increased  primarily as a
result of adding a sales person for the new sewing thread products, professional
service paid for software evaluation,  an increase in depreciation expenses, and
an increase in travel expenses.


Factor's Charges
----------------

      Factor's  charges for 1998  aggregated  $186,000 or 0.4% of net sales,  as
compared to  $183,000  or 0.4% of net sales in 1997.  There was no change in the
factor's agreement during 1998.

Page 13 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations 1998 Compared to 1997(continued)
----------------------------------------------

Operating Margins
-----------------

      As a result of the discussion  above with respect to the decrease in gross
profit  percentage  and an  increase  in  selling,  general  and  administrative
expenses,  the operating  earnings were $1.3 million in 1998 as compared to $1.6
million in 1997.


Interest Income
---------------

      Interest income for 1998 was $164,000 as compared to $152,000 in 1997. The
increase in interest  income was the result of a higher  average  investment  of
cash during the year. The 1998 and 1997 interest  income was primarily  interest
earned on short-term cash equivalents invested with the company's bank.


Interest Expense
----------------

      Interest  expense  for 1998 was  $463,000 as compared to $503,000 in 1997.
The Company's  average  long-term  debt was lower during the year as a result of
principal payments that began in February.


Loss on Disposal of Assets
--------------------------

      In 1998 the loss on  disposal  of  assets  was only  $137 as  compared  to
$177,000 in 1997. In 1997 the Company  wrote off $154,000 of software  which was
abandoned,  and $15,000 for the original undepreciated  installation cost of the
twisting machines sent to Fytek, S.A. de c.v., its joint venture company.


Income  Before  Provision for Income Taxes and  Equity  in  Net
Earnings of Affiliate
-------------------------------------------------------------------
--------

     Income  before  provision  for income  taxes and equity in net  earnings of
affiliate  decreased to $944,000  from  $1,032,000  in 1997.  The decrease was a
result of reduced operating earnings as discussed above.




Page 14 of 41
<PAGE>

                                BURKE MILLS, INC.
                              PART II


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations 1998 Compared to 1997(continued)
----------------------------------------------

Provision for Income Taxes
--------------------------

      Provision  for income taxes for 1998 was $383,000  compared to $433,000 in
1997.  The decrease in the provision for income taxes was primarily due to lower
taxable  income in 1998. The provision for income taxes includes an amount which
represents the tax rate difference of approximately 5% between the United States
and Mexico as applied to the Company's  share of  undistributed  net earnings of
affiliate.


Equity in Net Earnings of Affiliate
-----------------------------------

      The Company's Mexican joint venture,  Fytek,  contributed  earnings to the
Company of $143,000 in 1998 compared to $27,000 in 1997.  The joint venture only
began operations in November of 1997.

     Fytek had sales in 1998 of $7.1 million with income before
taxes  of  $800,000,  and after tax income  of  $286,000.   The
balance  at the end of 1998 in Fytek's stockholders equity  was
$643,000.  (See Note 10)


Other Discussion
----------------

      During the fourth  quarter the  Company  experienced  a weakening  market,
pricing  pressures and smaller  quantities per order.  The Company was forced to
reduce prices,  resulting in lower gross margins. The Company primarily produces
on a make to order basis,  due to the special colors  specific to each customer.
As pounds per order  declined in the fourth  quarter,  there was a strain on the
capacity of the older, smaller dye machines while the newer, larger dye machines
were under utilized.  This order mix increased the Company's  manufacturing cost
per pound.

      The Company has instituted plans to offset,  at least in part, the loss of
margins from lower prices and smaller order mix. Through  negotiations  with raw
material  vendors,  raw material  prices are being  lowered.  Also, the overhead
structure  has been  reviewed  and is being  adjusted.  The  savings  from these
actions will begin to take place in the first quarter of 1999.

     The Company  believes  the weak market  conditions  will  continue at least
through the first quarter.




Page 15 of 41
<PAGE>

                         BURKE MILLS, INC.
                              PART II


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------------------------
Results of Operations 1999 - 1996 Sales Analysis
-------------------------------------------------

      The table below sets forth an analysis of sales volume for the period 1996
to 1999,  inclusive.  It discloses that full yarn sales prices  decreased from a
high of $3.29 per pound in 1996 to $3.13 in 1999.  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
vertical  dyeing  and  winding  yarn on cones to  horizontal  dyeing  and direct
shipping which began in 1996, and lowering of sales prices in the fourth quarter
of 1998 as discussed earlier. The Company expects in the future a larger portion
of its sales will be from direct shipping of yarn.

