----

----

| x | ANNUAL                REPORT PURSUANT TO SECTION 13 OR 15(d) |   |
|---|--------------------------------------------------------------|--------|

| o | TRANSITION                  REPORT PURSUANT TO SECTION 13 OR 15(d) |   |
|---|--------------------------------------------------------------------|--------|

----

----

| Part                I   |                                         |                                                                                                                                                                 | Page                Number                                                                 |
|-------------------------|----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|
|                         | Item 1.                                      | Business                                                                                                                                                             | 4                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 1A.                                     | Risk                Factors                                                                                                                                          | 6                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 1B.                                     | Unresolved                Staff Comments                                                                                                                             | 6                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 2.                                      | Properties                                                                                                                                                           | 6                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 3.                                      | Legal                Proceedings                                                                                                                                     | 7                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 4.                                      | Submission                of Matters to a Vote of Security Holders                                                                                                   | 7                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
| Part                II  |                                         |                                                                                                                                                                 |                                                                                       |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 5.                                      | Market                for the Registrant’s Common Equity, Related Stockholder                Matters, and Issuer Purchases of Equity                Securities | 7                                                                                          |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 6.                                      | Selected                Financial Data                                                                                                                               | 10                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 7.                                      | Management’s                Discussion and Analysis of Financial Condition                and Results of Operations                                            | 11                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 7A.                                     | Quantitative                and Qualitative Disclosures about Market                Risk                                                                             | 21                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 8.                                      | Financial                Statements and Supplementary Data (Report                of Independent Registered Public Accounting                Firm)                   | 22                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Financial                Statements          |                                                                                                                                                                 |
|                    |                                         |                                                                                                                                                                 | Balance                Sheets                                                              |  |
|                         |                                         |                                                                                                                                                                 | December                30, 2006 and December 31, 2005                                     | 24 |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    |                                         |                                                                                                                                                                 | Statements                of Operations                                                    |   |
|                         |                                         |                                                                                                                                                                 | December                30, 2006 and December 31, 2005, and                January 1, 2005 | 25 |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    |                                         |                                                                                                                                                                 | Statements                of Changes in Shareholders’ Equity                         |   |
|                         |                                         |                                                                                                                                                                 | December                30, 2006 and December 31, 2005, and                January 1, 2005 | 26 |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                         |                                         |                                                                                                                                                                 | Statements                of Cash Flows                                                    |   |
|                         |                                         |                                                                                                                                                                 | December                30, 2006 and December 31, 2005, and                January 1, 2005 | 27 |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Notes                to Financial Statements | 28                                                                                                                                                                   |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 9.                                      | Changes                in and Disagreements with Accountants on Accounting                and Financial Disclosure                                                   | 38                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 9A.                                     | Controls                and Procedures                                                                                                                               | 38                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 9B.                                     | Other                Information                                                                                                                                     | 38                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
| Part                III |                                         |                                                                                                                                                                 |                                                                                       |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 10.                                     | Directors,                Executive Officers and Corporate Governance                                                                                                | 38                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 11.                                     | Executive                Compensation                                                                                                                                | 39                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 12.                                     | Security                Ownership of Certain Beneficial Owners and Management                and Related Stockholder Matters                                         | 39                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                            |   |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 13.                                     | Certain                Relationships and Related Transactions.                                                                                                       | 39                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 14.                                     | Principal                Accountant Fees and Services                                                                                                                | 39                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
| Part                IV  |                                         |                                                                                                                                                                 |                                                                                       |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Item 15.                                     | Exhibits                and Financial Statement Schedules                                                                                                            | 41                                                                                         |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Signatures                                   | 43                                                                                                                                                                   |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Exhibit                Table                 | 44                                                                                                                                                                   |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Exhibit                14 Code of Ethics     | 45                                                                                                                                                                   |
|                    |                                         |                                                                                                                                                                 |                                                                                       |   |
|                    | Certifications                               | 46                                                                                                                                                                   |

----

|   | (a) | General                    Development of Business - During 2006, the Company’s general development                    of business consisted of continuing to expand its product line                    to other                    fibers, development of specialty products, and reducing cost.                    Its balance                    sheet weakened as a result of its loss from                    operations.  |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b)    | Financial                  Information about Industry Segments - The Company had only one                  industry                  segment during the fiscal year ended December 30, 2006.                                                                                                                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
|   | (c)    | Narrative                  Description of Business - The Company is engaged in texturing,                  winding,                  dyeing, processing and selling of cotton, nylon, rayon, filament,                  novelty                  and spun yarns, and in the dyeing and processing of these yarns                  for others                  on a commission basis. |

----

|   | (d) | Financial                  Information about Geographic Areas. For each of the last three                  fiscal                  years of the Company, revenues of the Company from customers outside                  the                  U.S. are as follows: |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Country              of |                     |        | 2006    |    | 2005   |    | 2004    |   |
|-------------------------|--------------------------|--------|---------|---------|--------|---------|---------|--------|
|                    | Mexico                   |   |    | -0-     |   |    | 115,000 |   |   | 67,000 |   |
|                    | Canada                   |   |    | 6,000   |   |    | 15,000  |   |   | 15,000 |   |
|                    | Honduras                 |   |    | 11,000  |   |    | 155,000 |   |   | 406,000 |   |
|                    | Barbados                 |   |    | -0-     |   |    | 11,000  |   |   | -0- |   |
|                    | Turkey                   |   |    | -0-     |   |    | -0-     |   |   | 1,000 |   |
|                    | Hong                Kong |   |    | 31,000  |   |    | 47,000  |   |   | 33,000 |   |
|                    | Sri                Lanka |   |    | 101,000 |   |    | -0-     |   |   | -0- |   |
| Total                   |                     | $      | 149,000 |    | $      | 343,000 |    | $      | 522,000 |   |
|                    |                     |   |    |    |   |    |    |   |   |   |   |

----

|   | (e)    | Available                  Information. No report required.                                                        |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                               |
|   | (f)    | Reports                  to Securities Holders. No report required.                                                |
|   |   |                                                                                                               |
|   | (g)    | Enforceability                  of Civil Liabilities Against Foreign Persons. No report                  required. |

|   | (a)    | The                    textile market in the United States has been in substantial decline                    for at                    least the past ten years due to fibers, fabrics and apparel being                    imported                    from foreign countries where manufacturers can produce the product                    at much                    lower cost than in the United States, primarily because of much                    lower                    labor costs. The problem has been exacerbated by free trade agreements                    and                    particularly the reluctance of the Federal Government to impose                    duties                    upon foreign products where the foreign government in effect                    subsidizes                    production of products. The Company, whose customers are in the                    textile                    business, as a yarn processor is faced with a shrinking customer                    base, as                    well as the price pressures due to imports faced by the Company’s                    customers. The Company’s customer base has been declining as some of its                    customers close, go into bankruptcy or are bought out by other                    entities. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | (b)    | The                    Company is a relatively small player in a large market. Many                    of the                    Company’s competitors are divisions or segments of larger or diversified                    entities with far greater financial resources than those of the                    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | (c)    | The                      last fiscal year in which the Company made a profit was the                      fiscal year                      ended December 29, 2001. For each fiscal year since that year,                      the Company                      had a net loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | (d)    | Sales                    of the Company for the fiscal year ended December 29, 2001 were                    $37,194,000. Sales have declined since that year, dropping to                    $23,884,000                    for the fiscal year ended December 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | (e)    | The                    market for the common stock of the Company is not favorable.                    During 2006,                    the stock of the Company had a high bid of $1.31 per share and                    steadily                    declined through the year to close the year at a bid of $0.81                    per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

