FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

               (X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 2001

                          Commission file number 1-5555
                            WELLCO ENTERPRISES, INC.
               (Exact name of Registrant as specified in charter)

    North Carolina                                        56-0769274
-----------------------                     ------------------------------------
(State of incorporation)                    (I.R.S. employer identification no.)

    Waynesville, North Carolina                                         28786
-----------------------------------------------------              -------------
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code 828-456-3545
                                                   ------------

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

Common Capital Stock - $1 par value                      American Stock Exchange
-----------------------------------                    -------------------------
              (Title of class)           (Name of exchange  on which registered)

Securities registered pursuant to Section 12(g) of the Act:

                       Common Capital Stock - $1 par value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No .

Indicate by check mark if 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 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. (X)

As of August  31,  2001,  1,163,246  common  shares  were  outstanding,  and the
aggregate  market value of the common  shares  (based upon the closing  price of
these  shares on the  American  Stock  Exchange  on August  31,  2001) of Wellco
Enterprises, Inc. held by nonaffiliates was approximately $2,400,000.

Documents incorporated by reference:
     Definitive Proxy Statement, to be dated October 12, 2001, in PART IV.
     Definitive Proxy Statement, dated October 13, 2000, in PART IV.
     Definitive Proxy Statement, dated October 17, 1997, in PART IV.
     Definitive Proxy Statement, dated October 18, 1996, in PART IV. Definitive
     Proxy Statement, dated October 17, 1995, in PART IV. Definitive Proxy
     Statement dated July 3, 1982, in PART IV.




<PAGE>



                                     PART I
Item 1. Business.

Substantially all of the Company's operating activity is from the sale of
military and other rugged footwear, the sale of specialized machinery and
materials for the manufacture of this type of footwear and the rendering of
technical assistance and other services to licensees for the manufacture of this
type of footwear.

Footnote 14 to the Consolidated  Financial Statements contains information about
revenues by similar  sources and by geographic  areas.  The majority of revenues
($13,962,000  in 2001 and  $14,378,000  in 2000)  were  from  sales to the U. S.
government,  primarily the Defense  Supply  Center  Philadelphia  (DSCP),  under
contracts  for the supply of boots used by the U. S. Armed  Forces.  The loss of
this customer would have a material adverse effect on the Company.

For more than the last five years, the Company has manufactured and sold
military combat boots under firm fixed price contracts with DSCP. Boot products
are the general issue combat boot, the hot wet (jungle) boot and the hot dry
(desert) boot, all manufactured using the government specified Direct Molded
Sole (DMS) process. The Company has also supplied the Intermediate Cold/Wet Boot
(ICW), the Infantry Combat Boot/Marine Corps (ICB) and anti-personnel mine
protective boots and overboots. The government awards fixed price boot contracts
on the basis of bids from several qualified U. S. manufacturers. The Company
also sells some of these same boot products to other customers, including
customers located in other countries.

The Company provides, primarily under long-term licensing agreements,
technology, assistance and related services for manufacturing military and
commercial footwear to customers in the United States and abroad. Under these
agreements licensees receive technology, services and assistance, and the
Company earns fees based primarily on the licensees' sales volume. In addition
to providing technical assistance, the Company also, from time to time, supplies
certain foreign military footwear manufacturers with some of their machinery and
material needs. The Company builds specialized footwear manufacturing equipment
for use in its own and its customers' manufacturing operations. This equipment
is usually sold, but in some cases it is leased.

Net income for the 2001 fiscal year was $1,153,000 ($0.97 diluted income per
share) compared to net income of $711,000 ($0.61 diluted income per share) for
the 2000 fiscal year. The primary reason operating results improved was an
increase in pairs of DMS combat boots shipped under contract with the U.S.
government and the successful completion of the restructuring of manufacturing
operations (see Footnote 18 to the Consolidated Financial Statements).

For several years DSCP was implementing a program to reduce its inventory of the
DMS combat boot. During the Cold War period, DSCP was authorized to build and
maintain a large, ready to go to war inventory of this boot. With the end of the
Cold War and reductions in military budgets, DSCP no longer has the funding to
support a large inventory. Since the early 1990's, DSCP gradually reduced boot
inventory by buying fewer pairs than were used. There are presently four
contractors in the United States using the DMS process to manufacture three
types of combat boots. In order to maintain an industrial base of contractors
who could meet wartime needs, this inventory reduction program was accomplished
over several years.

Starting with Wellco's 1998 fiscal year and continuing throughout the 1999
fiscal year, DSCP accelerated this inventory reduction program. Lower sales of
DMS combat boots adversely affected Wellco's operating results for 1999.
However, during the fiscal years 2001 and 2000, combat boot sales to the

                                      -1-
<PAGE>

government increased. The Company attributes the increase in pairs shipped to
the completion of this inventory reduction program.

In 1999, the Company implemented major changes to its boot manufacturing
operations. In February, 1999, the Board of Directors approved a restructuring
plan to consolidate and realign the Company's footwear manufacturing operations.
Under this plan, the Company transferred the majority of its Waynesville, North
Carolina footwear operations to and consolidated them with the operations of its
facility in Aguadilla, Puerto Rico, where the Company has had operations since
1956. The 1999 loss includes $1,077,000 of costs related to this action. The
2000 fiscal year net income also includes $338,000 of restructuring and
realignment costs.

More information about these, and other events affecting Wellco's 2001 and 2000
operating results, are contained in the Management's Discussion and Analysis of
Results of Operations and Financial Condition section of the Company's 2001
Annual Report to Shareholders which is incorporated in Part II of this Form
10-K.

Bidding on U. S.  government boot  solicitations  is open to any qualified U. S.
manufacturer.  In addition to meeting very stringent  manufacturing  and quality
standards,  contractors are required to comply with demanding delivery schedules
and a  significant  investment  in  specialized  equipment  is required  for the
manufacture of certain types of boots.

The Company competes on U. S. government contracts with several other companies,
none of which dominates the industry.  Bidding on contracts is very competitive.
U. S. footwear  manufacturers  have been adversely affected by sales of footwear
made  in  low  labor  cost  countries.   This  has  significantly  affected  the
competition  for contracts to supply boots to U. S. Armed  Forces,  which by law
must be made  in the U. S.  Most  boot  contracts  are for  multi-year  periods.
Therefore, a bidder not receiving an award from a significant solicitation could
be adversely  affected for several  years.  In addition,  current boot contracts
contain options that are exercisable at the government's discretion.

Many factors affect the government's demand for boots and the quantity purchased
can vary from year to year. Contractors cannot influence the government's boot
needs. Price, quality, quick delivery and manufacturing efficiency are the areas
emphasized by the Company that strengthen its competitive position. While the
government's demand for boots varies from month to month, the Company's business
cannot be deemed seasonal.

The U. S. government usually evaluates bids received on solicitations for boots
using their "best value" system, under which bidders offering the best value to
the government are awarded the contract, or in the case of multiple contract
awards, a greater portion of total boots contracted. Best value usually involves
an evaluation of performance considerations, such as quality and delivery, with
the prices bid being less important. As bidders become more equal in the best
value evaluation, price becomes more important. For the current DMS combat boot
contract awarded April 15, 1997, Wellco and one other bidder were given the
highest possible evaluation. However, since Wellco's bid prices were higher,
Wellco was awarded the 25% allocation of total boots, and the other competitor
received 35%.

Government contracts are subject to partial or complete termination under the
following circumstances:

     (1)      Convenience of the Government. The government's contracting
              officer has the authority to partially or completely terminate a
              contract for the convenience of the government only when it is in
              the government's interest to terminate. The contracting officer is
              responsible for negotiating a settlement with the contractor.

                                      -2-


<PAGE>




         (2)  Default of the Contractor. The government's contracting officer
              has the authority to partially or completely terminate a contract
              because of the contractor's actual or anticipated failure to
              perform his contractual obligations.

Under certain circumstances occasioned by the egregious conduct of a contractor,
contracts may be terminated and a contractor may be prohibited for a certain
period of time from receiving government contracts. The Company has never had a
contract either partially or completely terminated.

Because domestic commercial footwear manufacturers are adversely affected by
imports from low labor cost countries, the Company targets its marketing of
technology and assistance primarily to military footwear manufacturers. The
Company competes against several other footwear construction methods commonly
used for heavy-duty footwear. These methods include the Goodyear Welt
construction, as well as boots bottomed by injection molding. These methods are
used in work shoes, safety shoes, and hiking boots manufactured both in the U.
S. and abroad for the commercial market. Quality, service and reasonable
manufacturing costs are the most important features used to market the Company's
technology, assistance and services.

The Company has a strong research and development program. While not all
research and development results in successful new products or significant
revenues, the continuing development of new products and processes has been and
will continue to be a significant factor in growth and development. The Company
developed the desert combat boot, first used in Operation Desert Storm. In 1999
the Company completed a boot development research and development contract with
the U. S. Army that resulted in a 30% reduction in recruit lower extremity
injuries.

In August, 1995 the Company was awarded a three-phase contract to develop
changes to combat boots that will result in fewer lower extremity injuries. The
second phase of this work was completed in 1998. The third phase involved an
extensive wear test using U.S. Army recruits, and in September, 1999 the Company
shipped the boots for this test. The test was completed in December 1999 and a
report has been issued showing an injury rate reduction of 30 percent.

Although not precisely quantified, the Company spends a significant amount of
time and effort on both Company and customer-sponsored research activities
related to the development of new products and processes and to the improvement
of existing ones. A significant amount of this cost is for the personnel costs
of mold engineers, rubber technicians, chemists, pattern engineers and
management, all of whom have many responsibilities in addition to research and
development. The Company estimates that the cost of research and development can
vary from $50,000 to $300,000 per year, depending on the number of research
projects and the specific needs of its customers.

The Company's backlog of all sales, not including license fees and rentals, as
of September, 2001 was approximately $13,300,000 compared to $10,800,000 last
year. The Company estimates that substantially all of the current year backlog
will be shipped in the 2002 fiscal year. The current year's backlog is more than
the prior year's backlog because the government has completed its inventory
reduction program and is purchasing combat boots substantially equal to
consumption.

Most of the raw materials used by the Company can be obtained from at least two
sources and are readily available. Because all materials in combat boots must
meet rigid government specifications and because quality is the first priority,
the Company purchases most of its raw materials from vendors who provide the
best materials at a reasonable cost. The loss of some vendors would cause some
difficulty for the entire industry, but the Company believes a suitable
replacement could be found in a reasonably short period of time. Major raw

                                      -3-

<PAGE>

materials include leathers, fabrics and rubber, and, by government regulation
all are from manufacturers in the United States.

The current DMS boot contract provides for the Company to quickly ship direct to
U. S. Armed Forces installations in both the U. S. and abroad. Compared to prior
years when shipment was to government  warehouses,  this increases the Company's
investment in inventory.

Compliance with various existing governmental provisions relating to protection
of the environment has not had a material effect on the Company's capital
expenditures, earnings or competitive position.

The Company employed an average of 210 persons during the 2001 fiscal year.

Item 2. Properties.

The Company has manufacturing, warehousing and office facilities in Waynesville,
North Carolina and Aguadilla, Puerto Rico. The building and land in North
Carolina are owned by the Company. The Puerto Rico building and land are leased.

In 1999, the Company consolidated its existing operations in Puerto Rico and the
operations transferred from its Waynesville, North Carolina factory into a
larger leased building.

Management believes all its plants, warehouses and offices are in good condition
and are reasonably suited for the purposes for which they are presently used. As
has been the case for the last several years, the volume of operations in 2001
caused the Company's facilities to be used at less than normal capacity.

Item 3. Legal Proceedings.

There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the Company's business, to which the Company or any of
its subsidiaries are a party or of which any of their property is subject.

Management does not know of any director, officer, affiliate of the Company, nor
any stockholder of record or beneficial owner of more than 5% of the Company's
common stock, or any associate thereof who is a party to a legal proceeding that
is adverse to the Company or any of its subsidiaries.

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

There were not any submissions of matters to a vote of security holders during
the fourth quarter of fiscal year 2001.



