<PAGE>

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

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

                                 FORM 10-Q


(Mark One)
/X/   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
                For the quarterly period ended July 3, 1998

                                    OR

/ /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934
                                          
         For the transition period from              to             
                                       -------------   -------------

                         Commission file number 1-333-36675

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

                           BURKE INDUSTRIES, INC.
          (Exact name of Registrant as specified in its charter)


              California                                  94-3081144
    (State or other jurisdiction of                    (I.R.S. Employer
    incorporation or organization)                    Identification No.)

        2250 South Tenth Street
         San Jose, California                                95112
    (Address of Principal Executive                       (Zip Code)
               Offices)


         Registrant's telephone number, including area code: (408) 297-3500

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

        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, as amended, 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    .
   -----    ----

        As of August 14, 1998, the number of shares outstanding of the 
Registrant's Common Stock was 3,857,000.

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

<PAGE>

                            BURKE INDUSTRIES, INC.


                        QUARTERLY REPORT ON FORM 10-Q


                                    INDEX

<TABLE>
<CAPTION>

PART I       FINANCIAL INFORMATION                                  PAGE NUMBER
------       ---------------------                                  -----------
<S>          <C>                                                    <C>
     Item 1  Condensed Consolidated Financial Statements

                 Condensed Consolidated Statements of Income for
                  the three and six months ended July 3, 1998
                  and July 4, 1997 (unaudited)                             3

                 Condensed Consolidated Balance Sheets as of
                  July 3, 1998 (unaudited) and January 2, 1998             4

                 Condensed Consolidated Statements of Cash Flows
                  for the six months ended July 3, 1998 and
                  July 4, 1997 (unaudited)                                 5

                 Notes to Condensed Consolidated Financial
                  Statements (unaudited)                                  6-8

     Item 2  Management's Discussion and Analysis of Financial
             Condition and Results of Operations                          9-12

</TABLE>

<TABLE>
<CAPTION>

PART II       OTHER INFORMATION
-------       -----------------
<S>                                                                       <C>
     Item 1     Legal Proceedings                                         13
     Item 2     Changes in Securities                                     13
     Item 4     Submission of Matters to a Vote of Security               13
                  Holders
     Item 5     Other Information                                         14
     Item 6     Exhibits and Reports on Form 8-K                          14

Signature                                                                 15
</TABLE>



                                   Page 2

<PAGE>

PART I    FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS


                   BURKE INDUSTRIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                            (DOLLARS IN THOUSANDS)
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                        For the Three Month Period                 For the Six Month Period
                                                                   Ended                                     Ended
                                                   -----------------------------------------------------------------------------
                                                    July 3, 1998         July 4, 1997        July 3, 1998         July 4, 1997
                                                   -----------------------------------------------------------------------------
 <S>                                               <C>                  <C>                 <C>                  <C>
 Net sales ....................................    $       27,245       $       22,887      $        50,188      $        46,011
 Costs and expenses:
     Cost of sales ............................            29,668               16,048               35,848               32,467
     Selling, general and administrative ......             3,501                2,925                6,748                6,098
     Amortization of goodwill..................               394                    9                  403                   18
                                                   --------------       --------------    -----------------      ---------------
 Income from operations .......................             3,682                3,905                7,189                7,428
 Interest expense, net ........................             3,520                  515                6,307                1,013
                                                   --------------       --------------    -----------------      ---------------
 Income before income tax provision ...........               162                3,390                  882                6,415
 Income tax provision .........................                65                1,356                  352                2,565
                                                   --------------       --------------    -----------------      ---------------
 Net income ...................................    $           97       $        2,034    $             530      $         3,850
                                                   --------------       --------------    -----------------      ---------------
                                                   --------------       --------------    -----------------      ---------------
</TABLE>


     The accompanying Notes to Condensed Consolidated Financial Statements 
are an integral part of these statements.


