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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                            For the Fiscal Year Ended
                                December 31, 2005

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

                         For the transition period from
                     _________________ to _________________

                           Commission File No. 0-5680

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

                  State or other jurisdiction of incorporation
                                or organization:
                                 North Carolina

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

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

Securities registered pursuant to Section 12(b) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Exchange Act. Yes __ No X

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ___ No X

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. Large accelerated filer ____
Accelerated Filer ___ Non-accelerated filer X

The aggregate market value of the voting common stock (the registrant has no
non-voting equity) held by non-affiliates of the registrant (computed by
reference to the average bid and asked price as of the last business day of the
registrant's most recently completed second fiscal quarter) was $1,218,602.

The number of shares outstanding of the registrant's only class of common stock
as of March 3, 2006 is 2,741,168 shares.

Page 1


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  Company's  proxy  statement  related to the annual  meeting of
shareholders  of the Company  scheduled  for May 16, 2006,  which is to be filed
pursuant to  Regulation  14A not later than 120 days after the end of the fiscal
year covered by this report,  are  incorporated by reference in Part III of this
report.

Page 2


<PAGE>


                                TABLE OF CONTENTS


                                                             Page Number
                                                             -----------
       Item 1 - Business . . . . . . . . . . . . . . . . . . .   4

       Item 1A- Risk Factors.  . . . . . . . . . . . . . . . .   6

       Item 1B- Unresolved Staff Comments. . . . . . . . . . .   6

       Item 2 - Properties . . . . . . . . . . . . . . . . . .   7

       Item 3 - Legal Proceedings. . . . . . . . . . . . . . .   7

       Item 4 - Submission of Matters to a Vote of Security
                Holders. . . . . . . . . . . . . . . . . . . .   7

       Item 5 - Market for the Registrant's Common Equity,
                Related Stockholder Matters, and Issuer
                Purchases Of Equity Securities . . . . . . . .   7

       Item 6 - Selected Financial Data. . . . . . . . . . . .   8-9

       Item 7 - Management's Discussion and Analysis of Financial
                Condition and Results of Operations. . . . . .   9

       Item 7A- Quantitative and Qualitative Disclosures about
                Market Risk. . . . . . . . . . . . . . . . . .   18

       Item 8 - Financial Statements and Supplementary Data
                (Report of Independent Registered Public
                Accounting Firm) . . . . . . . . . . . . . . .   18-19

       Financial Statements
                Condensed Balance Sheets . . . . . . . . . . .   20
                   December 31, 2005 and January 1, 2005

                Condensed Statements of Operations.  . . . . .   21
                   December 31, 2005, January 1, 2005,
                      and January 3, 2004

                Statements of Changes in
                   Shareholders' Equity. . . . . . . . . . . .   22

                Statements of Cash Flows . . . . . . . . . . .   23
                   December 31, 2005, January 1, 2005,
                      and January 3, 2004


       Notes to Condensed Financial Statements . . . . . . . .   24

       Item 9 - Changes in and Disagreements with Accountants
                Accounting and Financial Disclosure. . . . . .   34

       Item 9A- Controls and Procedures. . . . . . . . . . . .   34

       Item 9B- Other Information. . . . . . . . . . . . . . .   34

       Item 15- Exhibits and Financial Statement Schedules . .   35-36
                  Schedule II Valuation and Qualifying Accounts  35

       Signatures. . . . . . . . . . . . . . . . . . . . . . .   36-37

       Exhibit Table . . . . . . . . . . . . . . . . . . . . .   38

       Exhibit 14 Code of Ethics . . . . . . . . . . . . . . .   39

       Certifications. . . . . . . . . . . . . . . . . . . . .   40-42


Page 3



<PAGE>


                                BURKE MILLS INC.
                                     PART I

ITEM 1 - BUSINESS
------------------
   (a)  General  Development of  Business  - During  2005 the  Company's general
development  of business  consisted of  continuing to expand its product line to
other  fibers,   development   of  specialty   products,   reducing   cost,  and
strengthening its balance sheet.

   During 2005,  the Company  added new  customers  but  continued to experience
a decline in sales to existing customers  due to  competition  from  imports and
erosion in customers'  credit.  It also implemented cost cutting measures mainly
through  personnel  reductions in the third quarter,  and entered into a line of
credit agreement in the fourth quarter.

   (b) Financial Information about Industry  Segments - The Company had only one
industry segment during the fiscal year ended December 31, 2005.

   (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.

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

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

   The methods of distribution of the Company's  products consist of the efforts
of the Company's sales force which makes contact with  existing and  prospective
customers.  The  Company  markets its  products  throughout  the United  States,
Caribbean  Basin,  Mexico  and  Canada,  with  the  bulk of the  business  being
primarily in the eastern United States, through three salesmen employed directly
by the Company on salary and a number of  commissioned  sales agents  working on
various accounts.

   The dollar amount of backlog of unshipped  orders as of December 31, 2005 was
$2,149,000 and as of January 1, 2005 was  $2,090,000.  Generally,  all orders in
backlog at the end of a year are shipped  the  following  year.  The backlog has
been calculated by the Company's  normal practice of including  orders which are
deliverable  over  various  periods  and which may be changed or canceled in the
future.

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

   With  respect to the  practices of  the  Company  relating to working capital
items, the Company generally  arries enough inventory for approximately 42 days.
On average the Company turns its inventory approximately 7 to 9 times each year.
The Company meets its delivery  schedules on a consistent on-time basis, and has
a ready  supply of raw  materials  from  suppliers.  For the  fiscal  year ended
December 31, 2005  approximately  5% of the Company's sales were from dyeing and
processing  of yarn for  customers  who supplied the yarn.  The Company does not
allow customers to return merchandise except where the merchandise is defective.
The Company rarely extends payment terms to its customers beyond sixty (60) days
and  has  experienced  no  significant   problems  in  collecting  its  accounts
receivable.  The Company  believes that  industry  practices are very similar to
that of the Company in regard to these matters.

Page 4


<PAGE>


                            BURKE MILLS, INC. PART I

ITEM 1 - BUSINESS (continued)
------------------------------
   Substantially  all of  the  Company's  manufacturing  operations  are  run by
electrical  energy  purchased  from  local  utility  companies,  and fuel oil or
natural gas is used to heat the premises  and fuel the boilers.  The Company has
not experienced any shortages in electricity, oil or gas during the fiscal year,
and has made no other arrangements for alternate sources of energy. While energy
related  difficulties  are not  expected to prevent the Company  from  achieving
desired production  levels,  energy shortages of extended duration could have an
adverse impact on operations.

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

   The Company believes its manufacturing operations are in compliance with all
presently  applicable  federal,  state and local legislative and  administrative
regulations concerning environmental protection; and, although it cannot predict
the effect that future changes in such  regulations  may have,  particularly  as
such changes may require capital  expenditures or affect  earnings,  it does not
believe that any competitor subject to the same or similar regulations will gain
any  significant  and  competitive  advantages  as a result of any such changes.
Compliance  by the Company  during the fiscal year ended  December 31, 2005 with
federal, state and local environmental protection laws had no material effect on
capital expenditures, earnings, or the competitive position of the Company.

   During 1996 in  connection  with a bank  loan to the Company  ecured  by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property.  The  assessment  indicated  the  presence  of a  contaminant  in  the
groundwater under the Company's property.  The contaminant was a solvent used by
the Company in the past but no longer used.  The  contamination  was reported to
the North Carolina  Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed.  The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR.  The Company has identified  remediation  issues and
continues  to move  toward  a  solution  of  natural  attenuation.  The  cost of
monitoring is approximately $11,000 per year.

   On  January 30, 2006,  the Company  had  149  employees.  The  Company's yarn
division is its only  division.  During the fiscal year ended  December 31, 2005
sales to two customers, Quaker Fabric Corporation and Culp Weaving, exceeded ten
percent of the Company's revenue.  Quaker  Fabric Corporation was 15.9% of total
revenues in 2005,  20.7% in 2004,  and  25.5% in 2003.  Culp  Weaving  was 11.8%
of total revenues in 2005,  11.8% in 2004, and 9.7% in 2003.  The loss of either
customer would have a material  adverse  effect on the Company in the short run,
but the Company believes that it would be able to  replace the  business  within
a reasonable time.

   The company owns 49.8% of Fytek, S.A. de C.V. (Fytek), a Mexican corporation.
Fytek began  operations in the fourth quarter of 1997. The company  accounts for
the  ownership  using the  equity  method.  The  Company  and its joint  venture
partner, Akra, voted on March 26, 2004 to close their joint venture,  Fytek. The
joint venture  operated on a scaled down basis through  mid-August 2004. In 2005
the Company and its joint venture partner  continued  liquidation of Fytek.  The
Company has received  approximately  $325,000 cash distribution through year end
2005. Burke Mills does not guarantee any debt for its joint venture.

   (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:


Page 5


<PAGE>


                            BURKE MILLS, INC. PART I

                                   2005            2004              2003
    Country of
      Domicile -  U.S.         $24,910,000     $24,612,000       $23,563,000
                  Mexico           115,000          67,000           272,000
                  Canada            15,000          15,000               -0-
                  Honduras         155,000         406,000           980,000
                  Barbados          11,000             -0-               -0-
                  Turkey               -0-           1,000               -0-
                  Hong Kong         47,000          33,000               -0-
                               -----------     -----------       -----------
       Total..........         $25,253,000     $25,134,000       $24,815,000

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

   (e) Available Information. No report required.

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

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


ITEM 1A. RISK FACTORS
---------------------
Risk factors applying to the Company and its business are as follows:

   (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 o
products.  The Company, whose  ustomers 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
has had a net loss.

(   d) Sales of the Company for the fiscal year  ended  December  29,  2001 were
$37,194,240.00.  Sales have declined since that year, dropping to $24,814,941.00
for the fiscal year ended January 3, 2004. Sales for the last fiscal year of the
Company just ended were $25,143,775.00.

   (e) The market for the commons stock of the Company is not favorable.  During
2005,  the  stock of the  Company  was bid at a high bid of $1.30  per share and
steadily  declined through the year to close the year at a high bid of $0.60 per
share.