----

|   | Department                   |   | Pounds/Year                2006Capacity         |   | Utilization  |   |
|--------|-----------------------------------|--------|-------------------------------------------------|--------|-------------------|--------|
|   | Winding                Machines   |   | 21,961,000                                      |   | 21%               |   |
|   | Texturing                Machines |   |                     816,000 |   | 29%               |   |
|   | Dyeing                Equipment   |   | 22,376,000                                      |   | 42%               |   |
|   |                              |   |                                            |   |              |   |

|   | (a) | The                principal United States (or other) market in which the Company's                common                stock is being traded is the over-the-counter market. The stock is                quoted                in the Nasdaq Over-The-Counter Bulletin Board quotations system under the                symbol BMLS.OB. The range of high and low bid quotations for the                Company's                common stock for each quarterly period during the past two years                ended                December 30, 2006, and on the latest practicable date (as obtained                from                Commodity Systems, Inc.) is as                follows: |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Quarter                  Ending 2006 |   | High                  Bid |   | Low                Bid |        |
|--------|--------------------------------------|--------|---------------------------|--------|------------------------|--------|
|   | March                31              |   | $0.90                     |   | $0.55                  |   |
|   | June                30               |   | $1.31                     |   | $0.51                  |   |
|   | September                30          |   | $0.81                     |   | $0.75                  |   |
|   | December                  31         |   | $0.81                     |   | $0.65                  |        |
|   |                                 |   |                      |   |                   |   |
|   |                                 |   |                      |   |                   |   |

----

|   | Quarter                Ending2005 |   | High                  Bid |   | Low                Bid |        |
|--------|-----------------------------------|--------|---------------------------|--------|------------------------|--------|
|   |                              |   |                      |   |                   |   |
|   | March                31           |   | $1.30                     |   | $0.80                  |   |
|   | June                30            |   | $1.65                     |   | $0.61                  |   |
|   | September                30       |   | $1.15                     |   | $0.85                  |   |
|   | December                31        |   | $1.15                     |   | $0.57                  |   |
|   |                              |   |                      |   |                   |   |
|   | February                1, 2007   |   | $0.81                     |   | $0.81                  |   |

|   | (b)    | As                of February 1, 2007, there were 318 holders of                record of the common stock of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | (c)    | The                  Company has declared no dividends on its common stock during the                  past two                  fiscal years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | (d)    | Securities                  Authorized For Issuance Under Equity Compensation Plans. No equities                  securities of the Company are authorized for issuance under equity                  compensation plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | (e)    | Performance                  Graph. The graph which follows compares the yearly percentage change                  in                  the Company’s cumulative total shareholder return on its common stock with                  the cumulative total return of (a) all United States companies                  traded on                  the NASDAQ stock market and (b) five companies traded on the NASDAQ                  stock                  market which carry NASDAQ Standard Industrial Classification (SIC)                  Code                  2200-2299, being companies producing textile mill products (Dixie                  Group,                  Inc., Hampshire Group, Interface, Inc., Quaker Fabric, Corp. and                  True                  Religion Apparel, Inc.) Dividend reinvestment is assumed. (This                  graph was                  prepared for the Company by Research Data Group, Inc. of San Francisco,                  CA.) |

----

|                                   |       |         |         |       |       |         |         |
|----------------------------------------|------------|--------------|--------------|------------|------------|--------------|--------------|
|                                   |       | **12/28/01** | **12/29/02** | **1/2/04** | **1/1/05** | **12/31/05** | **12/30/06** |
|                                   |       |         |         |       |       |         |         |
| **Burke                Mills, Inc.**   |       | **100.00**   | **181.82**   | **238.64** | **295.45** | **136.36**   | **181.82**   |
| **NASDAQ                Composite**    |       | **100.00**   | **71.97**    | **107.18** | **117.07** | **120.50**   | **137.02**   |
| **SIC                Codes 2200-2299** | **100.00** | **76.70**    | **128.52**   | **196.13** | **203.76** | **237.99**   |

----

|                                               |   | (in                thousands except per share                data) |    |
|----------------------------------------------------|--------|--------------------------------------------------------------------|---------|
|                                               |   | Years                Ended                                         |    |
|                                               |   | Dec.                302006                                         |    | Dec.                312005 |   | Jan.                12005 |   | Jan.                32004 |   | Dec.                282002 |   |
| SELECTED              STATEMENT OF OPERATIONS DATA |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                sales                           |   | $                                                                  | 23,884  |   | $ | 25,253 |   | $ | 25,134 |   | $ | 24,815 |   | $ | 29,990 |   |
| Cost                of sales                       |   |                                                               | 23,777  |   |   | 25,144 |   |   | 24,546 |   |   | 24,237 |   |   | 27,968 |   |
|                                               |   |                                                               |         |   |   |  |   |   |   |   |   |   |   |   |   |   |
| Gross                profit                        |   | $                                                                  | 107     |   | $ | 109 |   | $ | 588 |   | $ | 578 |   | $ | 2,022 |   |
|                                               |   |                                                               |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income                  |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| taxes                                              |   | $                                                                  | (1,877) |   | $ | (1,922) |   | $ | (2,106) |   | $ | (2,222) |   | $ | (641) |   |
| Income                taxes (benefit)              |   |                                                               | -0-     |   |   | -0- |   |   | (399) |   |   | (638) |   |   | (322) |   |
| Net                loss                            |   | $                                                                  | (1,877) |   | $ | (1,922) |   | $ | (1,707) |   | $ | (1,584) |   | $ | (319) |   |
|                                               |   |                                                               |         |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Per                Share (Note A)                  |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss-basic and diluted          |   | $                                                                  | (.68)   |   | $ | (.70) |   | $ | (.62) |   | $ | (.58) |   | $ | (.12) |   |
|                                               |   |                                                               |         |   |   |  |   |   |  |   |   |  |   |   |  |   |
| 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 |   |
| -                basic and diluted                 |   |                                                               |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| SELECTED              CASH FLOW DATA       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Capital                expenditures        |   | $      | 137    |   | $      | 312    |   | $      | 72     |   | $      | 127    |   | $      | 888    |   |
|                                       |   |   |        |   |   |        |   |   |        |   |   |   |   |   |   |   |
| Depreciation                               |   | $      | 1,588  |   | $      | 1,674  |   | $      | 1,779  |   | $      | 2,010  |   | $      | 2,055  |   |
|                                       |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |
| SELECTED                BALANCE SHEET DATA |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                assets              |   | $      | 4,357  |   | $      | 4,728  |   | $      | 5,135  |   | $      | 4,445  |   | $      | 8,670  |   |
| Current                liabilities         |   |   | 1,677  |   |   | 1,630  |   |   | 1,676  |   |   | 1,181  |   |   | 2,482  |   |
|                                       |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |
| Working                capital             |   | $      | 2,680  |   | $      | 3,098  |   | $      | 3,459  |   | $      | 3,264  |   | $      | 6,188  |   |
|                                       |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                ratio               |   |   | 2.60   |   |   | 2.89   |   |   | 3.06   |   |   | 3.76   |   |   | 3.49   |   |
|                                       |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                assets                |   | $      | 7,674  |   | $      | 9,504  |   | $      | 11,472 |   | $      | 13,078 |   | $      | 20,225 |   |
|                                       |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                debt              |   | $      | -0-    |   | $      | -0-    |   | $      | -0-    |   | $      | -0-    |   | $      | 2,920  |   |
|                                       |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                deferred tax liability  |   | $      | -0-    |   | $      | -0-    |   | $      | -0-    |   | $      | 394    |   | $      | 1,735  |   |
|                                       |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders'                equity        |   | $      | 5,997  |   | $      | 7,874  |   | $      | 9,796  |   | $      | 11,503 |   | $      | 13,088 |   |