                                                      % of
Sales $
                                      % of           Pounds of
Per
                                    Net Sales        Yarn Sold
Pound
                                    ---------        ---------
-----

1999:
     Yarn sales                        95%              92%
$3.13
     Commission sales                   5                8
1.94
                                       ---              ---
            Total                      100              100
                                       ===              ===

1998:
     Yarn sales                        95%              91%
$3.22
     Commission sales                   5                9
1.82
                                      ---              ---
            Total                     100              100
                                      ===              ===

1997:
     Yarn sales                       96%               93%
$3.24
     Commission sales                   4                7
1.87
                                      ---              ---
            Total                     100              100
                                      ===              ===

1996:
     Yarn sales                        94%              89%
$3.29
     Commission sales                   6               11
1.74
                                       ---              ---
            Total                      100              100
                                       ===              ===




Page 16 of  41
<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
-------------------------------

     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.  As of January 1, 2000,  the
Company had  $2,271,000  due from its  factor,  of which  $2,103,000  matured on
January  24,  2000.  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  $2,000,000  for the  acquisition  of  production
machinery.  The amounts  borrowed  under the credit line would be converted to a
notes  payable in  eighty-four  (84) equal  monthly  installments  plus  accrued
interest.  The Company has borrowed the  $2,000,000  and will convert to a notes
payable February 29, 2000.

      The Company  had  inventories  of  $5,062,000  as of January 1, 2000.  The
Company's  average  inventories  aggregated  approximately  $4,391,000 for 1999,
representing  approximately 64 days inventory on hand. The Company's inventories
turn approximately 5 to 7 times each year.

      The Company's  working capital  decreased by  approximately  $1,858,000 at
January  1,  2000,  from  that of  January  2,  1999,  primarily  as a result of
expenditures  for equipment.  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:

                                      1999         1998
1997
                                      ----         ----           -
---
     Working Capital               $5,964,000   $7,830,000
$8,407,000
     Working Capital Ratio          2.36 to 1    3.31 to 1      3.5
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
January 1, 2000 and January 2, 1999:

                                    January 1         January 2
                                      2000              1999
                                      ----               ----
     Cash, cash equivalents
           and receivables          $4,388,000        $6,845,000
     Current liabilities             4,381,000         3,383,000
                                     ---------         ---------

     Excess of quick assets
         over current liabilities   $    7,000        $3,462,000
                                    ==========        ==========


Page 17 of  41
<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  aggregate  long-term  debt at January 1, 2000 and  January 2, 1999 was
$6,562,500 and $5,312,500  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 and 2,000,000 in
1999,  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  $2,000,000
obligation  principal  maturities  will begin  February 24, 2000 and are payable
monthly for eighty-four (84) consecutive months.

     The Company's  long-term debt to equity ratios  aggregated 39.8% at January
1, 2000, 32.3% at January 2, 1999, and 39.5% at January 3, 1998.

     Capital budget  expenditures  approved for 2000 aggregate  $1,200,000.  The
Company plans to finance its capital  needs from cash  provided from  operations
and bank financing.

Year 2000 Compliance
---------------------

      After the  first  two  months of the year  2000,  the  Company  has had no
information  systems,  non-information  systems, or supplier problems related to
the year 2000.

      On May 29, 1999,  the Company  began using a new fully  integrated  system
that replaced its  manufacturing and accounting  software.  The new software was
installed  to  improve  the  Company's  information  efficiencies  and bring the
Company into compliance for all critical applications affected by the year 2000.
During 1999,  the Company  experienced  an effect on earnings of $1,186,000  for
data conversion and training.

      The cost to bring the existing  software into  compliance for year 2000 is
not known as the company planned to replace the software.


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 remediable issues, and is
moving toward a solution of

Page 18 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II

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

Environmental Matters (continued)
---------------------------------

natural  attenuation.  The Company believes it has made an adequate provision to
earnings in 1997 to cover any future cost. No  additional  provision was made in
1998 or 1999.  This  situation  will  have no  material  impact  on the  capital
expenditures, earnings or competitive position of the Company.


Inflation
----------

      The Company does not believe  that  operations  for the periods  discussed
have been significantly affected by inflation.


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",
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

Page 19 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II

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

Forward Looking Statements (continued)
--------------------------------------

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 entered into any instruments  resulting in market risk
to the Company for trading purposes or for purposes other than trading purposes.



