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 July 3, 1999

                          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. ( )

As of August  31,  1999,  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,  1999) of Wellco
Enterprises, Inc. held by nonaffiliates was approximately $2,100,000.

Documents incorporated by reference:
         Definitive Proxy  Statement,  to be dated October 15, 1999, 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.

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.

Footnote 15 to the Consolidated  Financial Statements contains information about
revenues by similar  products and by geographic  areas. The majority of revenues
($14,246,000  in 1999 and  $17,326,000  in 1998)  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  all-leather  boot,  the hot weather  boot and the desert
boot, all manufactured  using the government  specified Direct Molded Sole (DMS)
process.  The Company also supplies 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
foreign 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 loss for the 1999 fiscal year was  $837,000  ($.72  diluted  loss per share)
compared  to net loss of  $337,000  ($.29  diluted  loss per share) for the 1998
fiscal year.

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  (pretax)  related  to this
action.

The 1998 loss includes two items that affect the  comparability of 1999 and 1998
operating  results.  The 1998 loss was  increased by  approximately  $800,000 of
start up costs  incurred in the  Company's  initial  production of the ICB boot.
Also, the 1998 loss was reduced by the  recognition of a $226,000  non-recurring
income item under an agreement with the government.

More information about these, and other events affecting  Wellco's 1999 and 1998
operating  results,  are contained in the  Management's  Discussion and Analysis
section  of  the  Company's  1999  Annual  Report  to   Shareholders   which  is
incorporated in Part II of this Form 10-K.


                                       -1-

<PAGE>



For a number  of years  DSCP has been  carrying  out 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 has been gradually  reducing 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 is being 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 have adversely  affected  Wellco's  operating  results for both
years. The Company  understands the DSCP target inventory level to be a total of
550,000 to 600,000 pairs.  At the end of August,  1999 their total inventory was
605,000 pairs.  In addition,  Wellco has been informed by a DSCP  representative
that they have substantially reached their target inventory.

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.
United States 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.

Many factors affect the government's demand for boots and the quantity purchased
can vary from  year to year.  For  example,  projections  show that all  service
branches  except the Marine Corps will not reach their 1999  recruitment  goals.
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.

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.

All  current  boot  contracts  contain  options  that  are  exercisable  at  the
government's  discretion.  In 1998 the  government did not exercise an option on
one of the Company's contracts.

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 1993,
the Company  completed  initial  development  of  improvements  to the black hot
weather boot  incorporating  many of the  features it  developed  for the desert
boot.  In  1994 it was  awarded  an  option  under  that  contract  for  further
development,  and the results of this work were  subsequently  incorporated into
the black hot weather boot.

In August,  1995 the  Company  was  awarded a  three-phase  contract  to develop
changes to combat boots that will result in fewer lower extremity disorders. The
second  phase of this work was  completed in 1998.  The third phase  involves an
extensive wear test using U.S. Army recruits, and in September, 1999 the Company
shipped the boots for this test.

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,  1999 was approximately  $10,200,000  compared to $11,900,000 last
year. The Company  estimates that  substantially all of the current year backlog
will be shipped in the 2000 fiscal  year.  The current  backlog is less than the
prior  year's  backlog  because,  as mentioned  above,  the  government  did not
exercise a contract option.

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

                                       -3-

<PAGE>



industry,  but the Company believes a suitable  replacement  could be found in a
reasonably short period of time. Major raw 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 293 persons during the 1999 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 1999
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 1999.



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

The  information  called for by the  following  items is in the  Company's  1999
Annual Report to Shareholders  which is  incorporated  starting on the following
page in this Form 10-K:

                                       -4-

<PAGE>




                                                                   Annual Report
                                                                        Page No.
Item 5.  Market for the Registrant's Common Equity and Related
         Stockholder Matters                                                  37
Item 6.  Consolidated Selected Financial Data                                  1
Item 7.  Management's Discussion and Analysis of Results of Operations
         and Financial Condition                                            4-11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk            *
Item 8.  Financial Statements and Supplementary Data                   12-35, 38

* 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 1999 or 1998 fiscal years or during the period
from the end of the 1999 fiscal year through the date of filing this Form 10-K.


                                       -5-

<PAGE>



                                    WELLCO(R)
                                ENTERPRISES, INC.


                                  ANNUAL REPORT
                                      1999





<PAGE>


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

                                           Year Ended
                               July 3,   June 27,   June 28,  June 29,   July 1,
                                  1999       1998       1997      1996      1995
                               -------   --------   --------  --------   -------

Revenues                      $ 21,312  $  23,917  $  21,199  $ 19,968  $ 18,003
Net Income (Loss)                 (837)      (337)       758       991       969
Basic Earnings (Loss) per
Share (A)                        (0.72)     (0.29)      0.67      0.53      0.37
Diluted Earnings (Loss) per
Share (A)                        (0.72)     (0.29)      0.66      0.52      0.37
Cash Dividends Declared Per
Share of Common Stock              .20        .20        .20      .125      .083
Total Assets at Year End        14,853     16,020     15,652    12,697    22,738
Long-Term Liabilities at Year
End                           $  1,721  $   2,253  $   2,789  $  2,431  $  1,897

(A)      All per share amounts reflect a  three-for-one  stock split in the form
         of a stock dividend paid on January 3, 1997.



See the Management's Discussion and Analysis section.


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

Annual Meeting
November 16, 1999
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:

Some of you who are long term  shareholders  may remember  1979 when the cutting
and  stitching  operations  of our  Waynesville,  North  Carolina  factory  were
transferred to and consolidated with the cutting and stitching operations of our
Aguadilla,  Puerto Rico facility.  You may also recall that five years later, in
1984, we substantially  exited the commercial footwear market, a market in which
more than 90% of  present  U. S.  retail  sales are of  imported  footwear,  and
started to focus our efforts on military boots.

Using the clarity of hindsight,  we feel that these  decisions have proven to be
beneficial to the shareholders of our Company.  Having all cutting and stitching
operations  in  Puerto  Rico  enabled  us  to be  more  price  competitive.  The
commercial  footwear market has ever increasingly  gone to imports.  Since 1984,
your Company's Puerto Rico facility, which has been in existence since 1956, has
manufactured  military boot uppers which the Waynesville North Carolina facility
lasted and bottomed into finished  boots,  warehoused  and shipped to the United
States government for use by U. S. Armed Forces.

In 1999 your Company again took significant action that will have a major impact
on our future.  After more than eighteen  months of competing in a market driven
by the government's  inventory  reduction program,  your Board of Directors,  in
February,  1999,  approved a  restructuring  plan to consolidate and realign the
Company's  footwear  manufacturing  operations.  Under  this plan,  the  Company
transferred the majority of the lasting, bottoming and finishing operations from
its  Waynesville,  North  Carolina  facility  and  consolidated  them  with  the
operations of its Aguadilla, Puerto Rico facility.

The 1999 loss includes a $1,077,000  pretax charge  related to this action.  The
loss before income taxes in 1999 was  $1,237,000 (a net loss of $837,000 after a
$400,000  benefit from tax loss  carryback),  and this charge was a major reason
for that loss.

Since most of our military boots are shipped  against  delivery  orders received
four days per week,  we had to execute the transfer and  consolidation  with the
minimum  interruption  in  production.  With a lot of planning  and hard work by
dedicated people, we were able to do this.

The goal was to have the  consolidated  operations in place and be manufacturing
boots in Puerto Rico on July 19, 1999.  Meeting this target was  complicated  by
the fact that we had to locate a facility in Aguadilla  that was large enough to
house the  consolidated  operation.  By late April,  1999 we found the facility,
transferred  the first  machines  and  materials  from  Waynesville  and started
training new employees. In late June, we started the process of transferring the
existing Puerto Rico cutting and stitching machines, and on July 19 were back in
production making complete boots in Puerto Rico.

The Waynesville facility continues to be well used. In addition to manufacturing
small  quantities  of uppers into  finished  boots when special  customer  needs
arise,  the  Waynesville  facility  will  continue  to  manufacture  specialized
footwear, warehouse and ship boots, and serve as the Company's headquarters,  as
well as its sales and product development center. This action did not affect Ro-
Search,  Inc., a wholly-owned  subsidiary of the Company which makes specialized
footwear manufacturing machinery at the Waynesville facility.

The  challenge  for the year 2000 is to  continue  improving  the  manufacturing
efficiency of the expanded Puerto Rico operations.

We did not take this action to remedy a short term problem.  We  terminated  the
employment of 77 people at the Waynesville facility.  Fortunately , we were able
to give them a very generous cash severance  based on years of service.  We were
also  able to amend  the  pension  plan to allow  lump sum  payments  of  vested
benefits,  and all  terminated  employees,  except for a few who  elected  early
retirement, took the lump sum.

                                      -2-
<PAGE>

For years we have kept you  informed of the  government's  need to reduce  their
inventory of combat boots, and how they were accomplishing that reduction.  Last
year, we reported the acceleration of this reduction, and a part of what you see
in the  results  of  operations  for  1999  and  1998  was  the  result  of that
acceleration.

This year we report the government's  success in this endeavor.  Their inventory
of combat boots at the end of August,  1999 was 605,000 pairs. We understand the
government's  target  inventory level to be a total of 550,000 to 600,000 pairs.
In addition,  Wellco has been informed by a DSCP  representative  that they have
substantially  reached  their  target  inventory.  This  should  result  in DSCP
purchases  of combat boots  equaling  approximately  consumption  in the not too
distant future. The Forward Looking  Information of Management's  Discussion and
Analysis  section (see page 5) provides more  information  about the impact this
could have on our sales of combat boots.

Last  year we  reported  our  having an  unsettled  claim of  $754,000  under an
Agreement  with the  government.  This claim is still  unsettled.  Our Agreement
requires binding arbitration. However, it is not a simple process for all of the
procedures to occur that will allow the  government to be bound by  arbitration.
The lawyers have finally determined what steps need to take place and we hope to
have this issue settled by December 31, 1999.