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

----

|                                                                                |   | Relationship                to Total RevenueFor                the Year Ended  |   |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|--------|
|                                                                                |   | Dec.                    302006                                                      |   | Dec.                  312005 |   | Jan.                    12005 |   |
| Net                Sales                                                       |   | 100.0                                                                               | %      | 100.0 | % | 100.0 | % |
| Cost                of Sales                                                        |   | 99.6                                                                                |   | 99.6 |   | 97.7 |   |
| Gross                profit margin                                                  |   | 0.4                                                                                 |   | 0.4 |   | 2.3 |   |
|                                                                                |   |                                                                                |   |   |   |   |   |
| Selling,                general, administrative                                     |   | 8.3                                                                                 |   | 8.0 |   | 10.0 |   |
| Operating                loss                                                       |   | (7.9                                                                                | )      | (7.6 | ) | (7.7 | ) |
| Other                income                                                         |   | 0.0                                                                                 |   | 0.3 |   | 0.1 |   |
| Other                expenses                                                       |   | (0.0                                                                                | )      | 0.0 |   | 0.0 |   |
|                                                                                |   |                                                                                |   |   |   |   |   |
| Loss                before income taxes and net                equity in affiliates |   | (7.9                                                                                | )      | (7.3 | ) | (7.6 | ) |
| Income                taxes (benefit)                                               |   | 0.0                                                                                 |   | 0.0 |   | (1.6) |   |
|                                                                                |   | (7.9                                                                                | )      | (7.3 | ) | (6.0 | ) |
| Equity                (Loss) in Net Earnings Of                Affiliate            |   |  0.0                                                                           |   |  (0.3) |   |  (0.8 | ) |
|                                                                                     |   |                                                                                     |   |  |   |  |   |
| Net                Loss                                                             |   | (7.9                                                                                | )%     | (7.6 | )% | (6.8 | )% |

----

|   | (a)             | Electricity                  increased by $176,000 or 20.8% primarily due to a change in the                  product                  mix which requires longer drying cycles and increased winding of                  the yarn.                  Duke Energy, the Company’s supplier of electricity, has notified the                  Company that there will be a rate increase effective July 1, 2007                  of 14%                  to 18%. |
|--------|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (b)             | Natural                  gas and fuel oil increased by $312,000 or 30.6%. Approximately                  8% of the                  increase was caused by the change in product mix, requiring longer                  cycle                  times. The reminder of the increase was due to price. The price                  of natural                  gas and fuel oil are difficult to predict because of world                  events.                    |
|   |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (c)   | Water                  increased by $66,000 or 16.5% primarily as a result of the product                  mix                  change. Usage was up approximately 13%, and the remainder of the                  increase                  was a price increase. The Company expects a price increase of                  approximately 5% in July 2007.                                                                                                          |
|   |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (d)   | Repair                  and maintenance of machinery increased by $53,000 or 10.1%. As                  the                  Company’s machinery ages, the repair cost will                  increase.                                                                                                                                                                                                                                                       |

|   | (a)    | Employee                health claims decreased by $129,000 or 20.3%. It is impossible                to predict the frequency or severity of the employees' medical                needs. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                       |
|   | (b)    | Depreciation                decreased by $66,000 or 4.0% and should continue to decrease                unless the Company makes large capital                expenditures.                |

----

|   | (a)    | Natural                  gas and fuel oil cost increased 23.6% due to the increased market                  price of                  petroleum products. The Company cannot predict the direction of                  the fuel                  oil price for 2007. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                 |
|   | (b)    | Repair                  and maintenance of machinery and equipment increased by 15.8% due                  to some                  major repairs of dye machinery and the age of the other                  machinery.                                              |

----

|   | (e)   | Health                  claims increased by 8.9% primarily as a result of higher claims                  in the                  first and second quarters of 2005. It is impossible to predict                  the                  frequency or severity of the employees' medical                  needs. |
|--------|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Water              increased by 11.8% primarily due to a 5% increase in water rates effective              in July 2005, and an increase in dyeing of cotton fiber which requires              more water in the process. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a)    | Production                wages (non-direct) decreased by 5.4% primarily due to cost reduction                program initiated in the third quarter of 2005.          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                   |
|   | (b)    | Depreciation                  decreased by 6.2% and should continue to decrease unless the Company                  makes                  large capital expenditures. |

----

|   |                                        |   |   | %                  ofNet                  Sales |   |   |   %                    ofPounds                    ofYarn                  Sold |   |   | Sales                    $PerPound |   |
|--------|---------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------|--------|--------|------------------------------------|--------|
| 2006:  |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
|   | Yarn                sales              |   |   | 88%                                             |   |   |  79%                                                                                 |   | $      | 2.83                               |   |
|   | Commission                sales   |   |   | 12%                                             |   |   |   21%                                                                           |        |   | 1.44                               |   |
|   |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
|   | Total                                       |   |   | 100%                                            |   |   | 100%                                                                                      |   |   |                               |   |
|   |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
| 2005:  |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
|   | Yarn                sales         |   |   | 96%                                             |   |   |  95%                                                                                 |   | $      | 2.68                               |   |
|   | Commission                sales   |   |   |  4%                                        |   |   |    5%                                                                      |   |   | 2.54                               |   |
|   |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
|   | Total                                       |   |   | 100%                                            |   |   | 100%                                                                                      |   |   |                               |   |
|   |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
| 2004:  |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
|   | Yarn                sales         |   |   | 94%                                             |   |   |  93%                                                                                 |   | $      | 2.54                               |   |
|   | Commission                sales             |   |   | 6                                          |   |   |  7                                                                                   |   |   | 2.43                               |   |
|   |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |
|   | Total                                       |   |   | 100%                                            |   |   | 100%                                                                                      |   |   |                               |   |
|   |                                        |   |   |                                            |   |   |                                                                                      |   |   |                               |   |

----

----

----

|                                 |   |  2006 |                     |  2005 |   |  2004               |   |
|--------------------------------------|--------|------------|--------------------------|------------|--------|--------------------------|--------|
| Working                Capital       |   | $          | 2,680,000                |       | $      | 3,098,000                |   | $ | 3,459,000 |   |
| Working                Capital Ratio |   |       | 2.60                to 1 |       |   | 2.89                to 1 |   |   | 3.06                to 1 |   |

|                                                                          |   |   | December                302006 |   |   |  December                  312005 |   |
|-------------------------------------------------------------------------------|--------|--------|--------------------------------|--------|--------|----------------------------------------|--------|
| Cash,                cash equivalents and                receivables          |   | $      | 2,783,000                      |   | $      | 2,995,000                              |   |
| Current                liabilities                                            |   |   | 1,677,000                      |   |   | 1,630,000                              |   |
|                                                                          |   |   |                                |   |   |                                        |   |
| Excess                of quick assets over                current liabilities |   | $      | 1,106,000                      |   | $      | 1,365,000                              |   |
| Quick                Ratio                                                    |   |   | 1.66                to 1       |   |   | 1.83                to 1               |   |

