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

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

                     For the fiscal year ended June 28, 1997

                          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  704-456-3545

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

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

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

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

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

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

As of September  5, 1997,  1,160,646  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  September 4, 1997) of Wellco
Enterprises, Inc. held by nonaffiliates was approximately $9,300,000.

Documents incorporated by reference:
         Definitive Proxy Statement,  to be dated October 17, 1997, in PART III.
         Definitive Proxy  Statement,  to be dated October 18, 1996, in PART IV.
         Definitive  Proxy  Statement,  dated  October  17,  1995,  in PART  IV.
         Definitive  Proxy  Statement  dated  October  22,  1985,  in  PART  IV.
         Definitive Proxy Statement dated July 3, 1982, in PART IV.

                                      

<PAGE>



                                     PART I

Item 1. Business.

The Company operates in one industry  segment.  Substantially  all the Company's
revenues  are derived  from the sale of  military  footwear  and related  items,
whether sold by the Company or its  licensees.  The majority of revenues (69% in
1997, 70% in 1996) were from sales to the U. S. government,  primarily the U. S.
Defense Personnel Support Center (DPSC), under contracts for the supply of boots
used by the U. S. armed forces.

For more  than the last  five  years,  the  Company  has  manufactured  and sold
military  combat boots under firm fixed price  contracts  with the United States
government.  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  process.  In 1997,  the Company was also awarded
contracts for the supply of the intermediate  cold/wet boot and the new infantry
combat boot.  The  government  awards fixed price boot contracts on the basis of
bids from several qualified manufacturers.

The Company also  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 helps supply 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.

During  the  1997  fiscal  year,  total  revenues  increased  approximately  6%,
primarily  because of an increase in the pairs of combat boots sold to the U. S.
government.

On April 15, 1997, Wellco was awarded a new contract from DPSC for the supply of
combat boots. This contract is for a one year period with four one year options.
This contract requires delivery in the first year of between 227,000 and 315,000
pairs,  which  equates  to a total  contract  value in the first year of between
approximately  $13,151,000  and  $18,322,000.  A total  of four  contracts  were
awarded,  with  Wellco  receiving  25% of total  boots to be bought in the first
year, and the other three awardees receiving 35%, 20% and 20%.

DPSC had estimated that the award of this contract  would be in December,  1996,
and Wellco  substantially  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 inventory boots in
anticipation  of a contract  award.  This resulted in a significant  increase in
inventory  by the  date of a  contract  award  and a  significant  reduction  in
revenues  for the third  quarter  of 1997.  After a contract  award,  Wellco was
allowed to accelerate  shipments under the contract until the end of June, 1997.
This reduced  inventory  and resulted in increased  combat boot sales for all of
1997.  However,  this  acceleration  of  shipments  will result in combat  boots
shipped under this contract  through the end of its first year ( April 15, 1998)
being less than they would have otherwise been.

In  February,  1997  Wellco  was  awarded  a  contract  by  DPSC to  supply  the
intermediate  cold/wet boot.  This is the first award to Wellco for this type of
boot. A total of two contracts were awarded and Wellco's  contract is for 40% of
total pairs to be bought in the first year.  The contract  requires  delivery in
the first year of between  80,000 and 122,000 pairs of this boot,  which equates
to a total contract value in the first year of between approximately  $6,400,000
and  $9,600,000.  This contract also gives DPSC two options,  each providing for
total  purchases  of between  110,000 and 165,000  pairs of this boot,  with one
contractor  receiving 60% and the other 40% of total pairs purchased during each
option. The first shipments under this

                                       -1-

<PAGE>



contract occurred in the fourth quarter of fiscal year 1997.