During the 1999 fiscal year, we saw our employees  give their best.  Using their
skills,  hard work and good  character,  they  accomplished  the transfer to and
consolidation of boot manufacturing in Puerto Rico.

Mr. William D. Schubert,  a Director of Wellco since 1990,  recently died.  Bill
had many talents and  strengths.  His sense of humor and embracing  smile always
lifted our spirits. Bill had the ability to see clearly through a complex issue,
and he used this ability to focus your Board. He will be deeply missed.

We appreciate your support and pledge to you our best efforts.







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

September 30, 1999

                                       -3-

<PAGE>






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

                              RESULTS OF OPERATIONS


Comparing the Fiscal Year ended July 3, 1999 to June 27, 1998:

Loss before income taxes was  $1,237,000 in the 1999 fiscal year compared with a
loss before income taxes of $527,000 in the 1998 fiscal year. Three  significant
items affect the comparability of these two numbers.

1.  The  1999  loss  includes  a  $1,077,000  charge  for  the  restructure  and
realignment of 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  consolidated
substantially  all  footwear   manufacturing   operations  at  its  facility  in
Aguadilla, Puerto Rico, where the Company has made footwear since 1956.

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.  Approximately  80  new  personnel  were  added  and  trained  at the
Aguadilla  facility.  In addition,  the present  Aguadilla  operations have been
moved to a larger  facility  into which have been  incorporated  the  operations
transferred  from  Waynesville.  Because of certain timing  considerations,  the
Company has not as yet finalized all of the new facilities lease provisions with
the  government of Puerto Rico.  However,  the Company does not  anticipate  any
significant  changes  between the final lease  provisions and the ones presently
being  discussed.  By the  middle  of July,  both the  transferred  and  already
existing operations were fully operational in the new Puerto Rico facility.

As  detailed  in  Note  19  to  the  Consolidated   Financial  Statements,   the
Restructuring  and Realignment  Costs charged  against 1999  operations  totaled
$1,077,000 and are made up:

o    Net  restructuring  costs  of  $764,000  made  up of:  terminated  employee
     severance costs ($380,000); recognition of prior service cost ($220,000)and
     actuarial  loss  ($211,000)  related  to the  pension  plan  which  covered
     terminated  employees;  and a net gain  ($47,00) from the reduction of post
     employment employee health care cost liability on terminated employees.

o    Realignment  costs of  $313,000  made up of: new  employee  training  costs
     ($104,000);  cost to move  machinery,  install  machinery and refurbish and
     prepare building ($119,000); and legal and other costs ($90,000).

2. The 1998  loss was  increased  by  approximately  $800,000  of start up costs
incurred in the initial production of the new Infantry Combat Boot/Marine Corps.
This is explained  below in the  discussion  comparing  the 1998 and 1997 fiscal
years.

3. The 1998 loss was  reduced by the  recognition  of a  $226,000  non-recurring
income item under an agreement with the government. This is also explained below
in the discussion comparing the 1998 and 1997 fiscal years.

Total revenues from the sale of boots were approximately 8% lower in 1999. Pairs
of direct  molded  sole (DMS)  combat  boots sold to the Defense  Supply  Center
Philadelphia (DSCP) in 1999 were down only slightly from 1998. Revenues from DMS
boot  shipments  in both 1999 and 1998 have been  adversely  affected  by DSCP's
accelerating its inventory reduction program,  which is discussed in the forward
looking information section.

                                      -4-
<PAGE>

Pairs  of the  Intermediate  Cold/Wet  (ICW)  boot  sold to  DSCP  in 1999  were
approximately  42% less than the pairs sold in the prior year.  This is Wellco's
first contract for the production of this boot, and the contract  provides for a
base  year with two  option  years.  The  contract  provides  that  total  pairs
purchased by DSCP during the first option year are  approximately  45% less than
pairs purchased during the base year. The contract, as amended, also provides an
even further reduction in the minimum pairs to be purchased in the second option
year.

Revenues from  technical  assistance  fees from licensees were lower in the 1999
year.  Prior year fees include an  additional  fee related to supplying  certain
customers with additional services.  Wellco completed providing these additional
services  by June,  1998.  In  addition,  fees earned from other DMS combat boot
manufacturers,  which are based on their sales,  were lower  because of the DSCP
inventory reduction program.

Sales of boot manufacturing  equipment to new licensees increased in the current
year.  However,  sales  of  boot  lacing  system  hardware  to  commercial  boot
manufacturers  decreased  because  of both a bad  retail  sales  year and  price
pressure in this market.

The major categories of fixed and semi-variable manufacturing costs decreased by
approximately  $580,000 in 1999.  Employee group health insurance  costs,  which
varies with actual health care costs  incurred by employees  because the Company
is self funded,  were substantially the same as 1998. Certain 1998 manufacturing
costs were substantially higher because of the ICB boot start up costs.

The rate of income tax  benefit for 1999 was 32%  compared to 36% in 1998.  This
decrease was primarily  caused by a reduction in benefit provided by earnings in
Puerto  Rico which are  substantially  exempt  from both Puerto Rico and federal
income taxes.


Forward Looking Information:

Related to the realignment costs discussed above, the Company estimates that the
total amount of cost yet to be recognized is between $300,000 and $600,000.

For several  years,  DSCP has been  reducing  its  inventory  of combat boots by
purchasing  from  contractors  fewer pairs than were consumed.  For the last two
years,  they have  accelerated the reduction.  Based on information  provided by
DSCP, this has resulted in a reduction of these inventories from 1,400,000 pairs
in February,  1998 to 605,000 pairs in August,  1999. We understand their target
inventory to be a total of 550,000 to 600,000  pairs.  In  addition,  Wellco has
been  informed by a DSCP  representative  that they have  substantially  reached
their target inventory.

Wellco is presently  shipping boots under the second option year of its DMS boot
contract  which  covers  the  period of April 16,  1999 to April 15,  2000.  The
minimum  total pairs DSCP is required to buy from Wellco during this option year
is 155,000  pairs,  compared to 126,122  pairs in the first option year covering
the  period  April  16,  1998  to  April  15,  1999.  However,  since  DSCP  has
substantially  reached their target  inventory,  Wellco  anticipates  that their
order pattern will in the not too distant  future  approach the level of current
consumption. Based on boot consumption for the last year, the annual purchase of
combat boots from Wellco,  at the current  contract's  rate of 25% of total DSCP
purchases of combat boots being  ordered  from  Wellco,  would be  approximately
250,000 pairs.

The current DMS boot contract has two more one-year  option  periods after April
15, 2000. Wellco  understands that the present intent of DSCP is to exercise the
option for the third  year,  which would  cover the year April  16,2000  through
April 15, 2001.

                                      -5-
<PAGE>

Wellco is  presently  shipping  ICW boots under the  contract's  second and last
option year.  Shipments under the second option year will affect Wellco's fiscal
year 2000  operations.  Although the minimum pairs to be purchased in the second
option are less than  first  option  pairs,  orders  received  to date under the
second option have already  substantially  exceeded second option minimum pairs.
Wellco  understands  that this second option increase  results from  consumption
being greater than expected.  If this second option  ordering  trend  continues,
DSCP could order the contract maximum pairs of 99,000.

As stated in Note 17 to the  Consolidated  Financial  Statements,  DSCP has paid
$246,000  of a  $1,000,000  Wellco  claim.  Wellco  and DSCP have  agreed to use
binding  arbitration  as the method to settle  the  remaining  $754,000  of this
claim.  Any amount Wellco  receives beyond the $246,000 will be reflected in the
period the arbitrator's decision is known.

The Company  recognizes  the need to consider  whether  its  operations  will be
adversely  impacted by Year 2000  software  failures.  Software  failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk.

The Company primarily uses packaged  software running on personal  computers and
file servers, and does not use mainframes.  Packaged software primarily consists
of  accounting,  payroll,  bar coding and inventory  control,  employee time and
attendance,  and  Microsoft  Windows  applications.  All  of  Wellco's  packaged
software has been  updated to Year 2000  compliant  versions.  The total cost of
this updating was minimal.

A lack of timely Year 2000 compliance by Wellco's major  customers,  vendors and
suppliers  could  have a  materially  adverse  affect  on  Wellco's  results  of
operations and financial  condition,  although such adverse effect should not be
long term or  permanent.  For example,  orders  received  from the DSCP for boot
shipments are received  electronically.  After shipment,  Wellco  electronically
invoices boot shipments as well as receiving  payment by bank wire  transfer.  A
lack of timely Year 2000  compliance by DSCP may  significantly  delay  Wellco's
boot shipments.  A lack of timely Year 2000 compliance with related computerized
systems,  for example  the  ability to  electronically  receive  invoicing  from
Wellco,  may significantly  delay Wellco's receipt of cash from invoices.  There
may be suppliers of materials,  machine  replacement  parts,  and other critical
items who may not be Year 2000  compliant.  This may mean a delay in getting the
necessary materials and other items to maintain a continuous flow of production.
The Company has sent written  requests to all major vendors and customers asking
confirmation as to their Year 2000 compliance status. Responses received to date
do not indicate a problem.

Only a few requests have not been  responded to, and Wellco  continues to pursue
getting a response.  If vendor responses indicate a problem,  Wellco may be able
to find other Year 2000 compliant

                                       -6-

<PAGE>




vendors,  or order  excess  materials  and other  items  necessary  to  continue
operations until the estimated time vendors are compliant. If customer responses
indicate  a  problem,  Wellco  will  work with  those  customers  to the  extent
possible.  If Wellco has to take some or all of these  actions to  minimize  any
Year 2000 problems, it may have to have additional financing.