----

|                                                |   |   |            |   | Payments                due by period |                          |
|-----------------------------------------------------|--------|--------|-----------------|--------|---------------------------------------|-------------------------------|
|                                                |   |   | Total           |   |                                  | Lessthan                1year |   |   | 1-3years |   |   | 3-5years |   |   | Morethan                5years |   |
| Contractual                Obligations              |   |   |            |   |                                  |                          |   |   |   |   |   |  |   |   |   |   |
|                                                |   |   |            |   |                                  |                          |   |   |   |   |   |   |   |   |   |   |
| Line                of Credit Balance               |   | $      | 258,000         |   | $                                     | 258,000                       |   | $ | -0- |   | $ | -0- |   | $ | -0- |   |
|                                                |   |   |            |   |                                  |                          |   |   |   |   |   |   |   |   |   |   |
| Operating                Lease Obligations          |   | $      | 87,000          |   | $                                     | 46,000                        |   | $ | 36,000 |   | $ | 5,000 |   | $ | -0- |   |
|                                                |   |   |            |   |                                  |                          |   |   |   |   |   |   |   |   |   |   |
| Purchase                Obligations/ Commitments(1) |   | $      |  1,823,000 |   | $                                     | 1,823,000                     |   | $ | -0- |   | $ | -0- |   | $ | -0- |   |
|                                                |   |   |            |   |                                  |                          |   |   |   |   |   |   |   |   |   |   |
| TOTAL                                               |   | $      | 2,168,000       |   | $                                     | 2,127,000                     |   | $ | 36,000 |   | $ | 5,000 |   | $ | -0- |   |
|                                                |   |   |            |   |                                  |                          |   |   |   |   |   |   |   |   |   |   |

| (1) |   | The                  Company's purchase obligations/commitments represent open purchase                  orders,                  Letters of Credit, and other commitments for goods and services                  that will                  be received during the year. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

**,**

----

----

| ASSETS                                                   |   |   | December                302006 |   |   |                    December 312005 |   |
|----------------------------------------------------------|--------|--------|--------------------------------|--------|--------|---------------------------------------------------|--------|
| Current                Assets                            |   |   |                           |   |   |                                              |   |
| Cash                and cash equivalents                 |   | $      | 55,816                         |   | $      | 425,812                                           |   |
| Accounts                receivable, net                  |   |   | 2,727,461                      |   |   | 2,568,838                                         |   |
| Inventories                                              |   |   | 1,543,272                      |   |   | 1,684,132                                         |   |
| Prepaid                expenses and other current assets |   |   | 30,371                         |   |   | 49,413                                            |   |
| Total                  Current Assets                    |   |   | 4,356,920                      |   |   | 4,728,195                                         |   |
|                                                     |   |   |                           |   |   |                                              |   |
| Property,                plant & equipment - at cost |   |   | 28,041,676                     |   |   | 28,085,778                                        |   |
| Less:                accumulated depreciation            |   |   | 24,741,391                     |   |   | 23,326,789                                        |   |
| Property,                Plant and Equipment- Net        |   |   | 3,300,285                      |   |   | 4,758,989                                         |   |
|                                                     |   |   |                                |   |   |                                              |   |
| Other                Assets                              |   |   |                           |   |   |                                              |   |
| Other                                                    |   |   | 16,575                         |   |   | 16,575                                            |   |
| Total                Assets                              |   | $      | 7,673,780                      |   | $      | 9,503,759                                         |   |
|                                                     |   |   |                                |   |   |                                                   |   |

|                LIABILITIES                AND SHAREHOLDERS' EQUITY |   |   |      |   |   |      |   |
|-------------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
|                                                                    |   |   |      |   |   |      |   |
| Current                Liabilities                                      |   |   |      |   |   |      |   |
| Accounts                payable                                         |   | $      | 1,218,199 |   | $      | 1,434,169 |   |
| Line                of credit                                           |   |   | 258,274   |   |   | -0-       |   |
| Accrued                salaries and wages                               |   |   | 67,317    |   |   | 69,272    |   |
| Other                liabilities and accrued expenses                   |   |   | 132,778   |   |   | 126,303   |   |
| Total                Liabilities                                        |   | $      | 1,676,568 |   | $      | 1,629,744 |   |
|                                                                    |   |   |           |   |   |      |   |
| Commitments                and contingencies                            |   |   |      |   |   |      |   |
|                                                                    |   |   |      |   |   |      |   |
| 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                                        |   |   | 1,076,692 |   |   | 2,953,495 |   |
| Total                Shareholders' Equity                               |   |   | 5,997,212 |   |   | 7,874,015 |   |
|                                                                    |   | $      | 7,673,780 |   | $      | 9,503,759 |   |
|                                                                    |   |   |      |   |   |      |   |

----

|                                                                                |   |   | For                The Years Ended |   |
|--------------------------------------------------------------------------------|--------|--------|------------------------------------|--------|
|                                                                                |   |   | December                30         |   |   | December                31 |   |   |                  January 1 |   |
|                                                                                |   |   | 2006                               |   |   | 2005 |   |   | 2005 |   |
|                                                                           |   |   |                                    |   |   |   |   |   |  |   |
| Net                Sales                                                       |   | $      | 23,884,260                         |   | $ | 25,252,600 |   | $ | 25,133,683 |   |
| Costs                and Expenses                                              |   |   |                               |   |   |   |   |   |   |   |
| Cost                of sales                                                   |   |   | 23,777,095                         |   |   | 25,143,775 |   |   | 24,546,085 |   |
|                                                                           |   |   |                                    |   |   |  |   |   |   |   |
| Gross                Profit                                                    |   |   | 107,165                            |   |   | 108,825 |   |   | 587,598 |   |
|                                                                           |   |   |                               |   |   |  |   |   |   |   |
| Selling,                general and administrative                expenses     |   |   | 1,992,668                          |   |   | 2,226,739 |   |   | 2,350,520 |   |
| Loss                (gain) on disposal of property                assets       |   |   | (2,974                             | )      |   | (208,989 | ) |   | 154,353 |   |
| Operating                Loss                                                  |   |   | (1,882,529                         | )      |   | (1,908,925 | ) |   | (1,917,275 | ) |
|                                                                           |   |   |                               |   |   |   |   |   |   |   |
| Other                Income                                                    |   |   |                               |   |   |   |   |   |   |   |
| Interest                income                                                 |   |   | 4,559                              |   |   | 6,100 |   |   | 2,788 |   |
| Other,                net                                                      |   |   | 2,178                              |   |   | 2,308 |   |   | 33,811 |   |
|                                                                           |   |   |                                    |   |   |   |   |   |   |   |
| Total                Other Income                                              |   |   | 6,737                              |   |   | 8,408 |   |   | 36,599 |   |
|                                                                           |   |   |                                    |   |   |   |   |   |   |   |
| Other                Expenses                                                  |   |   |                               |   |   |   |   |   |   |   |
| Interest                expense                                                |   |   | 16,342                             |   |   | 370 |   |   | 1,263 |   |
| Other,                net                                                      |   |   | -0-                                |   |   | -0- |   |   | 17,790 |   |
| Total                Other Expenses                                            |   |   | 16,342                             |   |   | 370 |   |   | 19,053 |   |
|                                                                           |   |   |                               |   |   |   |   |   |   |   |
| Loss                Before Benefit of                                          |   |   |                               |   |   |   |   |   |   |   |
| Income                Taxes and Equity                                         |   |   |                               |   |   |   |   |   |   |   |
| in                Loss of Affiliate                                            |   |   | (1,892,134                         | )      |   | (1,900,887 | ) |   | (1,899,729 | ) |
|                                                                           |   |   |                               |   |   |   |   |   |   |   |
| Income                Tax Benefit                                              |   |   | -0-                                |   |   | -0- |   |   | (399,478 | ) |
|                                                                           |   |   |                                    |   |   |  |   |   |   |   |
| Loss                before Equity in Net Loss                of Affiliate      |   |   | (1,892,134                         | )      |   | (1,900,887 | ) |   | (1,500,251 | ) |
|                                                                           |   |   |                               |   |   |   |   |   |   |   |
| Equity                in Net Earnings (Loss)  of                Affiliate |   |   | 15,331                             |   |   | (21,314 | ) |   | (206,892 | ) |
|                                                                           |   |   |                               |   |   |  |   |   |   |   |
| Net                Loss                                                        |   | $      | (1,876,803                         | )      | $ | (1,922,201 | ) | $ | (1,707,143 | ) |
|                                                                           |   |   |                               |   |   |   |   |   |   |   |
| Basic                  and Diluted Net Loss Per Share                          |   | $      | (.68                               | )      | $ | (.70 | ) | $ | (.62 | ) |
|                                                                           |   |   |                               |   |   |  |   |   |   |   |
| Weighted                Average Common                                         |   |   |                               |   |   |   |   |   |   |   |
| Shares                Outstanding-                                             |   |   |                               |   |   |   |   |   |   |   |
| Basic                  and Diluted                                             |   |   | 2,741,168                          |   |   | 2,741,168 |   |   | 2,741,168 |   |
|                                                                           |   |   |                               |   |   |   |   |   |   |   |