On June 25, 1997,  DPSC awarded  Wellco a contract to supply a new boot,  called
the infantry combat boot, which will be used by the Marine Corps. A total of two
contracts  were  awarded and  Wellco's  contract is for 60% of total pairs to be
bought in the first year.  The contract  requires  delivery in the first year of
between 42,000 and 69,000 pairs of this boot,  which equates to a total contract
value in the first year of between approximately $2,900,000 and $4,800,000. This
contract  also gives DPSC two options,  each  providing  for total  purchases of
between 53,000 and 115,000 pairs of this boot, with one contractor receiving 60%
and the other 40% of total pairs purchased  during each option.  Shipments under
this contract will start in October, 1997.

Prior to any option award under these three boot  contracts,  DPSC will evaluate
each  contractor's  performance  during the prior contract  period.  Each option
award will be allocated between the contractors by the percentages  stated above
for each contract,  with the contractor evaluated as having the best performance
in the prior period receiving the larger  percentage.  In prior contracts,  each
contractor was awarded option pairs at the same percentage as the first contract
year.  The  exercise  of any  option  is at  the  unilateral  discretion  of the
government.

Under the  Company's  prior  contracts,  combat boots were shipped to government
warehouses  on a  prescribed  delivery  schedule.  Both the new combat  boot and
infantry combat boot contracts require Wellco to ship direct to the customer and
Wellco is evaluated on how quickly it ships boots after order receipt.  In order
to have the boots in inventory in sizes ordered for quick  shipment,  Wellco has
significantly increased its working capital allocated to inventory.

Note 13 to the Company's  1997 Annual Report gives  information  about  Wellco's
repurchase  in the 1996 year of  1,531,272  of its common  shares,  representing
57.69% of total shares outstanding at that time. For several years prior to this
stock  repurchase,  Wellco invested funds not currently needed for operations in
certain marketable  securities.  Wellco's Consolidated  Statements of Operations
included varying amounts of investment,  dividend and interest income. From 1995
and until the date of stock repurchase in 1996, Wellco also owned 400,000 shares
(approximately  21.5% of total  shares) of the common stock of Alba  Waldensian,
Inc. Wellco's Consolidated  Statements of Operations included during this period
21.5% of the earnings or losses of Alba.

In 1996,  Wellco  sold all  marketable  securities.  The cash from these  sales,
combined with a certain amount of cash invested in an interest-bearing overnight
account  and the  400,000  shares  of  Alba,  was  used  to pay  for  the  stock
repurchase.  Therefore,  the 1997 Consolidated Statements of Operations does not
include investment income and equity in the income or loss of Alba.

In April 1997,  the  Company  was served with a subpoena  issued by a grand jury
empaneled  in the United  States  District  Court for the  Eastern  District  of
Pennsylvania  which requires the production of certain  documents for the period
January 1, 1990 until April 29, 1997. The Company has been informed  through its
legal  counsel  that the grand  jury is  investigating  possible  violations  of
antitrust  laws  primarily   involving   alleged   collusive   activities  among
manufacturers  of  combat  boots  for  the  U.S.  government.   The  Company  is
cooperating  in this  investigation,  does not  believe  it has  engaged  in any
illegal  conduct  and does not  believe  that this  matter  will have a material
adverse  effect  on the  Company's  financial  position  or  results  of  future
operations.  However,  the Company cannot predict what the final outcome of this
matter will be.

In 1988, the Company and other military combat boot  manufacturers  responded to
subpoenas which investigated possible violation of antitrust laws involving bids
submitted on military combat boot  procurements  for January 1, 1979 through May
6, 1988. This investigation was closed in 1992 and no legal action resulted from
it.

                                       -2-

<PAGE>




The  Management's  Discussion  and Analysis of the Company's 1997 Annual Report,
included in Item 8 of Section II of this Form 10-K,  contains  more  information
about 1997 operating results.

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

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 a greater  portion of total boots  purchased.  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 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%.

Since 1992,  the  government  has been reducing its inventory of combat boots by
buying  fewer  pairs  than were  consumed.  The  current  combat  boot  contract
establishes  total minimum and maximum pairs to be ordered from all  contractors
for each year of the  contract  of  703,220  and  1,055,828,  which is less than
estimated  consumption,  and is also less than the total  annual  pairs  ordered
under the prior contract.  The Company  estimates that the government will reach
its desired  inventory level between the fourth and fifth years of the contract,
when it expects orders to increase to the level of consumption.