ITEM 1B. UNRESOLVED STAFF COMMENTS
----------------------------------
No report required.

Page 6


<PAGE>


                            BURKE MILLS, INC. PART I

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

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

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

The approximate  maximum capacity in pounds per year of the Company's  machinery
and equipment,  based upon operating the machinery and equipment  seven (7) days
per  week  fifty  (50)  weeks  per  year,  and  the  approximate  percentage  of
utilization  thereof  during the  fiscal  year ended  December  31,  2005 are as
follows:

                              Pounds/Year 2005
     Department                  Capacity         Utilization
     ----------                  --------         -----------
     Winding Machines            21,961,000           9%
     Texturing Machines             816,000          27%
     Dyeing Equipment            25,800,000          35%


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


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


                                     PART II
                                   ----------

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
-----------------------------------------------------------------------
   (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 31, 2005, and
on the latest practicable date (as obtained from Commodity Systems,  Inc.) is as
follows:


Page 7


<PAGE>


                           BURKE MILLS, INC. PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES (continued)
-----------------------------------------------------------------------
             Quarter Ending
                 2005                 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

             Quarter Ending
                 2004                 High Bid         Low Bid
             --------------           --------         -------
               March 31                $1.29            $1.01
               June 30                 $1.60            $1.06
               September 30            $1.50            $1.26
               December 31             $1.50            $1.10

               February 2, 2006        $0.65            $0.65

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

(   b) As of February 2,  2006 there  were 324  holders of  record of the common
stock of the Company.

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

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


ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
The following  selected  financial data set forth for the last five fiscal years
of the Company have been derived from the audited  financial  statements  of the
Company.  The data should be read in conjunction with  "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations"  and the audited
financial  statements and related notes thereto and other financial  information
included therein.
                                    (in thousands except per share data)
                                                Years Ended
                                  ----------------------------------------
                                 Dec. 31   Jan. 1   Jan. 3   Dec. 28   Dec. 29
                                  2005      2005     2004     2002      2001
                                  ----      ----    -----     ----      ----
SELECTED INCOME STATEMENT DATA
  Net Sales                     $25,253   $25,134  $24,815   $29,990   $37,194
  Cost of Sales                  25,144    24,546   24,237    27,968    33,711
                                -------   -------  -------   -------   -------
  Gross Profit                  $   109   $   588  $   578   $ 2,022   $ 3,483
                                -------   -------  -------   -------   -------
  Income (loss) before income
     taxes                      $(1,922)  $(2,106) $(2,222)  $  (641)  $   487
  Income Taxes (credit)             -0-      (399)    (638)     (322)      172
                                --------  -------- --------  --------  -------
  Net Income (loss)             $(1,922)  $(1,707) $(1,584)  $  (319)  $   315
                                ========  ======== ========  ========  =======
  Per Share (Note A)
    Net income (loss)           $  (.70)  $  (.62) $  (.58)  $  (.12)  $   .11
                                ========  ======== ========  ========  =======
Page 8


<PAGE>


                            BURKE MILLS, INC. PART II

ITEM 6. SELECTED FINANCIAL DATA (continued)
-------------------------------------------
  Cash dividends declared
         Per common share        None      None      None      None      None
                                =======   =======   =======   =======   ======
  Weighted average number
    of common shares outstanding  2,741     2,741     2,741     2,741    2,741
                                 ======   =======   =======   =======   ======

SELECTED CASH FLOW DATA
  Capital expenditures          $   312   $    72   $   127   $   888   $   388
                                =======   =======   =======   =======   =======
  Depreciation                  $ 1,674   $ 1,779   $ 2,010   $ 2,055   $ 2,203
                                =======   =======   =======   =======   =======

SELECTED BALANCE SHEET DATA
  Current assets                $ 4,728   $ 5,135   $ 4,445   $ 8,670   $10,132
  Current liabilities             1,630     1,676     1,181     2,482     3,322
                                -------   -------   -------   -------   -------
  Working capital               $ 3,098   $ 3,459   $ 3,264   $ 6,188   $ 6,810
                                =======   =======   =======   =======   =======
  Current ratio                    2.89      3.06      3.76      3.49      3.05
                                   ====      ====      ====      ====      ====
  Total assets                  $ 9,504   $11,472   $13,078   $20,225   $22,803
                                =======   =======   =======   =======   =======
  Long-term debt                $   -0-   $   -0-   $   -0-   $ 2,920   $ 4,098
                                =======   =======   =======   =======   =======
  Net deferred tax liability    $   -0-   $   -0-   $   394   $ 1,735   $ 1,977
                                =======   =======   =======   =======   =======
  Shareholders' equity          $ 7,874   $ 9,796   $11,503   $13,088   $13,406
                                =======   =======   =======   =======   =======

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


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

EXECUTIVE SUMMARY
-----------------
The  Company's  major  market is  supplying  packaged  dyed yarn to knitters and
weavers for apparel, home furnishings,  home upholstery,  automotive upholstery,
contract upholstery and some specialty products.

The company  continued to add  customers in 2005, as it  diversified  into other
fibers. New customers added in 2004 also accounted for more sales.  Although the
Company has added new customers  for the last two years,  sales remain about the
same as older customers' sales have declined.  The three major reasons for their
decline are credit problems,  bankruptcies,  and competition  from imports.  The
Company  believes  that  there  will  be a  continuing  decline  in  demand  for
domestically  made  furniture due to increased  imports,  and that the Company's
sales into that market will follow the decline.

In  September  2005  the  polyester   yarn  suppliers   placed  a  surcharge  of
approximately  12% on all polyester yarns. The surcharge was caused by Hurricane
Katrina's  disruption of the oil refineries in the Gulf Coast area that produced
the  chemicals  used to produce  polyester.  The surcharge was removed in stages
during the fourth  quarter,  but was replaced  with a price  increase in January
2006 of approximately 4%. Another price increase of approximately 4.5% went into
effect on March 1, 2006.  The Company  adjusted its pricing  accordingly  to its
customers for the surcharge and the price increases.

In September  2005 the Company also had a general price  increase to help offset
the increased cost of natural gas, fuel oil,  transportation and other materials
that are related to petroleum.

Page 9


<PAGE>


                            BURKE MILLS, INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
EXECUTIVE SUMMARY (continued)
-----------------------------
During  the third  quarter,  the  Company  reduced  personnel  and other cost by
approximately $500,000 annually.

On December 1, 2005 the Company obtained a line of credit up to $5,000,000 based
on a percentage of accounts receivable and inventory.

In the fourth  quarter the remaining  machines at the Company's  joint  venture,
Fytek, were sold for $105,000.

The Company's balance sheet remains strong with no long-term debt.

The  following  table  sets  forth  selected  operating  data of the  Company as
percentages of net sales for the periods indicated.

                                        Relationship to Total Revenue
                                             For the Year Ended
                                       ------------------------------
                                        Dec. 31     Jan. 1     Jan. 3
                                          2005       2005       2004
                                        -------    -------    -------
Net Sales                                100.0%     100.0%     100.0%
Cost of Sales                             99.6       97.7       97.7
                                        -------    -------    -------
Gross profit margin                        0.4        2.3        2.3

Selling, general, administrative           8.0       10.0       10.8
                                        -------    -------    -------
Operating loss                            (7.6)      (7.7)      (8.5)
Other income                               0.3        0.1        0.4
Other expenses                             0.0        0.0       (0.6)
                                        -------    -------    -------
Loss before income taxes and
  net equity in affiliates                (7.3)      (7.6)      (8.8)
Income taxes (credit)                      0.0       (1.6)      (2.6)
                                        -------    -------    -------
                                          (7.3)      (6.0)      (6.2)
Equity (Loss) in Net Earnings
  Of Affiliate                            (0.3)      (0.8)      (0.2)
                                        -------    -------    -------
Net Loss                                  (7.6)%     (6.8)%    (6.4)%
                                        =======    =======    =======


                  Results of Operations: 2005 Compared to 2004
                  --------------------------------------------
Net Sales
----------
Net sales for 2005 increased to $25.3 million from $25.1 million or .4%.  During
the year the Company  continued to expand into other fibers and added customers.
Customers added during 2004 also contributed to the increase in sales.  Although
the Company added new customers for the last two years, sales remained about the
same as older  customer's  sales have declined.  Five customers  accounted for a
decrease in sales of $3.1 million. The major reasons for their decrease in sales
are bankruptcy,  credit problems, and competition from imports. The Company also
passed  the  price  increases  on  polyester  yarn  to its  customers  as  price
increases.

Cost of Sales and Gross Margin
-------------------------------
Total cost of sales increased $598,000 or 2.4%.

Material  cost  increased  by 4.2%  mainly  as a result  of price  increases  on
polyester yarns and sales mix.

Page 10


<PAGE>


                            BURKE MILLS INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
            Results of Operations: 2005 Compared to 2004 (continued)
            --------------------------------------------------------
Cost of Sales and Gross Margin (continued)
-------------------------------------------
In  September  2005  the  polyester   yarn  suppliers   placed  a  surcharge  of
approximately  12% on all polyester yarns. The surcharge was caused by Hurricane
Katrina's  disruption of the oil refineries in the Gulf Coast area that produced
the  chemicals  used to produce  polyester.  The surcharge was removed in stages
during the fourth  quarter,  but was replaced  with a price  increase in January
2006 of approximately  4%. The Company  adjusted its pricing  accordingly to its
customers for the surcharge and the January increase. Another price increase was
announced for March 2006 of approximately 4.5%.

Direct labor decreased by 2.2% mainly due to sales mix and better  management of
labor cost.

Manufacturing  overhead  cost  increased  by 1.5%  primarily  as a result of the
following:

(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 2006.

(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.

(c) 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.

(d) 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.

The above cost increases were somewhat offset by the following:

(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.

As a result of an increase in sales of .4%,  and an increase in cost of sales of
2.4%, the Company's gross margin decreased to .4% compared to 2.3% in 2004.

Selling, General and Administrative Expenses
-------------------------------------------
Selling,  general and administrative expenses decreased by 5.3% primarily due to
the elimination of the factoring  charges of $102,000 and cost reduction program
in the third quarter of 2005.