                                   Page 3

<PAGE>

                   BURKE INDUSTRIES, INC. AND SUBSIDIARIES

                    CONDENSED CONSOLIDATED BALANCE SHEETS
                           (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                 January 2, 1998
                                                                                                                 (Derived from
                                                                                             July 3, 1998       audited financial
                                                                                              (Unaudited)           statements)
                                                                                             ------------       -----------------
                                                               ASSETS
 <S>                                                                                         <C>                <C>
 Current assets:
   Cash and cash equivalents ........................................................          $   2,430             $  11,563
   Restricted cash ..................................................................                 --                 1,070
   Trade accounts receivable, less allowance of
     $846 as of 7/3/98 and $334 as of 1/2/98 ........................................             15,684                11,186
   Inventories ......................................................................             14,790                11,187
   Other current assets .............................................................              4,292                 5,540
                                                                                             ------------       ---------------
     Total current assets ...........................................................             37,196                40,546
                                                                                             ------------       ---------------
 Property, plant and equipment ......................................................             31,096                25,556
 Accumulated depreciation and amortization ..........................................             11,331                10,536
                                                                                             ------------       ---------------
 Net property, plant and equipment ..................................................             19,765                15,020
 Goodwill, net ......................................................................             30,743                 1,465
 Deferred financing costs, net ......................................................              6,953                 5,210
 Other assets .......................................................................                616                   596
                                                                                             ------------       ---------------
     Total assets ...................................................................          $  95,273             $  62,837
                                                                                             ------------       ---------------
                                                                                             ------------       ---------------


                                           LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 Current liabilities:
 Trade accounts payable and accrued expenses ........................................          $   7,500             $   5,489
 Payable to Shareholders ............................................................              1,948                 5,882
 Other current liabilities ..........................................................              8,317                 7,497
                                                                                             ------------       ---------------
 Total current liabilities ..........................................................             17,765                18,868

 Senior notes .......................................................................            140,000               110,000
 Other noncurrent liabilities .......................................................              4,320                 4,311
 Preferred stock, no par value; 50,000 shares authorized;
   30,000 Redeemable Series A shares designated; 
   16,000 Redeemable Series A shares issued and outstanding;
   5,000 Redeemable Series B shares designated;
   2,000 Redeemable Series B shares issued and outstanding; (aggregate
     liquidation and redemption preference of $18,000) ..............................             17,154                16,148
 Shareholders' equity (deficit):
   Convertible Preferred Stock, no par value: 3,000 Series C shares
     designated, issued and outstanding (liquidation preference $3,000)..............              3,000                    --
   Class A common stock, no par value: ..............................................
     Authorized shares - 20,000,000 .................................................
     Issued and outstanding shares - 3,857,000 ......................................             25,464                25,464
   Accumulated deficit ..............................................................           (112,430)             (111,954)
                                                                                             ------------       ---------------
   Total shareholders' equity (deficit) .............................................            (83,966)              (86,490)
                                                                                             ------------       ---------------
     Total liabilities and shareholders' equity (deficit) ...........................          $  95,273             $  62,837
                                                                                             ------------       ---------------
                                                                                             ------------       ---------------

</TABLE>

     The accompanying Notes to Condensed Consolidated Financial Statements 
are an integral part of these statements.

                                   Page 4

<PAGE>

                   BURKE INDUSTRIES, INC. AND SUBSIDIARIES

               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                                  For the Six Month Period Ended
                                                                                               ----------------------------------
                                                                                                 July 3, 1998       July 4, 1997
                                                                                                 -------------------------------
                                                                                                           (Unaudited)
 <S>                                                                                             <C>                <C>
 OPERATING ACTIVITIES
 Net Income .........................................................................            $       530        $      3,850
 Adjustments to reconcile net income to net cash (used in)
   provided by operating activities:
   Depreciation and amortization:                                                                                               
    Property, plant and equipment ...................................................                    809                 680
    Goodwill ........................................................................                    403                  18
   Other adjustments to reconcile net income to net cash (used in)
    provided by operating activities: ...............................................                    164              (4,696)
                                                                                                 -----------        -------------
 Net cash (used in) provided by operating activities ................................                  1,906                (148)


 INVESTING ACTIVITIES
 Acquisition of Mercer Products Company, Inc. less cash of $34 ......................                (38,440)                 --
 Purchases of property, plant and equipment .........................................                   (651)               (565)
 Note receivable from an affiliate of the principal shareholders ....................                     --                (189)
                                                                                                 -----------        -------------
 Net cash used in investing activities ..............................................                (39,091)               (754)