Of course, the favorable  responses received to date are only as reliable as the
responders.  While  Wellco feels the  responses  are  reliable,  there can be no
absolute assurance that they are.

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 effect of  customers  and vendors not being timely in Year 2000
compliance,  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  July 3,  1999.  Actual  results  may  differ  materially  from
management expectations.

Comparing the Fiscal Year ended June 27, 1998 to June 28, 1997:

Loss before  income  taxes was  $527,000 in the 1998 fiscal year  compared  with
income  before  income taxes of  $1,088,000  in the 1997 fiscal  year.  The 1998
fiscal  year  pretax  income  includes  a  $226,000  non-recurring  income  item
representing  the accrual of a claim under an Agreement  with the Defense Supply
Center Philadelphia (DSCP), an agency of the U.S. Department of Defense to which
the Company sells combat boots.

In April 1998 Wellco  executed an Agreement  with 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 provides that any disagreement between Wellco
and DSCP on an item of cost will be  subject to  binding  arbitration.  The cost
reimbursement is limited to $1,000,000.

Wellco  submitted its claim under the  Agreement in late May,  1998  documenting
more than $1,000,000 in costs incurred.  In an early October,  1998 meeting with
Wellco,  DSCP agreed to pay Wellco  $246,000 of the  $1,000,000  claim.  Binding
arbitration  will  be used to  determine  how  much,  if any,  of the  remaining
$754,000 will be paid by DSCP to Wellco.  It is expected  that this  arbitration
procedure will take a few months and Wellco,  despite feeling that a significant
amount of the $754,000 will ultimately be paid, cannot  reasonably  predict what
the  arbitrator  will decide.  Therefore,  the 1998  Consolidated  Statements of
Operations  includes  as an item of  income  related  to  this  claim  $226,000,
representing  the agreed to $246,000 less $20,000 of related  costs.  Any amount
Wellco  will  receive  beyond  $246,000  will  be  recorded  at the  time of the
arbitration decision.

Pairs of direct  molded sole (DMS) combat boots shipped in 1998 were almost half
of 1997. On April 15, 1997,  Wellco and three other contractors were awarded DMS
combat boot contracts from DSCP for the one year period  starting April 15, with
options  for each of the  ensuing  four  years.  These are  indefinite  quantity
contracts  under  which each  contractor  is  guaranteed  delivery  orders for a
minimum  number  of pairs and DSCP can  order up to a stated  maximum  number of
pairs. Wellco's award is for 25% of total combat boot purchases,  with the other
three  contractors  receiving  35%,  20% and 20% of  total  purchases.  DSCP had
estimated award to be in December, 1996, and Wellco substantially

                                       -7-

<PAGE>




completed  shipments under its prior contract in that month.  Instead of ceasing
combat boot  manufacturing  operations  from  January,  1997 to contract  award,
Wellco  continued to manufacture  and stock boots in  anticipation of a contract
award.

This  contract  is the first one under  which boot  contractors  ship  direct to
customers, instead of to government warehouses. Past performance is a key factor
in  contractor  evaluation,  and quick  delivery  is a  significant  performance
factor. Wellco built a large inventory in order to be able to ship quickly after
receipt of orders.

This resulted in Wellco  having a  significant  inventory of combat boots at the
date of contract  award,  and in Wellco being the only  contractor  which was in
position to start shipping  immediately  upon contract award.  During the fourth
quarter of the 1997 fiscal year, Wellco was allowed to accelerate its first year
shipments  and did ship very large  quantities  against its first year  minimum.
Starting in late October, 1997, when Wellco was very close to having shipped its
guaranteed minimum pairs, DSCP significantly  reduced Wellco's orders.  This was
done to give the other three  contractors  delivery orders for their  guaranteed
minimum pairs.

Because of the delay in contract award, DSCP expressed their non-binding  intent
to purchase more than the  guaranteed  minimum pairs in the first contract year.
Wellco  continued to maintain its DMS boot  inventory  in  anticipation  of DSCP
purchasing pairs above the minimum.  As other contractors reached their minimum,
DSCP determined that it could not buy pairs beyond the minimum. This resulted in
a significant  reduction in the pairs of DMS combat boots shipped by Wellco from
late October, 1997 through April, 1998.

On April 10, 1998 DSCP  exercised  it's first option on the DMS boot for the one
year period April 15, 1998 to April 15, 1999, with Wellco's option being for 25%
of total DMS pairs purchased during this year. For several years,  DSCP has been
reducing its depot  inventory of DMS boots.  Prior to option  exercise,  in late
February,  1998,  DSCP met with all DMS boot  contractors  informing  them  that
inventory  reduction  was behind  schedule.  Out of this meeting came a contract
modification reducing the total guaranteed minimum pairs to be purchased by DSCP
during the first  option  year.  For Wellco,  this is a reduction in the minimum
pairs from 155,000 to 125,000  pairs.  The price per pair for the first  155,000
pairs during the first option was increased to compensate for the reduced pairs.
DSCP has again expressed their intent,  without giving a binding commitment,  to
purchase  more than the minimum  pairs if their total usage in the first  option
year  exceeds  900,000  pairs.  Boot usage in the year ended  April 15, 1998 was
approximately 1,100,000.

The  reduction of boot  shipments,  after the  acceleration  of shipments in the
first contract year, and the reduction in minimum pairs to be ordered during the
second  contract  year,  were the primary  reasons for DMS boot shipments in the
1998 fiscal year being almost half of 1997.

Compared  to fiscal  year 1997,  sales  revenues  in 1998  increased  $2,718,000
primarily  because of shipments  under two new boot  contracts.  On February 25,
1997 Wellco was awarded a contract from DSCP to supply the Intermediate Cold/Wet
boot (ICW),  and the 1997 fiscal year  reflected  only the first  shipment under
this contract. On June 25, 1997, Wellco was awarded a contract to supply the new
Infantry Combat  Boot/Marine  Corps (ICB),  with shipments  starting in October,
1997. Wellco had not previously made either of these boots. As is often the case
when entering the  manufacture of new products,  margins on both the ICB and ICW
boots are less than those on DMS boots historically supplied by Wellco to DSCP.


                                       -8-

<PAGE>




Operating results for 1998 were adversely affected by start-up costs,  estimated
to be approximately  $800,000,  which incurred in the initial  production of the
ICB boot. The ICB contract  required that Wellco,  within 90 days after contract
award, manufacture and have in inventory a significant quantity of this boot. At
the end of this 90 day period,  the contract  also  required  Wellco to have the
capacity  to quickly  deliver  orders for this boot to Marine  recruit  training
centers  and major  Marine  clothing  stores.  This 90 day period  compares to a
normal "make ready" time in government boot contracts of 165 days or longer.

The ICB boot incorporates several  technologies and manufacturing  methods which
are  significantly  different  than  those in the DMS boot.  During  this 90 day
period,  Wellco  rearranged  its  production  lines,   purchased  and  installed
significant new manufacturing equipment, hired and trained new employees, tested
new materials,  and developed many new manufacturing  procedures and methods. If
time had permitted, this should have been done with small trial production runs.
With only 90 days,  Wellco had to  simultaneously  do all of this and reach full
production without the benefit and efficiencies of trial production runs.

ICB boot start-up costs were charged against 1998 operating  income. In addition
to labor inefficiencies in training new employees, significant overtime premiums
were paid.  Bonuses were paid to direct labor  personnel for meeting  production
quotas.  Instead  of using  ocean  freight,  expensive  air  freight  costs were
incurred to send  materials  to the  Company's  plant in Puerto Rico and then to
send  completed  boot  uppers to the North  Carolina  plant  for  bottoming  and
finishing.  Because  the 90 day  period  did not  give  enough  time to  develop
manufacturing   procedures  and  methods  using  small  trial  production  runs,
significant  material losses were incurred.  Production  quantities of materials
were  purchased  and  processed.  Some  materials  did not perform as  expected,
resulting  in boots  which  could not be shipped  under the  contract  and whose
market value was less than cost.

The  start-up  of ICB  production  proved to be more  expensive  than  initially
anticipated.  Management's judgement is that, if Wellco had included an adequate
amount of start-up costs in its bid prices, those prices would have been so much
higher than the prices of other  bidders that Wellco would not have received the
contract award.

Revenues from  technical  assistance  fees and equipment  rentals from licensees
increased almost $200,000 in 1998.  Technical  assistance fees increased because
of an additional fee, earned through April,  1998,  related to supplying certain
customers  with  additional  services.  In addition to  completing  a major mold
order,  a new footwear  manufacturing  installation  was completed in 1998.  The
second phase of a government research and development  contract was completed in
1998.  However,  the  sale  of  boot  making  materials,  primarily  to  foreign
customers,  decreased in 1998. These sales can vary significantly from period to
period with the needs of this group of customers.

General and  administrative  expenses  decreased  $239,000.  Bonus expense,  the
majority  of which  varies  with net  income,  decreased.  For a number of years
Wellco has made a  contribution  to The Wellco  Foundation in an amount based on
taxable  income.  Subsequent  distributions  to  qualifying  charities is at the
nomination  of Wellco  shareholders  whose names are known to the  Company.  The
contribution  for 1997 was $115,000 , and no contribution  was made in 1998. The
rate of Tax Benefit to Income  Before Income Taxes is 36% for 1998 compared to a
rate of Tax Provision to Income  Before  Income Taxes of 30% for 1997.  The 1998
benefit  results from the taxable loss being  carried back for a refund of taxes
paid in prior years.



                                      -9-

<PAGE>






                         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 year the
Company's cash and funds available from the bank line of credit:

                                     ( in thousands)
                                   1999      1998    1997
                                   ----      ----    ----
Cash .....................       $   89    $  196  $  181
Unused Bank Line of Credit          520     1,115   2,813
                                  -----   -------   -----
Total ....................       $  609    $1,311  $2,994
                                  =====   =======   =====




Cash used to purchase  equipment and to make leasehold  improvements  related to
the consolidation of boot  manufacturing  operations in Puerto Rico was the main
cause of the reduction in the unused bank line of credit at the end of 1999.