Gain on Disposal of Property Assets
-----------------------------------
The Company sold its fully depreciated machinery located at its joint venture in
Mexico. In the first quarter of 2005 the Company received  $101,000,  and in the
fourth quarter received $105,000 from the sale of this machinery.

Equity in Net Loss of Affiliate
-------------------------------
The Company's joint venture,  Fytek,  had a net loss of $464,000 on discontinued
operations.  The Company's portion of the loss is $232,000, but only $21,000 was
recorded  as the  investment  in  affiliate  was  reduced to zero.  The  Company
received  $175,000 in the second quarter of 2005 as a distribution  of cash from
the liquidation.

Page 11


<PAGE>


                            BURKE MILLS INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
            Results of Operations: 2005 Compared to 2004 (continued)
            --------------------------------------------------------
Provision (Credit) for Income Taxes
----------------------------------
There was no  provision  or credit for income  taxes in 2005  compared  to a net
credit of $399,000 in 2004. See Note 8 - Income Taxes.

Critical Accounting Policies and Estimates
------------------------------------------
The  preparation  of  financial   statements,   in  accordance  with  accounting
principles generally accepted in the United States,  requires management to make
assumptions  and  estimates  that  affect  the  reported  amounts  of assets and
liabilities  as of the balance  sheet date and revenues and expenses  recognized
and incurred  during the  reporting  period then ended.  In addition,  estimates
affect the  determination of contingent assets and liabilities and their related
disclosure.  The Company bases its  estimates on a number of factors,  including
historical  information  and other  assumptions  that it believes are reasonable
under the  circumstances.  Actual results may differ from these estimates in the
event there are changes in related  conditions or  assumptions.  The development
and  selection of the disclosed  estimates  have been  discussed  with the Audit
Committee  of the Board of  Directors.  The  following  accounting  policies are
deemed to be  critical,  as they require  accounting  estimates to be made based
upon matters that are highly uncertain at the time such estimates are made.

The Company is self-funded for its employee health claims. The health claims are
paid by the Company after review by the Company's third party administrator. The
Company's liability for health claims includes claims that the Company estimates
have been  incurred,  but not yet presented to the  administrator.  A historical
basis is used to establish the amount.

The Company  reviews its inventory and when necessary  records the impairment in
the  carrying  value of  obsolete  and slow  moving  items.  The  impairment  is
determined by aging the  inventory,  reviewing the inventory  with the salesmen,
and determining a salvage value.

The Company  reviews its net  deferred  tax asset and when  necessary  records a
valuation  allowance  to  adjust  the asset to an  amount  believed  realizable.
Consideration  is  given to  estimated  future  taxable  income,  expiration  of
operating  loss  carryforwards,  and  expiration of tax credits to determine the
amount of the valuation allowance.

Recent Accounting Pronouncements
--------------------------------
In December  2004,  the FASB issued FASB Staff  Position No. 109-1 ("FSP FAS No.
109-1"),  "Application of FASB Statement No. 109, `Accounting for Income Taxes,'
to the Tax Deduction on Qualified Production Activities Provided by the American
Jobs Creation Act of 2004." The American Jobs Creation Act of 2004  introduces a
special tax  deduction  of up to 9.0 percent when fully phased in, of the lesser
of "qualified  production  activities  income" or taxable income.  FSP FAS 109-1
clarifies  that this tax  deduction  should be  accounted  for as a special  tax
deduction in  accordance  with SFAS No. 109. FSP FAS No. 109-1 has had no impact
on our financial statements.

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs", an amendment
of Accounting  Research  Bulletin No. 43,  Chapter 4. SFAS No. 151 clarifies the
accounting  for abnormal  amounts of idle facility  expense,  freight,  handling
costs and  wasted  material.  SFAS No.  151 is  effective  for  inventory  costs
incurred during fiscal years beginning after June 15, 2005.  Management believes
adoption  of SFAS  No.  151 will not have a  material  effect  on our  financial
position, results of operations or cash flows.

Page 12


<PAGE>


                            BURKE MILLS, INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
Recent Accounting Pronouncements (continued)
--------------------------------------------
In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,  an  amendment  of APB  Opinion  No.  29." SFAS No.  153 is based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair  value of the  assets  exchanged.  APB  Opinion  No.  29,  "Accounting  for
Nonmonetary  Transactions,"  provided  an  exception  to its  basic  measurement
principle  (fair value) for exchanges of similar  productive  assets.  Under APB
Opinion No. 29, an exchange of a productive asset for a similar productive asset
was  based on the  recorded  amount  of the  asset  relinquished.  SFAS No.  153
eliminates  this  exception  and  replaces it with an  exception of exchanges of
nonmonetary  assets  that do no  have  commercial  substance.  SFAS  No.  153 is
effective  for the  Company as of January 1, 2005.  The  Company  will apply the
requirements of SFAS No. 153 when such an exchange occurs.

In December 2004, the FASB issued SFAS No. 123 (revised), "Share-Based Payment."
Statement  123  (revised)  replaced SFAS No. 123,  "Accounting  for  Stock-Based
Compensation,"  and supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to  Employees."  Statement  123  (revised)  covers a wide  range of  share-based
compensation  arrangements  and requires that the  compensation  cost related to
these types of payment transactions be recognized in financial statements.  Cost
will be measured based on the fair value of the equity or liability  instruments
issued. Statement 123 (revised) becomes effective for years beginning after June
15, 2005.  SFAS No. 123 will have no affect on the Company as the Company has no
share-based payments,  and the Board does not anticipate any share-based payment
programs.

In January 2003, the FASB issued  Interpretation  ("FIN") No. 46, "Consolidation
of Variable  Interest  Entities" and in December 2003, a revised  interpretation
was issued (FIN No. 46, as  revised).  In general,  a variable  interest  entity
("VIE") is a corporation,  partnership, trust, or any other legal structure used
for business  purposes  that either does not have equity  investors  with voting
rights  or has  equity  investors  that  do  not  provide  sufficient  financial
resources  for the entity to support  its  activities.  FIN No. 46, as  revised,
requires a VIE to be  consolidated by a company if that company is designated as
the  primary  beneficiary.  The  interpretation  applies to VIEs  created  after
January 31, 2003,  and for all financial  statements  issued after  December 15,
2003 for VIEs in which an enterprise  held a variable  interest that it acquired
before February 1, 2003. The adoption of FIN No. 46, as revised,  did not have a
material effect on our financial position or results of operations.

In May 2005,  the FASB issued  Statement of Financial  Accounting  Standards No.
154, Accounting Changes and Error Corrections - a replacement of APB Opinion No.
20 and FASB Statement No. 3 ("SFAS 154").  SFAS 154 changes the requirements for
the accounting for and reporting of a change in accounting  principle.  SFAS 154
applies  to all  voluntary  changes in  accounting  principles,  and  applies to
changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. SFAS 154 requires
retrospective  application to prior period financial  statements for a change in
accounting  principle.   Previously,   a  change  in  accounting  principle  was
recognized  by  including  the change in net income in the period of the change.
SFAS 154 is effective for fiscal years  beginning  after  December 15, 2005. The
Company  is  currently  reviewing  SFAS 154,  and at the  current  time does not
believe  that SFAS 154 will have a material  impact on the  financial  position,
results of operations or cash flows.




Page 13


<PAGE>


                            BURKE MILLS, INC. PART II

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

                  Results of Operations: 2004 Compared to 2003
                  --------------------------------------------
Net Sales
----------
Net sales for 2004  increased  to $25.1  million  from $24.8  million in 2003 or
1.3%.  During  the year  the  Company  expanded  into  other  fibers  and  added
customers. New customers accounted for approximately $1.7 million in sales, with
most of these  sales  occurring  after the first  quarter.  The  increase in new
customer sales was partially offset by a decline in sales to existing customers,
who are experiencing competition from imports and credit problems.

Cost of Sales and Gross Margin
-------------------------------
Total cost of sales increased by $309,000 or 1% compared to 2003.

Material  cost  increased  by 2% mainly as a result of  increased  sales,  price
increases, and sales mix.

Direct labor  increased by 4% as a result of increased  sales and erratic  order
flow.

Overhead expense  decreased by .7% compared to 2003.  Health claims increased by
23%,  electricity cost increased by 4%. Repair and maintenance cost increased by
12%, and water increased by 11%. Depreciation expense decreased by 12%.

Selling, General and Administrative Expenses
-------------------------------------------
Selling, general and administrative expenses decreased by 2%.

Loss on Disposal of Property Assets
-----------------------------------
In 2004 the Company wrote off equipment as non-performing assets with a net book
value of $198,000.  Sales volume  related to the  equipment  decreased,  and the
Company will not pursue volume for the machinery in the future.

Equity in Net Loss of Affiliate
-------------------------------
The Company and its joint venture partner, Teijin/Akra,  voted on March 26, 2004
to close their joint venture, Fytek. In the third quarter the Company received a
partial  distribution  of $150,000 from Fytek.  The Company  estimates  that the
remaining disbursements from Fytek could be approximately  $196,000.  Therefore,
the  Company has written  down its Fytek  investment  by $207,000 to reflect the
estimate.  Fytek is in the process of liquidating  its assets and collecting the
accounts  receivable.  It could be into the first  quarter  of 2005  before  all
assets are  liquidated  and  accounts  receivable  are  collected.  The  Company
believes its estimate  for the final  distribution  is fair based on its current
knowledge of the facts. The final disbursement could vary from this estimate.

Credit for Income Taxes
----------------------
The Company  recorded a credit of $399,000 for income taxes on a net loss before
taxes of $2,107,000. This compares to a net credit of $638,000 in 2003 for a net
loss before taxes of $2,223,000. See Note 8 - Income Taxes.


Page 14


<PAGE>


                            BURKE MILLS INC. PART II

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

                Results of Operations 2005 - 2003 Sales Analysis
                -------------------------------------------------
The table below sets forth an  analysis  of sales  volume for the period 2003 to
2005,  inclusive.  Unit prices for commission sales have varied based on mix and
market conditions.