 FINANCING ACTIVITIES
 Restricted cash ....................................................................                  1,070                  --
 Borrowings of long-term debt .......................................................                     --               3,963
 Repayments and settlement of long-term debt and capital lease obligations ..........                     --              (3,063)
 Payable to shareholders ............................................................                 (3,934)                 --
 Deferred financing costs ...........................................................                 (2,084)                 --
 Issuance of Floating Interest Rate Senior Notes ....................................                 30,000                  --
 Issuance of Series C Convertible Preferred Stock ...................................                  3,000                  --
 Other financing activities .........................................................                     --                   2
                                                                                                 -----------        -------------
 Net cash provided by financing activities ..........................................                 28,052                 902
                                                                                                 -----------        -------------


 Decrease in cash ...................................................................                 (9,133)                 --
 Cash at beginning of period ........................................................                 11,563                  --
                                                                                                 -----------        -------------
 Cash at end of period ..............................................................            $     2,430        $         --
                                                                                                 -----------        -------------
                                                                                                 -----------        -------------
</TABLE>

     The accompanying Notes to Condensed Consolidated Financial Statements 
are an integral part of these statements.

                                   Page 5

<PAGE>

                   BURKE INDUSTRIES, INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                (UNAUDITED)


1.      BASIS OF PRESENTATION

        The accompanying condensed consolidated financial statements of the 
Company have been prepared without audit, pursuant to the rules and 
regulations of the Securities and Exchange Commission.  Certain information 
and footnote disclosures normally included in financial statements prepared 
in accordance with generally accepted accounting principles have been 
condensed or omitted pursuant to such rules and regulations.  The condensed 
consolidated balance sheet as of January 2, 1998 was derived from audited 
financial statements.  The accompanying condensed consolidated financial 
statements should be read in conjunction with the audited consolidated 
financial statements and notes thereto included in the Company's Annual 
Report on Form 10-K for the fiscal year ended January 2, 1998.

        The financial information included herein reflects all adjustments 
(consisting of normal recurring adjustments) which are, in the opinion of 
management, necessary for a fair presentation of the results for the interim 
period.  The results of operations for the six months ended July 3, 1998 are 
not necessarily indicative of the results to be expected for the full year.

        The Company uses a 52 to 53-week fiscal year ending on the Friday 
closest to December 31.  The Company also follows a thirteen week quarterly 
cycle.  The six-month periods ended on July 4, 1997 and July 3, 1998.

        As of January 1, 1998, the Company adopted Statement of Financial 
Accounting No. 130, "Reporting Comprehensive Income" (FAS 130) which 
establishes new rules for the reporting and display of comprehensive income 
and its components.  The adoption of FAS 130 had no impact on the Company's 
net income or shareholders' equity.

2.      INVENTORIES

        Inventories consist of the following:

<TABLE>
<CAPTION>
                                                   July 3, 1998     January 2, 1998
                                                   --------------------------------
                                                          (In thousands)
           <S>                                     <C>              <C>
           Raw materials                           $      5,743     $     4,626
           Work-in-process                                2,067           1,593
           Finished goods                                 6,980           4,968
                                                   ------------     -----------
                                                   $     14,790     $    11,187
                                                   ------------     -----------
                                                   ------------     -----------
</TABLE>

3.      ACQUISITION OF MERCER PRODUCTS COMPANY, INC.

        On April 21, 1998, the Company acquired all of the issued and 
outstanding capital stock of Mercer Products Company, Inc. ("Mercer"), from 
Sovereign Specialty Chemicals, Inc., for an aggregate purchase price of 
$38,474,000 (including acquisition costs of $2,280,000).  The acquisition was 
accounted for under the purchase method of accounting.


                                   Page 6

<PAGE>

                   BURKE INDUSTRIES, INC. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)


        The total purchase price was allocated to the assets acquired and 
liabilities assumed based on their estimated fair values as follows:

<TABLE>
<CAPTION>
                                                                    (in thousands)
   <S>                                                              <C>
   Current assets: ...............................................      $   5,269
   Plant and equipment ...........................................          4,903
   Excess of purchase price over net assets acquired .............         29,681
   Accounts payable and accrued expenses .........................         (1,379)
                                                                        ---------
     Total purchase price ........................................      $  38,474
                                                                        ---------
                                                                        ---------
</TABLE>

        Financing for this acquisition and related expenses was provided, in 
large part, from the sale of $30 million principal amount of Floating 
Interest Rate Senior Notes Due 2007 ("Senior Notes").  The balance of the 
financing was provided with $3.0 million from the sale of 3,000 shares of the 
Company's 6% Series C Cumulative Convertible Preferred Stock and cash on hand.