Page 20 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II



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

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

                          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
January 1, 2000 and January 2, 1999,  and the related  statements of operations,
changes in shareholders'  equity,  and cash flows for each of the three years in
the  period  ended  January  1,  2000.   These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Burke Mills, Inc. as of January
1, 2000 and  January 2, 1999,  and the  results of its  operations  and its cash
flows for each of the three  years in the  period  ended  January  1,  2000,  in
conformity with generally accepted accounting principles.


Cole, Samsel & Bernstein LLC
Certified Public Accountants

Lodi, New Jersey
January 28, 2000

Page 21 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                                 BALANCE SHEETS

                                                January 1
January 2
                                                  2000
1999
                                                  ----            -
---
                                     ASSETS
Current Assets
  Cash and cash equivalents                    $   592,513      $
3,384,439
  Accounts receivable                            3,795,519
3,460,307
  Inventories                                    5,062,294
3,705,849
  Prepaid expenses, taxes,
                   and other current assets        537,980
313,872
  Deferred income taxes                            356,722
349,000
                                                   -------
-------
            Total Current Assets                10,345,028
11,213,467
                                                ==========
==========

Equity Investment in Affiliate                     455,728
320,728
                                                   -------
-------

Property, plant & equipment - at cost           31,154,954
28,478,700
  Less: accumulated depreciation                16,078,440
15,869,275
                                                ----------       --
--------
       Property, Plant and Equipment- Net       15,076,514
12,609,425
                                                ----------       --
--------
Other Assets
 Deferred charges                                  118,102
167,077
                                                   -------
-------
                                               $25,995,372
$24,310,697
                                               ===========
===========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Current maturities of long-term debt         $ 1,011,905      $
750,000
  Accounts payable                               2,929,217
2,303,876
  Accrued salaries and wages                       200,911
160,862
  Other liabilities and accrued expenses           239,437
137,096
  Income taxes payable                                   -
31,600
  --------------------                              ------
------
            Total Current Liabilities            4,381,470
3,383,434

Long-Term Debt                                   5,550,595
4,562,500

Deferred Income Taxes                            2,121,800
2,220,836
                                                 ---------        -
--------
     Total Liabilities                          12,053,865
10,166,770
----------       ----------

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                              9,020,987
9,223,407
                                                 ---------        -
--------
         Total Shareholders' Equity             13,941,507
14,143,927
                                                ----------       --
--------
                                               $25,995,372
$24,310,697
                                               ===========
===========

See notes to financial statements.
Page 22 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                            STATEMENTS OF OPERATIONS

                                            Years Ended
                                   --------------------------------
----------
                                   January 1,      January 2
January 3
                                     2000            1999
1998
                                     ----          ----
----
Net Sales                       $42,839,759     $42,169,106
                         $41,155,629
                         -----------     -----------       --------
                         ---

Costs and Expenses
  Cost of Sales                 $38,778,823       $37,825,038
$36,764,917
  Selling, general and
    administrative expenses       4,062,367         2,813,137
2,651,031
  Factor's charges                  155,334           186,234
183,072
                                 -------           -------       --
-----
  Total Costs and Expenses       42,996,524        40,824,409
39,599,020
                                  ----------       ----------
----------

Operating Earnings (Loss)          (156,765)        1,344,697
1,556,609
                                  ---------         ---------
---------

Other Income
  Interest income                    75,998           163,506
151,996
  Gain on disposal of
    property assets                 190,397               -
-
  Other, net                         11,815             3,209
4,068
                                    -------           -------
-------
           Total Other Income       278,210           166,715
156,064
                                    -------           -------
-------

Other Expenses
  Interest expense                  430,443           463,099
503,306
  Loss on disposal of
    property assets                      -                137
177,234
  Other, net                        126,127           103,702
-
                                    -------           -------
-------

Total Other Expenses                556,570           566,938
680,540
                                    -------           -------
-------

Income (Loss) Before Provision (credit) for
  Income Taxes and Equity in
  Net Earnings of Affiliate        (435,125)           944,474
1,032,133

Provision (Credit) for Income Taxes (97,705)           383,125
432,529
                                     -------           -------
-------

Income (Loss) Before Equity in
  Net Earnings of Affiliate        (337,420)           561,349
599,604

Equity in Net Earnings of
    Affiliate                       135,000            143,000
26,500
                                    -------            -------
-------

Net Income (Loss)                $ (202,420)       $   704,349
$  626,104
                                 ===========       ===========
===========

Net Earnings (Loss) per share    $     (.07)       $      .26
$      .23
                                 ===========       ===========
===========

Weighted Average Common
  Shares Outstanding              2,741,168         2,741,168
2,741,168
                                  =========         =========
=========
See notes to financial statements.
Page 23 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
           STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
             FOR THE THREE YEARS ENDED JANARY 1, 2000