The Company usually  competes on U. S.  government  contracts with several other
companies,  none of which  dominates the industry.  Bidding on contracts is very
competitive,  and since most contracts are for multi-year  periods, a bidder not
receiving an award from a significant solicitation can be adversely affected.

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

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

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

Because domestic  commercial  footwear  manufacturers are adversely  affected by
imports  from low labor cost  countries,  the Company  targets its  marketing of
technology  and assistance  primarily to military  footwear  manufacturers.  The
Company  competes against several other footwear  construction  methods commonly
used for  heavy-duty  footwear with leather  uppers.  These methods  include the
Goodyear Welt construction,

                                       -3-

<PAGE>



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 it was awarded a contract to develop
changes to combat boots that will result in fewer lower extremity disorders, and
completed  the first phase of this work in 1996.  This  contract  can have up to
three  phases,  and  after  the end of the  1997  fiscal  year,  the  government
authorized the second phase's start.

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.

See Note 17 to the Consolidated  Financial  Statements for revenues by class and
information about export revenues. The Company does not have foreign operations.

The Company's backlog of all sales, not including  license fees and rentals,  as
of September,  1997 was  approximately  $18,700,000  compared to $5,700,000 last
year. The Company  estimates that  substantially all of the current year backlog
will be shipped in the 1998 fiscal  year.  The current  backlog is more than the
prior year because it includes the three boot contract awards mentioned above.

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

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 279 persons during the 1997 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.

Management believes all its plants, warehouses and offices are in good condition
and are reasonably suited
                                       -4-

<PAGE>



for the purposes for which they are presently  used. The volume of operations in
1997 caused both the  Waynesville  and  Aguadilla  facilities to be used at less
than normal capacity.

Item 3. Legal Proceedings.

In April 1997,  the  Company  was served with a subpoena  issued by a grand jury
empaneled  in the United  States  District  Court for the  Eastern  District  of
Pennsylvania  which requires the production of certain  documents for the period
January 1, 1990 until April 29, 1997. The Company has been informed  through its
legal  counsel  that the grand  jury is  investigating  possible  violations  of
antitrust  laws  primarily   involving   alleged   collusive   activities  among
manufacturers  of  combat  boots  for  the  U.S.  government.   The  Company  is
cooperating  in this  investigation,  does not  believe  it has  engaged  in any
illegal  conduct  and does not  believe  that this  matter  will have a material
adverse  effect  on the  Company's  financial  position  or  results  of  future
operations.  However,  the Company cannot predict what the final outcome of this
matter will be.

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 1997.

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

The  information  called for by the  following  items is in the  Company's  1997
Annual Report to Shareholders  which is  incorporated  starting on the following
page in this Form 10-K:

                                                       Annual Report Page Number
Item 5.   Market for the Registrant's Common Equity and Related
          Stockholder Matters                                                33
Item 6.   Selected Financial Data                                             1
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                            5-11
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk          *
Item 8.   Financial Statements and Supplementary Data                 12-31, 34

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


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

There  were no  resignations  by or  dismissals  of any  independent  accountant
engaged by the Company during the 1996 or 1997 fiscal years or during the period
from the end of the 1997 fiscal year through the date of filing this Form 10-K.

                                       -5-
<PAGE>



                                    WELLCO(R)
                                ENTERPRISES, INC.


                                  ANNUAL REPORT
                                      1997



<PAGE>



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


                                                 Year Ended
                                June 28,  June 29,   July 1,   July 2,   July 3,
                                    1997      1996      1995      1994  (A) 1993
                                --------  --------   -------   -------  --------
<S>                              <C>       <C>       <C>       <C>      <C>   

Revenues .....................   $21,199   $19,968   $18,003   $18,255   $18,977
Net Income ...................       758       991       969     1,542  (B)1,980
Net Income Per Share (D) .....      0.67      0.53      0.37      0.58  (B) 0.76
Cash Dividends Declared
Per Share of Common
Stock (D) ....................       .20      .125      .083  (C)2.083      .083
Total Assets at Year End .....    15,652    12,697    22,738    20,995    25,013
Long-Term Liabilities at
Year End .....................   $ 2,789   $ 2,431   $ 1,897   $ 1,647   $ 1,770
</TABLE>

(A)      Contains 53 weeks.  All other years are 52 weeks.