        The Senior Notes mature on August 15, 2007, with interest on the 
notes payable semi-annually on February 15 and August 15, commencing August 
15, 1998. The Senior Notes bear interest at a rate per annum equal to LIBOR 
plus 400 basis points, with the interest rate reset semiannually.  The Senior 
Notes are unconditionally guaranteed on a joint and several basis by each of 
the Company's subsidiaries, including Mercer.  Upon a change of control of 
the Company, the Company will be required to make an offer to repurchase all 
outstanding Senior Notes at 101% of the aggregate principal amount thereof 
plus accrued and unpaid interest thereon at the date of repurchase.

        The Company also amended its existing bank credit facility to 
increase the revolving credit facility from $15 million to $25 million and 
revise certain of its restrictive covenants.

        The Series C Convertible Preferred Stock ranks junior to the 
Redeemable Preferred Stock and dividends accrue at an annual rate per share 
of 6% times the sum of $1,000 and accrued but unpaid dividends.  Dividends 
are cumulative and are payable semi-annually in arrears on April 15 and 
October 15.  The holders of Series C Convertible Preferred Stock are entitled 
to receive a stated liquidation value of $1,000 per share plus accrued but 
unpaid dividends in the event of any liquidation, dissolution or winding up 
of the Company.  After payment of the liquidation preference, the holders of 
Series C Convertible Preferred Stock are not entitled to further 
participation in any distribution of assets of the Company.  The holders of 
Series C Convertible Preferred Stock are not entitled to any voting rights; 
however, without the consent of 51% of the holders of Series C Convertible 
Preferred Stock, the Company may not adversely alter the rights and 
preferences of the Series C Convertible Preferred Stock.

        Upon the occurrence of a triggering event, holders of Series C 
Convertible Preferred Stock have the option to convert such shares into 
common stock at a conversion price of $10 per share, subject to anti-dilution 
provisions.  A triggering event includes a change of control, an initial 
public offering, notice by the Company of an intent to redeem the Convertible 
Preferred Stock or the fifth anniversary of the issuance of the Convertible 
Preferred Stock.

        The Company may, at its option, redeem all or a portion of the 
Convertible Preferred Stock at a redemption value equal to the liquidation 
value plus accrued but unpaid dividends.  Upon a change in control and 
subject to limitations under the Redeemable Preferred Stock and Senior Note 
agreements, the


                                   Page 7

<PAGE>

                   BURKE INDUSTRIES, INC. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)


holders of Convertible Preferred Stock may redeem such shares at a redemption 
value equal to the liquidation value plus accrued but unpaid dividends.



                                   Page 8

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the 
Company's Unaudited Condensed Consolidated Financial Statements and Notes 
thereto included elsewhere in this Quarterly Report on Form 10-Q.

        This Report contains certain forward-looking statements and 
information relating to the Company that are based on the beliefs of 
management as well as assumptions made by and information currently available 
to management.  The words "anticipates," "believes," "estimates," "expects," 
"plans," "intends" and similar expressions, as they relate to the Company or 
its management, are intended to identify forward-looking statements.  Such 
statements reflect the current views of the Company, with respect to future 
events and are subject to certain risks, uncertainties and assumptions, that 
could cause actual results to differ materially from those expressed in any 
forward-looking statement, including, without limitation:  competition from 
other manufacturers in the Company's aerospace, flooring or commercial 
product lines, loss of key employees, general economic conditions and adverse 
factors impacting the aerospace industry such as changes in government 
procurement policies.  Should one or more of these risks or uncertainties 
materialize, or should underlying assumptions prove incorrect, actual results 
may vary materially from those described herein as anticipated, believed, 
estimated or expected.  The Company does not intend to update these 
forward-looking statements.

RESULTS OF OPERATIONS

        The Company operates within two industry segments, organic 
rubber/vinyl products and silicone rubber products, and is organized into 
three product groups:  (i) aerospace products, which produces precision 
silicone seals and other products used on commercial and military aircraft; 
(ii) flooring products, which produces and distributes rubber and vinyl cove 
base and other floor covering accessory products; and (iii) commercial 
products, which produces various intermediate and finished silicone and 
organic rubber products.