The  increase in full yarn average  sales prices is a result of price  increases
and sales mix.

                                                    % of       Sales $
                                     % of         Pounds of    Per
                                   Net Sales      Yarn Sold    Pound
                                   ---------      ---------    -------
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%
                                     ====           ====
2003:
     Yarn sales                       97%            97%       $2.61
     Commission sales                  3              3        $2.78
                                     ----           ----
            Total                    100%           100%
                                     ====           ====

Liquidity and Capital Resources
-------------------------------
In 2005 and 2004 the Company  financed its operations  with funds generated from
its operations.

The Company's ability to generate cash from its operating  activities is subject
to the level of net sales. As discussed earlier, the Company continues to expand
into other fibers and add customers.

As set  forth in the  Statement  of Cash  Flows,  funds  provided  by  operating
activities were $34,000.  The funds provided reflect the net loss and a decrease
in accounts receivable and inventory.

The Company had net inventories of $1,684,000 at December 31, 2005, and averaged
$1,843,000 for 2005. The Company has improved  inventory turns from 5 in 2000 to
7.5 in 2004, and to 8.5 in 2005.

During the first  quarter  of 2005,  the  Company  moved its  factored  accounts
receivable  in-house,  eliminating  its  factoring  agreement.  Cash  flow  from
accounts  receivable has improved since it was moved  in-house.  The Company has
saved approximately $103,000 from elimination of the factor's charges.

Cash provided by investing activities was $75,000. The Company used $312,000 for
capital  expenditures  versus $72,000 in 2004. Planned capital  expenditures for
2006 are approximately  $150,000. The sale of company owned machinery located at
Fytek  provided  $212,000,  and proceeds from the  liquidation of Fytek provided
$175,000. The $387,000 received for the sale of machinery and the liquidation of
Fytek was a one time occurrence and will not repeat in 2006.


Page 15


<PAGE>


                            BURKE MILLS INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
Liquidity and Capital Resources (continued)
--------------------------------------------
Although  the Company has not used a credit line in about two years,  it entered
into an agreement  on December 1, 2005 for a line of credit.  The Company had no
debt under the line of credit at  year-end,  and the  unused  line of credit was
approximately $2,100,000. See Note 6 Line of Credit.

The Company's  working  capital at December 31, 2005 decreased by  approximately
$361,000  primarily  as a  result  of a  decrease  in  accounts  receivable  and
inventory.  The working capital of the Company and its line of credit are deemed
adequate for the  operational  needs of the Company.  The  following  table sets
forth the Company's  working  capital and working capital ratios as of the close
of the last three years:

                                      2005         2004         2003
                                      ----         ----         ----
     Working Capital               $3,098,000   $3,459,000   $3,264,000
     Working Capital Ratio          2.89 to 1    3.06 to 1    3.76 to 1


As a measure of current  liquidity,  the Company's  quick position  (cash,  cash
equivalents and receivables over current liabilities) discloses the following at
December 31, 2005 and January 1, 2005:

                                     December 31       January 1
                                       2005              2005
                                       ----              ----
     Cash, cash equivalents
         and receivables            $2,995,000        $3,381,000
     Current liabilities             1,630,000         1,676,000
                                    ----------        ----------

     Excess of quick assets
         over current liabilities   $1,365,000        $1,705,000
                                    ==========        ==========
     Quick Ratio                     1.83 to 1         2.02 to 1

Contractual Obligations
-----------------------
The following is a summary of the Company's known contractual  obligations as of
the latest fiscal year end on December 31, 2005.

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

Long-Term Debt
   Obligations         $ -0-        $ -0-       $ -0-       $ -0-      $ -0-

Capital Lease
   Obligations         $ -0-        $ -0-       $ -0-       $ -0-      $ -0-

Operating Lease
   Obligations         $   92,000   $  57,000   $ 35,000    $ -0-      $ -0-

Purchase Obligations/
   Commitments         $1,308,000   $1,308,000  $ -0-       $ -0-      $ -0-


Page 16


<PAGE>


                            BURKE MILLS INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
Contractual Obligations (continued)
-----------------------------------
                                            Payments due by period
                                    -------------------------------------------
                                     Less                                More
                                     than 1      1-3         3-5         than 5
                        Total        year        years       years       years
                        ------       ------      -----       -----       -----
Raw Material Purchase
   Obligations(1)      $24,000,000  $4,500,000  $9,500,000  $10,000,000  $ -0-

Other Long-Term Liabilities
   Reflected under GAAP on
   the Company's Balance
   Sheet               $  -0-       $  -0-      $ -0-       $ -0-        $ -0-

TOTAL                  $25,400,000  $5,865,000  $9,535,000  $10,000,000  $ -0-

(1)Estimated obligations that will change with demand.

Environmental Matters
---------------------
During  1996 in  connection  with a bank  loan to the  Company  secured  by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property.  The  assessment  indicated  the  presence  of a  contaminant  in  the
groundwater under the Company's property.  The contaminant was a solvent used by
the Company in the past but no longer used.  The  contamination  was reported to
the North Carolina  Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed.  The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR.  The Company has identified  remediation  issues and
continues  to move  toward  a  solution  of  natural  attenuation.  The  cost of
monitoring is approximately $11,000 per year.

Inflation
----------
The Company is experiencing increased costs for property and liability insurance
and in officer and  director  insurance  as a result of  inflationary  insurance
markets,  which were also  negatively  impacted from the events of September 11,
2001 and recent accounting scandals.

The healthcare  cost for  reinsurance has increased as well as health claims per
employee.

The Company's fuel oil and natural gas prices have increased over the last three
years.

Textured  polyester  yarns  increased by  approximately  24% in 2005.  Also,  in
January 2006 some major  suppliers of natural yarn announced  price increases of
approximately 5% to 10%.

Forward Looking Statements
---------------------------
Certain  statements in this  Management's  Discussion  and Analysis of Financial
condition and Results of Operations,  and other sections of this report, contain
forward-looking  statements within the meaning of federal  securities laws about
the Company's  financial  condition and results of operations  that are based on
management's current expectations, beliefs, assumptions, estimates


Page 17


<PAGE>


                            BURKE MILLS INC. PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS
-------------------------------------------------------------------
Forward Looking Statements (continued)
---------------------------------------
and projections about the markets in which the Company  operates.  Words such as
"expects", "anticipates",  "believes", "estimates", variations of such words and
other  similar  expressions  are  intended  to  identify  such   forward-looking
statements.  These  statements  are not  guarantees  of future  performance  and
involve  certain  risks,  uncertainties  and  assumptions  that are difficult to
predict.  Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such  forward-looking  statements.
Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements,  which reflect management's judgment only as of the date hereof. The
Company   undertakes   no   obligations   to  update   publicly   any  of  these
forward-looking  statements  to  reflect  new  information,   future  events  or
otherwise.

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------
The Company has not  purchased  any  material  instruments  or entered  into any
arrangements resulting in market risk to the Company for trading purposes or for
purposes other than trading  purposes.  The Company had no long-term debt during
the fiscal year ended December 31, 2005.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Burke Mills, Inc.

We have audited the accompanying balance sheet of Burke Mills, Inc. (the
"Company") as of December 31, 2005 and the related statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. The
Company's audit also included the financial statement Schedule II listed in
Item 15. "Exhibits and Financial Statement Schedules".  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinioin on these financial statements and
schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not

Page 18


<PAGE>


                            BURKE MILLS INC. PART II

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
----------------------------------------------------------------
Report of Independent Registered Public Accounting Firm (continued)

required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Burke Mills, Inc. at December
31, 2005, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.


/s/Scott McElveen
Columbia, South Carolina
January 27, 2006, except for Note 16 as to which the date is March 21, 2006.
-------------------------------------------------------------------------------

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Burke Mills, Inc.

We have audited the accompanying balance sheets of Burke Mills, Inc. as of
January 1, 2005 and the related statements of operations, shareholders' equity,
and cash flows for each of the two years in the period ended January 1, 2005.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Burke Mills, Inc. at January 1,
2005, and the results of its operations and its cash flows for each of the two
years in the period ended January 1, 2005, in conformity with accounting
principles generally accepted in the United States of America.


/s/BDO SEIDMAN LLP
High Point, North Carolina
February 4, 2005

Page 19


<PAGE>


                                BURKE MILLS, INC.

                                 BALANCE SHEETS

                                               December 31     January 1
                                                  2005            2005
                                               -----------     ---------
             ASSETS
Current Assets
  Cash and cash equivalents                    $   425,812    $   316,745
  Accounts receivable                            2,568,838      3,064,365
  Inventories                                    1,684,132      1,640,983
  Prepaid expenses and other current assets         49,413        112,580
                                               -----------    -----------
Total Current Assets                             4,728,195      5,134,673
                                               -----------    -----------

Equity Investment in Affiliate                        -0-         196,300
                                               -----------    -----------
Property, plant & equipment - at cost           28,085,778     29,848,475
  Less: accumulated depreciation                23,326,789     23,724,193
                                               -----------    -----------
       Property, Plant and Equipment- Net        4,758,989      6,124,282
                                               -----------    -----------
Other Assets                                        16,575         16,575
                                               -----------    -----------
Total Assets                                   $ 9,503,759    $11,471,830
                                               ===========    ===========


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
  Accounts payable                             $ 1,434,169    $ 1,465,630
  Accrued salaries and wages                        69,272         72,447
  Other liabilities and accrued expenses           126,303        137,537
                                               -----------    -----------
Total Liabilities                              $ 1,629,744    $ 1,675,614
                                               -----------    -----------
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                              2,953,495       4,875,696
                                               -----------     -----------
         Total Shareholders' Equity              7,874,015       9,796,216
                                               -----------     -----------
                                               $ 9,503,759     $11,471,830
                                               ===========     ===========

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

Page 20


<PAGE>


                                BURKE MILLS, INC.