----

|                                                         |   |   | SharesIssued |   |   | CommonStock |   |   | Paid-InCapital |   |   | RetainedEarnings |   |   | TotalShareholdersEquity |   |
|--------------------------------------------------------------|--------|--------|--------------|--------|--------|-------------|--------|--------|----------------|--------|--------|------------------|--------|--------|-------------------------|--------|
|                                                              |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Balance                  at Jan. 3, 2004                     |   |   | 2,741,168    |   | $      | 1,809,171   |   | $      | 3,111,349      |   | $      | 6,582,839        |   | $      | 11,503,359              |   |
|                                                         |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Net                    Loss for the year ended Jan. 1, 2005  |   |   | -            |   |   | -           |   |   | -              |   |   | (1,707,143       | )      |   | (1,707,143              | )      |
|                                                              |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Balance                  at Jan. 1, 2005                     |   |   | 2,741,168    |   | $      | 1,809,171   |   | $      | 3,111,349      |   | $      | 4,875,696        |   | $      | 9,796,216               |   |
|                                                         |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Net                    Loss for the year ended Dec. 31, 2005 |   |   | -            |   |   | -           |   |   | -              |   |   | (1,922,201       | )      |   | (1,922,201              | )      |
|                                                         |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Balance                  at Dec. 31, 2005                    |   |   | 2,741,168    |   | $      | 1,809,171   |   | $      | 3,111,349      |   | $      | 2,953,495        |   | $      | 7,874,015               |   |
|                                                         |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Net                    Loss for the year ended Dec. 30, 2006 |   |   | -            |   |   | -           |   |   | -              |   | $      | (1,876,803       | )      | $      | (1,876,803              | )      |
|                                                         |   |   |         |   |   |        |   |   |           |   |   |             |   |   |                    |   |
| Balance                  at Dec. 30, 2006                    |   |   | 2,741,168    |   | $      | 1,809,171   |   | $      | 3,111,349      |   | $      | 1,076,692        |   | $      | 5,997,212               |   |
|                                                         |   |   |         |   |   |        |   |   |                |   |   |             |   |   |                    |   |

----

|                                                                                                                        |   | For                The Years Ended |       |
|-----------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                                                                        |   | Dec.                302006         |       | Dec.                  312005 |   | Jan.                  12005 |   |
| Cash                flows from operating activities:                                                                        |   |                               |       |   |   |   |   |   |   |   |
| Net                loss                                                                                                     |   | $                                  | (1,876,803 | ) | $ | (1,922,201 | ) | $ | (1,707,143 | ) |
|                                                                                                                        |   |                               |            |   |   |   |   |   |  |   |
| Adjustments                  to reconcile net loss to net cash provided by (used in) operating                  activities: |   |                               |       |   |   |   |   |   |   |
| Depreciation                                                                                                                |   |                               | 1,588,429  |   |   | 1,674,433 |   |   | 1,779,135 |   |
| Allowance                for doubtful accounts                                                                              |   |                               | 26,747     |   |   | 3,253 |   |   | -0- |   |
| (Gain)                loss on sales of plant & equipment,                including loss on disposals                    |   |                               | (2,974     | ) |   | (208,989 | ) |   | 154,353 |   |
| Provision                for impairment of inventory                                                                        |   |                               | (14,969    | ) |   | (126,115 | ) |   | 54,084 |   |
| Deferred                income taxes                                                                                        |   |                               | -0-        |   |   | -0- |   |   | (394,000 | ) |
| (Gain)                Loss in net earnings of affiliate                                                                     |   |                               | (15,331    | ) |   | 21,314 |   |   | 206,892 |   |
|                                                                                                                        |   |                               |       |   |   |   |   |   |   |   |
| Changes                in operating assets and liabilities:                                                                 |   |                               |       |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                                        |   |                               | (185,370   | ) |   | 492,274 |   |   | (699,081 | ) |
| Inventories                                                                                                                 |   |                               | 155,829    |   |   | 82,966 |   |   | 185,410 |   |
| Prepaid                  expenses & other current assets                                                                |   |                               | 19,042     |   |   | 63,167 |   |   | (59,947 | ) |
| Accounts                payable                                                                                             |   |                               | (215,970   | ) |   | (31,461 | ) |   | 593,935 |   |
| Accrued                salaries & wages                                                                                 |   |                               | (1,955     | ) |   | (20,575 | ) |   | 35,797 |   |
| Other                liabilities & accrued expenses                                                                     |   |                               | 6,475      |   |   | 6,166 |   |   | 6,725 |   |
| Total                  adjustments                                                                                          |   |                               | 1,359,953  |   |   | 1,956,433 |   |   | 1,863,303 |   |
|                                                                                                                        |   |                               |       |   |   |   |   |   |   |   |
| Net                  cash (used in) provided by operating activities                                                        |   |                               | (516,850   | ) |   | 34,232 |   |   | 156,160 |   |
|                                                                                                                        |   |                               |       |   |   |   |   |   |  |   |
| Cash                flows from investing activities:                                                                        |   |                               |       |   |   |   |   |   |   |   |
| Acquisition                  of property, plant and equipment                                                               |   |                               | (136,751   | ) |   | (312,127 | ) |   | (72,267 | ) |
| Proceeds                  from sales of plant and equipment                                                                 |   |                               | 10,000     |   |   | 211,977 |   |   | 77,316 |   |
| Proceeds                from Investment in Affiliate                                                                        |   |                               | 15,331     |   |   | 174,985 |   |   | 149,988 |   |
|                                                                                                                        |   |                               |            |   |   |   |   |   |   |   |
| Net                  cash (used in) provided by investing activities                                                        |   |                               | (111,420   | ) |   | 74,835 |   |   | 155,037 |   |
|                                                                                                                        |   |                               |            |   |   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                        |   |                               |       |   |   |   |   |   |   |   |
| Net                  advances/(payments) on line of Credit                                                                  |   |                               | 258,274    |   |   | -0- |   |   | (141,514 | ) |
|                                                                                                                        |   |                               |       |   |   |  |   |   |  |   |
| Net                  cash provided by (used in) financing activities                                                        |   |                               | 258,274    |   |   | -0- |   |   | (141,514 | ) |
|                                                                                                                        |   |                               |       |   |   |   |   |   |   |   |
| Net                (decrease) increase in cash and cash                equivalents                                          |   |                               | (369,996   | ) |   | 109,067 |   |   | 169,683 |   |
| Cash                & cash equivalents at beginning of                year                                              |   |                               | 425,812    |   |   | 316,745 |   |   | 147,062 |   |
|                                                                                                                        |   |                               |            |   |   |  |   |   |  |   |
| CASH                AND CASH EQUIVALENTS AT END OF YEAR                                                                     |   | $                                  | 55,816     |   | $ | 425,812 |   | $ | 316,745 |   |
|                                                                                                                        |   |                               |       |   |   |   |   |   |   |   |