        The following table sets forth certain income statement information 
for the Company for the three and six month periods ended July 3, 1998 
compared to the same periods in 1997:

<TABLE>
<CAPTION>
                                                                            FISCAL SECOND QUARTER
                                                      -----------------------------------------------------------
                                                                      PERCENTAGE OF                PERCENTAGE OF
                                                         1998           NET SALES        1997        NET SALES
                                                      ----------     ---------------  ---------  ----------------
                                                                            (dollars in thousands)
 <S>                                                   <C>           <C>              <C>        <C>
 Net sales
     Aerospace products ......................         $  8,419           30.9%       $   7,995         34.9%
     Flooring products .......................           11,224           41.2            5,366         23.4
     Commercial products .....................            7,602           27.9            9,526         41.7
                                                       --------          -----        ---------        -----
 Net sales ...................................           27,245          100.0           22,887        100.0
 Cost of sales ...............................           19,668           72.2           16,048         70.1
                                                       --------          -----        ---------        -----
 Gross profit ................................            7,577           27.8            6,839         29.9

 Selling, general and
   administrative expenses ...................            3,501           12.9            2,925         12.8
 Amortization of goodwill ....................              394            1.4                9          0.0
                                                       --------          -----        ---------        -----
 Income from operations ......................            3,682           13.5            3,905         17.1
 Interest expense ............................            3,520           12.9              515          2.3
                                                       --------          -----        ---------        -----
 Income before income tax
   provision .................................              162            0.6            3,390         14.8
 Income tax provision ........................               65            0.2            1,356          5.9
                                                       --------          -----        ---------        -----
 Net income ..................................         $     97            0.4%       $   2,034          8.9%
                                                       --------          -----        ---------        -----
</TABLE>


                                   Page 9
<PAGE>

<TABLE>
<CAPTION>
                                                                               FISCAL SECOND QUARTER
                                                      ------------------------------------------------------------
                                                                      PERCENTAGE OF                 PERCENTAGE OF
                                                         1998           NET SALES        1997         NET SALES
                                                      ----------     ---------------  ---------   ----------------
                                                                           (dollars in thousands)
 <S>                                                  <C>            <C>              <C>         <C>
 Net sales
    Aerospace products....................            $  17,970           35.8%       $   15,906         34.6%
    Flooring products.....................               17,066           34.0            11,259         24.5
    Commercial products...................               15,152           30.2            18,846         40.9
                                                       --------          -----         ---------        -----
 Net sales................................               50,188          100.0            46,011        100.0
 Cost of sales............................               35,848           71.4            32,467         70.6
                                                       --------          -----         ---------        -----
 Gross profit.............................               14,340           28.6            13,544         29.4

 Selling, general and
   administrative expenses................                6,748           13.4             6,098         13.3
 Amortization of goodwill.................                  403            0.8                18          0.0
                                                       --------          -----         ---------        -----
 Income from operations...................                7,189           14.4             7,428         16.1
 Interest expense.........................                6,307           12.6             1,013          2.2
                                                       --------          -----         ---------        -----
 Income before income tax
   provision..............................                  882            1.8             6,415         13.9
 Income tax provision.....................                  352            0.7             2,565          5.6
                                                       --------          -----         ---------        -----
 Net income...............................             $    530            1.1%        $   3,850          8.3%
                                                       --------          -----         ---------        -----
</TABLE>

COMPARISON OF THE THREE MONTH PERIOD ENDED JULY  3, 1998 VERSUS THE THREE 
MONTH PERIOD ENDED JULY 4, 1997

        NET SALES.  Total net sales increased 19.0%, from $22.9 million in 
1997 to $27.2 million in 1998.  Aerospace Products sales grew 5.3%, 
reflecting the net effects of increased demand for military products, offset 
by reduced volume with Boeing.  Flooring Products sales increased 109.2%, due 
primarily to the acquisition of Mercer (98.5%), and also due to volume which 
had been deferred from the first quarter as the result of weather-related 
delays in general construction activity on the west coast.  Commercial 
Products sales decreased 20.2%, primarily because the second quarter of 1997 
included a liner project order that favorably affected results for that 
period.

        COST OF SALES.  Cost of sales increased 22.6%, from $16.0 million in 
1997 to $19.7 million in 1998.  As a percentage of net sales, gross profit 
decreased from 29.9% to 27.8%.  The decrease in profit percentage was 
primarily due to temporary operating inefficiencies, both in connection with 
new product ramp-up in Commercial Products within the silicone products 
group, and also in connection with the silicone products' facility expansion 
which occured in July, 1998.