A reduction of $500,000 in the total bank line  available  and a higher level of
line usage caused the reduction in the amount of the unused bank line at the end
of 1998. The increased  bank line usage was primarily  caused by the purchase of
boot production equipment.


The following  table  summarizes  the other major sources and (uses) of cash for
the last three years:
                                                      (in thousands)
                                                1999       1998      1997
                                                ----       ----      ----
Income (Loss) Before Depreciation ........   $  (292)   $    99    $ 1,083
Net Change in Accounts Receivable,
Inventory, Accounts Payable and Accrued
Liabilities ..............................     1,170        400     (2,718)
Deferred Taxes, Tax Refund Receivable,
and Other ................................       (30)      (427)        10
Net Cash Provided By (Used In) Operations        848         72     (1,625)
Cash From Bank  Line of Credit ...........       915      1,883      4,350
Cash Used to Repay Bank Line of Credit ...      (320)      (685)    (2,663)
Cash From Bank Loan for Warehouse Addition                  400
Cash Used for Warehouse Addition .........                 (381)
Cash Used to Repay Bank Loan .............      (145)       (73)



                                      -10-

<PAGE>




                                                1999       1998      1997
                                                ----       ----      ----
Cash Used to Purchase Plant and Equipment    (1,172)    (1,054)      (474)
Cash Dividends Paid .....................      (233)      (233)      (227)
Cash From Stock Options Exercised .......                   86        147
Net Increase (Decrease) in Cash .........   $  (107)   $    15    $ ( 492)


In 1999, a $1,559,000 net reduction in receivables and inventory less a $575,000
net reduction in accounts payable and accrued  liabilities  provided $984,000 of
cash from operations.  Machinery purchases and leasehold improvements related to
the  consolidation  of boot  manufacturing  operations  in Puerto  Rico were the
primary purchases of plant and equipment.

In the 1999  fiscal  year,  Wellco  substantially  reduced  the  amount  of cash
invested in inventory.  This was done after DSCP changed its interpretation of a
certain  contract  clause relating to quick  shipment.  In addition,  a contract
modification was received which allowed the shipment of a significant  amount of
finished boots in June, 1999.

For 1998, cash for a $1,831,000 increase in inventory was provided by a decrease
in accounts receivable of $2,679,000.  Accounts payable, accrued liabilities and
accrued income taxes  decreased by $448,000.  These are the primary changes that
resulted in $72,000 of cash provided by  operations.  Cash from the bank line of
credit  was used to  finance  the  purchase  of boot  production  equipment.  In
addition,  cash  from a three  year  bank  term  loan was  used for a  warehouse
addition.

At July 3, 1999, the Company had a $300,000 commitment for capital equipment. In
addition,  the Company  estimates that  approximately  $300,000 will be required
after July 3, 1999 to complete the consolidation of manufacturing  operations in
Puerto  Rico.  Note  11  to  the  Consolidated   Financial  Statements  provides
information  about a potential  cash payment in the 2003 fiscal year of $309,000
that might result from Wellco's repurchase of its stock in the 1996 fiscal year.

The bank's  commitment for a total $4,000,000 line of credit expires on December
31, 1999,  and is subject to renewal at the bank's  discretion.  During the 2000
fiscal year, Wellco expects to continue to rely on the bank line of credit.  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.


                                      -11-

<PAGE>



                            WELLCO ENTERPRISES, INC.
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                           FOR THE FISCAL YEARS ENDED
                 JULY 3, 1999, JUNE 27, 1998, AND JUNE 28, 1997
                     (in thousands except per share amounts)



                                                 JULY 3,    JUNE 27,    JUNE 28,
                                                    1999        1998        1997
                                                 -------    --------    --------
REVENUES (Notes 4, 15 and 16) ...............   $ 21,312    $ 23,917    $ 21,199
                                                --------    --------    --------

COSTS AND EXPENSES:
     Cost of sales and services .............     19,098      22,340      17,611
     Restructuring and realignment
     costs (Note 19) ........................      1,077
     General and administrative
     expenses ...............................      2,136       2,123       2,362
                                                --------    --------    --------
     Total ..................................     22,311      24,463      19,973
                                                --------    --------    --------


INCOME FROM CONTRACT CLAIM (Note 17) ........                    226
                                                            --------

OPERATING INCOME (LOSS) .....................       (999)       (320)      1,226

INTEREST EXPENSE ............................        242         219         191

DIVIDEND AND INTEREST INCOME ................          4          12          53
                                                --------    --------    --------

INCOME (LOSS) BEFORE INCOME TAXES ...........     (1,237)       (527)      1,088

PROVISION (BENEFIT) FOR INCOME TAXES
(Note 10) ...................................       (400)       (190)        330
                                                --------    --------    --------

NET INCOME (LOSS) ...........................       (837)       (337)        758

OTHER COMPREHENSIVE INCOME (LOSS)
     (Notes 1 and 8):
     (Increase) Decrease In Additional
     Minimum
     Pension Liability ......................        229        (113)
                                                --------    --------    --------

COMPREHENSIVE INCOME (LOSS) .................   $   (608)   $   (450)   $    758
                                                ========    ========    ========

EARNINGS (LOSS) PER SHARE (Note 14)
     Basic earnings (loss) per share             $ (0.72)   $  (0.29)   $   0.67
     Diluted earnings (loss) per
     share ..................................   $  (0.72)   $  (0.29)   $   0.66
                                                ========    ========    ========

See Notes to Consolidated Financial Statements.


                                      -12-
<PAGE>

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                         JULY 3, 1999 AND JUNE 27, 1998
                                 (in thousands)

                                     ASSETS

                                                   JULY 3,              JUNE 27,
                                                      1999                  1998
                                                   -------              --------
CURRENT ASSETS:
     Cash .................................        $    89               $   196
     Receivables, net (Notes 2, 6 and 17) .          4,683                 2,247
     Inventories (Notes 3 and 6) ..........          5,513                 9,508
     Deferred taxes  (Note 10) ............            461                   288
     Income tax refund receivable (Note 10)            226                   292
     Prepaid expenses and advances (Note 5)            160                     4
                                                   -------               -------
     Total ................................         11,132                12,535
                                                   -------               -------

MACHINERY LEASED TO LICENSEES, net
     (Note 4) .............................              6                    16

PROPERTY, PLANT AND EQUIPMENT, net
     (Notes 5 and 6) ......................          2,970                 2,333

INTANGIBLE ASSETS:
     Excess of cost over net assets of
        subsidiary at acquisition (Note 1)             228                   228
     Intangible pension asset (Note 8) ....             88                   440
                                                   -------               -------
     Total ................................            316                   668
                                                   -------               -------
DEFERRED TAXES (Note 10) ..................            429                   468


TOTAL .....................................        $14,853               $16,020
                                                   =======               =======

                            (continued on next page)

                                      -13-
<PAGE>

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                         JULY 3, 1999 AND JUNE 27, 1998
                        (in thousands except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                      JULY 3,    JUNE 27,
                                                         1999        1998
                                                      -------    --------

CURRENT LIABILITIES:
     Short-term borrowing from bank (Note 6) .....   $  3,480    $  2,885
     Accounts payable ............................      1,046       1,696
     Accrued liabilities (Notes 7, 8, 9 and 19) ..      1,565       1,490
     Accrued income taxes (Note 10) ..............        427         241
     Current maturity of note payable (Note 11) ..        146         146
                                                     --------    --------
         Total ...................................      6,664       6,458
                                                     --------    --------


LONG-TERM LIABILITIES:
     Pension obligation (Note 8) .................      1,375       1,762
     Notes payable (Note 11) .....................        346         491

COMMITMENTS (Note 18)

STOCKHOLDERS' EQUITY (Notes 1, 8, 11, 12, and 13):
     Common stock, $1.00 par value; shares
         authorized- 2,000,000; shares issued and
         outstanding- 1,163,246 at 1999 and 1998 .      1,164       1,164
     Additional paid-in capital ..................        192         192
     Retained earnings ...........................      5,618       6,688
     Accumulated other comprehensive loss ........       (506)       (735)
                                                     --------    --------
         Total ...................................      6,468       7,309
                                                     --------    --------

TOTAL ............................................   $ 14,853    $ 16,020
                                                     ========    ========

See Notes to Consolidated Financial Statements.