                                      -4-

<PAGE>



                                     PART II
Items 5, 6, 7, 7A  and 8.

The information called for by the following items is in the Company's 2001
Annual Report to Shareholders which is incorporated starting on the following
page in this Form 10-K:

                                                                   Annual Report
                                                                        Page No.
--------------------------------------------------------------------------------

Item 5.    Market for the Registrant's Common Equity and Related
           Stockholder Matters                                               33
--------------------------------------------------------------------------------

Item 6.    Consolidated Selected Financial Data                               1
--------------------------------------------------------------------------------

Item 7.    Management's Discussion and Analysis of Results of
           Operations and Financial Condition                               3-8
--------------------------------------------------------------------------------

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk         *
--------------------------------------------------------------------------------

Item 8.    Consolidated Financial Statements and Supplementary Data    9-31, 34
--------------------------------------------------------------------------------

* This information is not required because the registrant is a small business
issuer.

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

There were no resignations by or dismissals of any independent accountant
engaged by the Company during the 2001 or 2000 fiscal years or during the period
from the end of the 2001 fiscal year through the date of filing this Form 10-K.

                                      -5-

<PAGE>

















                                    WELLCO(R)
                                ENTERPRISES, INC.
                                  ANNUAL REPORT
                                      2001






<PAGE>



                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED SELECTED FINANCIAL DATA
                   (In Thousands Except for Per Share Amounts)

                                                    Year Ended

                               June 30,   July 1,   July 3,  June 27,  June 28,
                                   2001      2000      1999      1998      1997
                               -------------------------------------------------
Revenues                       $ 19,417  $ 22,225   $ 21,312 $ 23,917  $ 21,199

Net Income (Loss)                 1,153       711       (837)    (337)      758
Basic Earnings (Loss) per
Share                              0.99      0.61      (0.72)   (0.29)     0.67
Diluted Earnings (Loss) per
Share                              0.97      0.61      (0.72)   (0.29)     0.66
Cash Dividends Declared Per
Share of Common Stock              0.40      0.25       0.20     0.20      0.20
                               -------------------------------------------------
Total Assets at Year End         12,786    12,950     14,853   16,020    15,652
                               -------------------------------------------------
Long-Term Liabilities at Year
End                            $  1,200  $  1,593   $  1,721  $ 2,253  $  2,789


See the  Management's  Discussion  and  Analysis of Results and  Operations  and
Financial Condition section.







Independent Auditors
Deloitte & Touche LLP
Charlotte, N.C.

Annual Meeting
November 13, 2001
Corporate Offices
Waynesville, N.C.

10-K Availability
The Company's  Form 10-K (annual  report filed with the  Securities and Exchange
Commission)  is  available  without  charge to those who wish to receive a copy.
Write to: Corporate Secretary,  Wellco Enterprises,  Inc., Box 188, Waynesville,
N.C. 28786

                                       -1-

<PAGE>



Dear Fellow Shareholders:

For fiscal year 2001, your company continued to make solid progress. Net income
for fiscal year 2001 was $1,153,000, equivalent to basic earnings per share of
$0.99 (diluted $0.97), from revenues of $19,417,000.  This compares with a net
income of $711,000, equivalent to basic and diluted earnings per share of $0.61,
from revenues of $22,225,000 for prior fiscal year ended July 1, 2000.

The decrease in revenues for the 2001 fiscal year was primarily caused by the
current year not including revenues from two contracts that have expired.
Helping to offset the effect of reduced total revenues was a15% increase in
pairs of boots sold under a higher-margin contract. In addition, certain
manufacturing costs decreased and labor efficiency improved following the
1999-2000 consolidation of substantially all boot manufacturing operations in
Puerto Rico.

Fiscal year 2001 includes an income item of $160,000 representing an incentive
grant received from the Puerto Rico government related to this consolidation.
Included in fiscal year 2000 income were $338,000 of restructuring and
realignment costs related to the consolidation in Puerto Rico and an income item
of $203,000 representing the final settlement of a contract claim with the U. S.
government.

Our cash position significantly improved in fiscal year 2001. Although we did
use our bank line of credit during the year, there were significant periods of
no borrowing during which we earned interest ($28,000 for the year) through
short-term investments. Interest expense less interest income was $110,000 in
fiscal year 2001 compared to $237,000 in fiscal year 2000.

New government contract delivery orders in hand,  undoubtably  influenced by the
terrorist  attacks in the U.S. on September 11, are at  significantly  increased
levels,  which will be reflected  beginning  with the second quarter of the 2002
fiscal year. However,  contract delivery orders received prior to the terrorists
attacks  during the first  quarter of our 2002  fiscal  year were at  relatively
depressed  levels,  as a  result  of  budget  limitations  at  the  end  of  the
government's fiscal year.

Earl "Friday" Mashburn, retired Vice President of Manufacturing, died in March,
2001. Upon his retirement in 1992, Earl had 50 years of service to Wellco and
its subsidiaries. After retirement, Earl was called on many times to assist us
with his tremendous depth of knowledge and creativity. When a manufacturing
problem arose, Earl provided the solution. We all miss him.

For many of us, the terrorist attacks on September 11 brought back memories of
Desert Shield/Storm. During Desert Shield/Storm, your Company and its employees
put forth their maximum efforts to assure that our Armed Forces had the boots
they needed to fulfill their mission. If called on, we stand ready to, once
again, put all our maximum efforts to support our Armed Forces and Nation.




Horace Auberry                                           David Lutz
Chairman of the Board of Directors                       President, Treasurer
Chief Executive Officer                                  Chief Operating Officer

September 28, 2001

                                       -2-

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
                                    CONDITION

                              RESULTS OF OPERATION

Comparing the Fiscal Year ended June 30, 2001 to the Fiscal Year ended July 1,
2000:

Despite a 13% reduction in revenues, income before income taxes was $1,490,000
in the 2001 fiscal year ("current year") compared to income before income taxes
of $824,000 in the 2000 fiscal year ("prior year").

         o        Revenues decreased $2,808,000 (13%) in the 2001 fiscal year as
                  compared to the prior year.

                  The primary reason for decreased revenues was a 13% reduction
                  in total pairs of boots shipped to the U. S. government. The
                  prior year included shipments to the government of the
                  Intermediate Cold Wet boot. In August 2000 Wellco made the
                  final shipment under its three-year contract to supply this
                  boot.

                  Also included in the prior year, but not included in current
                  year, are revenues from sales of an inmate work shoe to a
                  state prison system. In 1999, Ro-Search, a wholly-owned
                  subsidiary of Wellco, shipped this state the equipment needed
                  for manufacture of these boots by inmates, and subsequently
                  supplied the training and technical assistance. Wellco
                  supplied these work shoes until inmate manufacturing was able
                  to meet the need.

                  Pairs of Direct Molded Sole (DMS) combat boots shipped to the
                  U. S. government increased 15%, which is the primary reason
                  for the increase in income before taxes. For several years the
                  government has been reducing its depot inventories of DMS
                  combat boots by purchasing from contractors fewer pairs than
                  were consumed. The Company attributes the increase in DMS
                  pairs shipped in the fiscal year 2001 to the fact that this
                  inventory reduction program was substantially completed in the
                  Company's 2000 fiscal year.

         o        The  $3,363,000 decrease in cost of sales and services was
                  greater than the $2,808,000 decrease in revenues, and  gross
                  profit (revenues less cost of sales and services) increased
                  $555,000. Cost of sales in the prior year include costs
                  related to factory set up and labor inefficiencies of new
                  employees, which resulted from  the transfer of certain boot
                  manufacturing operations from Waynesville, North Carolina to
                  Aguadilla, Puerto Rico.  These costs were over and above those
                  shown as "Restructuring and Realignment Costs" in the
                  Consolidated Statements of Operations and Comprehensive Income
                  (Loss). In addition, gross profit margins on the ICW boot and
                  on the inmate work shoe were lower than those for the DMS
                  combat boots.

         o        General and administrative expenses increased $311,000 in the
                  current year.  Increased provision for employee bonuses,
                  which is based on the Company's net income, and employee
                  compensation adjustments contributed to this increase. In
                  addition, compensation paid in the prior year  to
                  administrative employees who were directly involved in the
                  transfer of manufacturing operations to Puerto Rico was
                  classified as "Restructuring and Realignment Costs" in the
                  Consolidated Statements of Operations and Comprehensive
                  Income (Loss). Also, travel costs and military show expenses
                  increased, as well as legal cost.

                                       -3-

<PAGE>



         o        The Company has received $400,000 ($100,000 in the 2001 fiscal
                  year and $300,000 on July 2, 2001) from the government of
                  Puerto Rico, under a Special Incentives Contract, related to
                  its  consolidation of footwear manufacturing operations in
                  Puerto Rico. The grant requires the Company to maintain
                  operations in Puerto Rico for five years.  The Company is
                  recognizing this grant as income over the five fiscal years
                  2000 through 2004 on the straight line basis. The 2001
                  Consolidated Statements of Operations and Comprehensive Income
                  (Loss) include grant income of $160,000 for the 2000 and 2001
                  years (see Note 16 to the Consolidated Financial Statements).

         o        Fiscal year 2000 included a non-recurring income item of
                  $203,000 representing the final settlement of a contract claim
                  (see Note 16 to the Consolidated Financial Statements).

         o        Fiscal year 2000 also included restructuring and realignment
                  costs totaling $338,000. These costs relate to a February,
                  1999 restructuring plan, which was completed in fiscal year
                  2000, and under which the Company has consolidated
                  substantially all footwear manufacturing operations at its
                  facility in Aguadilla, Puerto Rico. As detailed in Note 18 to
                  the Consolidated Financial Statements, the Restructuring and
                  Realignment Costs charged against fiscal year 2000 operations
                  are made up of:

                           Realignment costs of $428,000 consisting of: new
                           employee training costs ($186,000); cost to move
                           machinery, install machinery and refurbish and
                           prepare building ($108,000); and legal and other
                           costs ($134,000).

                           Restructuring credit of $90,000. During that year,
                           the Company's actuary completed calculation of actual
                           pension cost for terminated employees. The estimated
                           cost was originally recorded in the fourth quarter of
                           the 1999 fiscal year. The actual cost was $122,000
                           less than estimated. In addition, the prior year
                           includes a restructuring cost of $32,000 to increase
                           the amount previously accrued for health care costs
                           on terminated employees.

         o        Interest expense was lower in the fiscal year 2001 because of
                  reduced levels of borrowing under a bank line of credit.

The income tax rate (the percent of Provision for Income Taxes to the Income
Before Income Taxes) for fiscal year 2001 was 23% compared to a 14% tax rate for
the prior year. The current year rate is higher because the Company has recorded
a valuation allowance to reflect the estimated amount of deferred tax assets
that may not be realized.

Forward Looking Information:

Wellco is presently shipping boots under the fourth and final option year of its
U. S. government DMS boot contract which covers the period from April 16, 2001
to April 15, 2002. Wellco believes that the government will issue solicitations
from which contracts will be awarded for purchase of DMS boots beyond April 15,
2002.

On March 5, 2001 Wellco submitted a solicitation response to supply the Infantry
Combat Boot (ICB) for a one year period with four one-year options. The
solicitation provides for a small annual quantity to be supplied to the Marine
Corps and a larger quantity that may be supplied to the Army, contingent upon
its adoption of the ICB boot as replacement for a substantial portion of its
current usage of the all- leather combat boot, which is one of the boots
supplied under the DMS boot contract mentioned above. The

                                       -4-

<PAGE>



Company cannot predict whether the Army will adopt the ICB boot or whether it
will receive a contract from this solicitation.

Revenues from boot sales for the fiscal quarter ended September 29, 2001 will be
lower than normal due to a lower level of boot orders placed by the U.S.
government against current contracts. Prior to the September 11, 2001 terrorist
attacks, the lower level of orders was a result of budget limitations at the end
of the government's fiscal year.