                                  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 Dec. 28, 1996    2,741,168 $1,809,171 $3,111,349
$7,892,954    $12,813,474

Net Income for the year
  ended Jan.3, 1998          -           -         -
626,104       626,104
                            -------    -------    -------       ---
----       -------

Balance at Jan. 3, 1998    2,741,168  $1,809,171 $3,111,349
$8,519,058     13,439,578

Net Income for the year
  ended Jan. 2, 1999         -           -         -
704,349        704,349
                            -------    -------    -------       ---
----        -------

Balance at Jan. 2, 1999   2,741,168  $1,809,171 $3,111,349
$9,223,407     14,143,927


Net Income (loss) for the
  year ended Jan. 1, 2000       -        -       -             ($
202,420)  ($   202,420)
                     -------    -------    -------       ---------
----------

Balance at Jan. 1, 2000  2,741,168  $1,809,171 $3,111,349
$9,020,987    $13,941,507
                    =========  ========== ==========    ==========
                    ==========




See notes to financial statements.

Page 24 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                            STATEMENTS OF CASH FLOWS

                                                        Years Ended
                                            -----------------------
------------
                                            January 1    January 2
January 3
                                              2000          1999
1998
                                              ----          ----
----
Cash flows from operating activities:
  Net income (loss)                        $ (202,420)  $  704,349
$  626,104
                                            ----------   ----------
----------
  Adjustments  to  reconcile  net  income  to net  cash  provided  by  operating
     activities:
  Depreciation                               1,838,995    1,743,524
1,599,662
  (Gain) loss on sales of plant and
     equipment, including loss on disposals   (190,397)         137
177,234
  Deferred income taxes                       (106,758)     315,236
428,110
  Equity  in  net  earnings  of  affiliate   (135,000)
(143,000)       --

Changes  in  assets  and  liabilities:
    Accounts receivable                       (335,212)     310,994
(573,090)
    Inventories                             (1,356,445)
(699,551)    444,507
    Prepaid expenses, taxes & other
      current assets                          (224,108)
(275,040)    184,536
    Other non-current assets                    48,975       26,239
(193,316)
    Accounts payable                           625,341      222,639
645,183
    Accrued salaries & wages                    40,049
(30,266)     61,176
    Other liabilities and accrued expenses     102,341
(280,725)    246,181
    Income taxes payable                      (31,600)      31,600
--
                                   ---------    ---------   -------
                              --
        Total adjustments                      276,181    1,221,787
3,020,183
                                             ---------    ---------
---------

Net cash provided by operating activities       73,761    1,926,136
3,646,287
                                             ---------    ---------
---------

Cash flows from investing activities:
  Acquisition of property, plant
      and equipment                         (4,640,380)
(2,161,837) (1,343,090)
  Proceeds from sales of plant
      and equipment                            524,693        1,100
17,650
  Investment in affiliate                                      --
(171,735)
                                             ----------  ----------
----------

Net cash (used) by investing activities     (4,115,687) (2,160,737)
(1,497,175)
                                             ----------  ----------
----------

Cash flows from financing activities:
  Proceeds from long-term bank note          2,000,000         --
--
  Principal payments of long-term debt        (750,000)   (687,500)
--
                                             ----------  ----------
----------
Net cash provided (used) by financing
  activities                            1,250,000    (687,500)
-
                                             ----------   ---------
-  ----------

Net increase (decrease) in cash and
  cash equivalents                          (2,791,926)
(922,101)  2,149,112
Cash & cash equivalents at beginning
  of year                                    3,384,439    4,306,540
2,157,428
                                             ----------   ---------
-  ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR    $  592,513   $3,384,439
$4,306,540
                                             ==========
==========  ==========

See notes to financial statements.
Page 25 of 41
<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 1999,  1998 and 1997
ended on January 1, 2000, January 2, 1999 and January 3, 1997, respectively. The
fiscal  years ended  January 1, 2000 and January 2, 1999  consisted of 52 weeks.
The fiscal year ended January 3, 1998 consisted of 53 weeks.

     Revenue  recognition  -  Revenues  from  sales are  recognized  at the time
shipments are made to the customer.

     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.

Page 26 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
--------------------------------------------

     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.