                                      -14-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                 JULY 3, 1999, JUNE 27, 1998, AND JUNE 28, 1997
                                 (in thousands)

                                             JULY 3,   JUNE 27,    JUNE 28,
                                                1999       1998        1997
                                             -------   --------    --------
CASH FLOWS FROM OPERATING
ACTIVITIES:
     Net income (loss) ...................   $  (837)   $  (337)   $   758
                                             -------    -------    -------
     Adjustments  to reconcile  net income
     (loss) to net cash provided by (used
     in) operating activities:
         Depreciation and amortization ...       545        436        325
          (Increase) decrease in-
             Receivables .................    (2,436)     2,679        316
             Inventories .................     3,995     (1,831)    (3,753)
             Other current assets ........      (263)      (237)        30
         Increase (decrease) in-
             Accounts payable ............      (650)      (368)       285
             Accrued liabilities .........        75        (80)       215
             Accrued income taxes ........       186       (116)       218
             Pension obligation ..........       194        (39)       (68)
             Other .......................        39        (35)        49
                                             -------    -------    -------
     Total adjustments ...................     1,685        409     (2,383)
                                             -------    -------    -------
NET CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES ................       848         72     (1,625)
                                             -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchases of equipment, net ....    (1,172)    (1,435)      (474)
                                             -------    -------    -------
NET CASH PROVIDED BY (USED IN)
     INVESTING  ACTIVITIES ...............    (1,172)    (1,435)      (474)
                                             -------    -------    -------


                            (continued on next page)

                                      -15-
<PAGE>

                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                 JULY 3, 1999, JUNE 27, 1998, AND JUNE 28, 1997
                                 (in thousands)


                                                  JULY 3,   JUNE 27,    JUNE 28,
                                                     1999       1998        1997
                                                  -------   --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from short-term borrowings .....       915      1,883      4,350
     Repayment of short-term borrowings ......      (320)      (685)    (2,663)
     Proceeds from long-term debt ............                  400
     Repayment of long-term debt .............      (145)       (73)
     Cash dividends paid .....................      (233)      (233)      (227)
     Stock option exercise ...................                   86        147
                                                 -------    -------    -------
NET CASH PROVIDED BY (USED IN)
     FINANCING ACTIVITIES ....................       217      1,378      1,607
                                                 -------    -------    -------

NET INCREASE (DECREASE) IN CASH ..............      (107)        15       (492)

CASH AT BEGINNING OF YEAR ....................       196        181        673
                                                 -------    -------    -------

CASH AT END OF YEAR ..........................   $    89    $   196    $   181
                                                 =======    =======    =======

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
     Cash paid (received) for-
         Interest ............................   $   233    $   170    $    94
         Income taxes ........................      (377)       141        192
     Noncash investing and financing activity-
         Adjustment of stock repurchase note .                 (828)       646
                                                 =======     =======    =======


See Notes to Consolidated Financial Statements.


                                      -16-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE FISCAL YEARS ENDED
                 JULY 3, 1999, JUNE 27, 1998, AND JUNE 28, 1997
                        (in thousands except share data)


                                                 JULY 3,   JUNE 27,   JUNE 28,
                                                    1999       1998       1997
                                                 -------   --------   --------

COMMON STOCK (Notes 11, 12 and 13):
     Balance at beginning of year ...........   $ 1,164    $ 1,151    $   374
     Common stock issued in stock split .....                             749
     Stock option exercise ..................                   13         28
                                                 -------    -------    -------
     Balance at end of year .................     1,164      1,164      1,151
                                                 -------    -------    -------


ADDITIONAL PAID-IN CAPITAL (Notes 12 and 13):
     Balance at beginning of year ...........       192        119        598
     Transfer to common stock the par value
         of stock issued in stock split .....                            (598)
     Stock option exercise ..................                   73        119
                                                 -------    -------    -------
     Balance at end of year .................       192        192        119
                                                  -------    -------    -------

RETAINED EARNINGS (Notes 11 and 13):
     Balance at beginning of year ...........     6,688      6,430      6,696
     Adjustment of note payable from stock
         repurchase .........................                  828       (646)
     Transfer to common stock the par value
         of stock issued in stock split .....                            (151)
     Net income (loss) ......................      (837)      (337)       758
     Cash dividends (per share: 1999, 1998
         and 1997 -  $.20)                         (233)      (233)      (227)
                                                  -------    -------    -------
     Balance at end of year .................     5,618      6,688      6,430
                                                  -------    -------    -------

ACCUMULATED OTHER COMPREHENSIVE LOSS
     Additional Minimum Pension Liability
     (Notes 1 and 8):
     Balance at beginning of year ...........      (735)      (622)      (622)
     Change for the year ....................       229       (113)
                                                 -------    -------    -------
     Balance at end of year .................      (506)      (735)      (622)
                                                 -------    -------    -------

TOTAL STOCKHOLDERS' EQUITY ..................   $ 6,468    $ 7,309    $ 7,078
                                                 =======    =======    =======


See Notes to Consolidated Financial Statements.


                                      -17-

<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended July 3, 1999, June 27, 1998, and June 28, 1997


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.

         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 basis, or market.

                                      -18-

<PAGE>




         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.

         Fair Value of Financial Instruments
                  The carrying values of cash,  receivables and accounts payable
                  at July 3, 1999  approximate fair value. The carrying value of
                  the note  payable 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
                  The  Company   uses  the   straight-line   method  to  compute
                  depreciation  on machinery  leased to licensees  and property,
                  plant and equipment used by the Company.

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

         Revenue Recognition
                  All  government  combat boot  production  contracts  are fixed
                  price with multi-year options exercisable at the discretion of
                  the  government  .  If a  contracts  delivery  order  requires
                  shipment to a depot warehouse,  revenue is recognized for each
                  boot shipment  after it has been accepted by the  government's
                  Quality  Assurance  Representative.  If a  contracts  delivery
                  order requires shipment directly to the consumer, revenues are
                  recognized upon shipment.

                  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 or products are shipped.

         Fiscal Year
                  The Company's fiscal year ends on the Saturday closest to June
                  30.  Consequently,  the 1999 fiscal year  contains 53 weeks of
                  operating  results  and the 1998 and 1997  fiscal  years  each
                  contain 52 weeks.

         Estimates
                  The  preparation  of financial  statements in conformity  with
                  generally accepted  accounting  principles 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

                                      -19-

<PAGE>




                  the  financial  statements.  They  also  affect  the  reported
                  amounts of revenues and expenses during the reporting  period.
                  Actual results could differ from those estimates.

         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  this  method  is
                  generally  recognized  if there is a  difference  between  the
                  award price for stock options and the stock's  market price at
                  the date of award.

         Comprehensive Income
                  Statement  of  Financial  Accounting  Standards  No. 130 (SFAS
                  130), "Reporting  Comprehensive  Income," became effective for
                  the Company's  fiscal year ending July 3, 1999. This statement
                  established   standards   for   reporting   and   display   of
                  comprehensive   income  and  its  components  and  accumulated
                  balances. Comprehensive income is defined as net income (loss)
                  and  all  changes  in  equity  except  those   resulting  from
                  investments by owners and distributions to owners.  Under SFAS
                  130, the Company's pension liability adjustment is reported as
                  an item of comprehensive income.


2.  RECEIVABLES:

     The  majority of receivables at July 3, 1999 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  1999  and  1998   are not
     significant.


3.  INVENTORIES:

         The components of inventories are:

                               (in thousands)
                               1999     1998
                               ----     ----


Finished Goods ...........   $1,948   $4,747
Work in Process ..........    1,712    2,077
Raw Materials and Supplies    1,853    2,684
                             ------   ------
Total ....................   $5,513   $9,508
                             ======   ======

4.  MACHINERY LEASED TO LICENSEES:

         Accumulated  depreciation  netted  against the cost of leased assets in
         the  1999  and 1998  Consolidated  Balance  Sheets  is  $1,513,000  and
         $1,503,000,  respectively.  Rental  revenues for the fiscal years 1999,
         1998, and 1997 were $100,000, $141,000 and $178,000,  substantially all
         of which vary with lessees' production or shipments.


5.  PROPERTY, PLANT AND EQUIPMENT:

         The cost and accumulated  depreciation of property, plant and equipment
         are summarized as follows:

                                                     (in thousands)
                                                                       Estimated
                                               1999         1998     Useful Life
                                               ----         ----     -----------
Land                                          $ 107        $ 107         N/A
Buildings                                     1,176          774     40-45 Years
Construction in Progress
(Warehouse Addition)                                         381         N/A
Machinery & Equipment                         4,139        3,632      2-20 Years
Furniture & Fixtures                            792          709      2-10 years
Leasehold Improvements                          457           63            *
Total Cost                                  $ 6,671      $ 5,666
Total Accumulated
Depreciation                                $ 3,701      $ 3,333


*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.

Advance payments on equipment,  included in prepaid expenses and advances,  were
$134,000 at July 3, 1999.


6.  LINES OF CREDIT:

         The Company maintains a $4,000,000 bank line of credit.The line,  which
         expires  December 31, 1999, 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  $2,914,000  at    July 3,
         1999) and all  non-governmental  receivables and inventory  ($1,494,000
         at July 3, 1999). At July

                                      -20-
<PAGE>




         3, 1999, borrowings on the line of credit were $3,480,000 with $520,000
         available in additional borrowings.

         Interest is at the prime rate of 7.75% at July 3, 1999. The bank credit
         agreement contains, among other provisions, defined levels of net worth
         and current ratio requirements.  The Company was not in compliance with
         the  current  ratio loan  covenant  at July 3, 1999.  The  Company  has
         received  from the bank a waiver  for the  period  ended  July 3,  1999
         regarding  this loan covenant  violation.  The covenants are subject to
         review at the end of each fiscal quarter.


7.  ACCRUED LIABILITIES:

         The components of accrued liabilities are:

                                   (in thousands)
                                    1999     1998
                                    ----     ----
Compensation (Note 19) ........   $  738   $  763
Pension Benefits ..............      161      191
Retiree Health Benefits .......      170      225
Restructuring Reserve (Note 19)      119
Interest Expense ..............      155      146
Other .........................      222      165
                                  ------   ------
Total .........................   $1,565   $1,490
                                  ======   ======

8. PENSION PLANS:

         Statement  of  Financial  Accounting  Standards  No.  132  (SFAS  132),
         "Employers'   Disclosures  About  Pensions  and  Other   Postretirement
         Benefits," is effective for the  Company's  1999 fiscal year.  SFAS 132
         standardizes  the  disclosure   requirements  for  pensions  and  other
         postretirement benefits and does not address measurement or recognition
         of such items.

         The Company has two  non-contributory,  defined  benefit  pension plans
         covering  substantially  all employees at its North Carolina plant. The
         Company's policy is to fund the minimum amount required by the Employee
         Retirement  Income  Security Act. The  Company's  pension plans provide
         retirement  benefits  based on either years of service or final average
         annual earnings.