(B)      Increased  by $260,000  ($.10 per share)  representing  the  cumulative
         effect  at the  beginning  of the  1993  fiscal  year  of a  change  in
         accounting for income taxes.

(C)      Includes a special cash dividend of $2.00 per share.

(D)      All per share amounts have been adjusted to give retroactive  effect to
         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 18, 1997
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>



Fellow Shareholder:

As it has been for a number of years,  your company's  most  important  activity
continues to be the development,  manufacture and sale of military footwear,  as
well as rendering services and selling products related to military footwear.

Net income for the 1997 fiscal year was  $758,000  ($.67 per share)  compared to
$991,000 ($.53 per share) for the 1996 fiscal year. The increase in earnings per
share was due to 1996 average shares outstanding being weighted by the effect of
Wellco's  repurchase  of 57.69% of its common shares  half-way  through the 1996
year.  Earnings per share for 1997 reflect a full year of the reduced  number of
shares.

Net income for 1996 includes  several  significant  amounts  related to Wellco's
repurchase  on December  29,  1995 of  1,531,272  of its common  shares from its
former major  shareholder.  All of Wellco's  marketable  securities were sold in
fiscal  year  1996  to pay  for  part  of the  stock  repurchase,  resulting  in
investment income of $1,204,000.  Proceeds from the sale of these securities and
Wellco's investment in the common stock of  Alba-Waldensian,  Inc. (described as
Investment In Affiliate in the Consolidated Balance Sheets) were used as payment
for the  1,531,272  shares of Wellco.  Total  investment,  interest and dividend
income in 1996 was  $1,419,000  compared to $53,000 of interest  income in 1997.
Net income for 1996 includes a charge of $601,000  representing  Wellco's equity
in the  losses  of Alba  prior to the  stock  repurchase  and the  excess of the
carrying  value of the  investment  in Alba above its fair value at December 29,
1995.  Net income for 1996 also includes a charge of $110,000  representing  the
value  assigned  to the  agreement  of that  former  shareholder  to  limit  his
ownership of Wellco  shares to not more than 20% of total shares for the next 10
years. These charges, which total $711,000, did not occur in 1997.

Operating  income  increased in 1997 to  $1,226,000  from $688,000 in 1996 on an
increase in  revenues of  approximately  6%.  This was  accomplished  despite an
increase  in  certain  costs,  most  of  which  were  related  to two  new U. S.
government contracts.

The Management's Discussion and Analysis section of this Annual Report gives you
more detailed  information about operations in 1997. The section below will give
you information about what we are currently working on.

NEW BOOT CONTRACTS FROM THE U. S. GOVERNMENT:

         In 1997, Wellco was awarded three contracts from the U. S. government:

         1.       On April 15,  1997,  Wellco was  awarded a contract  to supply
                  combat boots,  for a one year period starting on April 15 with
                  four  one-year  options.  These are the types of boots we have
                  manufactured  since 1980 and include the all leather boot, the
                  hot-wet  weather  boot ( jungle  boot)  and the  hot-dry  boot
                  (desert boot).  Wellco made  significant  shipments under this
                  contract in the fourth quarter of 1997.  The  government  made
                  four contract  awards,  with Wellco being awarded 25% of first
                  year  total  boot   purchases  and  three  other   competitors
                  receiving 35%, 20% and 20%.