        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses increased 19.7%, from $2.9 million in 1997 to $3.5 
million in 1998.  As a percentage of net sales, selling, general and 
administrative expenses increased from 12.8% to 12.9%.  The increase was due 
to general cost increases.

        AMORTIZATION OF GOODWILL.  Amortization of goodwill increased to $0.4 
million in 1998.  The increase was due to the acquisition of Mercer.

        INCOME FROM OPERATIONS.  As a result of the above factors, income 
from operations decreased 5.7%, from $3.9 million in 1997 to $3.7 million in 
1998.

        INTEREST EXPENSE.  Interest expense increased 583.5%, from $0.5 
million in 1997 to $3.5 million in 1998.  The increase was due to the 
issuance of Fixed-Rate Notes on August 20, 1997 and Floating-Rate Notes on 
April 21, 1998.


                                   Page 10

<PAGE>

        NET INCOME.  As a result of the above factors, net income decreased 
95.2%, from $2.0 million in 1997 to $0.1 million in 1998.

COMPARISON OF THE SIX MONTH PERIOD ENDED JULY  3, 1998 VERSUS THE SIX MONTH 
PERIOD ENDED JULY 4, 1997

        NET SALES.  Total net sales increased 9.1%, from $46.0 million in 
1997 to $50.2 million in 1998.  Aerospace Products sales grew 13.0%, due 
primarily to increased demand for military products.  Flooring Products sales 
increased 51.6%, due primarily to the acquisition of Mercer (46.9%).  
Commercial products sales decreased 19.6%, primarily because the first six 
months of 1997 included a liner project order that favorably affected results 
for that period.

        COST OF SALES.  Cost of sales increased 10.4%, from $32.5 million in 
1997 to $35.8 million in 1998.  As a percentage of net sales, gross profit 
decreased from 29.4% to 28.6%.  The decrease in profit percentage was 
primarily due to temporary operating inefficiencies, both in connection with 
new product ramp-up in Commercial Products within the silicone products 
group, and also in connection with the silicone products' facility expansion 
which occured in July, 1998.

        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses increased 10.7%, from $6.1 million in 1997 to $6.7 
million in 1998.  As a percentage of net sales, selling, general and 
administrative expenses increased from 13.3% to 13.4%.  The increase was due 
to general cost increases.

        AMORTIZATION OF GOODWILL.  Amortization of goodwill increased to $0.4 
million in 1998.  The increase was due to the acquisition of Mercer.

        INCOME FROM OPERATIONS.  As a result of the above factors, income 
from operations decreased 3.2%, from $7.4 million in 1997 to $7.2 million in 
1998.

        INTEREST EXPENSE.  Interest expense increased 522.6%, from $1.0 
million in 1997 to $6.3 million in 1998.  The increase was due to the 
issuance of Fixed-Rate Notes on August 20, 1997 and Floating-Rate Notes on 
April 21, 1998.

        NET INCOME.  As a result of the above factors, net income decreased 
86.2%, from $3.9 million in 1997 to $0.5 million in 1998.

Income Tax Provision

        For the three month and six month periods ended July 3, 1998, the 
Company recorded an income tax provision of 40.0%, which represents the 
effective tax rate projected for the full fiscal year 1998.  This effective 
tax rate differs from the federal statutory rate primarily due to state 
income taxes (net of federal benefit) and is consistent with the effective 
tax rate for the three month and six month periods ended July 4, 1997.

LIQUIDITY AND CAPITAL RESOURCES

        CASH FLOW.  The Company's principal uses of cash are to finance 
working capital and capital expenditures related to asset acquisitions and 
internal growth.  

        CAPITAL REQUIREMENTS.  On a consolidated basis, the Company expects 
to spend approximately $2.0 million during fiscal 1998 on capital 
expenditures not directly related to acquisitions.  Cash flow from 
operations, to the extent available, may also be used to fund a portion of 
any acquisition expenditures. The Company actively seeks acquisition 
opportunities, and the Company intends to seek additional capital as 
necessary to fund potential acquisitions through one or more funding sources 
that may include borrowings under the existing or new credit facilities.