Since the terrorist attacks on September 11, 2001, the government has placed
boot orders under the current contract which are significantly larger than
normal. The Company believes the larger orders are designed to increase the
number of immediately available boots. Revenues from these larger orders will
not be recognized until the fiscal quarter starting September 30, 2001, the
second quarter of the 2002 fiscal year, when the boots are manufactured and
invoiced to the government. Should military action involve significant levels of
U. S. ground forces, the government might further invoke a surge requirement,
under which the Company would take significant actions to maximize production
(overtime, add work shifts, etc.).

Except for historical information, this Annual Report includes forward looking
statements that involve risks and uncertainties, including, but not limited to,
the receipt of contracts from the U. S. government and the performance
thereunder, the ability to control costs under fixed price contracts, the
cancellation of contracts, and other risks detailed from time to time in the
Company's Securities and Exchange Commission filings, including Form 10-K for
the year ended June 30, 2001. Those statements include, but may not be limited
to, all statements regarding intent, beliefs, expectations, projections,
forecasts, and plans of the Company and its management. Actual results may
differ materially from management expectations. The Company assumes no
obligation to update any forward-looking statements.

Comparing the Fiscal Year ended July 1, 2000 to the Fiscal Year ended July 3,
1999:


Income before income taxes was $824,000 in the 2000 fiscal year compared to a
loss before income taxes of $1,237,000 in the 1999 fiscal year.

The fiscal year 2000 included restructuring and realignment costs totaling
$338,000. These costs related to a February, 1999 restructuring plan under which
the Company consolidated substantially all footwear manufacturing operations at
its facility in Aguadilla, Puerto Rico. The execution of this plan resulted in
the elimination of 77 employment positions at the Company's Waynesville, North
Carolina facility, and in the transfer of a significant amount of Waynesville
machinery and materials to Aguadilla.

As detailed in Note 18 to the Consolidated Financial Statements, the
Restructuring and Realignment Costs charged against 2000 operations were made up
of:

      o  Realignment costs of $428,000 consisting of: new employee training
         costs ($186,000); cost to move machinery, install machinery and
         refurbish and prepare building ($108,000); and legal and other costs
         ($134,000)

      o  Restructuring credit of $ 90,000. In the quarter ending April 1, 2000,
         the Company's actuary completed calculation of actual pension cost for
         terminated employees. The estimated cost was originally recorded in the
         fourth quarter of the 1999 fiscal year. The actual cost was $122,000
         less than originally estimated. In addition, the 2000 fiscal year
         included $32,000 for health care costs on terminated employees in
         addition to the amount accrued at July 3, 1999. A part of the severance

                                       -5-

<PAGE>



         compensation for terminated Waynesville employees was the continuation
         of health insurance for two months past termination. The Company is
         self funded for its group health insurance, and actual health care
         costs for terminated employees were greater than originally estimated.

Also included in the 2000 fiscal year is a non-recurring income item of
$203,000, net of related costs representing the final settlement of a contract
claim (see Note 16 to the Consolidated Financial Statements). In January, 2000
the federal government's Alternative Disputes Resolution procedure was used to
reach a final and non-appealable settlement of a contract claim Wellco filed
against the U. S. government.

Restructuring and Realignment Costs charged against 1999 operations totaled
$1,077,000 and were made up of $380,000 employee severance costs and $384,000 of
other restructuring costs related to the pension plan and other certain costs
which covered terminated employees, and $313,000 of realignment costs.

Revenues in 2000 were $913,000 greater than in the prior year. The primary
reason for this increase was a 17% increase in pairs of combat boots shipped
under contract with the U. S. government. For several years the government has
been reducing its depot inventories of combat boots by purchasing from
contractors fewer pairs than were consumed. The Company attributes the increase
in pairs shipped in fiscal year 2000 to the substantial completion of this
inventory reduction program.

Cost of sales and services in 2000 was $75,000 less than 1999. The decrease was
primarily caused by:

      o  The overall reduction of costs from the consolidation of substantially
         all manufacturing operations in Puerto Rico.
      o  Semi-variable costs not increasing in proportion to the increase in
         revenues.

The increase in revenues combined with the reduction in cost of sales and
services resulted in gross profit for 2000 increasing by $988,000.

A decrease in the number of administrative employees and decreased legal fees
were the primary reasons general and administrative expenses decreased by
$130,000 in fiscal year 2000.

Sales of boot manufacturing equipment and materials to licensees decreased
significantly during the 2000 fiscal year. These sales vary with the needs of
existing licensees and the licensing of new customers. In addition, the sale of
lacing system hardware decreased because of lower North American customer
production.

The 2000 rate of tax provision for income before income taxes was 14% compared
to the 32% rate of tax benefit for 1999. The 2000 income tax rate is lower
because a greater proportion of consolidated pretax income was from operations
in Puerto Rico which are substantially exempt from both Puerto Rican and federal
income taxes. The 1999 benefit resulted from part of the taxable loss being
carried back for a refund of taxes paid in prior years.

                         LIQUIDITY AND CAPITAL RESOURCES

Wellco uses cash from operations and a bank line of credit to supply most of its
liquidity needs. The following table summarizes at the end of each fiscal year
shown the Company's cash and funds available from the bank line of credit:



                                       -6-

<PAGE>



                                                         ( in thousands)
                                                  2001          2000       1999
                                                  ------------------------------
Cash and Cash Equivalents                       $  653         $  73      $  89
Unused Bank Line of Credit                       3,000         2,300        520
                                                --------------------------------
Total                                           $3,653        $2,373      $ 609
                                                --------------------------------

The increase in the unused line of credit and cash available at the end of 2001
and 2000 resulted primarily from an increase in cash provided by operations and
the use of these increases to pay down the bank line of credit. Due to the
Company's increased cash from operations, the total amount available under the
bank line has been reduced from $4,000,000 to $3,000,000 at December 31, 2000.
Cash not needed for daily operations is invested in short-term interest earning
instruments.

The following table summarizes the other major sources and (uses) of cash and
cash equivalents for the last three years:
                                                        (in thousands)
                                                 2001          2000        1999
                                                 -------------------------------
Income (Loss) Before Depreciation             $ 1,878       $ 1,385      $ (292)
Net Change in Accounts Receivable, Inventory,
Accounts Payable and Accrued Liabilities        1,898         2,002       1,170
Deferred Taxes, Tax Refund Receivable, and
Other                                             (26)          (66)        (30)
                                              ----------------------------------
Net Cash Provided By (Used In) Operations       3,750         3,321         848
Cash From Bank  Line of Credit                     -            395         915
Cash Used to Repay Bank Line of Credit         (1,700)       (2,175)       (320)
Cash From Note Payable                            300
Cash Used to Repay Note Payable                   (36)         (147)       (145)
Cash Used to Purchase Plant and Equipment      (1,269)       (1,119)     (1,172)
Cash Dividends Paid                              (465)         (291)       (233)
                                              ----------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents                                   $   580       $   (16)    $  (107)

In 2001, cash provided by operations was $3,750,000. This primarily resulted
from net income plus non- cash depreciation and amortization($1,878,000), and a
reduction in accounts receivable ($1,066,000) and an increase in accounts
payable and accrued liabilities ($618,000). The completion of the ICW contract
resulted in a significant amount of cash from the reduction in the related
accounts receivable.

Cash provided by operations was primarily used to pay down the bank line of
credit and purchase equipment. Financing of $300,000, provided by a customer in
the form of a ten year note payable, partially offset the cash required to
purchase certain of this equipment.

                                       -7-

<PAGE>




In 2000, cash provided by operations was $3,321,000. This primarily resulted
from net income plus non- cash deprecation and amortization ($1,385,000) and
reductions in accounts receivable ($1,575,000) and inventory ($416,000). Cash
was received in 2000 from a significant final contract shipment of boots in
June, 1999. Inventory decreased at the end of 2000 primarily because the Company
was nearing the end of its contract to supply the ICW boot and its contract to
supply a state prison system with inmate boots. Cash from operations was
primarily used to pay down the bank line of credit and purchase equipment.

In 1999, cash provided by operations was $848,000. This primarily resulted from
a $1,559,000 net reduction in receivables and inventory less a $575,000 net
reduction in accounts payable and accrued liabilities. Machinery purchases and
leasehold improvements related to the consolidation of boot manufacturing
operations in Puerto Rico were the primary purchases of plant and equipment.

At June 30, 2001, the Company had no significant commitments to purchase capital
equipment.

The bank's commitment for a total $3,000,000 line of credit expires on December
31, 2001, and is subject to renewal at the bank's discretion. During the 2001
fiscal year, Wellco expects to use the bank line of credit on occasion. The
Company does not know of any other demands, commitments, uncertainties, or
trends that will result in or that are reasonably likely to result in its
liquidity increasing or decreasing in any material way.

                                      -8-

<PAGE>




                            WELLCO ENTERPRISES, INC.
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                           FOR THE FISCAL YEARS ENDED
                     JUNE 30, 2001, JULY 1, 2000 AND JULY 3, 1999
                     (in thousands except per share amounts)


                                                 JUNE 30,     JULY 1,    JULY 3,
                                                     2001        2000       1999
                                                 -------------------------------
REVENUES (Notes  4, 14 and 15) ..............   $ 19,417    $ 22,225   $ 21,312
                                                ---------   ---------  ---------

COSTS AND EXPENSES (Note 1):
      Cost of sales and services ............     15,483      18,846     19,098
      Restructuring and realignment
      costs (Note 18) .......................                    338      1,077
      General and administrative expenses ...      2,494       2,183      2,136
                                                ---------   ---------  ---------
      Total .................................     17,977      21,367     22,311
                                                ---------   ---------  ---------

GRANT INCOME (Note 16) ......................        160

INCOME FROM CONTRACT CLAIM (Note 16) ........                   203
                                                ---------   ---------  ---------

OPERATING INCOME (LOSS) .....................      1,600       1,061       (999)

INTEREST EXPENSE ............................        138         238        242

DIVIDEND AND INTEREST INCOME ................         28           1          4
                                                ---------   ---------  ---------

INCOME (LOSS) BEFORE INCOME TAXES ...........      1,490         824     (1,237)

PROVISION (BENEFIT) FOR INCOME TAXES
(Note 10) ...................................        337         113       (400)
                                                ---------   ---------  ---------

NET INCOME (LOSS) ...........................      1,153         711       (837)

OTHER COMPREHENSIVE INCOME (LOSS)
(Note 8):
      (Increase) decrease in additional
      minimum  pension liability, net
      of tax ................................       (130)         76        229
                                                ---------   ---------  ---------

COMPREHENSIVE INCOME (LOSS) .................   $  1,023    $    787   $   (608)
                                                =========   =========  =========

EARNINGS (LOSS) PER SHARE (Note 13):
      Basic earnings (loss) per share .......   $   0.99    $   0.61   $  (0.72)
      Diluted earnings (loss) per share .....   $   0.97    $   0.61   $  (0.72)
                                                =========   =========  =========



See Notes to Consolidated Financial Statements.