                            STATEMENTS OF OPERATIONS

                                              Years Ended
                                 ----------------------------------------
                                 December 31    January 1      January 3
                                    2005          2005           2004
                                 -----------   -----------    -----------
Net Sales                       $25,252,600    $25,133,683    $24,814,941
---------

   Cost of sales                 25,143,775     24,546,085     24,237,006
                                -----------    -----------    -----------
   Gross Profit                     108,825        587,598        577,935

   Selling, general and
       administrative expenses    2,226,739      2,350,520      2,400,335
   (Gain) loss on disposal of
    property assets                (208,989)       154,353        276,468
                                -----------    -----------    -----------
Operating Loss                   (1,908,925)    (1,917,275)     (2,098,868)
                                -----------    -----------    -----------
Other Income
  Interest income                     6,100          2,788         24,030
  Other, net                          2,308         33,811         67,720
                                -----------    -----------    -----------
      Total Other Income              8,408         36,599         91,750
                                -----------    -----------    -----------
Other Expenses
  Interest expense                      370          1,263         91,176
  Other, net                            -0-         17,790         64,944
                                -----------    -----------    -----------
Total Other Expenses                    370         19,053        156,120
                                -----------    -----------    -----------

Loss Before Benefit of
   Income Taxes and Equity
   in Loss of Affiliate          (1,900,887)    (1,899,729)    (2,163,238)

Income Tax Benefit                      -0-       (399,478)      (638,200)
                                -----------    -----------    -----------
Loss before Equity in Net
  Loss of Affiliate              (1,900,887)    (1,500,251)    (1,525,038)

Equity in Net Loss of
    Affiliate                       (21,314)      (206,892)       (59,095)
                                -----------    -----------    -----------
Net Loss                        $(1,922,201)   $(1,707,143)   $(1,584,133)
                                ===========    ============   ============

Basic
Net Loss per share              $     (.70)    $      (.62)   $      (.58)
                                ===========    ============   ============

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


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

Page 21


<PAGE>


                                BURKE MILLS, INC.

                              STATEMENTS OF CHANGES
                             IN SHAREHOLDERS' EQUITY
                            FOR THE THREE YEARS ENDED
                                DECEMBER 31, 2005

                                                                    Total
                     Shares     Common      Paid-In      Retained   Shareholders
                     Issued     Stock       Capital      Earnings   Equity
                     ------     ------      -------      --------   ------------
 Balance at
 Dec. 28, 2002     2,741,168  $1,809,171   $3,111,349   $8,166,972  $13,087,492

Net Loss
 for the year ended
 Jan. 3, 2004          -          -          -          (1,584,133)  (1,584,133)
                    ----------  ----------  ----------  -----------  -----------
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
                   ========== ==========   ===========  ===========  ===========


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

Page 22


<PAGE>


                                BURKE MILLS, INC.

                            STATEMENTS OF CASH FLOWS

                                                      Years Ended
                                           -----------------------------------
                                           Dec. 31        Jan. 1      Jan. 3
                                             2005          2005        2004
                                          -----------  ----------- -----------
Cash flows from operating activities:
  Net loss                               $(1,922,201)  $(1,707,143) $(1,584,133)
                                         ------------  ------------ ------------
Adjustments to reconcile net loss to net
   cash provided by operating activities:
     Depreciation                          1,674,433     1,779,135    2,010,674
     Allowance for doubtful accounts           3,253           -0-          -0-
     (Gain) loss on sales of plant &
         equipment, including loss on
         disposals                          (208,989)      154,353      276,468
     Provision for impairment of
         inventory                          (126,115)       54,084       96,000
     Deferred income taxes                       -0-      (394,000)    (638,200)
     Loss in net earnings of affiliate        21,314       206,892       59,095
Changes  in  assets  and  liabilities:
     Accounts receivable                     492,274      (699,081)     (96,195)
     Inventories                              82,966       185,410      119,386
     Prepaid expenses & other current
        assets                                63,167       (59,947)      61,367
     Accounts payable                        (31,461)      593,935     (225,436)
     Accrued salaries & wages                (20,575)       35,797      (46,798)
     Other liabilities & accrued expenses      6,166         6,725        7,817
                                          -----------   -----------  -----------
Total adjustments                          1,956,433     1,863,303    1,624,178
                                          -----------   -----------  ----------
Net cash provided by operating activities     34,232       156,160       40,045
                                          -----------   -----------  -----------
Cash flows from investing activities:
  Acquisition of property, plant
      and equipment                         (312,127)      (72,267)    (127,456)
  Proceeds from sales of plant
      and equipment                          211,977        77,316          -0-
  Proceeds from Investment in Affiliate      174,985       149,988          -0-
                                          -----------   -----------   ----------
Net cash provided (used) by
      investing activities                    74,835       155,037     (127,456)
                                          -----------   -----------   ----------

Cash flows from financing activities:
  Net proceeds from revolving credit line        -0-           -0-      141,514
  Principal payments of long-term debt           -0-           -0-   (4,098,214)
  Net payments to revolving credit line          -0-      (141,514)         -0-
                                          -----------   -----------  -----------
Net cash used by financing activities            -0-      (141,514)  (3,956,700)
                                          -----------   -----------  -----------
Net increase (decrease) in cash and
  cash equivalents                           109,067       169,683   (4,044,111)
Cash & cash equivalents at beginning
  of year                                    316,745       147,062    4,191,173
                                          -----------   -----------  -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR  $  425,812    $   316,745  $  147,062
                                          ===========   ===========  ===========



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

Page 23


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------
Accounting  Period. The Company's fiscal year is the 52 or 53 week period ending
the Saturday nearest to December 31. Fiscal years 2004 and 2005 ended on January
1 and December  31,  respectively.  The two fiscal years  consisted of 52 weeks.
Fiscal year 2003 ended on January 3, 2004 and consisted of 53 weeks.

Revenue  Recognition.  Revenues from sales are  recognized at the time shipments
are made to the customer. Sales terms are FOB Burke Mills, Inc. unless otherwise
specified. Related shipping and handling costs are included in cost of sales.

Cost of Sales. All manufacturing,  quality control, inbound freight,  receiving,
inspection,  purchasing,  planning,  warehousing of raw, in-process and finished
inventory, outbound freight and internal transfer costs are included in the cost
of sales.

Selling,  general  and  administrative.  Includes  cost  related to the  selling
process, accounting, information services, and corporate offices.

Cash and Cash Equivalents. For the purposes of the statements of cash flows, the
Company considers cash and cash equivalents to include cash on hand, deposits in
banks, and all highly liquid debt instruments with a maturity of three months or
less when  purchased.  At December  31, 2005,  the Company had cash  deposits in
excess of federally insured limits in the approximate amount of $217,000.

Accounts Receivable.  Substantially all of the Company's accounts receivable are
due from  manufacturers in the furniture,  contract,  automotive  upholstery and
apparel  industries.  The Company  grants credit to customers and generally does
not require collateral.  Management  continuously performs credit evaluations of
its customers,  considering  numerous  inputs  including  past payment  history,
financial  condition,   operating  performance,   and  economic  conditions  and
prospects.  While  management  believes  that adequate  allowances  for doubtful
accounts have been provided in the financial statement,  it is possible that the
Company could experience unexpected credit losses.

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

Property, Plant and Equipment. Property, plant and equipment are stated at cost.

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

         Buildings                           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.  Long-lived assets are
evaluated  for  impairment  when  events or  changes in  business  circumstances
indicate that the carrying amount of the assets may not be fully recoverable. An
impairment loss would be recognized when estimated undiscounted future cash


Page 24


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
----------------------------------------------------
Accounting for Possible Impairment of Long-lived Assets (continued)

flows  expected  to  result  from  the use of  these  assets  and  its  eventual
disposition are less than its carrying amount.  Impairment,  if any, is assessed
using discounted cash flows.

In 2004 and  2003 the  Company  wrote  off  equipment  with net book  values  of
$198,000  and  $268,000  respectively.  With the decrease in sales volume and no
anticipated  business  increase in products that will run on the machinery,  the
machinery  was  written  off as a  non-performing  asset.  No salvage  value was
assigned to the machinery, as the Company had no potential buyer.

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

Use of Estimates in Preparing Financial Statements. The preparation of financial
statements in conformity with generally accepted accounting  principles requires
management  to make  estimates  and  assumptions  that affect  certain  reported
amounts and  disclosures.  Accordingly,  actual  results could differ from those
estimates.  Significant  estimates  are the  liability  for  self-funded  health
claims, inventory markdowns, allowance for doubtful accounts receivable, and the
investment value of affiliates.

Income Taxes. The Company accounts for income taxes in accordance with Statement
of Financial  Accounting  Standards  ("SFAS") No. 109 -  "Accounting  for Income
Taxes".  Under this method,  deferred tax assets and  liabilities are determined
based on  differences  between  financial  reporting and tax bases of assets and
liabilities  and are measured  using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.  Because the realization
of tax benefits related to the Company's net deferred tax asset is uncertain,  a
valuation allowance has been provided against the net deferred tax asset.

Financial Instruments.  The Company's financial instruments consist primarily of
receivables,  accounts payable,  and accrued  expenses.  The carrying amounts of
receivables, accounts payable, and accrued expenses approximate their fair value
because of the short-term maturity of such instruments.

Recent Accounting  Pronouncements.  In December 2004, the FASB issued FASB Staff
Position No. 109-1 ("FSP FAS No.  109-1"),  "Application  of FASB  Statement No.
109, `Accounting for Income Taxes,' to the Tax Deduction on Qualified Production
Activities  Provided by the  American  Jobs  Creation Act of 2004." The American
Jobs  Creation  Act of 2004  introduces  a special  tax  deduction  of up to 9.0
percent when fully phased in, of the lesser of "qualified  production activities
income" or  taxable  income.  FSP FAS 109-1  clarifies  that this tax  deduction
should be accounted for as a special tax  deduction in accordance  with SFAS No.
109. FSP FAS No. 109-1 has had no impact on our financial statements.

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs", an amendment
of Accounting  Research  Bulletin No. 43,  Chapter 4. SFAS No. 151 clarifies the
accounting  for abnormal  amounts of idle facility  expense,  freight,  handling
costs and  wasted  material.  SFAS No.  151 is  effective  for  inventory  costs
incurred during fiscal years beginning after June 15, 2005.  Management believes
adoption  of SFAS  No.  151 will not have a  material  effect  on our  financial
position, results of operations or cash flows.