----

*Accounting      Period.*

*Revenue      Recognition*

*Cost      of Sales*

*Selling,      general and administrative*

*Cash      and Cash Equivalents*

*Accounts      Receivable*

*Inventories*

*Property,      Plant and Equipment*

|   | Buildings                                      |                        | 15                - 45 years                                                   |  |
|--------|------------------------------------------------|-----------------------------|------------------------------------------------------------------------------------------|--|
|        | Buildings                and land improvements | 5                - 20 years |                                                                                          |
|        | Plant                machinery and equipment   | 5                - 17 years |                                                                                          |
|        | Office                equipment                |                        | 5                - 10 years                                                              |  |
|        | Automotive                equipment            |                        |   3                -   5                years    |  |
|        | Computer                equipment              |                        |   3                -   5 years                             |  |

*Accounting      for Possible Impairment of Long-lived Assets*

----

*Accounting      for Possible Impairment of Long-lived Assets*
*(continued)*

*Earnings      Per Share*

*Use      of Estimates in Preparing Financial Statements*

*Income      Taxes*

*Financial      Instruments.*

*Recent      Accounting Pronouncements. *

----

*Recent      Accounting Pronouncements (continued)*

----

|   | Country                    |        | 2006   |   | 2005   |   | 2004   |   |   |
|--------|----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
|   | Mexico                     |   |   | .0     | %      |   | .46    | %      |   | .27 | % |   |
|   | Canada                     |   |   | .03    | %      |   | .06    | %      |   | .06 | % |   |
|   | Honduras                   |   |   | .05    | %      |   | .62    | %      |   | 1.62 | % |   |
|   | Barbados                   |   |   | .0     | %      |   | .05    | %      |   | .0 | % |   |
|   | Hong                  Kong |   |   | .13    | %      |   | .19    | %      |   | .13 | % |   |
|   | Turkey                     |   |   | .0     | %      |   | .0     | %      |   | .01 | % |   |
|   | Sri                  Lanka |   |   | .43    | %      |   | .0     | %      |   | .0 | % |   |
| Total  |                       |   | .64    | %      |   | 1.38   | %      |   | 2.09   | % |   |
|   |                       |   |   |   |   |   |   |   |   |   |   |   |

| Customer:                        |   |   | A      |   |   | B      |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                             |   |   |        |   |   |        |   |
| December                30, 2006 |   |   | --     |   |   | --     |   |
| December                31, 2005 |   |   | 15.9%  |   |   | 11.8%  |   |
| January                1, 2005   |   |   | 20.7%  |   |   | 11.8%  |   |
|                             |   |   |   |   |   |   |   |

----

|        |                                                                                                                                                                    |   | December                30 |      | December                31 |      |      |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------|----------------------------|-----------|-----------|
|        |                                                                                                                                                                    |   | 2006                       |      | 2005                       |      |      |
|        |                                                                                                                                                                    |   |                       |      |                       |      |      |
|        | Accounts                receivable                                                                                                                                      |   | $                          | 2,757,000 |                       | $         | 2,572,000 |   |   |
|        |                                     Allowance for doubtful accounts |   |                       | (30,000   | )                          |      | (3,000    | ) |   |
|  Total |                                                                                                                                                                    | $      | 2,727,000                  |      | $                          | 2,569,000 |      |   |

|   |                                     |   | December                30 |      | December                31 |   |      |
|--------|------------------------------------------|--------|----------------------------|-----------|----------------------------|--------|-----------|
|   |                                     |   | 2006                       |      | 2005                       |   |      |
|   | Finished                & in process |   | $                          | 703,000   |                       | $      | 853,000   |   |   |
|   | Raw                materials             |   |                       | 541,000   |                       |   | 614,000   |   |   |
|   | Dyes                & chemicals      |   |                       | 208,000   |                       |   | 165,000   |   |   |
|   | Other                                    |   |                       | 100,000   |                       |   | 76,000    |   |   |
|   | Mark-down                allowance       |   |                       | (9,000    | )                          |   | (24,000   | ) |   |
|   |                                     |   |                       |      |                       |   |      |   |   |
|   | Total                                    |   | $                          | 1,543,000 |                       | $      | 1,684,000 |   |   |
|   |                                     |   |                       |      |                       |   |      |   |   |

|                                                  |   |  December                30, 2006 |       |  December                31, 2005 |   |
|--------------------------------------------------|--------|----------------------------------------|------------|----------------------------------------|--------|
|                                             |   |                                   |       |                                   |   |   |   |   |   |   |   |   |   |
|                                             |   |                                   | Cost       |                                   |   | Accumulated                Depreciation |   |   | Cost |   |   | AccumulatedDepreciation |   |
|                                             |   |                                   |       |                                   |   |   |   |   |   |   |   |   |   |
| Land                                             |   | $                                      | 156,000    |                                   | $      | -0- |   | $ | 156,000 |   | $ | -0- |   |
| Land                improvements                 |   |                                   | 183,000    |                                   |   | 132,000 |   |   | 183,000 |   |   | 126,000 |   |
| Building                & improvements       |   |                                   | 6,390,000  |                                   |   | 5,365,000 |   |   | 6,390,000 |   |   | 5,247,000 |   |
| Plant                  machinery & equipment |   |                                   | 20,234,000 |                                   |   | 18,194,000 |   |   | 20,267,000 |   |   | 16,900,000 |   |
| Office                equipment                  |   |                                   | 968,000    |                                   |   | 964,000 |   |   | 968,000 |   |   | 949,000 |   |
| Automotive                equipment              |   |                                   | 111,000    |                                   |   | 86,000 |   |   | 122,000 |   |   | 105,000 |   |
| Total                                            |   | $                                      | 28,042,000 |                                   | $      | 24,741,000 |   | $ | 28,086,000 |   | $ | 23,327,000 |   |
|                                             |   |                                   |            |                                   |   |   |   |   |   |   |   |   |   |