                                       -9-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                         JUNE 30, 2001 AND JULY 1, 2000
                                 (in thousands)

                                     ASSETS


                                                            JUNE 30,     JULY 1,
                                                                2001        2000
                                                            --------------------
CURRENT ASSETS:
      Cash and cash equivalents ......................      $   653      $    73
      Receivables, net (Notes 2 and 6) ...............        2,042        3,108
      Inventories (Notes 3 and 6) ....................        5,010        5,097
      Deferred taxes  (Note 10) ......................          231          676
      Prepaid expenses ...............................           24           37
                                                            -------      -------
      Total ..........................................        7,960        8,991
                                                            -------      -------

MACHINERY LEASED TO LICENSEES, net
      (Notes 1 & 4) ..................................           34           24

PROPERTY, PLANT AND EQUIPMENT, net
      (Notes 5 and 6) ................................        3,931        3,397

INTANGIBLE ASSETS:
      Excess of cost over net assets of
         subsidiary at acquisition (Note 1) ..........          228          228
      Intangible pension asset (Note 8) ..............           36           52
                                                            -------      -------
      Total ..........................................          264          280
                                                            -------      -------

DEFERRED TAXES (Note 10) .............................          598          258
                                                            -------      -------

TOTAL ................................................      $12,787      $12,950
                                                            =======      =======







                            (continued on next page)

                                      -10-
<PAGE>

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                         JUNE 30, 2001 AND JULY 1, 2000
                        (in thousands except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                          JUNE 30,       JULY 1,
                                                              2001          2000
                                                          ----------------------

CURRENT LIABILITIES:
      Short-term borrowing from bank (Note 6) ......     $   --        $  1,700
      Accounts payable .............................        1,177           861
      Accrued liabilities (Notes 7, 8, 9, 11,
      16, and 17) ..................................        1,963         1,559
      Accrued income taxes (Note 10) ...............          732           629
      Current maturity of note payable
      (Note 11) ....................................         --              36
                                                         --------      ---------
          Total ....................................        3,872         4,785
                                                         --------      ---------


LONG-TERM LIABILITIES:
      Pension obligation (Note 8) ..................          885           892
      Notes payable (Note 11) ......................          545           701

COMMITMENTS (Note 17)

STOCKHOLDERS' EQUITY (Notes 8, 11 and 12):
      Common stock, $1.00 par value; shares
          authorized - 2,000,000; shares
          issued and
          outstanding - 1,163,246 ..................        1,164         1,164
      Additional paid-in capital ...................          192           192
      Retained earnings ............................        6,689         5,646
      Accumulated other comprehensive loss .........         (560)         (430)
                                                          --------      --------
          Total ....................................        7,485         6,572
                                                          --------      --------

TOTAL ..............................................     $ 12,787      $ 12,950
                                                         =========     =========

See Notes to Consolidated Financial Statements.



                                      -11-
<PAGE>





                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                  JUNE 30, 2001, JULY 1, 2000 AND JULY 3, 1999
                                 (in thousands)

                                                  JUNE 30,    JULY 1,    JULY 3,
                                                      2001       2000       1999
                                                  ------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
      Net income (loss) .......................   $ 1,153    $   711    $  (837)
                                                  --------   --------   --------
      Adjustments to reconcile net income
     (loss) to net cash provided by (used
      in) operating activities:
          Depreciation and amortization .......       725        674        545
          (Increase) decrease in-
              Receivables .....................     1,066      1,575     (2,436)
              Inventories .....................        87        416      3,995
              Other current assets ............       459        134       (263)
          Increase (decrease) in-
              Accounts payable ................       316       (185)      (650)
              Accrued liabilities .............       302         (6)        75
              Accrued income taxes ............       103        202        186
              Pension obligation ..............      (121)      (371)       194
              Other ...........................      (340)       171         39
                                                  --------   --------   --------
      Total adjustments .......................     2,597      2,610      1,685
                                                  --------   --------   --------
NET CASH PROVIDED BY (USED IN)
      OPERATING ACTIVITIES ....................     3,750      3,321        848
                                                  --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of equipment, net .............    (1,269)    (1,119)    (1,172)
                                                  --------   --------   --------
NET CASH PROVIDED BY (USED IN)
      INVESTING  ACTIVITIES ...................    (1,269)    (1,119)    (1,172)
                                                  --------   --------  - -------





                            (continued on next page)

                                      -12-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                  JUNE 30, 2001, JULY 1, 2000 AND JULY 3, 1999
                                 (in thousands)

                                                  JUNE 30,    JULY 1,    JULY 3,
                                                      2001       2000       1999
                                                  ------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from short-term borrowings .....                  395        915
      Repayment of short-term borrowings ......    (1,700)    (2,175)      (320)
      Proceeds from note payable ..............       300
      Repayment of note payable ...............       (36)      (147)      (145)
      Cash dividends paid .....................      (465)      (291)      (233)
                                                   -------    -------    -------
NET CASH PROVIDED BY (USED IN)
      FINANCING ACTIVITIES ....................    (1,901)    (2,218)       217
                                                   -------    -------    -------

NET INCREASE (DECREASE) IN CASH ...............       580        (16)      (107)
      AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT
      BEGINNING OF YEAR .......................        73         89        196
                                                   -------    -------    -------

CASH AND CASH EQUIVALENTS AT
      END OF YEAR .............................   $   653    $    73    $    89
                                                  ========   ========   ========

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid (received) for-
          Interest ............................   $    63    $   234    $   233
          Income taxes ........................        52       (238)      (377)
NONCASH INVESTING AND FINANCING
ACTIVITY:
Adjustment of stock repurchase note ...........   $  (355)   $   392
                                                  ========   ========   ========



See Notes to Consolidated Financial Statements.






                                      -13-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE FISCAL YEARS ENDED
                  JUNE 30, 2001, JULY 1, 2000 AND JULY 3, 1999
                        (in thousands except share data)


                                                 JUNE 30,    JULY 1,     JULY 3,
                                                     2001       2000        1999
                                                 -------------------------------
COMMON STOCK :
      Balance at beginning and end of year       $ 1,164    $ 1,164     $ 1,164
                                                 -------------------------------

ADDITIONAL PAID-IN CAPITAL:
      Balance at beginning and end of year           192        192         192
                                                 -------------------------------

RETAINED EARNINGS:
      Balance at beginning of year                 5,646      5,618       6,688
      Adjustment of note payable from stock
      repurchase (Note 11)                           355       (392)
      Net income (loss)                            1,153        711        (837)
      Cash dividends (per share: 2001 - $.40,
        2000 - $.25, 1999 -  $.20)                  (465)      (291)       (233)
                                                 -------------------------------
      Balance at end of year                       6,689      5,646       5,618
                                                 -------------------------------

ACCUMULATED OTHER COMPREHENSIVE LOSS
      Additional minimum pension liability,
      net of tax (Note 8):
      Balance at beginning of year                  (430)      (506)       (735)
      Change for the year                           (130)        76         229
                                                 -------------------------------
      Balance at end of year                        (560)      (430)       (506)
                                                 -------------------------------

TOTAL STOCKHOLDERS' EQUITY                       $ 7,485    $ 6,572     $ 6,468
                                                 ===============================

See Notes to Consolidated Financial Statements.




                                      -14-
<PAGE>





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended June 30, 2001, July 1, 2000, and July 3, 1999

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      Principles of Consolidation
         The accompanying financial statements include the consolidated accounts
         of the Company and its wholly-owned subsidiaries. Appropriate
         eliminations have been made of all material intercompany transactions
         and balances.

      Cash and Cash Equivalents
         Cash in excess of daily requirements is invested in short-term interest
         earning instruments. The Company considers investments with original
         maturities of three months or less to be cash equivalents.

      Inventories
         Raw materials and supplies are valued at the lower of first-in,
         first-out cost or market. Finished goods and work in process are valued
         at the lower of actual cost, determined on a specific identification
         basis, or market.

      Income Taxes
         The provision for income taxes is based on taxes currently payable
         adjusted for the net change in the deferred tax asset or liability
         during the current year. A deferred tax asset or liability arises from
         temporary differences between the carrying value of assets and
         liabilities for financial reporting and income tax purposes. A
         valuation allowance is recorded to reduce the carrying amounts of
         deferred tax assets unless it is more likely than not that such assets
         will be realized.

      Fair Value of Financial Instruments
         The carrying values of cash, receivables and accounts payable at June
         30, 2001 approximate fair value. The carrying value of the notes
         payable (see Note 11 to the Consolidated Financial Statements) is equal
         to the present value of estimated future cash flows using a discount
         rate commensurate with the uncertainties involved and thus approximates
         fair value.

      Depreciation and Amortization
         The Company uses the straight-line method to compute depreciation and
         amortization on machinery leased to licensees and property, plant and
         equipment used by the Company.

      Machinery Leased to Licensees
         Certain shoe-making machinery is leased to licensees under cancelable
         operating leases. Such activity is accounted for by the operating
         method whereby leased assets are capitalized and depreciated over their
         estimated useful lives (5 to 10 years) and rentals, based primarily on
         the volume of shoes produced or shipped by the lessees, are recorded
         during the period earned.

      Research and Development Costs
         All research and development costs are expensed as incurred unless
subject to reimbursement.

      Intangible Asset
         The excess of the fair value (as determined by the Board of Directors)
         of Wellco Enterprises, Inc. common stock issued over the net assets of
         Ro-Search, Incorporated, a wholly owned subsidiary of Wellco, at
         acquisition is not being amortized. This asset arose prior to 1970 and,
         in the opinion

                                      -15-

<PAGE>



         of management, there has not been any diminution in its value.

      Revenue Recognition
         All United States government combat boot production contracts are fixed
         price with multi-year options exercisable at the discretion of the
         government. Prior to June 1, 2001, revenue from shipments to government
         depot warehouses was recognized after shipment acceptance by the
         government's Quality Assurance Representative. For products shipped
         direct to customers, revenues are recognized upon shipment.

         On June 1, 2001, the government unilaterally modified the Company's
         current boot contract to require a bill and hold procedure. Under bill
         and hold, the government issues a specific boot production order which,
         when completed and ready for shipment, is inspected and accepted by the
         Quality Assurance Representative, thereby transferring ownership to the
         government. After inspection and acceptance, the Company invoices and
         receives payment from the government, and warehouses and distributes
         the related boots against government requisition orders. Government
         owned inventory is segregated in the Company's warehouses, and the
         Company insures its liability for physical damage to the inventory. In
         accordance with guidance issued under Securities and Exchange
         Commission Staff Accounting Bulletin No. 101, Revenue Recognition in
         Financial Statements, revenues from bill and hold transactions are
         recognized at the time of acceptance by the Quality Assurance
         Representative. Based on historical levels of revenues, the impact of
         this change on revenues was not material in the fiscal year 2001. The
         Company does not expect that this change will have a material impact on
         future period revenues.

         Revenues from government research and development contracts are
         recognized as services are performed and invoiced. Revenues from
         licensees are recognized in the period services are rendered.

      Fiscal Year
         The Company's fiscal year ends on the Saturday closest to June 30.
         Consequently, the 2001 fiscal year contains 52 weeks of operating
         results. The 2000 fiscal year contained 52 weeks and 1999 fiscal year
         contained 53 weeks.

      Estimates
         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America requires
         management to make estimates and assumptions. These estimates and
         assumptions affect the reported amounts of assets and liabilities, as
         well as the disclosure of contingent assets and liabilities, at the
         date of the financial statements. They also affect the reported amounts
         of revenues and expenses during the reporting period. Actual results
         could differ from those estimates.

      Reclassifications
         Certain reclassifications have been made in prior years' financial
         statements to conform to classifications used in the current year.

      Stock-Based Compensation Plans
         The Company accounts for its stock-based compensation plans using the
         compensation recognition provisions of Accounting Principles Board
         Opinion 25 (APB 25), "Accounting for Stock Issued to Employees". The
         Company also provides the disclosures required by Statement of
         Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
         Stock-Based Compensation." Compensation expense under the APB 25 method
         is recognized when there is a difference

                                      -16-

<PAGE>



         between the exercise price for stock options and the stock's market
         price on the measurement date, which for the Company, is normally the
         date of award.

      New Accounting Pronouncement
         On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
         was approved by the FASB. SFAS No. 142 changes the accounting for
         goodwill from an amortization method to an impairment approach, and is
         effective for the Company's 2003 fiscal year which starts June 30,
         2002. Under SFAS No. 142, if the carrying amount of goodwill exceeds
         its implied fair value, an impairment loss is recorded equal to that
         excess. The Consolidated Balance Sheets includes $228,000 of goodwill
         ("Excess of cost over net assets of subsidiary at acquisition"). The
         Company has not determined the probability of an impairment loss being
         required, once SFAS No. 142 becomes effective.

2.  RECEIVABLES:

      The majority of receivables at June 30, 2001 are from the U. S.
      Government.  The Company's policy is to require either a confirmed
      irrevocable bank letter of credit or advance payment on significant orders
      from foreign customers.  Allowances for doubtful accounts in 2001 and 2000
      are not significant.

      Receivables at June 30, 2001 include $150,000 from the Puerto Rican
      government for reimbursement of certain costs related to improvements of
      the current Puerto Rican facility.