In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,  an  amendment  of APB  Opinion  No.  29." SFAS No.  153 is based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair  value of the  assets  exchanged.  APB  Opinion  No.  29,  "Accounting  for
Nonmonetary  Transactions,"  provided  an  exception  to its  basic  measurement
principle (fair value) for exchanges of similar productive assets. Under APB


Page 25



<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
----------------------------------------------------
Recent Accounting Pronouncements (continued)

Opinion No. 29, an exchange of a productive asset for a similar productive asset
was  based on the  recorded  amount  of the  asset  relinquished.  SFAS No.  153
eliminates  this  exception  and  replaces it with an  exception of exchanges of
nonmonetary  assets  that do no  have  commercial  substance.  SFAS  No.  153 is
effective  for the  Company as of January 1, 2005.  The  Company  will apply the
requirements of SFAS No. 153 when such an exchange occurs.

In January 2003, the FASB issued  Interpretation  ("FIN") No. 46, "Consolidation
of Variable  Interest  Entities" and in December 2003, a revised  interpretation
was issued (FIN No. 46, as  revised).  In general,  a variable  interest  entity
("VIE") is a corporation,  partnership, trust, or any other legal structure used
for business  purposes  that either does not have equity  investors  with voting
rights  or has  equity  investors  that  do  not  provide  sufficient  financial
resources  for the entity to support  its  activities.  FIN No. 46, as  revised,
requires a VIE to be  consolidated by a company if that company is designated as
the  primary  beneficiary.  The  interpretation  applies to VIEs  created  after
January 31, 2003,  and for all financial  statements  issued after  December 15,
2003 for VIEs in which an enterprise  held a variable  interest that it acquired
before  February 1, 2003.  The adoption of FIN No. 46, as revised,  did not have
any material effect on our financial position or results of operations.

In May 2005,  the FASB issued  Statement of Financial  Accounting  Standards No.
154, Accounting Changes and Error Corrections - a replacement of APB Opinion No.
20 and FASB Statement No. 3 ("SFAS 154").  SFAS 154 changes the requirements for
the accounting for and reporting of a change in accounting  principle.  SFAS 154
applies  to all  voluntary  changes in  accounting  principles,  and  applies to
changes required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. SFAS 154 requires
retrospective  application to prior period financial  statements for a change in
accounting  principle.   Previously,   a  change  in  accounting  principle  was
recognized  by  including  the change in net income in the period of the change.
SFAS 154 is effective for fiscal years  beginning  after  December 15, 2005. The
Company  is  currently  reviewing  SFAS 154,  and at the  current  time does not
believe  that SFAS 154 will have a material  impact on the  financial  position,
results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (revised), "Share-Based Payment."
Statement  123  (revised)  replaced SFAS No. 123,  "Accounting  for  Stock-Based
Compensation,"  and supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to  Employees."  Statement  123  (revised)  covers a wide  range of  share-based
compensation  arrangements  and requires that the  compensation  cost related to
these types of payment transactions be recognized in financial statements.  Cost
will be measured based on the fair value of the equity or liability  instruments
issued. Statement 123 (revised) becomes effective for years beginning after June
15, 2005.  SFAS No. 123 will have no affect on the Company as the Company has no
share-based payments,  and the Board does not anticipate any share-based payment
programs.

Reclassifications.  Certain  January 1, 2005 amounts have been  reclassified  to
conform to the December 31, 2005 presentation.



Page 26


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE
----------------------------------------
The Company is engaged in texturing,  twisting,  winding, dyeing, processing and
selling of cotton, polyester, rayon, nylon, and other specialty yarns and in the
dyeing and processing of these yarns for others on a commission basis.

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

The Company had foreign sales as a percentage of total sales as follows:

                    Country           2005             2004            2003
                    -------           ----             ----            ----
                    Mexico             .46%             .27%           1.10%
                    Canada             .06%             .06%             .0%
                    Honduras           .62%            1.62%           3.95%
                    Barbados           .05%              .0%             .0%
                    Hong Kong          .19%             .13%             .0%
                    Turkey              .0%             .01%             .0%
                                      -----            -----           -----
       Total..........                1.38%            2.09%           5.05%

Other than  sales as shown  above,  the  Company  had no other  sales in foreign
markets during the three year period ended December 31, 2005. For the three year
period  ended  December  31,  2005,  the  Company has  operated  within a single
industry segment with classes of similar products.  The principal markets served
by the Company are apparel,  upholstery,  home furnishings,  and industrial uses
through the knitting and weaving industry.

In connection with sales to major  customers,  one customer  exceeded 10% of the
Company's  sales during each of the three years ended  December  31,  2005,  and
another customer exceeded 10% of the company's sales for the year ended December
31, 2005 and January 1, 2005.  For the purpose of this  determination,  sales to
groups of companies under common control have been combined.


Page 27


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE (continued)
----------------------------------------------------
         Customer:                   A            B
         --------                   ----         ----
          2005                      15.9%        11.8%
          2004                      20.7%        11.8%
          2003                      25.5%         9.7%

The Company had equipment located in Mexico that was leased to its joint venture
Fytek in 2003 and 2004. The company sold the equipment in 2005.


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

                                        December 31         January 1
                                          2005                2005
                                          ----                ----
     Due from factor on regular
          factoring account            $      -0-          $2,192,000
     Non-factored accounts receivable   2,572,000             872,000
     Allowance for doubtful accounts       (3,000)                -0-
                                       ----------          ----------
               Total                   $2,569,000          $3,064,000
                                       ==========          ==========

During the first  quarter of 2005,  the Company  moved its  accounts  receivable
in-house, eliminating its factoring arrangement.


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

                                     December 31,       January 1,
                                        2005               2005
                                        ----               ----
     Finished & in process           $  853,000        $  944,000
     Raw materials                      614,000           553,000
     Dyes & chemicals                   165,000           195,000
     Other                               76,000            99,000
     Mark-down allowance                (24,000)         (150,000)
                                     ----------        ----------
     Total                           $1,684,000        $1,641,000
                                     ==========        ==========

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

                              December 31, 2005           January 1, 2005
                              ------------------          ----------------
                                     Accumulated                Accumulated
                            Cost     Depreciation       Cost    Depreciation
                            ----     ------------       ----    ------------
Land                      $  156,425 $       -0-     $  156,425  $       -0-
Land improvements            182,913     126,246        182,913      119,928
Building & improvements    6,389,684   5,246,690      6,385,441    5,121,383
Plant machinery &
    equipment             20,266,886  16,899,874     21,980,038   17,422,409
Office equipment             967,766     948,898        967,766      928,722
Automotive equipment         122,104     105,081        175,892      131,751
                           ---------  ----------     ----------   ----------
Total                    $28,085,778 $23,326,789    $29,848,475  $23,724,193
                         =========== ===========    ===========  ===========
Page 28


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 6 - LINE OF CREDIT
-----------------------
The  Company  has  entered  into  an  Accounts  Receivable  Inventory  Financing
Agreement (the "Financing  Agreement") with The CIT Group/ Commercial  Services,
Inc. ("CIT"). In addition,  the Company signed a Letter of Credit Agreement (the
"LOC Agreement") with CIT. Under the terms of the Financing Agreement,  CIT may,
at its sole discretion,  advance up to $5,000,000 to the Company as follows: (a)
revolving  credit  advances  in  amounts  up to 85  percent of the net amount of
eligible accounts receivable;  (b) revolving credit advances in amounts up to 60
percent of the value of eligible inventory.  Advances against eligible inventory
will not exceed the lesser of  $2,000,000  and the advances  made by CIT against
accounts receivable. Further, CIT will not make advances against inventory until
receiving and being satisfied with (a) unqualified  financial  statements of the
Company as of the fiscal year ended  December 31, 2005,  (b) a business plan and
forecasted  financial  statements  for the fiscal year 2006,  (c) a satisfactory
examination of the Company's books and records, and no default having occurred.

With regard to the LOC Agreement, the Financing Agreement provides that CIT will
assist the  Company in opening  letters of credit or  guarantee  the payment and
performance  of such  letters  of  credit up to an  aggregate  face  amount  not
exceeding $500,000 at any one time outstanding.

The Company has granted to CIT a security  interest in its accounts  receivable;
monies, securities and other property held in transit to CIT; present and future
deposits held by CIT; all rights of the Company in future  accounts  receivable;
the Company's  inventory;  the Company's equipment (defined to be all machinery,
equipment,   rolling  stock,   furnishings   and  fixtures  and  all  additions,
substitutions or employments thereof);  all proceeds and products of any defined
collateral;  and other customary  definitions of collateral  related to accounts
receivable, inventory and equipment.

The Company is  obligated  to pay interest to CIT on the average of net balances
owed  monthly at one percent  above the prime rate  announced by JP Morgan Chase
Bank in New York, NY. Interest is calculated on a 360 day year. In addition, the
Company paid CIT an initial  facility fee of $25,000 and will pay CIT $1,000 per
month as a "collateral management fee."

The  Company  had no debt under its line of credit at  year-end,  and the unused
line of credit was approximately $2,100,000.


NOTE 7 - OTHER LIABILITIES AND ACCRUED EXPENSES
-----------------------------------------------
Other liabilities and accrued expenses consist of the following:

                                       December 31      January 1
                                         2005             2005
                                         ----             ----
Employee insurance                     $ 55,000         $ 60,000
Payroll taxes payable                    41,000           24,000
Other                                    30,000           54,000
                                       --------         --------
       Total                           $126,000         $138,000
                                       ========         ========


NOTE 8 - INCOME TAXES
----------------------
The  Company  uses the  liability  method  as  required  by FASB  Statement  109
"Accounting  for Income  Taxes".  Under  this  method,  deferred  tax assets and
liabilities are determined based on the differences  between financial reporting
and tax bases of assets and  liabilities  and are measured using the enacted tax
rates and laws.