     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.  The Company did have
sales to  customers in Mexico,  during the three  fiscal years ended  January 1,
2000,  which amounted to 0.2% in 1999,  1.0% in 1998 and 1.7% in 1997.  Sales to
customers  in  Canada in 1999,  1998 and 1997  aggregated  4.3%,  6.4% and 3.9%,
respectively.  Additionally,  the Company had sales to Brazil in 1999, 1998, and
1997 which  amount to 0.3%,  0.3%,  and 0.2%  respectively.  Other than sales to
Mexico, Canada and Brazil, as discussed above, the Company had no other sales in
foreign  markets  during the three year period  ended  January 1, 2000.  For the
three year period  ended  January 1, 2000,  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, only one customer has exceeded
10% of the Company's sales during each of the three years ended January 1, 2000.
One  other  customer  has  exceeded  10%  in  1999.  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 two customers:

                                                                            % of
           1999                      Amount                Net
Sales
           ----                      ------                --------
-
        Customer 1                $8,012,000                 18.7
        Customer 2                 5,089,000            11.9

                                                                            % of
           1998                     Amount                 Net
Sales
           ----                     ------                 --------
-
        Customer 1                     *                     ----
        Customer 2                $5,793,000            13.7

                                                                            % of
          1997                     Amount                Net Sales
           ----                     ------                ---------
        Customer 1                    *                 ----
        Customer 2                $5,737,000                 14.0

*Less than 10%



Page 27 of 41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


NOTE 3 - ACCOUNTS RECEIVABLE
--------------------------------

Accounts receivable comprise the following:

                                      January 1           January 2
                                        2000                1999
                                        ----                ----
     Due from factor on
          regular factoring
          account                     $2,271,000         $2,864,000
     Non-factored accounts
          receivable                   1,525,000            596,000
                                      ----------          ---------
               Total                  $3,796,000         $3,460,000
                                      ==========         ==========

     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 1999 and 1998,
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.




Page 28 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS

NOTE 4 - INVENTORIES
-----------------------

  Inventories are summarized as follows:

                               January 1,         January 2,
                                       2000               1999
                                       ----               ----
     Finished & in process          $3,235,000        $2,409,000
     Raw materials                   1,345,000           728,000
     Dyes & chemicals                  343,000           413,000
     Other                             139,000           156,000
                                       -------           -------
     Total                          $5,062,000         $3,706,000
                                    ==========         ==========


NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
------------------------------------------

Major classifications of property, plant and equipment are as follows:

                                    January 1, 2000
January 2, 1999
                                    ---------------            ----
-----------
                                           Accumulated
Accumulated
                                  Cost     Depreciation      Cost
Depreciation
                                  ----     ------------      ----
------------

Land                           $  86,565    $      -     $   86,565
$   -
Land improvements                182,913       88,335       175,697
82,017
  Building & improvements      6,427,129    4,384,047     6,376,050
4,222,677
  Plant machinery & equipment 22,854,112   10,721,424    20,502,754
10,813,831
  Office equipment             1,381,155      755,061     1,111,861
656,727
  Automotive equipment           223,080      129,573       225,773
94,023
                                 -------       ------       -------
------ Total                        $31,154,954   $16,078,440
$28,478,700  $15,869,275
                              ===========  ===========  ===========
==========


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 and a $1,750,000 Letter of Credit facility.  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. At January 1, 2000, the Company has borrowed $2,000,000 under this
line of credit.

      The Company plans to draw the remainder of the $3,000,000 in January, 2000
to finance equipment purchases.

      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.
As of January 1, 2000 the Company had no borrowings from its factor.

Page 29 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS



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.

     The annual  principal  maturities of this long-term debt at January 1, 2000
are as follows:


                  Current portion                        $  750,000
                  2001                  750,000
                  2002                  750,000
                  2003                  750,000
                  2004                  750,000
                  Thereafter            812,500           3,812,500
                                       ---------          ---------
                                                         $4,562,500

     Under the loan agreement, the Equipment Line of Credit will be converted to
a long-term  note payable in 84  installments.  The Company plans to convert the
Line of Credit and begin installments on February 29, 2000.

      The annual principal  maturities of this long-term debt at January 1, 2000
based on the current amount owned are as follows:

                         Current Portion                 $  261,905
                         2001            $  285,714
                         2002               285,714
                     2003               285,714
                         2004               285,714
                         Thereafter         595,239       1,738,095
                                            -------       ---------
                                                         $2,000,000

Page 30 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES
----------------------------------------------

Other liabilities and accrued expenses consist of the following:

                                       January 1          January 2
                                         2000               1999
                                         ----               ----
Employee insurance                    $119,688           $   --
Payroll taxes payable                  106,109             7,448
Utilities payable                          --             31,779
Accrued interest                           --             15,644
Accrued environmental cost                 --             43,808
Other                                   13,640            38,417
                                        ------            ------
       Total                          $239,437          $137,096
                                      ========          ========


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.