3.  INVENTORIES:

      The components of inventories are:
                                                 (in thousands)
                                               2001          2000
                                               ------------------
Finished Goods                             $  1,617     $   1,811
Work in Process                               1,084         1,224
Raw Materials and Supplies                    2,309         2,062
                                           ----------------------
Total                                      $  5,010     $   5,097

4.  MACHINERY LEASED TO LICENSEES:

      Accumulated depreciation netted against the cost of leased assets in the
      2001 and 2000 Consolidated Balance Sheets is $1,526,000 and $1,521,000,
      respectively. Rental revenues for the fiscal years 2001, 2000, and 1999
      were $105,000, $116,000 and $100,000, respectively, substantially all of
      which vary with lessees' production or shipments.

5.  PROPERTY, PLANT AND EQUIPMENT:

      The components of property, plant and equipment are summarized as follows:





                                      -17-

<PAGE>



                                                      (in thousands)

                                 2001         2000         Estimated Useful Life
                                 -----------------------------------------------
Land                           $  107       $  107                           N/A
Buildings                       1,176        1,176                   40-45 Years
Machinery & Equipment           6,145        5,034                    2-20 Years
Furniture & Fixtures              940          873                    2-10 years
Leasehold Improvements            557          526                             *
                               -------------------------------------------------
Total Cost                     $8,925      $ 7,716
Total Accumulated
Depreciation and Amortization  $4,994      $ 4,319


         *Leasehold improvements are amortized using the straight-line method
         over the shorter of the estimated useful lives of the improvements or
         the period of the respective leases.

6.  LINES OF CREDIT:

      The Company maintains a $3,000,000 bank line of credit. The line, which
      expires December 31, 2001, can be renewed annually at the bank's
      discretion. This line of credit is secured by a blanket lien on all
      machinery and equipment (carrying value of $2,933,000 at June 30, 2001)
      and all non- governmental receivables and inventory ($1,058,000 at June
      30, 2001). At June 30, 2001, there was no borrowing against this line of
      credit and $3,000,000 available in additional borrowings.

      Interest is at the prime rate of 6.75% at June 30, 2001 The bank credit
      agreement contains, among other provisions, defined levels of net worth
      and current ratio requirements. The Company was in compliance with the
      loan covenants at June 30, 2001. The covenants are subject to review at
      the end of each fiscal quarter.

7.  ACCRUED LIABILITIES:

      The components of accrued liabilities are:

                                                               (in thousands)
                                                             2001           2000
                                                             -------------------
Compensation                                               $  976        $   930
Pension Benefits (Note 8)                                      83            124
Retiree Health Benefits (Note 9)                              139            146
Interest Expense                                              236            159
Accrued Lease Payments (Note 17)                              105             83


                                      -18-

<PAGE>



                                                             2001           2000
                                                             -------------------
Deferred Service Revenues (Note 11)                           102
Deferred Grant Revenues (Note 16)                             240
Other                                                          82            117
                                                           ---------------------
Total                                                      $1,963        $ 1,559


8. PENSION PLANS:

      The Company has two non-contributory, defined benefit pension plans. The
      components of pension expense, included in Cost of Sales and Services in
      the Consolidated Statements of Operations and Comprehensive Income (Loss)
      are as follows:

                                                           (in thousands)
                                                     2001        2000       1999
                                                     ---------------------------
Benefits Earned for Service in the
Current Year                                      $   95      $  138     $  159
Interest on the Projected Benefit
Obligation                                           376         346        393
Return on Plan Assets                               (315)       (267)      (255)
Amortization of: Unrecognized Net
Pension Obligation at July 1, 1987;
Cost of Benefit Changes Since That
Date; and Gains and Losses
Against Actuarial  Assumptions                       102         118        174
                                                  ------------------------------
Pension Expense                                   $  258      $  335     $  471

      The 1999 Consolidated Statements of Operations and Comprehensive Income
      (Loss) included as a part of the Restructuring and Realignment Costs (Note
      18), an estimated cost of $431,000 relating to the curtailment and
      settlement of pension liabilities for terminated employees ($220,000 of
      previously unrecognized prior service cost and $211,000 of previously
      unrecognized actuarial losses). The actuary computed the actual amounts as
      $309,000 ($193,000 for prior service cost and $116,000 for actuarial
      loss), and the Restructuring and Realignment Costs shown in the
      Consolidated Statements of Operations and Comprehensive Income (Loss)
      include an income item of $122,000 adjusting the previously recorded
      estimate to the actual amount.

      Below are various analyses and other information relating to the Company's
      pension liability, assets and expense as of June 30, 2001 and June 30,
      2000, (all amounts are in thousands except for those indicated as
      percent):


                                      -19-

<PAGE>




Change in Benefit Obligation:                                 2001         2000
                                                             -------------------
Benefit Obligation at Beginning of Year                  $  5,226      $  5,722
Current Year Service Cost                                      95           138
Interest Cost on Projected Liability                          376           346
Benefit Payments                                             (466)         (499)
Curtailment of Liability for Terminated Employees                          (417)
Actuarial (Gain) Loss                                         285           (64)
Benefit Obligation at End of Year                        $  5,516      $  5,226


Change in Plan Assets:                                        2001         2000
                                                            --------------------
Fair Value of Plan Assets at Beginning of Year           $  4,139      $  3,881
Company Contributions                                         488           580
Actual Return on Plan Assets                                  153           352
MetLife Demutualization                                                     302
Benefit Payments                                             (466)         (499)
Settlement Payments to Terminated Employees                                (477)
Fair Value of Plan Assets at End of Year                 $  4,314      $  4,139


Reconciliation of Funded Status:                             2001          2000
                                                            --------------------
Funded Status                                            $ (1,205)     $ (1,087)
Unrecognized Transitional Amount                               41            81
Unrecognized Actuarial Loss                                 1,009           589
Unrecognized Prior Service Cost                                72           104
Net Amount Recognized                                    $    (83)     $   (313)


Amounts Recognized in the Consolidated Balance
Sheets:                                                      2001          2000
                                                            --------------------
Intangible Pension Asset                                 $     36      $     52
Deferred Tax Asset                                            289           222
Accumulated Other Comprehensive Loss                          560           430


                                      -20-

<PAGE>



Amounts Recognized in the Consolidated Balance
Sheets:                                                      2001          2000
                                                            --------------------
Accrued Pension Liability:
   Prepaid Benefit Cost                                       206            44
   Booked                                                    (289)         (357)
   Additional                                                (885)         (704)
Net Amount Recognized in Financial Statements            $    (83)     $   (313)



CERTAIN ACTUARIAL ASSUMPTIONS:                               2001          2000
                                                            --------------------
Assumed Discount Rate                                        7.0%          7.5%
Expected Long-Term Rate of Return on Plan Assets             7.0%          7.5%
Rate of Compensation Increase, For the One Plan Whose
Benefits Are Pay Related                                     5.5%          5.5%

      At June 30, 2001, one of the pension plans has a benefit obligation
      ($2,643,000) that is greater than its plan assets ($1,758,000) resulting
      in the additional liability of $885,000. At June 30, 2000, one of the
      pension plans has a benefit obligation ($2,569,000) that is greater than
      its plan assets ($1,865,000) resulting in the additional liability of
      $704,000.

      The Consolidated Statement of Operations and Comprehensive Income (Loss)
      shows the amount included in Other Comprehensive Income that resulted from
      recording the pension liability that has not yet been charged against
      operations.

      In April, 2000 the plans received a cash distribution of $302,000 from the
      conversion of MetLife from a mutual company to a stock company. MetLife is
      the company who provides actuary and other services for the pension plans.

      In addition, the Company provides retirement benefits to certain employees
      through deferred compensation contracts and the unfunded liability
      associated with these contracts was $69,000 at June 30, 2001 and $65,000
      at July 1, 2000.

9. RETIREE HEALTH BENEFITS:

      The Company accounts for the costs and liability of health care benefits
      for retired employees using Statement of Financial Accounting Standards
      No. 106 (FAS 106), "Employers Accounting for Postretirement Benefits Other
      Than Pensions". The liability at the date of adoption of FAS 106 (July 4,
      1993) is being recognized over employee future service lives.

      Employees of the North Carolina plant who meet certain criteria and retire
      early (age 62-64) or become disabled, receive for themselves, but not for
      their dependents, the same health insurance benefits received by active
      employees. All benefits terminate when the employee becomes eligible to
      receive Medicare (usually age 65 or 30 months after disability date). This
      benefit is provided at no

                                      -21-

<PAGE>



      cost to the employee and the Company does not fund the cost of this
      benefit prior to costs actually being incurred.

      The cost of retiree health benefits included in the 2001, 2000 and 1999
      Statements of Operations and Comprehensive Income (Loss) was:

                                                         (in thousands)

                                               2001          2000          1999
                                            ------------------------------------
Benefits Earned for Current Service         $    19       $     8       $    35
Interest Cost on Accumulated Liability           28            14            24
Amortization of the July 4, 1993 Liability        4            14            14
                                            ------------------------------------
Total Cost                                  $    51       $    36       $    73


      An analysis of the total liability for the last two fiscal years,
      including a reconciliation of the liability in the Consolidated Balance
      Sheets (see Note 7) at June 30, 2001 and July 1, 2000 is:

                                                               (in thousands)
                                                              2001         2000
Total Liability at Beginning of Year                      $    390      $   207
Liability for Current Service                                   19            8
Interest on Liability                                           28           14
Benefit Payments                                               (58)         (60)
Actuarial (Gain) Loss                                           (2)         221
Total Liability at End of Year                                 377          390
Less Unamortized Liability at July 4, 1993                     (55)         (59)
Unrecognized Gain (Loss)                                      (183)        (185)
Liability Recognized in the Consolidated Balance Sheets   $    139      $   146

      The assumed health care cost trend rate used to project expected future
      cost was 15% in 2001 and 2000, gradually decreasing to 6% by 2007 and
      remaining at 6% thereafter. The assumed discount rate used to determine
      the accumulated liability was 7% for 2001 and 7.5% for 2000 The effect of
      a 1% increase in the assumed health care cost trend rate for each future
      year would not have a significant effect on the service and interest cost
      components of the current period cost or on the accumulated liability.

10. INCOME TAXES:

      The Company accounts for the provision and liability for income taxes
      using Statement of Financial

                                      -22-

<PAGE>



      Accounting Standards No. 109, "Accounting for Income Taxes." The provision
      for income taxes consist of the following:
                                                               (in thousands)
                                                    2001       2000         1999
                                                    ----------------------------
Federal Provision (Benefit):
    Currently Payable (Refundable)               $   36      $  158     $  (158)
    Deferred                                        171         (83)       (252)
                                                 -------------------------------
    Total Federal                                   207          75        (410)
State Provision Currently Payable                   130          38          10
                                                 -------------------------------
Total Provision (Benefit)                        $  337      $  113     $  (400)


      A reconciliation of the effective income tax rate for the 2001, 2000 and
1999 fiscal years is as follows:


                                                    2001       2000       1999
                                                    ----------------------------
Statutory Federal Income Tax (Benefit) Rate          34%        34%        (34%)
Current Period Income of Puerto Rico
Subsidiary Substantially Exempt From Puerto
Rican and Federal Income Taxes                      (42%)      (25%)        (1%)
Deferred Tax Valuation Allowance                     20%
State Taxes, Net of Federal Tax Benefit               9%         5%          1%
Other                                                 2%         *           2%
Effective Income Tax (Benefit) Rate                  23%        14%        (32%)

 * less than 1%

      Income earned in Puerto Rico by the Company's Puerto Rican wholly-owned
      subsidiary was 90% exempt from Puerto Rican income tax through 2000. The
      Company has applied for, and expects to receive, a new multi-year tax
      exemption grant that will provide for a flat income tax rate of 4% and
      will eliminate the withholding tax (5%) on dividends paid. For the 2001
      fiscal year, the provision for Puerto Rico income tax has been computed
      based upon the terms of the applied-for tax exemption grant. Income earned
      in Puerto Rico by this subsidiary has not been subject to United States
      federal income tax. The Small Business Job Protection Act (Act), passed by
      Congress on August 2, 1996 and subsequently signed by the President,
      terminated the federal tax credit on this income subject to a phase out
      for existing companies, for tax years beginning after December 31, 1996.
      Under the phase out, the Company should receive a full credit through
      fiscal year 2002. For fiscal years 2003 through 2006, the credit will be
      limited, and will be completely eliminated starting with the 2007 fiscal
      year.