Page 29


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 8 - INCOME TAXES (continued)
----------------------------------
The items that comprise deferred tax assets and liabilities are as follows:

                                                Dec. 31        Jan. 1
                                                 2005           2005
                                               ---------      ---------
Deferred tax assets:
Alternative minimum taxes paid                $  349,000      $  349,000
Net operating loss carryover                   1,284,000         873,000
Charitable contributions carryover                13,000          12,000
State tax credits                                 41,000          41,000
Bad debts                                          1,000             -0-
Inventory                                         14,000          52,000
                                               ----------      ----------
Total gross deferred tax assets               $1,702,000      $1,327,000
Valuation Allowance                           (1,020,000)       (301,000)
                                               ----------      ----------
Net deferred tax assets                       $  682,000      $1,026,000
                                               ----------      ----------
Deferred tax liabilities:
 Accelerated depreciation for tax purposes       682,000       1,026,000
                                               ----------      ----------
Net deferred tax liability                     $     -0-      $      -0-
                                               ==========     ==========

At December  31, 2005,  the Company had a net  operating  loss carry  forward of
approximately $3,185,755 which expires in various amounts starting 2022-2024.

The  provision for income taxes on  historical  income  differs from the amounts
computed  by  applying  the  applicable  Federal  statutory  rates,  due  to the
following:

                                                  Years Ended
                                   -------------------------------------------
                                    December 31     January 1       January 3
                                      2005            2005            2004
                                    ----------     ----------      -----------
Loss before income taxes (credit)  $(1,922,000)   $(2,106,000)    $(2,223,000)
Federal income taxes                       34%            34%              34%
                                   ------------   ------------    ------------
Computed taxes (credit) at maximum
   statutory tax                      (654,000)      (716,000)       (756,000)
State income taxes (credit), net of
   federal income tax benefits         (88,000)       (96,000)       (101,000)
Total adjustment for foreign
   affiliate earnings                    8,000        115,000          21,000

Adjustment for deferred income
   taxes                               (12,000)        (4,000)        194,000
Prior year tax examination & other       3,000          6,000           4,000
State tax refund                           -0-         (5,000)            -0-
                                   ------------   ------------     ------------
     Sub-Total                     $  (719,000)   $  (700,000)     $  (638,000)
Valuation allowance                    719,000        301,000              -0-
                                   ------------   ------------     ------------
Provision (credit) for
   income taxes                    $       -0-    $  (399,000)     $  (638,000)
                                   ===========    ============     ============



Page 30


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 8 - INCOME TAXES (continued)
----------------------------------
The benefit for taxes on income consists of the following:
                                                 Years Ended
                                   -----------------------------------------
                                    December 31      January 1      January 3
                                      2005             2005           2004
                                      ----             ----           ----
Deferred:
Federal                             $(634,000)       $(605,000)     $(541,000)
State and local                       (85,000)         (95,000)       (97,000)
Valuation allowance                   719,000          301,000           -0-
                                    ----------       ----------     ----------
Total                               $     -0-        $(399,000)     $(638,000)
                                    ==========       ==========     ==========


NOTE 9 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS
-------------------------------------------------------------------
The Company owns 49.8% of Fytek,  S.A. de C.V. (Fytek),  a Mexican  corporation.
Fytek began  operations in the fourth quarter of 1997. The company  accounts for
the  ownership  using the  equity  method.  The  Company  and its joint  venture
partner, Akra, voted on March 26, 2004 to close their joint venture,  Fytek. The
joint venture  operated on a scaled down basis through  mid-August 2004. In 2005
the Company and its joint venture partner  continued  liquidation of Fytek.  The
Company has received  approximately  $325,000 cash distribution through year end
2005. Burke Mills does not guarantee any debt for its joint venture.

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

                                                  December 31
                                         ---------------------------------
                                           2005         2004        2003
                                           ----         ----        ----
Net Sales                                 $ -0-        $1,436      $2,305
Gross Profit/(Loss)                         -0-          (173)         15
Loss from operating income                  -0-          (378)       (192)
Loss from discontinued operations          (440)          -0-         -0-
Loss before income taxes                   (440)         (563)       (139)
Income taxes                                 24           -0-          52
                                          ------        ------      -------
Net loss                                  $(464)       $ (563)     $  (87)
                                          ======        ======      =======

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

                                                  December 31
                                         ---------------------------------
                                           2005         2004         2003
                                           ----         ----         ----
Current assets                             $168         $783        $1,861
Non-current                                 -0-          185           164
                                           -----        -----       ------
Total assets                               $168         $968        $2,025
                                           =====        =====       ======

Current liabilities                        $152         $160        $  466
                                           -----        -----       ------
Total liabilities                          $152         $160        $  466

Stockholder's equity                         16          808         1,559
                                           -----        -----       ------
Total liabilities and stockholder's equity $168         $968        $2,025
                                           =====        =====       ======

Page 31


<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 10 - STATEMENTS OF CASH FLOWS
----------------------------------
Cash paid for  interest was $400 in 2005,  $1,300 in 2004,  and $91,000 in 2003.
The  Company  had cash  payments  for state  franchise  taxes of $5,000 in 2005,
$6,000 in 2004, and $14,000 in 2003. The Company  received a state tax refund of
$6,000 in 2004.


NOTE 11 - RENTAL EXPENSES AND LEASE COMMITMENTS
-----------------------------------------------
Rental  expenses  under all lease  commitments  for the three fiscal years ended
December 31, 2005, aggregated $62,000, $57,000, and $60,000 respectively.

Minimum commitments under terms of all non-cancelable leases, which consist only
of leased equipment, are as follows as of December 31, 2005:

                2006     $57,000
                2007     $34,000
                2008      $1,000


NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
----------------------------------------------
                         (in thousands of dollars except for per share amounts)
                                                QUARTER
                               -----------------------------------------
  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)


  2004                         First(3)      Second       Third     Fourth(4)
  ----                         -------       ------       ------    --------
  Net sales                    $6,601        $6,710       $6,162    $5,661
  Cost of sales                 6,401         6,295        6,119     5,731
  Gross profit/(loss)             200           415           43       (70)
  Net loss                       (462)          (84)        (321)     (840)
  Net loss per common share    $ (.17)       $ (.03)      $ (.12)   $ (.31)


(1)In the first quarter of 2005 the Company recorded a gain on $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.

(3)During the first quarter of 2004, the Company recorded a write-down for the
impairment of its investment in affiliate of $298,000.

(4)During the fourth quarter of 2004, the Company recorded a write-down for
the impairment of machinery of $198,000.


NOTE 13 - EMPLOYEE BENEFIT PLAN
-------------------------------
The Company is a participating  employer in the Burke Mills,  Inc.,  Savings and
Retirement  Plan and Trust that has been  qualified  under Section 401(k) of the
Internal  Revenue  Code.  This plan allows  eligible  employees to  contribute a
salary  reduction  amount  of not  less  than  1% nor  greater  than  25% of the
employee's salary but not to exceed dollar limits set by law. The employer may

Page 32



<PAGE>


                            BURKE MILLS, INC. PART II
                          NOTES TO FINANCIAL STATEMENTS

NOTE 13 - EMPLOYEE BENEFIT PLAN (continued)
-------------------------------------------
make a discretionary  contribution  for each employee out of current net profits
or accumulated  net profits in an amount the employer may from time to time deem
advisable. No provision was made for a discretionary contribution in 2005, 2004,
or 2003.


NOTE 14 - CONCENTRATIONS OF CREDIT RISK
--------------------------------------------
Financial  instruments that potentially  subject the Company to concentration of
credit risk consist  principally of occasional  temporary cash  investments  and
accounts receivable.  At year-end 2005, two customers represented  approximately
27% of total accounts receivable compared to 32% in 2004.


NOTE 15 - OTHER COMMITMENTS
------------------------------
   a) The Company and  Titan  Textile  Company, Inc.,  signed an agreement which
became  effective  April 1,  1999,   whereby  the  Company   sold  its  friction
texturing equipment  to Titan and in  turn  will  purchase  textured  yarns from
Titan.  The agreement  states that the Company  will purchase  70,000 pounds per
week as long as the Company has a  requirement  for  textured  yarns.  When  the
Company's requirements  xceed 140,000 pounds per week, the Company will purchase
at least 50% of its requirements from Titan. The textured yarn pricing structure
will be reviewed  every six months and when partially oriented yarn (POY) prices
increase or decrease by 5% or more.

    b) During 1996 in connection with a bank loan to the Company secured by real
estate, the Company had a Phase I Environmental Site Assessment conducted on its
property.  The  assessment  indicated  the  presence  of a  contaminant  in  the
groundwater under the Company's property.  The contaminant was a solvent used by
the Company in the past but no longer used.  The  contamination  was reported to
the North Carolina  Department of Environment and Natural Resources (DENR). DENR
required a Comprehensive Site Assessment that has been completed.  The Company's
outside engineering firm conducted testing and prepared a Corrective Action Plan
that was submitted to DENR.  The Company has identified  remediation  issues and
continues  to move  toward  a  solution  of  natural  attenuation.  The  cost of
monitoring is approximately $11,000 per year.


NOTE 16 - SUBSEQUENT MATTERS
------------------------------
On March 17, 2006,  Quaker Fabric,  the Company's  largest customer for the last
three years,  filed Form 12B-25 Request for Extension  with the U.S.  Securities
and Exchange  Commission.  The  narrative  part of the filing  stated that while
there has been no  payment  default,  Quaker  Fabric  failed to comply  with the
amended financial  covenants in the 2005 credit agreement as of the fiscal month
ended March 4, 2006.  Quaker  Fabric also  stated it  anticipates,  based on its
recent operating results, that its independent registered public accounting firm
will issue a report on Quaker  Fabric's  fiscal 2005 financial  statements  that
includes an  explanatory  paragraph  expressing  substantial  doubt about Quaker
Fabric's  ability  to  continue  as a going  concern.  The  delivery  of audited
financial statements to lenders with qualifications of expression of substantial
doubt as to Quaker  Fabric's  ability to  continue  as an ongoing  concern is an
event of default under the 2005 credit  agreement.  As a result of the events of
default,  Quaker  Fabric's  obligations,  liabilities,  and  indebtedness to its
lenders  under the 2005 credit  agreement  may at any time be  declared  due and
payable  in full.  As of March 21,  2006  Quaker  Fabric's  accounts  receivable
balance  with the Company is  $280,000  and is all  current.  In the fiscal year
ended  December 31, 2005 the Company's  sales to Quaker Fabric were  $4,007,000.
The  Company  believes  that  unless  Quaker  Fabric  can  obtain a waiver  or a
forbearance agreement from its lenders, the account may be lost.