                                  Page 11

<PAGE>

        SOURCES OF CAPITAL.  On April 21, 1998, the Company acquired all of 
the issued and outstanding capital stock of Mercer, from Sovereign Specialty 
Chemicals, Inc., for an aggregate purchase price of $38,474,000 (including 
acquisition costs of $2,280,000).

        Financing for this acquisition and related expenses was provided, in 
large part, from the sale of (the "Offering") $30 million principal amount of 
Floating Interest Rate Senior Notes Due 2007 ("Senior Notes").  The balance 
of the financing was provided with $3.0 million from the sale of 3,000 shares 
of the Company's 6% Series C Cumulative Convertible Preferred Stock and cash 
on hand.

        The Senior Notes mature on August 15, 2007, with interest on the 
notes payable semi-annually on February 15 and August 15, commencing August 
15, 1998. The Senior Notes bear interest at a rate per annum equal to LIBOR 
plus 400 basis points, with the interest rate reset semiannually.  The Senior 
Notes are unconditionally guaranteed on a joint and several basis by each of 
the Company's subsidiaries, including Mercer.  Upon a change of control of 
the Company, the Company will be required to make an offer to repurchase all 
outstanding Senior Notes at 101% of the aggregate principal amount thereof 
plus accrued and unpaid interest thereon at the date of repurchase.

        Contemporaneously with the acquisition of Mercer, the Company amended 
its existing Loan and Security Agreement, as amended from time to time, with 
NationsBank, N.A., as administrative agent, and other lending institutions 
party thereto (the "Credit Agreement") to, among other things, (i) increase 
the Company's borrowing capacity from $15.0 million to $25.0 million (as 
amended, the "Credit Facility") (ii) add Mercer as a Borrowing Subsidiary (as 
defined in the Credit Agreement), (iii) increase certain of the baskets 
contained in the restrictive covenants to reflect the increased size of the 
Company after the closing of the acquisition of Mercer (the "Mercer 
Acquisition") and (iv) waive any default or event of default that may 
otherwise result from the consummation of the Offering and the Mercer 
Acquisition.

        The Credit Facility matures in August 2002.  Interest on loans under 
the Credit Facility bear interest at rates based upon either, at the 
Company's option, Eurodollar Rates plus a margin of 2.5% or upon the Prime 
Rate.  Loans under the Credit Facility are secured by security interests in 
substantially all of the assets of the Company and are guaranteed by any and 
all current or future subsidiaries of the Company, which guarantees are 
secured by substantially all of the assets of such subsidiaries.  The Credit 
Facility contains customary covenants restricting the Company's ability to, 
among other things, incur additional indebtedness, create liens or other 
encumbrances, pay dividends or make other restricted payments, make 
investments, loans and guarantees or sell or otherwise dispose of a 
substantial portion of assets to, or merge or consolidate with, another 
entity.  The Credit Facility also contains a number of financial covenants 
that will require the Company to meet certain financial ratios and tests and 
provide that a change of control of the Company (as defined in the Credit 
Facility) will constitute an event of default.

        The Company anticipates that its principal use of cash on a going 
forward basis will be working capital requirements, debt service requirements 
and capital expenditures as well as expenditures relating to new acquisitions 
and integrating such acquired businesses.  Based upon current and anticipated 
levels of operations, the Company believes that its cash flow from 
operations, together with amounts available under the Credit Facility, will 
be adequate to meet its anticipated requirements for the foreseeable future 
for working capital, capital expenditures and interest payments.


                                  Page 12

<PAGE>

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

               A lawsuit has been filed by a former shareholder against the 
        Company and certain of its current and former officers and directors. 
        The former shareholder is asserting various claims in connection 
        with the Company's repurchase of such shareholder's shares prior to 
        the time the Company entered into an Agreement and Plan of Merger 
        pursuant to which the Company was recapitalized and all shares of the 
        Company's common stock, other than those retained by certain members 
        of management and certain other shareholders, were converted into the 
        right to receive cash based upon a formula.  The Company believes 
        that such claims are without merit and intends to vigorously defend 
        such action.