      The accumulated undistributed earnings ($4,941,000) through July 1, 2000
      of this subsidiary are

                                      -23-

<PAGE>



      subject to the 5% Puerto Rican withholding tax when remitted to the parent
      Company as dividends. Accrued tax liabilities have been provided for the
      withholding tax reasonably expected to be paid in the future.

      Significant components of the Company's deferred tax assets and
      liabilities as of the end of fiscal 2001 and 2000 are as follows:
                                                                (in thousands)
Deferred Tax Assets:                                            2001       2000
                                                                ----------------
Tax Effect of Pension Liability Charged Against Equity       $  289     $   222
Pension Cost Charged Against Financial Statement Income,
Not Yet Deducted From Taxable Income                                         79
Employee Compensation Charged Against Financial
Statement Income, Not Yet Deducted From Taxable Income           188        173
Additional Costs Inventoried for Tax Purposes                     61         54
Federal NOL Carryforward                                         583        399
State NOL Carryforward                                           335        285
Alternative Minimum Tax Credit                                    70         70
Other                                                             69         69
Deferred Tax Assets Before Valuation Allowance                 1,595      1,351
Valuation Allowance                                             (681)      (339)
Total Deferred Tax Assets                                        914      1,012
Deferred Tax Liabilities:
Depreciation Deducted From Taxable Income Not Yet
Charged Against Financial Statement Income                        85         78
Net Deferred Tax Assets                                      $   829    $   934

      Deferred tax assets have been reduced by a valuation allowance because it
      is more likely than not that certain of these assets will not be used to
      reduce future tax payments.

      The Company has operating loss carryforwards of $1,717,000, which begin
      to expire in 2019, available to reduce future federal taxable income. In
      addition, $4,849,000 of operating loss carryforwards, which begin to
      expire in 2013, are available to reduce certain future state taxable
      income.

11.  NOTES PAYABLE:

      On December 29, 1995 Wellco repurchased from Coronet Insurance Company and
      some of its affiliates (Coronet and Affiliates) 1,531,272 shares of Wellco
      common stock, which represented 57.69% of total shares outstanding at that
      time. The Stock Repurchase Agreement provides that certain additional
      payments may be made through Wellco's fiscal year 2003.

                                      -24-

<PAGE>




      Although the stock repurchase occurred, the related Stock Repurchase
      Agreement was not executed by Coronet and Affiliates, nor have they
      performed certain other actions required by the Agreement. In addition,
      the Circuit Court of Cook County in Illinois has since issued an Order of
      Liquidation (Order) against Coronet Insurance Company. This Order requires
      all persons having assets which are, or may be, the property of Coronet
      Insurance Company to turn over these assets to the Director of Insurance
      of the State of Illinois.

      Wellco's counsel has advised that, because the Stock Repurchase Agreement
      was not executed by Coronet and Affiliates and other actions required of
      them by the Agreement were not performed, and because Coronet Insurance
      Company is being liquidated by the Director of Insurance of the State of
      Illinois, some uncertainty exists as to: (i) the enforceability of
      provisions of the Stock Repurchase Agreement, and (ii) if enforceable, to
      whom any additional obligation under the Agreement is owed.

      Generally accepted accounting principles require that an obligation be
      reflected in the Consolidated Balance Sheets for the estimated additional
      payments that would be made if the Agreement is enforceable. Since the
      date of stock repurchase, Wellco's Consolidated Balance Sheets have
      included a Note Payable representing the present value of the estimated
      amounts that would be paid if the Agreement is enforceable. The amount of
      the estimated payment due in fiscal year 2003, discounted at a rate of
      8.5%, is $347,000 at June 30, 2001.

      The Stock Repurchase Agreement, as drafted, provides that actual payments,
      if any, would only be made in the amount by which 60% of each fiscal
      year's net income exceeds a certain defined amount, calculated on a
      cumulative basis, and applying to fiscal years 1997 through 2002. The Note
      Payable has been calculated on this basis. The Company revised its
      estimate of the amount that might be paid during fiscal years 2001 and
      2000. For fiscal year 2001, the revised estimate decreased the Note
      Payable and increased Retained Earnings by $355,000 (as required by
      generally accepted accounting principles for stock repurchases). For
      fiscal year 2000 during which there was a return to profitability, the
      revised estimate increased the Note Payable and decreased Retained
      Earnings by $392,000.

      The Stock Repurchase Agreement does not provide for the payment of
      interest. However, generally accepted accounting principles require that
      interest be imputed. Interest expense on the Stock Repurchase Agreement
      for the fiscal years 2001, 2000, and 1999 was $75,000, $3,000, and $10,000
      respectively. Total payments under the note cannot exceed $1,531,000 and
      all obligations under the note terminate after the 2003 fiscal year
      payment.

      As part of an agreement for the Company providing certain technology and
      equipment to a customer, in April, 2001 that customer loaned the Company
      $300,000. The loan agreement provides for quarterly interest payments at
      an annual rate of 3% with the $300,000 principal due in April 2011.
      Because this interest rate is less than the market rate, the Company
      recorded the note payable discounted at a market rate of 8% ($196,000),
      and is recording interest expense at this rate. The difference between
      interest at the 8% and 3% rates ($104,000) was recorded as deferred
      service income, which is being recognized over the 10-year life of the
      loan agreement. The Company attributed the difference between the stated
      3% rate and the market rate of 8% as part of its compensation for
      technology and equipment provided the customer. The Company recognized
      interest expense of $4,000 and service fee income of $2,000 related to
      this loan in fiscal year 2001. At June 30, 2001, Notes payable includes
      $198,000 for this note, and $102,000 is included in current liabilities as
      deferred service income.



                                      -25-

<PAGE>



12. STOCK OPTIONS:

      On July 12, 2000, the Company and its Chairman of the Board executed an
      Agreement under which the Chairman was granted options to purchase up to
      50,000 shares of the Company's common stock at an exercise price of $9.125
      per share with such options vesting in 2005 or earlier if certain
      performance targets are met. For fiscal year ending June 30, 2001, no
      shares became vested. Expiration of such options shall be the earlier of
      the fifth anniversary of the date on which such options vest or one year
      after the Chairman's separation from employment under the Agreement.

      The1999 Stock Option Plan for Key Employees (1999 Employee Plan) and the
      1999 Stock Option Plan for Non-Employee Directors (1999 Director Plan)
      provide for granting options to purchase 90,000 shares and 21,000 shares.
      At June 30, 2001 options have been granted for 70,000 shares under the
      1999 Employee Plan and 11,000 shares under the 1999 Director Plan. The
      plans permit the issuance of either incentive stock options or
      non-qualified stock options.

      The1997 Stock Option Plan for Key Employees (1997 Employee Plan) and the
      1997 Stock Option Plan for Non-Employee Directors (1997 Director Plan)
      provide for granting options to purchase 99,000 shares and 16,000 shares.
      At June 30, 2001 options have been granted for 93,000 shares under the
      1999 Employee Plan and 14,000 shares under the 1999 Director Plan.

      The1996 Stock Option Plan for Key Employees provides for granting options
      to purchase 60,000 shares. At June 30, 2001 options have been granted for
      52,500 shares.

      Under all of the above Plans, option price is the market price on the date
      granted, and options have a life of 10 years from the date granted. At
      June 30, 2001, all granted options under the 1999, 1997 and 1996 Plans are
      exercisable.

      Transactions involving these Plans for the last three fiscal years are
      summarized below:


                                                                       Weighted-
                                                No. of                   Average
Option Shares:                                  Shares            Exercise Price
Outstanding at June 27, 1998                   119,500                    $11.13
Expired                                         (1,500)                     5.50
Outstanding at July 3, 1999                    118,000                     11.20
Granted                                         81,000                      8.00
Forfeited                                       (9,000)                    12.00
Outstanding at July 1, 2000                    190,000                      9.80
Granted*                                        50,000                      9.13
Forfeited                                       (7,000)                     9.14
Outstanding at June 30, 2001                   233,000                     $9.67
* Not exercisable. All other shares shown are fully exercisable.


                                      -26-

<PAGE>



The following table summarizes information about fixed stock options outstanding
at June 30, 2001:


                                                                Weighted-Average
                                                                       Remaining
            Range of Exercise     Weighted Average              Contractual Life
Number                 Prices       Exercise Price                      in Years
15,000                  $5.00                $5.00                           4.0
92,000          $12.00-$17.50               $12.12                           6.0
76,000                  $8.00                $8.00                           8.0
50,000*                 $9.13                $9.13                           9.0
* Not exercisable. All other shares shown are fully exercisable.

      Statement of Financial Accounting Standards No. 123 (SFAS 123),
      "Accounting for Stock-Based Compensation," became effective for the
      Company's 1997 fiscal year. As allowed by SFAS 123, the Company elected to
      continue applying the compensation expense recognition provisions of
      Accounting Principles Board Opinion 25 and related interpretations, and
      has not recognized compensation expense for its Plans. If compensation
      expense had been recognized, using the fair value of options on the date
      granted computed under the method prescribed by SFAS 123, net income
      (loss) and net income (loss) per share would have been changed to the pro
      forma amounts shown below for fiscal years 2001, 2000 and 1999 (in
      thousands, except per share amounts):

                                                    2001      2000         1999
                                             -----------------------------------
Net Income (Loss), As Reported                  $  1,153    $  711     $   (837)
Net Income (Loss), Pro Forma                    $  1,124    $  562     $   (878)
Basic Earnings (Loss) Per Share, As Reported    $   0.99    $ 0.61     $  (0.72)
Basic Earnings (Loss) Per Share, Pro Forma      $   0.97    $ 0.48     $  (0.75)
Diluted Earnings (Loss) Per Share, As Reported  $   0.97    $ 0.61     $  (0.72)
Diluted Earnings (Loss) Per Share, Pro Forma    $   0.95    $ 0.48     $  (0.75)

      The fair value on the date options were granted was estimated using the
      Black-Scholes option pricing model using the following assumptions:

                                                              2001         2000
                                                              ------------------
Expected Dividend Yield                                      4.384%       3.125%
Expected Stock Price Volatility                              31.53%       33.45%
Risk-Free Interest Rate                                       6.25%        5.83%
Expected Life of Options in Years                              5.0          3.0
Weighted-Average Fair Value of Options
Granted                                                      $2.27        $1.69

                                      -27-

<PAGE>

13.  EARNINGS PER SHARE:

      The Company computes its basic and diluted earnings per share amounts in
      accordance with Statement of Financial Accounting Standards No. 128 (SFAS
      128), "Earnings per Share."Basic earnings per share is computed by
      dividing net earnings by the weighted average number of common shares
      outstanding during the period. Diluted earnings per share is computed by
      dividing net earnings by the weighted average number of common shares
      outstanding during the period plus the dilutive potential common shares
      that would have been outstanding upon the assumed exercise of dilutive
      stock options.

      The following is the reconciliation of the numerators and denominators of
      the basic and diluted earnings per share computations:

                                            For the Fiscal Year Ended 6/30/01
                                      Net Income        Shares         Per-Share
                                      (Numerator)    (Denominator)        Amount

Basic EPS Available to Shareholders   $1,153,000        1,163,246         $0.99
Effect of Dilutive Stock-based
Compensation Arrangements                                  22,524
Diluted EPS Available to Shareholders $1,153,000        1,185,770         $0.97


                                             For the Fiscal Year Ended 7/1/00
                                      Net Income         Shares        Per-Share
                                      (Numerator)    (Denominator)        Amount

Basic EPS Available to Shareholders   $  711,000        1,163,246         $0.61
Effect of Dilutive Stock-based
Compensation Arrangements                                   5,310
Diluted EPS Available to Shareholders $  711,000        1,168,556         $0.61


                                             For the Fiscal Year Ended 7/3/99
                                      Net Income         Shares        Per-Share
                                      (Numerator)    (Denominator)        Amount

Basic EPS Available to Shareholders   $ (837,000)       1,163,246        ($0.72)
Effect of Dilutive Stock-based
Compensation Arrangements
(Note: N/A - Anti-dilutive)
Diluted EPS Available to Shareholders $ (837,000)       1,163,246        ($0.72)


14. SEGMENT AND REVENUE INFORMATION:

      The Company adopted Statement of Financial Accounting Standards No. 131
      (SFAS 131), "Disclosures About Segments of an Enterprise and Related
      Information," in the 1999 fiscal year.  SFAS 131 requires

                                      -28-

<PAGE>



      disclosure of financial and descriptive information about reportable
      operating segments, revenues by products or services, and revenues and
      assets by geographic areas.