Page 33


<PAGE>


                            BURKE MILLS, INC. PART II

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
-------------------------------------------------------------------------------
BDO Seidman,  LLP (Seidman),  the independent  registered public accounting firm
then engaged as the  accountant  to audit the  Company's  financial  statements,
resigned  as the  Company's  independent  accountant  at the  conclusion  of its
accounting  services for the third quarter of the fiscal year ended December 31,
2005. Reports on this change in accountants were made on Form 8-K filed November
16, 2005,  Form 8-K/A filed  November 17, 2005,  Form 8-K/A2 filed  November 29,
2005 and Form 8-K filed  January 31, 2006,  the contents of all of which reports
are  incorporated  herein  by  reference.  In  connection  with  this  change in
accountants,   there   was  no   disagreement   of   the   type   described   in
paragraph(a)(1)(iv)  of Item  304  Regulation  S-K or any  reportable  event  as
described in paragraph (a)(1)(v) of Item 304 of Regulation S-K during the fiscal
year in which the change in accountants took place.

The Company has engaged a new independent  registered  public accounting firm to
audit the Company's financial statements. That firm is Scott McElveen, L.L.P. of
Columbia, SC.


ITEM 9A.  DISCLOSURE CONTROLS AND PROCEDURES
--------------------------------------------
As  of  the  fiscal  year  ended  December  31,  2005,  the  Company,  with  the
participation  of the  Company's  chief  executive  officer and chief  financial
officer,  carried  out an  evaluation  of  the  effectiveness  of the  Company's
disclosure  controls and  procedures (as defined in SEC Rule  13a-15(e)).  Based
upon  that  evaluation,  the chief  executive  officer  and the chief  financial
officer  of the  Company  have  concluded  that  such  disclosure  controls  and
procedures  were  effective  in timely  alerting  them to  material  information
relating  to the Company  required to be included in the reports  filed with the
SEC by the Company.

During the quarter  ended  December 31, 2005,  there have been no changes in the
Company's internal controls or in other factors that could significantly  affect
such internal  controls.  Subsequent to the date of the  evaluation,  there have
been no changes or  corrective  actions  with regard to the  material  weakness,
except for the items listed above.


ITEM 9B.  OTHER INFORMATION.
----------------------------
No disclosure required.


                                    PART III

The  information  required  for Items 10,  11, 12, 13 and 14 of Part III of this
report  is  incorporated  by  reference  from  the  Company's  definitive  proxy
statement  to be filed  pursuant  to  Regulation  14A for the annual  meeting of
shareholders  scheduled  for May 16, 2006,  involving the election of directors,
which is  expected  to be filed  not  later  than 120 days  after the end of the
fiscal year covered by this report.


Page 34


<PAGE>


                                BURKE MILLS, INC.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
(a) The following documents are filed as a part of this report.

       1. Report of Independent Registered Public Accounting Firm.

       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:

                  Report of Independent Registered Public Accounting Firm

                  Balance sheets
                     December 31, 2005
                     January 1, 2005

                  Statements of operations
                     Year ended December 31, 2005
                     Year ended January 1, 2005
                     Year ended January 3, 2004

                  Statements of changes in shareholders' equity
                     Year ended December 31, 2005
                     Year ended January 1, 2005
                     Year ended January 3, 2004

                  Statements of cash flows
                     Year ended December 31, 2005
                     Year ended January 1, 2005
                     Year ended January 3, 2004

                  Notes to financial statements


                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                                 FOR YEARS ENDED
             JANUARY 3, 2004, JANUARY 1, 2005, AND DECEMBER 31, 2005

                                                        Net
                            Balance At   Provisions     Deductions     Balance
                            Beginning    Charged To     From           At End
Descriptions                Of Period    Expense        Allowances     Of Period
----------------            ---------    ----------     ----------     ---------
Yr Ended:  Jan. 3, 2004
  Valuation allowance for
  deferred tax assets      $   -0-       $   -0-        $   -0-      $   -0-

  Allowance for doubtful
   accounts receivable     $   -0-       $   -0-        $   -0-      $   -0-

Yr Ended:  Jan. 1, 2005
  Valuation allowance for
  deferred tax assets      $   -0-       $301,000       $   -0-      $301,000

  Allowance for doubtful
   accounts receivable     $   -0-       $   -0-        $   -0-      $   -0-

Yr Ended:  Dec. 31, 2005
  Valuation allowance for
  deferred tax assets      $301,000      $719,000       $   -0-      $1,020,000

  Allowance for doubtful
   accounts receivable     $   -0-       $13,000        $10,000      $3,000

Page 35
<PAGE>


                                BURKE MILLS, INC.

                                     PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)
---------------------------------------------------------------

     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.


--------------------------------------------------------------------------------



                                   SIGNATURES
                                   ----------

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


Date: March 29 , 2006                   BURKE MILLS, INC.

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


Date:  March 29, 2006                   By: s/Thomas I. Nail
                                            -----------------------
                                            Thomas I. Nail
                                            President and COO
                                            (Principal Financial Officer)

Page 36


<PAGE>


                                BURKE MILLS, INC.

                                   SIGNATURES
                                   ----------

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


Date:  March 29, 2006                       By: s/Humayun N. Shaikh
                                                ---------------------------
                                                Humayun N. Shaikh, Director


Date:  March 29, 2006                       By: s/Thomas I. Nail
                                                ---------------------------
                                                Thomas I. Nail, Director


Date:  March 29, 2006                       By: s/Richard F. Byers
                                                ---------------------------
                                                Richard F. Byers, Director


Date:  March 29, 2006                       By: s/Robert P. Huntley
                                                ---------------------------
                                                Robert P. Huntley, Director


Date:  March 29, 2006                       By: s/William T. Dunn
                                                ---------------------------
                                                William T. Dunn, Director


Date:  March 29, 2006                       By: s/Robert T. King
                                                ---------------------------
                                                Robert T. King, Director


Date:  March 29, 2006                       By: s/Aehsun Shaikh
                                                ---------------------------
                                                Aehsun Shaikh, Director


Page 37



<PAGE>



                                  EXHIBIT TABLE



(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



















Page 38


<PAGE>


                                   EXHIBIT 14

                                 CODE OF ETHICS
                                       OF
                                BURKE MILLS, INC.


   Burke Mills, Inc. (the "Company") has adopted a Code of Ethics. The terms of
this code are as follows:

         (1) This Code of Ethics applies to the Company's principal executive
officer, principal financial officer, principal accounting officer or
controller, and any other persons who, now or in the future, are performing
similar functions (hereafter individually "Officer").

         (2) No Officer shall engage in any criminal, fraudulent or unethical
acts or omissions with respect to conduct of the business, operations,
financial, accounting and all other functions of the Company.

         (3) All actual or apparent conflicts of interest between personal and
professional relationships involving the Company shall be reported to the chief
executive officer of the Company or in his absence, the chief operating officer
or next highest-ranking officer. If the actual or apparent conflict of interest
exists with respect to the chief executive officer, the chief operating officer
or other next highest-ranking officer, such conflict of interest shall be
reported to an independent member of the board of directors of the Company.

         (4) All Officers shall at all times insure that all reports and
documents filed with or submitted to the Securities and Exchange Commission and
any other public communications made by the Company shall be prepared, filed,
submitted and disseminated with complete, full, fair, accurate, timely and
understandable disclosure.

         (5) No Officer shall take any action, or fail to take any action, to
fraudulently influence, coerce, manipulate or mislead the outside auditors of
the Company's financial statements for the purpose of rendering those financial
statements materially misleading.

         (6) All Officers shall at all times comply with all governmental laws,
rules and regulations in the conduct of the business, operations, financial,
accounting and all other functions of the Company.

         (7) Any violations of this code shall be reported to the chief
executive officer, or in the absence of the chief executive officer, to the
chief operating officer or the next highest-ranking officer of the Company. In
the event any violation of the code involves the chief executive officer, or the
chief operating officer or next highest-ranking officer of the Company, then
such violation shall be reported to an independent member of the board of
directors of the Company.

         (8) All Officers of the Company shall be held accountable for adherence
to this Code of Ethics. Whenever any violation of this Code of Ethics has been
determined by management or by the board of directors of the Company to have
occurred, appropriate measures shall be taken with respect to the Officer or
Officers committing such violations.

         Adopted by the board of directors of the Company on May 20, 2003.



Page 39



<PAGE>


                                 EXHIBIT 31 (1)

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER


         I, Humayun N. Shaikh, certify that:

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

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

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

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

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

         (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         (c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

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

         (a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.


                                            s/Humayun N. Shaikh
Date:    March 29, 2006                     ---------------------------
                                            Humayun N. Shaikh
                                            Chairman and CEO
                                            (Principal Executive Officer)

Page 40


<PAGE>


                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER


         I, Thomas I. Nail, certify that:

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

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

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

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

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

         (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         (c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

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

         (a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.



                                              s/Thomas I. Nail
Date:    March 29, 2006                       ---------------------------
                                              Thomas I. Nail
                                              President and COO
                                              (Principal Financial Officer)

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<PAGE>


                                   EXHIBIT 32

                 CERTIFICATION PURSUANT TO 18 U.S. CODE ss. 1350


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


                                              s/Humayun N. Shaikh
Date:    March 29, 2006                       ---------------------------
                                              Humayun N. Shaikh
                                              Chairman and CEO




                 CERTIFICATION PURSUANT TO 18 U.S. CODE ss. 1350


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


                                              s/Thomas I. Nail
Date:    March 29, 2006                       ---------------------------
                                              Thomas I. Nail
                                              President and COO
                                              (Chief Financial Officer)



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