The items that comprise deferred tax assets and liabilities are as follows:
                                               Jan. 1        Jan. 2
                                                2000          1999
                                                ----          ----
Deferred tax assets:
  Alternative minimum taxes paid            $  349,000     $
349,000
Inventory capitalization                         6,020
-
Charitable contributions carryover               1,702
-
                                              ---------     -------
--
                                            $  356,722     $
349,000
                                            ==========
==========
Deferred tax liabilities:
  Accelerated depreciation for
     tax purposes                           $2,100,700
$2,202,300
  Undistributed earnings of foreign
     Affiliate, net of tax credit               21,100
12,700
  Other                                              -
5,836
                                             ---------       ------
---
                                            $2,121,800     $
2,220,836
                                            ==========
===========
Provision for taxes consist of:
                                          Jan. 1        Jan. 2
Jan. 3
                                           2000          1999
1998
                                           ----          ----
----
Current:
     Federal                             $       -       $ 49,445
$  4,419
     State                                       -         18,444
-
     Deferred                              (97,705)       315,236
428,110
                                           -------        -------
-------
     Total                              ($  97,705)     $ 383,125
$ 432,529
                                          =========      =========
=========
Page 31 of  41
<PAGE>

                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES (continued)
---------------------------------

     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
                                    January 1      January 2
January 3
                                      2000           1999
1998
                                      ----           ----
----
Income (loss) before income taxes
   (credit)                         ($435,125)     $1,184,974
$1,058,633
Federal income taxes                       34%             34%
34%
                                     --------      ----------     -
--------

Computed taxes (credit) at maximum
   statutory tax rate                (147,943)         402,891
359,936
State income taxes (credit), net of
   Federal income tax benefits        (15,260)          56,098
56,051
Total adjustment for foreign
   affiliate earnings                  66,130          (81,770)
-
Prior year tax examination and
   other                                 (632)           5,906
16,542
                                      -------        ---------    -
-------
     Provision for income taxes      ($97,705)      $  383,125
$432,529
                                     ========       ==========
==========

      The net operating loss  carryforward  is $477,000,  expiring 2019. The tax
effect at the  maximum tax rate would be  $162,000.  Inasmuch as 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,
the Company has  provided a valuation  allowance  for the tax effect of this net
operating loss carryforward.

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.  The Company had no sales to
Fytek in 1999  compared to $165,000 in 1998.  Purchases  from Fytek in 1999 were
$1,441,000  compared to  $1,337,000  in 1998.  At January 1, 2000 Fytek owed the
Company $80,000 for leased  equipment which will be paid in March 2000.  Fytek's
financial information is as follows:

                               Statement of Income
                         (In thousands of U.S. Dollars)
                                    1999 1998
                                         ----        ----
Net Sales                                              $7,623
$7,134
Gross Profit                                            1,262
961
Income from continuing operations                         709
800
Income before income taxes                                709
800
Income taxes                                              439
514
                                                         ----
----
Net income                                             $  270
$  286
                                                        ======
======
Page 32 of  41
<PAGE>

                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


NOTE 10 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
(continued)
-------------------------------------------------------------------

Fytek's financial information (continued):

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

                                                       1999
1998
                                                       ----
----

Current assets                                        $4,176
$3,085
Non-current                                              144
57
                                                        ----
----
Total assets                                          $4,320
$3,142
                                                      ======
======


Current liabilities                                   $3,386
$2,499
Non-current liabilities                                  -0-
-0-
                                                        ----
----
Total liabilities                                     $3,386
$2,499

Stockholder's equity                                     934
643
                                                        ----
----
Total liabilities and stockholder's equity            $4,320
$3,142
                                                      ======
======

      For 1998,  the operating and balance sheet accounts have been changed from
data originally set forth in the audited  financial  statements of the affiliate
which were utilized and set forth in the Company's  Form 10-K for the year ended
January 2, 1999. The financial statements of the affiliate were presented to the
Company using accounting  standards  generally accepted in Mexico. The financial
statements  as  summarized  above and which are filed as an  Exhibit to the Form
10-K for the current  fiscal year ended January 1, 2000,  have been prepared and
submitted to the Company pursuant to standards applicable and generally accepted
in the United States.

     In 1999, the Company  purchased  $51,000 of yarns from Nafees Cotton Mills,
Ltd. The Company paid for the yarn  purchased by wire transfer 30 days after the
Bill of Lading date.  Future  purchases  could  reasonably be anticipated if the
Company receives orders for its Nafees yarns.