      The Company operates in one reportable segment. Substantially all of the
      Company's operating activity is from the sale of military and other rugged
      footwear, the sale of specialized machinery and materials for the
      manufacture of this type of footwear and the rendering of technical
      assistance and other services to licensees for the manufacture of this
      type of footwear. The Company identifies segments based on the Company's
      organization under one management group. The Company's operations are
      managed as one unit and resources are allocated without regard to separate
      functions.

      Information about the Company's revenues is as follows:

                                                       (in thousands)

                                               2001         2000           1999
                                               ---------------------------------
Sales of Footwear and Related Items        $ 18,979     $ 21,738       $ 20,913
Revenues from Licensees                         438          487            399
                                           -------------------------------------
Total Revenues by Major Product Group      $ 19,417     $ 22,225       $ 21,312

Revenues from U. S. Customers              $ 16,531     $ 20,740       $ 18,816
Revenues from International Customers         2,886        1,485          2,496
                                           -------------------------------------
Total Revenues by Geographic Region        $ 19,417     $ 22,225       $ 21,312

Location of Major International Customers:
Latin America                              $    976     $    212       $  1,252
Canada                                          853          195            833
Asia/Pacific                                    399          209       $    374
Mexico                                            1          281
United Kingdom                             $    579     $    509

Major Customer- U. S. Government           $ 13,962     $ 14,378       $ 14,246

      The Company does not have long-lived assets or operations in foreign
      countries. The categorization of revenues as being from international
      customers was based upon the final destination of products sold or
      services rendered.

15. GOVERNMENT BOOT CONTRACT REVENUES:

      From time to time, the Company records estimates of revenues or costs
      associated with certain

                                      -29-

<PAGE>



      contract actions not yet settled with the U. S. government. Any difference
      between these estimates and the actual amounts agreed to are included in
      the period of settlement. There were no significant unsettled contract
      actions at June 30, 2001.  There were no significant differences between
      estimated and actual amounts for contract actions settled in fiscal years
      2001, 2000 and 1999.

16. GRANT MONEY RECEIVED AND CONTRACT CLAIM:

      The Company has received $400,000 ($100,000 in the 2001 fiscal year and
      $300,000 on July 2, 2001) from the government of Puerto Rico under a
      Special Incentives Contract related to its consolidation of footwear
      manufacturing operations in Puerto Rico. The grant requires the Company to
      maintain operations in Puerto Rico for five years. At June 30, 2001, two
      years of the required five years have passed. The 2001 Consolidated
      Statements of Operations and Comprehensive Income (Loss) include grant
      income of $160,000. The remaining $240,000 of deferred grant revenues (see
      note 7) will be amortized on a straight line basis over the next three
      fiscal years.

      In April 1998 Wellco executed an Agreement with Defense Supply Center
      Philadelphia (DSCP). The Agreement provides that DSCP will reimburse the
      Company for certain costs incurred related to contract performance during
      the fourth quarter of the 1997 fiscal year and the first two quarters of
      the 1998 fiscal year. Wellco maintained that it was due reimbursement for
      costs incurred in performing in accordance with a prior DSCP
      interpretation of the contract. This interpretation was later changed to
      the detriment of Wellco. The Agreement provided that any disagreement
      between Wellco and DSCP on an item of cost will be subject to binding
      arbitration.

      In October, 1998, DSCP agreed to pay Wellco $246,000 under this Agreement.
      The 1998 fiscal year Consolidated Statements of Operations and
      Comprehensive Income (Loss) included $226,000 of income related to this
      claim, representing the agreed to $246,000 less $20,000 of related costs.
      Wellco subsequently filed a contract claim for the additional amount it
      felt was due under the Agreement.

      In January, 2000 the federal government's Alternative Disputes Resolution
      (ADR) procedure was used to reach a final and non-appealable settlement of
      the claim. The 2000 Consolidated Statements of Operations and
      Comprehensive Income (Loss) include $252,000 less $49,000 of related costs
      for the settlement of this claim, which is the amount awarded Wellco by
      the ADR Judge less related costs.

17. COMMITMENTS:

      Under a Resolution of its Board of Directors, Wellco is committed to
      purchase its Common Stock which, as of September 6, 1990, was owned by or
      under option with an active or retired employee at that date. This
      purchase is at the employee or retiree option and is activated only by the
      termination of employment or death of the retiree. The purchase price is
      to be based on Wellco's tangible book value at the time of purchase. The
      maximum number of shares that could be purchased at June 30, 2001 is
      approximately 81,000.

      The Company has a non-cancelable operating lease with the Puerto Rican
      governmental agency for its manufacturing facility. The term of the lease
      is for ten years, beginning July 1, 1999 with monthly payments that
      commenced on January 1, 2000. Total lease payments for the period July 1,
      2001 through June 30, 2009 are $1,245,000. Lease payments for each of the
      Company's five fiscal years ending after June 30, 2001 are: $120,000,
      $135,000, $150,000, $156,000 and $162,000. Lease expense for the Company's
      current Puerto Rican facility in the 2001 and 2000 fiscal years was
      $142,500 each year. Lease expense for the Company's former Puerto Rican
      facility in the 1999 was $59,000.

                                      -30-

<PAGE>



      At June 30, 2001, the Company had no significant commitments to purchase
capital equipment.

18. RESTRUCTURING AND REALIGNMENT COSTS:

      In February, 1999, the Board of Directors approved a restructuring plan to
      consolidate and realign the Company's footwear manufacturing operations.
      Under this plan, the Company consolidated substantially all footwear
      manufacturing operations in Aguadilla, Puerto Rico, where the Company has
      had operations since 1956. The restructuring plan was completed in fiscal
      year 2001.

      The execution of this plan, which started in early May 1999, resulted in
      the elimination of 77 employment positions at the Company's Waynesville,
      North Carolina facility, and in the transfer of a significant amount of
      Waynesville machinery and materials to Aguadilla. Approximately 80 new
      personnel were added and trained in Aguadilla and the Aguadilla operations
      have been moved to a larger facility which incorporates the operations
      transferred from Waynesville. There were no Restructuring and Realignment
      Costs during the fiscal year ended June 30, 2001.

      Reconciliations of the Restructuring and Realignment Costs and accrual
      activity during fiscal years 2000 and 1999 are as follows:


Fiscal Year Ending July 3,                                   Activity
1999:                                                         Charged
                             Period                  Total    Against    Accrued
                              Costs    Accrual    Expenses    Accrual    Balance
                             ---------------------------------------------------
Severance                             $764,000    $764,000 ($680,000)    $84,000
Employee Training Costs    $104,000                104,000
Equipment Relocation and
Installation                 84,000     35,000     119,000                35,000
Legal and Other              90,000                 90,000
                           -----------------------------------------------------
   Total                   $278,000   $799,000  $1,077,000 ($680,000)   $119,000



Fiscal Year Ending July 1,                                   Activity
2000:                                                         Charged
                             Period                  Total    Against    Accrued
                              Costs    Accrual    Expenses    Accrual    Balance
                             ---------------------------------------------------
Severance                ($122,000)    $32,000   ($90,000) ($116,000)
Employee Training Costs    186,000                186,000
Equipment Relocation and
Installation               103,000       5,000    108,000    (40,000)
Legal and Other            134,000                134,000
                         -------------------------------------------------------
    Total                 $301,000     $37,000   $338,000  ($156,000)

                                      -31-
<PAGE>






INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Wellco Enterprises, Inc.
Waynesville, North Carolina

We have audited the accompanying consolidated balance sheets of Wellco
Enterprises, Inc. and subsidiaries (the "Company") as of June 30, 2001 and July
1, 2000, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity, and cash flows for each of the three fiscal
years in the period ended June 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2001 and
July 1, 2000 and the results of its operations and comprehensive income (loss)
and its cash flows for each of the three fiscal years in the period ended June
30, 2001 in conformity with accounting principles generally accepted in the
United States of America.


DELOITTE & TOUCHE LLP
Charlotte, North Carolina

September 26, 2001






                                      -32-

<PAGE>



                            WELLCO ENTERPRISES, INC.
                PRICE RANGE, DIVIDENDS AND MARKET OF COMMON STOCK

                                                  Fiscal Year 2001 Quarters

                                     First     Second      Third     Fourth
                                   ---------------------------------------------
Market Price Per Share-
High                               $10.750    $10.500    $10.300    $10.000
Low                                 $9.125     $9.250     $9.600     $9.000
Per Share Cash Dividend Declared                 $.20                  $.20


                                                  Fiscal Year 2000 Quarters

                                     First     Second      Third      Fourth
                                   ---------------------------------------------
Market Price Per Share-
High                                $8.125     $8.375     $8.125     $10.500
Low                                 $7.000     $7.000     $6.875      $7.250

Per Share Cash Dividend Declared                 $.10                   $.15



The Company's Common Stock is traded on the American Stock Exchange.

The number of holders of record of Wellco's Common Stock as of September 17,
2001 was 248.



Registrar and Transfer Agent
Mellon Shareholders Services
New York, N. Y.
















                                      -33-

<PAGE>



                            WELLCO ENTERPRISES, INC.
                        SELECTED QUARTERLY FINANCIAL DATA
                                   (Unaudited)
                   (In Thousands Except for Per Share Amounts)

                                                  Fiscal Year 2001 Quarters

                                  First      Second         Third       Fourth
                                ------------------------------------------------
Revenues                        $ 5,065     $ 5,031        $ 4,154     $ 5,167
Cost of Sales and Services        3,932       4,075          3,483       3,993
Net Income                          451    (A)  335             44   (A)   323
Basic Earnings Per Share           0.39        0.29           0.04        0.28
Fully Diluted Per Share         $  0.38     $  0.28        $  0.04     $  0.27





                                                  Fiscal Year 2000 Quarters

                                  First      Second         Third       Fourth
                                ------------------------------------------------
Revenues                        $ 4,732     $ 4,559        $ 6,291     $ 6,643
Cost of Sales and Services        4,093       4,032          5,137       5,761
Net Income (Loss)             (B)  (191)  (C)   198       (B)  398    (B)  306
Basic Earnings (Loss) Per Share   (0.16)       0.17           0.34        0.26
Fully Diluted (Loss) Per Share  $ (0.16)    $  0.17        $  0.34     $  0.26


(A)   Includes $100,000 in the second quarter and $60,000 in the fourth quarter
      for grant income received from the Puerto Rican government related to the
      consolidation of footwear manufacturing operations in Puerto Rico. See
      Note 16 to the Consolidated Financial Statements.

(B)   Includes $359,000 in the first quarter, $19,000 in the third quarter and
      $7,000 in the fourth quarter, of restructuring and realignment costs. See
      Note 18 to the Consolidated Financial Statements.

(C)   Includes $47,000 representing a restructuring credit due to the difference
      in the estimated and actual pension cost of terminated employees and
      realignment costs. See Note 18 to the Consolidated Financial Statements.
      Also, includes $203,000 for the contract claim discussed in Note 16 to the
      Consolidated Financial Statements.