         The  components  of  pension  expense,  included  in Cost of Sales  and
         Services in the Consolidated Statements of Operations and Comprehensive
         Income  (Loss) and computed in accordance  with  Statement of Financial
         Accounting Standards No. 87 "Employers' Accounting For Pensions", are:

                                      -21-

<PAGE>

                                            (in thousands)
                                        1999    1998     1997
                                        ----    ----     ----
Benefits Earned for Service in the
Current Year ......................   $ 159    $ 139    $ 147
Interest on the Projected Benefit
Obligation ........................     393      394      388
Return on Plan Assets .............    (255)    (254)    (234)
Amortization of: Unrecognized Net
Pension Obligation at July 1, 1987;
Cost of Benefit Changes Since That
Date; and Gains and Losses Against
Actuarial  Assumptions ............     174      162      163
                                      -----    -----    -----
Pension Expense ...................   $ 471    $ 441    $ 464
                                      =====    =====    =====


         Included in the  Restructuring  and Realignment  Costs (see Note 19) in
         the  Consolidated  Statements of Operations  and  Comprehensive  Income
         (Loss) is a cost of $431,000 relating to the curtailment and settlement
         of certain  pension  liabilities.  This  amount  includes  $220,000  of
         previously  unrecognized  prior service cost of persons  terminated and
         $211,000 of previously  unrecognized  actuarial  losses for  terminated
         participants  who received  lump-sum cash  settlements  of their vested
         accrued pension benefits prior to July 3, 1999.

         Below are  various  analyses  and  other  information  relating  to the
         Company's  pension  liability,  assets and  expense as of June 30, 1999
         (most recent  actuarial  valuation date) and June 30, 1998 (all amounts
         are in thousands except for those indicated as percent):


ANALYSIS OF PROJECTED PENSION LIABILITY:            1999       1998
                                                    ----       ----
Total Projected Liability at Beginning of Year   $ 5,815    $ 5,449
Current Year Service Cost ....................       159        139
Interest Cost on Projected Liability .........       393        394
Benefit Payments .............................      (531)      (423)
Actuarial (Gain) Loss ........................      (123)       256
Increased Liability from Plan Amendments .....         9
                                                 -------    -------
Total Projected Liability at End of Year .....   $ 5,722    $ 5,815
                                                 =======    =======


                                      -22-

<PAGE>



ANALYSIS OF FAIR VALUE OF PENSION PLAN ASSETS:      1999       1998
                                                    ----       ----
Fair Value of Plan Assets at Beginning of Year   $ 3,530    $ 3,261
Company Contributions ........................       621        480
Actual Return on Plan Assets .................       261        212
Benefit Payments .............................      (531)      (423)
                                                 -------    -------
Fair Value of Plan Assets at End of Year .....   $ 3,881    $ 3,530
                                                 =======    =======

FUNDED STATUS:                                   1999       1998
                                                 ----       ----
Excess of Projected Benefit Obligation Over
Fair Value of Plan Assets .................   $ 1,842    $ 2,285
Less Projected Future Salary Increases ....      (306)      (333)
                                              -------    -------
Equal to Liability Recognized in the
Consolidated Financial Statements .........   $ 1,536    $ 1,952
                                              =======    =======

COMPONENTS OF PENSION LIABILITY:                  1999       1998
                                                  ----       ----
Unamortized Costs Not Yet Charged Against
Operations-
Net Obligation at July 1, 1987 .............   $    98    $   284
Net Obligation From Changes to Plan Benefits
Since July 1, 1987 .........................       194        276
Net Loss from Actuarial Assumptions Being
Different From Actual ......................       868      1,325
Less Projected Salary Increases That are in
Total Liability ............................      (306)      (331)
Total Liability Not Yet Charged Against
Operations .................................       854      1,554
Amount of Total Liability Charged Against
Operations .................................       682        400
                                               -------    -------
Total Pension Liability Recognized in
Consolidated Financial
Statements Including Amounts in Accrued
Expenses ...................................   $ 1,536    $ 1,954
                                               =======    =======




                                      -23-

<PAGE>


COMPONENTS OF PENSION LIABILITY THAT HAVE  NOT
YET BEEN CHARGED AGAINST OPERATIONS:                   1999     1998
                                                       ----     ----
Intangible Pension Asset .........................   $   88   $  440
Deferred Tax Asset ...............................      260      379
Accumulated Other Comprehensive Loss .............      506      735
                                                     ------   ------
Total Liability Not Yet Charged Against Operations   $  854   $1,554
                                                     ======   ======


CERTAIN ACTUARIAL ASSUMPTIONS:                            1999   1998
                                                          ----   ----
Assumed Discount Rate ...............................     7.5%   7.0%
Expected Long-Term Rate of Return on Plan Assets ....     7.5%   7.0%
Rate of Compensation Increase, For the One Plan Whose
Benefits Are Pay Related ............................     5.0%   5.5%


         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.

         Because the above amounts are measured by the  Company's  actuary as of
         the end of the pension plan year,  June 30,  1999,  they do not reflect
         the  effect  of  settlement  payments  made to  some of the  terminated
         employees on July 1, 1999 (see Note 19). A new measurement will be made
         by the actuary  after all  settlement  payments  are made.  The Company
         estimates that this will be completed not later than the second quarter
         of fiscal year 2000. Any  significant  change to the above amounts will
         be disclosed in the period in which the re-measured amounts are known.


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. The disclosure requirements for postretirement benefits required
         by SFAS 132 have been adopted.

         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 cost to the employee
         and the Company does not fund the cost of this

                                      -24-

<PAGE>




         benefit prior to costs actually being incurred.

         The cost of retiree health benefits included in the 1999, 1998 and 1997
         Statements of Operations and Comprehensive Income (Loss) was:

                                                  (in thousands)
                                                 1999  1998  1997
                                                 ----  ----  ----
Benefits Earned for Current Service ......       $ 35  $ 23  $ 25
Interest Cost on Accumulated Liability ...         24    23    24
Amortization of the July 4, 1993 Liability         14    14    14
                                                 ----   ---   ---
Total Cost ...............................       $ 72  $ 60  $ 63
                                                 ====   ===   ===



         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 July 3, 1999 and June 27, 1998 is:

                                                              (in thousands)
                                                                1999     1998
                                                                ----     ----
Total Liability at Beginning of Year .......................   $ 381    $ 284
Liability for Current Service ..............................      35       23
Interest on Liability ......................................      24       23
Benefit Payments ...........................................     (81)      (5)
Actuarial Loss .............................................      21       56
Reduction in Liability for Employment Terminations (Note 19)    (173)
Total Liability at End of Year .............................     207      381
Less Unamortized Liability at July 4, 1993 .................     (73)    (213)
Unrecognized Gain ..........................................      36       57
                                                               -----    -----
Liability Recognized in the Consolidated Balance Sheets ....   $ 170    $ 225
                                                               =====    =====


         The assumed health care cost trend rate used to project expected future
         cost was 11.25% in 1999 (12.0% in 1998),  gradually decreasing to 6% by
         2006 and remaining at 6% thereafter.  The assumed discount rate used to
         determine the accumulated  liability was 7.5% for 1999 and 7% for 1998.
         The effect of a 1% increase in the assumed  health care cost trend rate
         for

                                      -25-

<PAGE>




         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  Accounting Standards No. 109, "Accounting
         for  Income  Taxes."  The  provision  for income  taxes  consist of the
         following:

                                        (in thousands)
                                      1999     1998     1997
                                      ----     ----     ----
Federal Provision (Benefit):
    Currently Payable (Refundable)   $(158)   $(294)   $ 355
    Deferred .....................    (252)      76      (87)
    Total Federal ................    (410)    (218)     268
State Provision ..................      10       28       62
Total Provision (Benefit) ........   $(400)   $(190)   $ 330



A  reconciliation  of the effective  income tax rate for the 1999, 1998 and 1997
fiscal years is as follows:

                                                  1999     1998    1997
                                                  ----     ----    ----
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 ..........................    (1%)    (9%)    (7%)
State Taxes, Net of Federal Tax Benefit .......     1%      4%      5%
Untaxed Foreign Sales Corporation Income ......     *      (2%)     *
Non-deductible Expenses .......................     *       4%      *
Other .........................................     2%      1%     (2%)
Effective Income Tax (Benefit) Rate ...........   (32%)   (36%)    30%
                     * less than 1%


         Income earned in Puerto Rico by the Company's  Puerto Rican  subsidiary
         is 90% exempt from Puerto Rican income tax through 2000. In conjunction
         with the consolidation of boot manufacturing operations in Puerto Rico,
         the Company has applied for, and expects to

                                      -26-

<PAGE>




         receive, a new multi-year tax exemption grant with terms similar to the
         present one.  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 ($4,575,000 at July 3, 1999) of
         this  subsidiary  are subject to a Puerto Rican  tollgate tax (5%) when
         remitted  to the parent  Company.  Accrued  tax  liabilities  have been
         provided  for the tollgate  tax  reasonably  expected to be paid in the
         future.

         At July 3, 1999,  the Company has an income tax refund  receivable  for
         the carryback of part of the 1999 loss.

         Significant  components  of  the  Company's  deferred  tax  assets  and
         liabilities as of the end of fiscal 1999 and 1998 are as follows:

                                                                  (in thousands)

Deferred Tax Assets:                                            1999       1998
                                                                ----       ----
Pension Cost Charged Against Financial Statement Income,
Not Yet Deducted From Taxable Income ...................   $   216    $    71
Tax Effect of Pension Liability Charged Against Equity .       260        379
Employee Compensation Charged Against Financial
Statement Income, Not Yet Deducted From Taxable Income .       200        162
Additional Costs Inventoried for Tax Purposes ..........        64        112
Federal NOL Carryforward ...............................       179
State NOL Carryforward .................................       270         70
Alternative Minimum Tax Credit .........................        36
Other ..................................................        90         88
Total Deferred Tax Assets ..............................     1,315        882
Valuation Allowance ....................................      (360)       (70)
Net Deferred Tax Assets ................................       955        812
Deferred Tax Liabilities:
Depreciation Deducted From Taxable Income Not Yet
Charged Against Financial Statement Income .............        65         56
Net Deferred Tax Assets ................................   $   890    $   756

         Because of the level of  uncertainty  about being able to reduce future
         income tax  payments by certain tax  carryforward  items,  deferred tax
         assets have been reduced by the above shown valuation allowances.