----

|                                 |   |   | December                302006 |   |   | December                312005 |   |
|--------------------------------------|--------|--------|--------------------------------|--------|--------|--------------------------------|--------|
| Employee                insurance    |   | $      | 50,000                         |   | $      | 55,000                         |   |
| Payroll                taxes payable |   |   | 38,000                         |   |   | 47,000                         |   |
| Other                                |   |   | 45,000                         |   |   | 24,000                         |   |
| Total                                |   | $      | 133,000                        |   | $      | 126,000                        |   |
|                                 |   |   |                           |   |   |                           |   |

----

|                                                     |   |   | Dec.                302006 |   |   | Dec.                312005 |   |
|----------------------------------------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|
| Deferred                tax assets:                      |   |   |                       |   |   |                       |   |
| Alternative                minimum taxes paid            |   | $      | 349,000                    |   | $      | 349,000                    |   |
| Net                operating loss carryover              |   |   | 1,701,000                  |   |   | 1,284,000                  |   |
| Charitable                contributions carryover        |   |   | 1,000                      |   |   | 13,000                     |   |
| State                tax credits                         |   |   | 41,000                     |   |   | 41,000                     |   |
| Bad                debts                                 |   |   | 12,000                     |   |   | 1,000                      |   |
| Inventory                                                |   |   | 5,000                      |   |   | 14,000                     |   |
| Total                gross deferred tax assets           |   | $      | 2,109,000                  |   | $      | 1,702,000                  |   |
| Valuation                Allowance                       |   |   | (1,751,000                 | )      |   | (1,020,000                 | )      |
| Net                deferred tax assets                   |   | $      | 358,000                    |   | $      | 682,000                    |   |
| Deferred                tax liabilities:                 |   |   |                       |   |   |                       |   |
| Accelerated                depreciation for tax purposes |   |   | 358,000                    |   |   | 682,000                    |   |
| Net                deferred tax liability                |   | $      | -0-                        |   | $      | -0-                        |   |
|                                                     |   |   |                       |   |   |                            |   |

|                                                                                               |   | For                The Years Ended |                           |
|----------------------------------------------------------------------------------------------------|--------|------------------------------------|--------------------------------|
|                                                                                               |   |                               | December                302006 |   |   | December                312005 |   |   | January                12005 |   |
| Loss                before income tax benefit                                                      |   | $                                  | (1,877,000                     | ) | $ | (1,922,000 | ) | $ | (2,106,000 | ) |
| Federal                income taxes                                                                |        |                                    | 34%                            |   |  | 34 | % |  | 34 | % |
|                                                                                               |   |                               |                                |   |   |  |   |   |   |   |
| Computed                  taxes (benefit) at maximum statutory tax                                 |   |                               | (638,000                       | ) |   | (654,000 | ) |   | (716,000 | ) |
| State                  income taxes (benefit), net of federal income tax                  benefits |   |                               | (85,000                        | ) |   | (88,000 | ) |   | (96,000 | ) |
| Total                  adjustment for foreign affiliate earnings                                   |   |                               | -0-                            |   |   | 8,000 |   |   | 115,000 |   |
| Adjustment                  for deferred income taxes                                              |   |                               | (11,000                        | ) |   | 12,000 |   |   | (4,000 | ) |
| Prior                year tax examination & other                                              |   |                               | 3,000                          |   |   | 3,000 |   |   | 6,000 |   |
| State                Tax Refund                                                                    |   |                               | -0-                            |   |   | -0- |   |   | (5,000 | ) |
| Sub-Total                                                                                          |   | $                                  | (731,000                       | ) | $ | (719,000 | ) | $ | (700,000 | ) |
| Valuation                Allowance                                                                 |   |                               | 731,000                        |   |   | 719,000 |   |   | 301,000 |   |
|                                                                                               |   |                               |                                |   |   |  |   |   |  |   |
| Provision                  (benefit) for Income Taxes                                              |   | $                                  | -0-                            |   | $ | -0- |   | $ | (399,000 | ) |

----

|                                    |   | For                The Years Ended |                           |
|------------------------------------|--------|------------------------------------|--------------------------------|
|                               |   |                               | December                302006 |   |   | December                312005 |   |   | January                12005 |   |
| Deferred:                          |   |                               |                           |   |   |   |   |   |   |   |
| Federal                            |   | $                                  | (649,000                       | ) | $ | (634,000 | ) | $ | (605,000 | ) |
| State                and local     |   |                               | (82,000                        | ) |   | (85,000 | ) |   | (95,000 | ) |
| Valuation                Allowance |   |                               | 731,000                        |   |   | 719,000 |   |   | 301,000 |   |
| Total                              |   | $                                  | -0-                            |   | $ | -0- |   | $ | (399,000 | ) |
|                               |   |                               |                           |   |   |  |   |   |  |   |

|                                                                 |   |  September                30 |   | December                31 |   |
|-----------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------|--------|
|                                                            |   |                              | 2006   |                       |   | 2005 |   |   | 2004 |   |
| Net                Sales                                        |   | $                                 | -0-    |                       | $      | -0- |   | $ | 1,436 |   |
| Gross                Profit/(Loss)                              |   |                              | -0-    |                       |   | -0- |   |   | (173 | ) |
| (Loss)                from operating income                |   |                              | -0-    |                       |   | -0- |   |   | (378 | ) |
| Income/(Loss)                from discontinued operations  |   |                              | 17     |                       |   | (440 | ) |   | -0- |   |
| Income/(Loss)                before income taxes                |   |                              | 17     |                       |   | (440 | ) |   | (563 | ) |
| Income                taxes                                     |   |                              | 3      |                       |   | 24 |   |   | -0- |   |
|                                                            |   |                              |        |                       |   |  |   |   |  |   |
| Net                loss                                         |   | $                                 | (14    | )                          | $      | (464 | ) | $ | (563 | ) |
|                                                            |   |                              |        |                       |   |  |   |   |  |   |

|                                                            |   | As                ofSeptember                30 |   | As                ofDecember                31 |   |
|-----------------------------------------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------|--------|
|                                                            |   |                                            | 2006   |                                           |   | 2005 |   |   | 2004 |   |
| Current                assets                                   |   | $                                               | 74     |                                           | $      | 168 |   | $ | 783 |   |
|                                                            |   |                                            |   |                                           |   |   |   |   |   |   |
| Non-current                                                     |   |                                            | -0-    |                                           |   | -0- |   |   | 185 |   |
|                                                            |   |                                            |        |                                           |   |  |   |   |   |   |
| Total                assets                                     |   | $                                               | 74     |                                           | $      | 168 |   | $ | 968 |   |
|                                                            |   |                                            |   |                                           |   |   |   |   |  |   |
|                                                            |   |                                            |   |                                           |   |   |   |   |   |   |
| Current                liabilities                              |   | $                                               | 2      |                                           | $      | 152 |   | $ | 160 |   |
| Total                liabilities                                |   |                                            | 2      |                                           |   | 152 |   |   | 160 |   |
|                                                            |   |                                            |   |                                           |   |   |   |   |   |   |
| Stockholders’                equity                       |   |                                            | 72     |                                           |   | 16 |   |   | 808 |   |
|                                                            |   |                                            |   |                                           |   |  |   |   |  |   |
| Total                liabilities and stockholders’ equity |   | $                                               | 74     |                                           | $      | 168 |   | $ | 968 |   |
|                                                            |   |                                            |        |                                           |   |  |   |   |  |   |