     Humayun N. Shaikh,  Chairman and CEO of the  Company,  is also  director of
Nafees Cotton Mills,  Ltd.  Aehsun  Shaikh,  Director of the Company,  is also a
Director of Nafees Cotton Mills,  Ltd.,  since 1993 and of  Legler-Nafees  Denim
Mills, Ltd., since 1999.


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 $446,000 in 1999,  $470,000 in 1998 and $494,000 in 1997. Cash paid
for income taxes aggregated  $65,055 in 1999 and $33,500 in 1998. Taxes refunded
in 1997 aggregated $125,000.

Page 33 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS
----------------------------------------------------

     Rental  expenses  under all lease  commitments  for the three  fiscal years
ended January 1, 2000,  aggregated $48,000,  $37,000 and $46,000,  respectively.
Minimum  lease  commitments  under  terms of all  non-cancelable  leases,  which
consist only of leased equipment, are as follows as of January 1, 2000:
                    2000                  $17,000
                    2001                   17,000
                    2002                    5,000
                                           ------
                                          $39,000
                                          =======


NOTE 13 - QUARTERLY  FINANCIAL  DATA  (UNAUDITED)
------------------------------------------------------

                   (in thousands of dollars except for per share
               amounts)
                                                    QUARTER
                                       ----------------------------
-----------
  1999                                 First      Second     Third
Fourth
  ----                                 -----      ------     -----
------
  Net sales                          $ 9,996     $10,796    $11,625
$10,423
  Cost of sales                        8,719       9,782     10,106
10,172
  Gross profit                         1,277       1,014      1,519
251
  Net income (loss)                      106          60         28
(396)
  Net income (loss)
      per common share               $   .04     $   .02    $   .01
$  (.14)

  1998
  ----
 Net sales                           $10,649     $10,023    $11,509
$ 9,988
 Cost of sales                         9,388       9,055      9,976
9,406
 Gross profit                          1,261         968      1,533
582
 Net income (loss)                       307         208        394
(120)
 Net income (loss)
     per common share                $   .11      $  .08    $   .14
$  (.04)

 1997
 ----
 Net sales                           $10,060     $10,442    $ 9,874
$10,780
 Cost of sales                         9,061       9,393      8,797
9,514
 Gross profit                            999       1,049      1,077
1,266
 Net income                              143         181        230
72
 Net income
     per common share                $   .05     $   .07    $   .08
$   .03



Page 34 of  41
<PAGE>

                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


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 1999, 1998
or 1997.


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
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  January 1,
2000, the Company had $2,271,000 due from its factor of which $2,103,000 matured
on January 24, 2000. Upon maturity,  the funds are automatically  transferred by
the factor to the Company's bank.


NOTE 16 - OTHER COMMITMENTS
------------------------------

     a) The Company  entered into a supply  agreement,  dated November 23, 1996,
with its joint venture company,  Fytek,  S.A. de C.V. to purchase twisted yarns.
The Company agrees to purchase approximately $1,800,000 of twisted yarn annually
for the five years beginning November 1997.

     b) The Company  entered into a supply  agreement,  dated November 19, 1996,
with Fibras Quimicas, S.A. to purchase yarn. The Company agrees to purchase yarn
based on the schedule below, beginning February 1, 1997, for a five year period.

                  Year 1            Approximately $2,600,000
                  Year 2            Approximately $6,400,000
                  Year 3            Approximately $7,100,000
                  Year 4            Approximately $7,700,000
                  Year 5            Approximately $7,700,000

     c) 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.

Page 35 of  41
<PAGE>
                         BURKE MILLS, INC.
                              PART II
                   NOTES TO FINANCIAL STATEMENTS


NOTE 16 - OTHER COMMITMENTS (continued)
-------------------------------------------

     d) 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 Company  believes it has
made an adequate  provision  to earnings  in 1997 to cover any future  cost.  No
additional  provision  was made in 1998 or 1999.  This  situation  will  have no
material impact on the capital expenditures, earnings or competitive position of
the Company.

     e) On November 18, 1999,  the Company  entered into a three year  agreement
with Trio  Marketing  & Sales  Company,  LLC (Trio) to market and sell  imported
yarns. Under the agreement the Company will import yarns which would be marketed
and sold by Trio.  Trio will receive a commission  based on the net sales price.
The  commission  would be 4% during the first six months of the  contract and 3%
thereafter.  Trio would also receive 15% of the profits before taxes realized on
the sales of the yarns.