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.

         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 for fiscal year 2003,
         discounted at a rate of 8.5%, is $309,000.

         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 1998
         and 1997.  For fiscal year 1998 during which there was a net loss,  the
         revised  estimate  decreased  the Note Payable and  increased  Retained
         Earnings by $828,000  (as  required by  generally  accepted  accounting
         principles for stock repurchases).  For fiscal year 1997 in which there
         was net income,  the Note Payable was increased  and Retained  Earnings
         was decreased by $646,000.

         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 1999, 1998, and 1997 was $10,000,

                                      -27-

<PAGE>




         $97,000 and $49,000 respectively.  Total payments under the note cannot
         exceed  $1,531,000 and all  obligations  under the note terminate after
         the 2003 fiscal year payment.

         In 1998,  a bank  provided  a three  year term loan as part of the cash
         required to construct a new warehouse  adjoining the Company's existing
         facilities  in  Waynesville,  North  Carolina.  This loan is payable in
         monthly  installments of $12,125 plus interest at the bank's prime rate
         of 7.75% at July 3, 1999 and $183,000 was  outstanding  under this loan
         at July 3, 1999. The installments of long-term debt maturing in each of
         the two remaining fiscal years are: 2000 - $146,000 and 2001 - $37,000.

12. STOCK OPTIONS:

         The Board of  Directors  approved  the 1997 Stock  Option  Plan for Key
         Employees  (1997 Key Employees Plan) and the 1997 Stock Option Plan for
         Non-Employee Directors (1997 Non- Employee Directors Plan). These Plans
         provide for the granting of options to purchase 99,000 shares (1997 Key
         Employee Plan) and 16,000 shares (1997  Non-Employee  Directors  Plan),
         and at July 3, 1999 options for the purchase of 93,000  shares had been
         granted  under the 1997 Key Employee  Plan and 14,000  shares under the
         1997 Non-Employee Directors Plan. Under both Plans, the option price is
         the market  price on the date  granted  and  options  have a life of 10
         years from the date granted.  Options granted under both of these plans
         were fully  exercisable on the date granted except for certain  options
         granted  to  certain  officers  which are not fully  exercisable  until
         future  years in order to  qualify  them  for  certain  tax  treatment.
         Options for the purchase of 83,600 shares were immediately  exercisable
         and 11,700 became  exercisable  during 1999 with the remaining  options
         being exercisable in 2000 - 8,300 and 2001 - 3,400.

         Under the 1996 Stock Option  Plan,  the  Compensation  Committee of the
         Board of  Directors  was  authorized  to grant  stock  options  for the
         purchase of up to 60,000 shares of the Company's common stock.  Options
         for 52,500  shares have been granted under the 1996 Plan and the option
         exercise price was the market price on the date granted.


         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 29, 1996                   54,600                     $5.33
Exercised                                     (27,500)                     5.34
Outstanding at June 28, 1997                   27,100                      5.32
Granted                                       107,000                     12.10
Exercised                                     (12,600)                     6.73
Forfeited                                      (2,000)                    12.00


                                      -28-

<PAGE>



Outstanding at June 27, 1998                  119,500                     11.13
Expired                                        (1,500)                     5.50
Outstanding at July 3, 1999                   118,000                    $11.20


The following table summarizes information about fixed stock options outstanding
at July 3, 1999:

                                                                Weighted-Average
                                                                       Remaining
            Range of Exercise     Weighted Average              Contractual Life
Number                 Prices       Exercise Price                      in Years
 15,000                 $5.00                $5.00                           6.0
103,000         $12.00-$17.50               $12.11                           8.0



         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 loss
         and net loss per share would have been reduced to the pro forma amounts
         shown below for fiscal  years 1999 and 1998 (in  thousands,  except per
         share amounts):


                                                    1999            1998
                                                    ----            ----
Net Loss, As Reported ........................   $  (837)        $  (337)
Net Loss, Pro Forma ..........................   $  (882)        $  (626)
Net Loss Per Share, As Reported ..............   $  (0.72)       $  (0.29)
Net Loss Per Share, Pro Forma ................   $  (0.76)       $  (0.54)

         No options were granted during 1999 and 1997.

         The fair value on the date options  were  granted (the amount  deducted
         from net income as reported  in arriving at pro forma net loss  amounts
         above) was  estimated  using the Black-  Scholes  option  pricing model
         using the following assumptions:


                                      -29-

<PAGE>


                                                  1999          1998
                                                  ----          ----
Expected Dividend Yield ........................  1.67%         1.67%
Expected Stock Price Volatility ................ 43.30%        39.40%
Risk-Free Interest Rate ......................... 5.62%         5.55%
Expected Life of Options in Years ................. 3.0           2.9
Weighted-Average Fair Value of Options
Granted ......................................   $ 3.83        $ 3.54



13. STOCK SPLIT:

         All common shares and per share amounts give effect to a  three-for-one
         stock split  effected in the form of a stock  dividend  distributed  on
         January 3, 1997 to  stockholders of record on December 6, 1996. The par
         value of the new shares  issued,  $749,000,  was  transferred to Common
         Stock from Additional  Paid-In Capital ($598,000) and Retained Earnings
         ($151,000).


14.  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 7-03-99
                                            Net Loss         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)
                                            ==========    =========      =======



                                      -30-

<PAGE>

                                             For the Fiscal Year Ended 6-27-98
                                            Net Loss         Shares    Per-Share
                                           (Numerator)   (Denominator)    Amount

Basic EPS Available to Shareholders         $(337,000)    1,161,103      $(0.29)
Effect of Dilutive Stock-based Compensation
Arrangements (Note: N/A - Anti-dilutive)
                                            ----------    ---------      -------
Diluted EPS Available to Shareholders       $(337,000)    1,161,103      $(0.29)
                                            ==========    =========      =======


                                             For the Fiscal Year Ended 6-28-97
                                            Net Income        Shares   Per-Share
                                           (Numerator)    (Denominator)   Amount

Basic EPS Available to Shareholders           $758,000    1,126,113        $0.67
Effect of Dilutive Stock-based Compensation
Arrangements                                                 26,698
                                              --------    ---------        -----
Diluted EPS Available to Shareholders         $758,000    1,152,811        $0.66
                                              ========    =========        =====


15. SEGMENT AND REVENUE INFORMATION:

         Statement  of  Financial  Accounting  Standards  No.  131  (SFAS  131),
         "Disclosures About Segments of an Enterprise and Related  Information,"
         is effective  for the  Company's  1999 fiscal  year.  SFAS 131 requires
         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:



                                      -31-

<PAGE>

                                                            (in thousands)
                                                        1999     1998       1997
                                                        ----     ----       ----
Sales of Footwear and Related Items ..............   $20,913   $22,745   $20,387
Revenues from Licensees ..........................       399     1,172       812
Total Revenues by Major Product Group ............    21,312    23,917    21,199

Revenues from U. S. Customers ....................    18,816    22,653    20,496
Revenues from International Customers ............     2,496     1,264       703
Total Revenues by Geographic Region ..............    21,312    23,917    21,199

Location of Major International Customers:
Latin America ....................................     1,252       529        64
Canada ...........................................       833       369       313
Asia/Pacific .....................................       374       331       322

Major Customer- U. S. Government .................   $14,246   $17,326   $14,611



         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.


16. GOVERNMENT BOOT CONTRACT REVENUES:

         From time to time, the Company  records  estimates of revenues or costs
         associated with certain 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 July 3,  1999.  Income
         before  income taxes in 1997 was  decreased  by $73,000  from  contract
         actions  settled with the U.S.  Government  at amounts  different  than
         previously  recorded estimates.  There were no significant  differences
         between  estimated and actual amounts for contract  actions  settled in
         fiscal years 1999 and 1998.


17. CONTRACT CLAIM:

         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

                                      -32-

<PAGE>




         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 provides that any disagreement  between Wellco
         and DSCP on an item of cost will be subject to binding arbitration. The
         cost reimbursement is limited to $1,000,000.

         Wellco  submitted  its claim  under  the  Agreement  in late May,  1998
         documenting  more  than  $1,000,000  in  costs  incurred.  In an  early
         October,  1998 meeting  with Wellco,  DSCP agreed to pay, and has paid,
         $246,000 of the $1,000,000 claim.

         The  Agreement's  binding  arbitration   provision  has  proven  to  be
         procedurally  impossible for DSCP. This has resulted in Wellco filing a
         claim with DSCP which, as agreed with DSCP counsel,  will be settled by
         using  an  Armed  Services  Board  of  Contract  Appeals  judge  as  an
         arbitrator,  whose decision will be binding. It is anticipated that the
         arbitration will be held in November or December 1999.

         Wellco  cannot  reasonably  predict  what the  arbitrator  will decide.
         Therefore,   the  1998   Consolidated   Statements  of  Operations  and
         Comprehensive Income (Loss) included $226,000 of income related to this
         claim,  representing  the$246,000  agreed  to by DSCP less  $20,000  of
         related costs.  Any amount Wellco will receive beyond  $246,000 will be
         recorded
         at the time of the arbitration decision.


18. 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 July
         3, 1999 is approximately 83,000.