                                      -34-

<PAGE>



Officers and Directors

HORACE AUBERRY
Chairman of the Board and Chief Executive Officer

ROLF KAUFMAN
Vice Chairman of the Board

DAVID LUTZ
President and Chief Operating Officer and Treasurer

FRED K. WEBB, Jr.
Vice President of Marketing

Officers

SVEN E. OBERG
V. P. - Engineering and Process Development

CHRIS CASTLEBERRY
V. P. - Technical Director

CHANDRA WIJEWICKRAMA
V. P. - Caribbean Operations

RICHARD A. WOOD, Jr.
Secretary, Attorney, Member of the law firm of McGuire, Wood & Bissette, P. A.

TAMMY FRANCIS
Assistant Secretary and Controller

Directors

WILLIAM M. COUSINS, Jr.
President of William M. Cousins, Jr., Inc.
(Management Consultants)

JAMES T. EMERSON
Retired Engineer

CLAUDE S.  ABERNETHY, Jr.
Senior Vice President of IJL Wachovia

J. AARON PREVOST (Deceased, June 2001)
Retired Banker

JOHN D. LOVELACE
Vice President of Credit and Collections
United Leasing Corporation


                                      -35-

<PAGE>



                                    PART III

Responsive information called for by the following Items 10, 11, 12 and 13,
except for certain information about executive officers provided below, will be
filed not later than 120 days after the close of the fiscal year with the
Securities and Exchange Commission in a Proxy Statement dated October 12, 2001,
and is incorporated herein by reference. After each item and shown in
parenthesis is the proxy heading for the section containing the responsive
information.

Item 10. Directors and Executive Officers of the Registrant.(Board of Directors)
-------  -----------------------------------------------------------------------

     The Proxy Statement is not expected to contain information disclosing
     delinquent Form 4 filers.

     Identification of Executive Officers and Certain Significant Employees:
     ----------------------------------------------------------------------


Name                        Age     Office
----------------------- ---------- ---------------------------

Horace Auberry              70     Chairman of the Board of Directors, Chief
                                   Executive Officer
----------------------- ---------- --------------------------------------------

David Lutz, CPA             56      President, Treasurer and Director
----------------------- ---------- --------------------------------------------

Rolf Kaufman                71      Vice Chairman, Board of Directors
----------------------- ---------- --------------------------------------------

Sven Oberg                  62      Vice President-Engineering and Process
                                    Development
----------------------- ---------- --------------------------------------------

Chandra Wijewickrama        63      Vice President-Caribbean Operations
----------------------- ---------- --------------------------------------------

Chris Castleberry           28      Vice President-Technical Director
----------------------- ---------- --------------------------------------------

Fred K. Webb, Jr.           41      Vice President of Marketing
----------------------- ---------- --------------------------------------------

Richard A. Wood, Jr.        64      Secretary
----------------------- ---------- --------------------------------------------

Tammy Francis, CPA          42      Controller, Assistant Secretary
----------------------  ---------- --------------------------------------------

Mr. Lutz was elected to the office of President in 1996,  previously  serving as
Secretary/ Treasurer.  In 1996, Mr. Kaufman retired from the office of President
and remains  active as a  consultant  to the Company  serving in the position as
Vice  Chairman,  Board of  Directors.  Prior to being  elected  Vice  President,
Engineering  and  Process  Development,  Mr.  Oberg  served  as Vice  President,
Technical  Director  for more  than five  years.  Mr.  Wijewickrama  has been an
employee of the Company for  thirty-seven  years and was elected Vice President,
Caribbean  Operations in November,  2000. Mr.  Castleberry  has been an employee
with the  Company  since April 2000 and was  elected  Vice-President,  Technical
Director in May 2001. From 1996 until 2000, he was a plant engineer for Converse
Corporation,  Inc. Mr. Webb has been a director  since 1996 and an employee with
the Company  since  August  1998.  In February  1999,  Mr. Webb was elected Vice
President of Marketing.  Mr. Webb was employed as an Accounting Team Leader with
United Guaranty Corporation from 1989 until 1998. Prior to becoming Secretary of
the  Company  in 1996,  Mr.  Wood  served  for more than the past five  years as
Assistant  Secretary.  Mr. Wood is a partner in the law firm of McGuire,  Wood &
Bissett,  general counsel to the Company.  Ms. Francis has been Controller since
October, 1996 and was elected Assistant Secretary in November, 1998.

                                      -6-

<PAGE>


Executive officers are elected by the Board of Directors to serve a term of one
year. There are no arrangements or understandings pursuant to which any of the
officers are elected, and all are elected to serve for one year terms.

Item 11. Executive Compensation.  (Executive Compensation)
-------  ----------------------

Item 12. Security Ownership of Certain Beneficial Owners and Management.
-------  --------------------------------------------------------------
         (Security Ownership)


Item 13. Certain Relationships and Related Transactions.  (Board of Directors/
-------  ----------------------------------------------
         Security Ownership)


Since the beginning of the 2001 fiscal year, no executive officer of the
Registrant or member of his immediate family has had any transaction or series
of similar transactions with the Registrant or any of its subsidiaries exceeding
$60,000, and there are no currently proposed transactions exceeding $60,000.

Since the beginning of the 2001 fiscal year, no -
         (1)  executive officer of the Registrant or member of his immediate
              family,
         (2)  corporation or organization of which any such person is an
              executive officer, partner, owner or 10% or more beneficial owner,
              or
         (3)  trust or other estate in which any such person has a substantial
              interest or as to which such person serves as trustee or in a
              similar capacity, was indebted to the Registrant or its
              subsidiaries in an amount exceeding $60,000.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
-------  ---------------------------------------------------------------

(a) The following documents are filed as a part of this report:

1. All Financial Statements
---------------------------


                                                                           Page
                                                                         Number
--------------------------------------------------------------------------------

The following consolidated financial statements of Wellco Enterprises,
Inc. are in the Registrant's 2001 Annual Report to Shareholders which is
integrated into Part II of this Form 10-K immediately after page 5
--------------------------------------------------------------------------------

Consolidated Balance Sheet  - at June 30, 2001  and July 1, 2000         10-11*
--------------------------------------------------------------------------------

Consolidated Statements of Operations and Comprehensive Income (Loss) -
for the years ended June 30, 2001, July 1, 2000 and July 3, 1999             9*
--------------------------------------------------------------------------------

Consolidated Statements of Cash Flows - for the years ended June 30,
2001, July 1, 2000 and July 3, 1999                                      12-13*
--------------------------------------------------------------------------------

Consolidated Statements of Stockholders' Equity - for the years
ended June 30, 2001, July 1, 2000 and July 3, 1999                          14*
--------------------------------------------------------------------------------

Independent Auditors' Report                                                32*
--------------------------------------------------------------------------------

Notes to Consolidated Financial Statements                               15-31*
--------------------------------------------------------------------------------
* Page number in the 2001 Annual Report to Shareholders integrated in Part II of
this Form 10-K.

                                      -7-

<PAGE>

2. Financial Statement Schedules
--------------------------------

All financial statement schedules are omitted because they are not applicable,
not required, or the information contained is not material.


3. Exhibits
-----------
                                                                            Page
Exhibit Number  Description                                               Number


      3         Articles of Incorporation and By-Laws                       (a)
--------------- ----------------------------------------------------------------

      10        Material Contracts:
--------------- ----------------------------------------------------------------

                A. Bonus Arrangement*                                       (b)
--------------- ----------------------------------------------------------------

                B. 1996 Stock Option Plan for Key Employees of
                Wellco Enterprises, Inc.*                                   (c)
--------------- ----------------------------------------------------------------

                C. 1997 Stock Option Plan for Key Employees of
                Wellco Enterprises, Inc.*                                   (d)
--------------- ----------------------------------------------------------------

                D. 1997 Stock Option Plan for Non-Employee Directors
                of Wellco Enterprises, Inc.*                                (e)
--------------- ----------------------------------------------------------------

                E. 1999 Stock Option Plan for Key Employees of
                Wellco Enterprises, Inc.*                                   (f)
--------------- ----------------------------------------------------------------

                F. 1999 Stock Option Plan for Non-Employee Directors
                of Wellco Enterprises, Inc.*                                (g)
--------------- ----------------------------------------------------------------

                G.  Employment Agreement with Chairman of Wellco's
                Board of Directors*                                         (h)
--------------- ----------------------------------------------------------------

      21        Subsidiaries of Registrant                                   16
--------------- ----------------------------------------------------------------

* Management Compensation Arrangement/Plan.

Copies of the below  listed  exhibits  may be  obtained  on  written  request to
Corporate  Secretary,  Wellco  Enterprises,  Inc., Box 188,  Waynesville,  N. C.
28786, accompanied by payment of the following amounts for each copy:

     Exhibit 3    $40.00
     Exhibit 10 A.  2.00
     Exhibit 10 B.  3.00
     Exhibit 10 C.  3.00
     Exhibit 10 D.  3.00
     Exhibit 10 E.  3.00
     Exhibit 10 F.  3.00
     Exhibit 10 G.  3.00
     Exhibit 10 H.  3.00
         (a)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended July 1, 1995, and is incorporated herein by reference.

                                      -8-

<PAGE>

         (b)  Exhibit was filed in PART IV of Form 10-K for the fiscal year
              ended July 3, 1982, and is incorporated herein by reference.
         (c)  Exhibit was filed as Exhibit A to the Proxy Statement dated
              October 18, 1996, and is incorporated herein by reference.
         (d)  Exhibit was filed as Exhibit A to the Proxy Statement dated
              October 17, 1997, and is incorporated herein by reference.
         (e)  Exhibit was filed as Exhibit B to the Proxy Statement dated
              October 17, 1997, and is incorporated herein by reference.
         (f)  Exhibit will be filed as Exhibit A to the Proxy Statement dated
              October 13, 2000, and is incorporated herein by reference.
         (g)  Exhibit will be filed as Exhibit B to the Proxy Statement dated
              October 13, 2000, and is incorporated herein by reference.
         (h)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended July 1, 2000, and is incorporated herein by reference.

Item 14 (b) - Reports on Form 8-K

There were no reports on Form 8-K for the three months ended June 30, 2001.








                                      -9-

<PAGE>









                                   SIGNATURES

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

WELLCO ENTERPRISES, INC.


/s/ Horace Auberry
----------------------------------------------------------------------------

By: Horace Auberry, Chairman of the Board
of Directors (Principal Executive Officer)
----------------------------------------------------------------------------


/s/ David Lutz
----------------------------------------------------------------------------

By: David Lutz, President and Treasurer
(Principal Financial Officer)
----------------------------------------------------------------------------


/s/ Tammy Francis
----------------------------------------------------------------------------

By: Tammy Francis, Controller
 (Principal Accounting Officer)
----------------------------------------------------------------------------


Date: September 28, 2001




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


/s/ Horace Auberry                          /s/ Rolf Kaufman
--------------------------------------------------------------------------------

Horace Auberry, Chairman                    Rolf Kaufman, Director
--------------------------------------------------------------------------------


/s/ David Lutz                              /s/ William M. Cousins, Jr.
--------------------------------------------------------------------------------

David Lutz, Director                        William M. Cousins, Jr. Director
--------------------------------------------------------------------------------


/s/ Fred K. Webb, Jr.
----------------------------

Fred K. Webb, Jr.,  Director
----------------------------



Date: September 28, 2001

                                      -10-

<PAGE>



                                                                     EXHIBIT 21

                            WELLCO ENTERPRISES, INC.
                         SUBSIDIARIES OF THE REGISTRANT



                                                            Percentage of Voting
                                Jurisdiction of              Securities Owned by
Name of Company                 Incorporation                   Immediate Parent
--------------------------------------------------------------------------------

Wellco Enterprises, Inc.        North Carolina                        Registrant
--------------------------------------------------------------------------------

Wholly-Owned Subsidiaries:
--------------------------------------------------------------------------------

Ro-Search, Incorporated         North Carolina                              100%
--------------------------------------------------------------------------------

Ro-Search International Inc.    Barbados, West Indies                   100% (1)
--------------------------------------------------------------------------------

Mo-Ka Shoe Corporation          Delaware                                    100%
--------------------------------------------------------------------------------


(1) Owned by Ro-Search, Incorporated.

All of the Registrant's wholly-owned subsidiaries are included in the
consolidated financial statements.

                                      -11-

<PAGE>