----

| 2007 |   | $ | 46,000 |
|------|--------|---|--------|
| 2008 |   | $ | 13,000 |
| 2009 |   | $ | 12,000 |

----

|                                     |   |   | (in                thousands of dollars except for per share amounts) |   |
|------------------------------------------|--------|--------|-----------------------------------------------------------------------|--------|
|                                     |   |   | QUARTER                                                               |   |
| 2006                                     |   |   | First                                                                 |   |   | Second |   |   | Third |   |   | Fourth |   |
| Net                sales                 |   | $      | 6,368                                                                 |   | $ | 6,187 |   | $ | 5,913 |   | $ | 5,415 |   |
| Cost                of sales             |   |   | 6,320                                                                 |   |   | 6,041 |   |   | 5,980 |   |   | 5,435 |   |
| Gross                profit/(loss)       |   |   | 48                                                                    |   |   | 146 |   |   | (67 | ) |   | (20 | ) |
| Net                loss                  |   |   | (475                                                                  | )      |   | (387 | ) |   | (538 | ) |   | (477 | ) |
| Net                loss per common share |   | $      | (.17                                                                  | )      | $ | (.14 | ) | $ | (.20 | ) | $ | (.17 | ) |
|                                     |   |   |                                                                  |   |   |   |   |   |   |   |   |   |   |
| 2005                                     |   |   | First(1)                                                              |   |   | Second |   |   | Third |   |   | Fourth(2) |   |
| Net                sales                 |   | $      | 7,138                                                                 |   | $ | 6,579 |   | $ | 5,769 |   | $ | 5,766 |   |
| Cost                of sales             |   |   | 6,887                                                                 |   |   | 6,698 |   |   | 5,810 |   |   | 5,748 |   |
| Gross                profit/(loss)       |   |   | 251                                                                   |   |   | (119 | ) |   | (41 | ) |   | 18 |   |
| Net                loss                  |   |   | (307                                                                  | )      |   | (659 | ) |   | (601 | ) |   | (355 | ) |
| Net                loss per common share |   | $      | (0.11                                                                 | )      | $ | (0.24 | ) | $ | (0.22 | ) | $ | (0.13 | ) |
|                                     |   |   |                                                                  |   |   |   |   |   |   |   |   |   |   |

| (1)    |   | In                  the first quarter                  of 2005, the Company recorded a gain of $101,000 on the sale of                  a portion                  of its machinery located at its joint venture. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                              |
| (2)    |   | In                    the fourth quarter of 2005, the Company recorded a gain of $105,000                    on the                    sale of the remaining machinery located at its joint venture.         |

----

----

| (a)    |   | The              following documents are filed as a part of this report. |
|--------|--------|--------------------------------------------------------------------------|
|   |   |                                                                     |
|   |        | 1.                                                                       | Report                of Independent Registered Public Accounting Firm - Part II, Item                8. |
|   |   |                                                                     |   |
|   |   | 2.                                                                       |  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: |

----

|   | Balance                sheets                                               |                                        |
|--------|-----------------------------------------------------------------------------|---------------------------------------------|
|   |                                                                        | December                30, 2006            |
|   |                                                                        | December                31, 2005            |
|   |                                                                        |                                        |   |
|   | Statements                of operations                                     |                                        |
|   |                                                                             | Year                ended December 30, 2006 |
|   |                                                                        | Year                ended January 1, 2005   |
|   |                                                                             | Year                ended December 31, 2005 |
|   |                                                                        |                                        |   |
|   | Statements                of changes in shareholders'                equity |
|   |                                                                             | Year                ended December 30, 2006 |
|   |                                                                        | Year                ended December 31, 2005 |
|   |                                                                             | Year                ended January 1, 2005   |
|   |                                                                        |                                        |   |
|   | Statements                of cash flows                                     |                                        |
|   |                                                                             | Year                ended December 30, 2006 |
|   |                                                                        | Year                ended December 31, 2005 |
|   |                                                                             | Year                ended January 1, 2005   |
|   |                                                                        |                                        |   |
|   | Notes                to financial statements                                |                                        |

| 3. |   | The                exhibits required by Item 601 of Regulation S-K and paragraph (c)                of Item                14 are: (a) the articles of incorporation and by-laws of the Company                which                are incorporated herein by reference from the Amendment on Form 8K                to                the annual report on Form 10-K of the Company for the fiscal year                ended                January 2, 1982 previously filed with the Commission; (b) Exhibit                31 -                Rule 13a-14(a) certifications; and (c) Exhibit 32 - Section 1350                certifications. |
|----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     |   | BURKE                MILLS, INC.                   |
|-------------------------------------|--------|----------------------------------------------------|
| Date:                April 12, 2007 |   |                                               |
|                                     | By:    |  /*s/                Humayun N. Shaikh*  |
|                                |   | Humayun                N. Shaikh                   |
|                                     |   | Chairman                of the Board               |
|                                     |   | (Principal                Executive Officer)       |
|                                     |   |                                               |

|                                       |   |                                                             |
|---------------------------------------|--------|-------------------------------------------------------------|
| Date:                  April 12, 2007 | By:    |                  */**s/                Thomas I. Nail* |
|                                       |   | Thomas                I. Nail                               |
|                                       |   | President                and COO                            |
|                                       |   | (Principal                Financial Officer)                |
|                                  |   |                                                        |

----

| Date:                April 12, 2007 |   | By:                */**s/Humayun                N. Shaikh*       |
|-------------------------------------|--------|------------------------------------------------------------------|
|                                |   | Humayun                N. Shaikh, Director                       |
|                                     |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
| Date:                April 12, 2007 |   | By:*/**s/Thomas                  I. Nail*                        |
|                                |   | Thomas                I. Nail, Director                          |
|                                     |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
| Date:                April 12, 2007 |   | By:*/**s/Richard                  F. Byers*                      |
|                                |   | Richard                F. Byers, Director                        |
|                                     |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
| Date:                April 12, 2007 |   | By:                  */**s/Robert                  P. Huntley*   |
|                                |   | Robert                P. Huntley, Director                       |
|                                     |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
| Date:                April 12, 2007 |   | By:*/**s/William                  T. Dunn*                       |
|                                |   | William                T. Dunn, Director                         |
|                                     |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
| Date:                April 12, 2007 |   | By:                  */**s/Robert                  T. King*      |
|                                |   | Robert                T. King, Director                          |
|                                     |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
|                                |   |                                                             |
| Date:                April 12, 2007 |   | By:                  */**s/Aehsun                  Shaikh*  |
|                                |   | Aehsun                Shaikh, Director                           |
|                                     |   |                                                             |

----

| (3)(i)  |        | Articles                of Incorporation - Incorporated by reference |
|---------|--------|----------------------------------------------------------------------|
|    |   |                                                                 |
| (ii)    |        | Bylaws                - Incorporated by reference                    |
|    |   |                                                                 |
| (14)    |        | Code                of Ethics                                        |
|    |   |                                                                 |
| (31)(1) |        | Rule                13a - 14(a)/15d - 14(a) Certifications           |
|    |   |                                                                 |
| (32)    |        | Section                1350 Certifications                           |