               A former employee of Mercer filed a lawsuit against Mercer and 
        Sovereign Specialty Chemicals, L.P. ("Sovereign"), the former owner 
        of Mercer.  The former employee has made various claims for relief on 
        the grounds that she was allegedly the victim of certain harassment, 
        discrimination, retaliation and negligence.  Pursuant to certain 
        indemnification provisions contained in the Stock Purchase Agreement 
        by and among the Company, Mercer and Sovereign, dated March 5, 1998, 
        as amended by Amendment No. 1 to the Stock Purchase Agreement, dated 
        April 21, 1998, Mercer has tendered its defense to Sovereign's 
        counsel and Sovereign has agreed, through its counsel, to defend 
        Mercer against the allegations asserted against Mercer by the former 
        employee.  Mercer denies the allegations made by the former employee 
        and, through its joint counsel with Sovereign, intends vigorously to 
        defend such claims.

ITEM 2. CHANGES IN SECURITIES.

               In connection with the Offering in April 1998, pursuant to a 
        consent solicitation (the "Consent Solicitation"), the Company 
        obtained the consents (the "Consent") of holders of its outstanding 
        10% Senior Notes due 2007 (the "Existing Notes") to certain proposed 
        amendments (the "Amendments") to the indenture pursuant to which the 
        Existing Notes were issued between the Company and the United States 
        Trust Company of New York (the "Existing Indenture") which, among 
        other things, (i) permitted the issuance of the Senior Notes and 
        permitted the incurrence of indebtedness represented by the Senior 
        Notes, (ii) increased certain of the permitted indebtedness and 
        permitted investment baskets contained in the indebtedness and 
        restricted payment covenants in the Existing Indenture, (iii) 
        modified the lien covenant to enhance the Company's ability to use 
        existing assets as collateral for new financings and (iv) made 
        certain other amendments of a non-substantive nature to the Existing 
        Indenture.  Pursuant to the Consent Solicitation, the Company made 
        certain payments to holders thereof who properly furnished their 
        Consents to the Amendments on a timely basis.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

               As described in Item 2 above, in connection with the Offering, 
        pursuant to the Consent Solicitation, the Company solicited the 
        Consent of holders of its Existing Notes to the Amendments to the 
        Existing Indenture. See Part II, Item 2.


                                  Page 13

<PAGE>

ITEM 5. OTHER INFORMATION.

               Mercer was merged with and into the Company, effective August 
        12, 1998.  The Company has qualified to do business in New Jersey and 
        Florida, where Mercer has its business operations.  The merger was 
        undertaken for purely administrative reasons and Burke intends to 
        continue to operate Mercer's business throughout the nation under the 
        name Mercer Products Company.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

        (a)  EXHIBITS.


        EXHIBIT NO.      DESCRIPTION
        27               Financial Data Schedule

        

        (b)  REPORT ON FORM 8-K.  The Registrant filed a Current Report on 
        Form 8-K on May 5, 1998, including information related to Items 2 and 
        7.  The Report included the following financial statements for 
        Mercer: (1) Report of KPMG Peat Marwick LLP Independent Auditors; (2) 
        Statement of Earnings and Retained Earnings for the year ended 
        December 31, 1996; (3) Balance Sheet at December 31, 1996; (4) 
        Statement of Cash Flows for the fiscal year ended December 31, 1996; 
        (5) Notes to Financial Statements; (6) Report of Ernst & Young LLP, 
        Independent Auditors --January 1, 1997 to August 4, 1997; (7) Balance 
        Sheet at August 4, 1997; (8) Statement of Operations and Retained 
        Earnings for the period from January 1, 1997 to August 4, 1997; (9) 
        Statement of Cash Flows for the period from January 1, 1997 to August 
        4, 1997; (10) Notes to Financial Statements; (11) Report of Ernst & 
        Young LLP, Independent Auditors -- August 5, 1997 to December 31, 
        1997; (12) Balance Sheet at December 31, 1997; (13) Statement of 
        Operations for the period from August 5, 1997 to December 31, 1997; 
        (14) Statement of Stockholder's Equity for the period from August 5, 
        1997 to December 31, 1997; (15) Statement of Cash Flows for the 
        period from August 5, 1997 to December 31, 1997; and (16) Notes to 
        Financial Statements.


                                  Page 14

<PAGE>

                                 SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, 
as amended, the Registrant has duly caused this report to be signed on its 
behalf by the undersigned, thereunto duly authorized.

                                       BURKE INDUSTRIES, INC.




Dated:  August 17, 1998                By: /s/ DAVID E. WORTHINGTON
                                          ------------------------------
                                           David E. Worthington
                                           Vice President-Finance



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