         The  Company is  negotiating  the terms of an  operating  lease for the
         larger  facility  which houses its  manufacturing  operations in Puerto
         Rico (see Note 19).  The Company  expects the final lease to  stipulate
         total lease  payments  for the period  January 1, 2000 through June 30,
         2009 of  $1,425,000.  Lease  payments  for each of the  Company's  five
         fiscal years  ending  after July 3, 1999 are  expected to be:  $60,000,
         $120,000,  $120,000,  $135,000  and  $150,000.  Lease  expense  for the
         Company's former Puerto Rico facility in the 1999, 1998 and 1997 fiscal
         years was: $59,000, $54,000 and $54,000.




19. 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,

                                      -33-

<PAGE>




         where the Company has had operations since 1956.

         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.  Because of
         certain timing considerations, the Company has not yet finalized all of
         the new facilities lease provisions with the government of Puerto Rico.
         However,  the  Company  does not  anticipate  any  significant  changes
         between  the  final  lease  provisions  and the  ones  presently  being
         discussed.  By the  middle of July  1999,  the new  facility  was fully
         operational.

         Below is an analysis  (amounts in thousands) of the  Restructuring  and
         Realignment Costs included in the Consolidated  Statement of Operations
         and Comprehensive Income (Loss):

Costs Recognized as of July 3, 1999:
Restructuring Costs Under EITF 94-3:
Employee Cash Severance and Continuation of Group Health Insurance        $ 380
Recognition of Pension Prior Service Cost on Employees Terminated           220
Recognition of Unrealized Actuarial Loss on Lump-Sum Pension Payments
Made                                                                        211
Reduction in Liability for Future Retiree Health Care Cost                  (47)
Total Restructuring Costs                                                   764
Realignment Costs:
Cost to Move and Install Machinery, Including Building Preparation Cost     119
Actual Employee Training Cost Paid                                          104
Legal and Other Costs                                                        90
Total Realignment Costs                                                     313
Total Costs Recognized                                                  $ 1,077



         Below  is an  analysis  of the  disposition  as of July 3,  1999 of the
         Restructuring and Realignment Costs recognized:



                                      -34-

<PAGE>






Disposition of Restructure and Realignment Costs as of July 3, 1999:
Costs Paid Before July 3, 1999, Primarily Employee Severance,
Training and Moving                                                      $  549
Increase in Pension Liability                                               431
Reduction in Liability For Future Retiree Health Cost                       (47)
Increased Payroll Tax Liability *                                            25
Recognized as Restructuring Liability, Primarily Employee
Severance Cost (Note 7)                                                     119
Total Cost Recognized                                                   $ 1,077
         * Included in "Compensation" in Note 7


         In addition to  manufacturing  small quantities of uppers into finished
         boots when special customer needs arise, the Waynesville  facility will
         continue to manufacture specialized footwear, warehouse and ship boots,
         and  serve as the  Company's  headquarters,  as well as its  sales  and
         product  development  center.  This action  will not affect  Ro-Search,
         Inc., a wholly-owned  subsidiary of the Company which makes specialized
         footwear manufacturing machinery at the Waynesville facility.

         After  July  3,  1999,  the  Company  will  incur  certain   additional
         Realignment  Costs.  These costs will primarily be related to the final
         move of machinery and materials to Aguadilla,  machinery  installation,
         the  completion  of  employee  training  and  the  recognition  of  the
         previously  unrecognized  actuarial loss in a pension plan. The Company
         estimates  that the total amount of cost yet to be  recognized  will be
         between $300,000 and $600,000.

         The Company has been informed by the  government of Puerto Rico that it
         will receive a government grant of up to $400,000 as reimbursement  for
         certain costs, as approved by the government,  related to the increased
         operations in Puerto Rico. These amounts will be recorded in the period
         received.


                                      -35-

<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 July 3, 1999 and June
27,  1998,   and  the  related   consolidated   statements  of  operations   and
comprehensive  income (loss),  stockholders'  equity, and cash flows for each of
the three years in the period ended July 3, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of the Company as of July 3, 1999 and
June 27, 1998,  and the results of their  operations  and  comprehensive  income
(loss) and their cash flows for each of the three years in the period ended July
3, 1999 in conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP
Charlotte, North Carolina

September 23, 1999





                                      -36-

<PAGE>



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

                            Fiscal Year 1999 Quarters

                                      First       Second      Third       Fourth
Market Price Per Share-
High                                 12 3/4       12 1/8     10 1/8        9 1/2
Low                                  10 1/2        9 3/8      5 1/4        5 3/8
Per Share Cash Dividend Declared                    $.10                    $.10




                            Fiscal Year 1998 Quarters

                                      First       Second      Third       Fourth

Market Price Per Share-
High                                 20 7/8       17 1/2     14 1/4       13
Low                                  12           13 3/4     11 3/4       10 1/2
Per Share Cash Dividend Declared                    $.10                    $.10



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,
1999 was 269.



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


                                      -37-

<PAGE>

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


                            Fiscal Year 1999 Quarters

                                      First       Second      Third       Fourth

Revenues                            $ 4,957      $ 3,829    $ 4,383     $ 8,143
Cost of Sales and Services            4,484        3,667      3,841       7,106
Net Loss                               (149)        (278)   (A)(376)    (A) (34)
Net Loss Per Share                  $ (0.13)     $ (0.24)   $ (0.32)    $ (0.03)


                            Fiscal Year 1998 Quarters

                                      First       Second      Third       Fourth

Revenues                            $ 5,676      $ 7,926    $ 5,162     $ 5,153
Cost of Sales and Services            5,435        7,317      5,046       4,542
Net Income (Loss)                      (233)          15    (B) 434    (C) (553)
Net Income (Loss) Per Share)        $ (0.20)      $ 0.01     $ 0.37     $ (0.48)




(A)      Reduced by  $403,000 in the third  quarter  and  $413,000 in the fourth
         quarter,  representing restructuring and realignment costs. See Note 19
         to the Consolidated Financial Statements.

(B)      Increased by $718,000 for the  contract  claim  discussed in Note 17 to
         the Consolidated Financial Statements. In the March, 1998 meeting which
         resulted in this claim, Wellco outlined the cost items that would be in
         its  claim  and DSCP did not react  unfavorably  to any  item.  After a
         $20,000 reduction for certain costs related to reaching this Agreement,
         in  accordance   with  SOP  81-1,   "Accounting   For   Performance  of
         Construction - Type and Certain  Production - Type Contracts,  $980,000
         was  recorded  as an item of income in the  third  quarter  of the 1998
         fiscal year.

(C)      Decreased by $501,000 related to the adjustment of the claim receivable
         mentioned  in (B)  above.  See  Note 17 to the  Consolidated  Financial
         Statements.



                                      -38-


<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. - Technical Director

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 Interstate / Johnson Lane

J. AARON PREVOST
Retired Banker

WILLIAM D. SCHUBERT   (Deceased, August, 1999)
Principal of Advanced Management Concepts
(Management Consultants)

                                      -39-
<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 15, 1999,
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                   68      Chairman of the Board of Directors,
                                         Chief Executive Officer
David Lutz, CPA                  54      President, Treasurer and Director
Rolf Kaufman                     69      Vice Chairman, Board of Directors
Sven Oberg                       60      Vice President-Technical Director
Fred K. Webb, Jr.                39      Vice President of Marketing
Richard A. Wood, Jr.             62      Secretary
Tammy Francis, CPA               40      Controller, Assistant Secretary


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.  Mr. Lutz was elected to the office of President in 1996,  previously
serving as Secretary/ Treasurer.  Ms. Francis has been Controller since October,
1996 and was elected Assistant  Secretary in November,  1998. She was Controller
of Atlas Precision,  Inc., an injection  molding  manufacturer,  from 1995 until
October,  1996.  From 1990 until 1995, she was Manager of Finance and Accounting
at Haywood Electric Membership  Corporation,  a rural utility company.  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.  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.

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)

                                       -6-

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

Since the  beginning  of the 1999  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 1999  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
Independent Auditors' Consent                                                10
The following consolidated financial statements of Wellco
Enterprises, Inc. are in the Registrant's 1999 Annual Report
to Shareholders which is integrated into Part II of this
Form 10-K immediately after page 5
Consolidated Balance Sheets-at July 3, 1999  and June 27, 1998            13-14*
Consolidated Statements of Operations and Comprehensive Income
(Loss)-years ended July 3,1999, June 27, 1998 and June 28, 1997              12*
Consolidated Statements of Cash Flows-years ended July 3, 1999,
June 27, 1998 and June 28, 1997                                           15-16*
Consolidated Statements of Stockholders' Equity-years ended
July 3, 1999, June 27, 1998 and June 28, 1997                                17*
Independent Auditors' Report                                                 36*
Notes to Consolidated Financial Statements                                18-35*

* Page number in the 1999 Annual Report to Shareholders integrated in Part II of
this Form 10-K.


2. Financial Statement Schedules

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

                                       -7-

<PAGE>



3. Exhibits

Exhibit                                                                     Page
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.*                                     (d)
      21       Subsidiaries of Registrant                                    11
      23       Consent of Experts                                            10

* 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

         (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.
         (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.

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

There were no reports on Form 8-K for the three months ended July 3, 1999.

                                       -8-

<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: October 1, 1999

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/ J. Aaron Prevost
David Lutz, Director                                  J. Aaron Prevost, Director


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



Date: October 1, 1999


                                       -9-

<PAGE>


                          INDEPENDENT AUDITORS' CONSENT



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


We consent to the  incorporation by reference in the  Registration  Statement of
Wellco  Enterprises,  Inc.  and  subsidiaries  on Form S-8 of our  report  dated
September  23,  1999,  appearing  in the  Annual  Report  on Form 10-K of Wellco
Enterprises, Inc. for the year ended July 3, 1999.





DELOITTE & TOUCHE LLP
Charlotte, North Carolina

October 4, 1999


                                      -10-

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