Page 36 of  41
<PAGE>
                         BURKE MILLS, INC.
                             PART III


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.


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 16,  2000,  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 37 of 41
<PAGE>
                         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
                    January 1, 2000
                    January 2, 1999

               Statements  of  operations  Year ended January 1, 2000 Year ended
               January 2, 1999 Year ended January 3, 1998

               Statements of changes in shareholders'  equity Year ended January
               1, 2000 Year ended January 2, 1999 Year ended January 3, 1998

                  Statements of cash flows Year ended January 1, 2000 Year ended
               January 2, 1999 Year ended January 3, 1998

                  Notes to financial statements

Page 38 of  41
<PAGE>


                         BURKE MILLS, INC.

      Financial  statement  schedules  have  been  omitted  since  the  required
information  is not present in amounts  sufficient to require  submission of the
schedule,  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 8 to the annual
report on Form 10-K of the  Company  for the fiscal  year ended  January 2, 1982
previously  filed with the  Commission.  The exhibit  required by Item 601(c) of
Regulation SK, Financial Data Schedule, is set forth on page 41 of this report.

   (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) Not applicable.





Page 39 of  41
<PAGE>
                         Burke Mills, Inc.
                      Financial Data Schedule

                    Pursuant to Item 601(c) of Regulation S-K

         THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED
           FROM THE FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL
REPORT
   ON FORM 10K AND IS  QUALIFIED  IN ITS  ENTIRETY BY  REFERENCE
    TO SUCH FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 1,
                               2000.


NUMBER              ITEM DESCRIPTION
AMOUNT

5-02(1)             cash & cash items
$   592,513
5-02(2)             marketable securities
0
5-02(3)(a)(1)       notes & accounts receivable-trade
3,795,519
5-02(4)             allowances for doubtful accounts
0
5-02(6)             inventory
5,062,294
5-02(9)             total current assets
10,345,028
5-02(13)            property, plant & equipment
31,154,954
5-02(14)            accumulated depreciation
16,078,440
5-02(18)            total assets
25,995,372
5-02(21)            total current liabilities
4,381,470
5-02(22)            bonds, mortgages & similar debt
5,550,595
5-02(28)            preferred stock - mandatory redemption
0
5-02(29)            preferred stock - no mandatory redemption
0
5-02(30)            common stock
1,809,171
5-02(31)            other stockholders' equity
12,132,336
5-02(32)            total liabilities & stockholders' equity
25,995,372
5-03(b)1(a)         net sales of tangible products
42,839,759
5-03(b)1            total revenues
42,839,759
5-03(b)2(a)         cost of tangible goods sold
38,778,823
5-03(b)2            total costs & expenses applicable
                       to sales and revenues
38,778,823
5-03(b)3            other costs & expenses
0
5-03(b)5            provision for doubtful accounts & notes
0
5-03(b)(8)          interest & amortization of debt discount
430,443
5-03(b)(10)         income (loss) before taxes & other items
(300,125)
5-03(b)(11)         income tax expense (credit)
(97,705)
5-03(b)(14)         income (loss) continuing operations
(202,420)
5-03(b)(15)         discontinued operations
0
5-03(b)(17)         extraordinary items
0
5-03(b)(18)         cumulative effect - changes in accounting
                       principles
0
5-03(b)(19)         net income or loss
(202,420)
5-03(b)(20)         earnings (loss) per share - primary
($.07)
5-03(b)(20)         earnings (loss) per share - fully diluted
($.07)




Page 40 of  41
<PAGE>


                                   SIGNATURES
                                   ----------


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


Date: March 30, 2000                    BURKE MILLS, INC.

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


                                        By: Thomas I. Nail       /s
                                            -----------------------
                                            Thomas I. Nail
                                            Vice President of
Finance
                                           (Principal Financial
Officer)
                                           (Principal Accounting
Officer)


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 30, 2000                    By: Humayun N. Shaikh
/s
                                            -----------------------
----
                                            Humayun N. Shaikh,
Director


Date: March 30, 2000                    By: Aehsun Shaikh
/s
                                            -----------------------
----
                                            Aehsun Shaikh, Director


Date: March 30, 2000                    By: Charles P. McCamy
/s
                                            -----------------------
----
                                            Charles P. McCamy,
Director


Date: March 30, 2000                    By: Robert P. Huntley
/s
                                            -----------------------
----
                                            Robert P. Huntley,
Director


Date: March 30, 2000                    By: William T. Dunn
/s
                                            -----------------------
----
                                            William T. Dunn,
Director

Page 41 of 41
<PAGE>