         2.       In February,  1997 Wellco was awarded a contract to supply the
                  intermediate  cold/wet boot. This contract has a base year and
                  two options. This boot is used by U. S. Armed Forces Personnel
                  in cold  climates  such as Bosnia and Korea,  and is  Wellco's
                  first  contract  for  this  boot.  For this  contract,  Wellco
                  subcontracted  certain work to Rocky Shoes and Boots,  a major
                  manufacturer of rugged  commercial  boots and shoes. The first
                  shipment under this contract was made in late June,  1997. The
                  government made two contract awards, with Wellco being awarded
                  40%  of  first  year  total  boot   purchases  and  the  other
                  contractor

                                       -2-

<PAGE>



                  receiving 60%.

         3.       On June  28,  1997  Wellco  was  awarded  a  contract  for the
                  infantry  combat boot.  This  contract has a base year and two
                  options.  This is a new military boot which is made waterproof
                  by a Gore-Tex(TM) bootie and will be used by the Marine Corps.
                  The  first  shipments  under  this  contract  will  be made in
                  October,  1997. The government made two contract awards,  with
                  Wellco  being  awarded 60% of first year total boot  purchases
                  and the other contractor receiving 40%.

         Although we received three new contract awards in 1997, there were some
         disappointments. We and our employees go to a lot of effort to maintain
         our  record  as a  top-performing  contractor.  Wellco  and  one  other
         competitor  for the  combat  boot  contract  were  both  judged  by the
         government as having the highest possible  technical  rating.  However,
         Wellco's  contract is for 25% of total  combat boots to be purchased in
         the first year while this  competitor  was awarded 35%,  with two other
         competitors receiving contracts for 20% each. Wellco received the lower
         percent because our prices were higher.

         The first  contract  for the new  infantry  combat  boot was awarded in
         March,  1997.  We  understand  that boots from this  contract are to be
         issued  as a special  one-time  issue to  Marines.  This  contract  was
         awarded to one contractor which was not Wellco.

DEVELOPMENT CONTRACT FOR THE NEXT GENERATION OF COMBAT BOOTS:

         In 1996, we completed  the first phase of a  development  boot contract
         with the U.S. Army Natick Research, Development and Engineering Center.
         The objective of this contract is to develop improvements to the combat
         boot that will increase its  flexibility and impact  resistance,  while
         maintaining its stability. By making these improvements,  soldiers will
         have fewer lower extremity  injuries.  Prototype boots delivered in the
         first phase have been tested and evaluated,  and in August, 1997 Natick
         authorized  work to start on second  phase.  This will  involve  making
         changes to certain of the prototypes submitted in the first phase.

MACHINERY AND TECHNICAL ASSISTANCE:

         Ro-Search,  Wellco's wholly-owned subsidiary which manufactures certain
         shoe-making  machinery  and  renders  technical  assistance  and  other
         services to footwear  manufacturers,  was very busy in 1997. Because of
         changes in the government's delivery requirements on combat boots, many
         new combat boot molds were made. In June, 1997 Ro-Search  shipped about
         half of the  footwear-making  equipment  to a new prison being built in
         New Jersey. In 1997, Ro-Search received and started working on an order
         from its  oldest  customer  for the  largest  single  mold order in our
         history ($900,000). This mold order will be shipped in 1998, as will be
         the balance of the New Jersey equipment.

         Ro-Search's   sales  of  boot  lacing  system  hardware  and  machinery
         continued to make a significant contribution.

ANTI-PERSONNEL MINE PROTECTIVE FOOTWEAR:

         For many years, we have sold small  quantities of  anti-personnel  mine
         protective boots and overboots,  while continuing to make  improvements
         not only in the level of protection given by these products but also in
         their comfort.  Our mine protective  boots and overboots are being used
         by soldiers involved in mine clearance in Bosnia.

                                       -3-

<PAGE>



         Starting in 1996,  interest in these products  increased  significantly
         and continued to do so in 1997. To date, there have been many inquiries
         and  small  orders.   We  actually   make  two  products.   One  is  an
         anti-personnel  mine protective boot and the other is an anti-personnel
         mine  protective  overboot.  They  can be  worn  together  for  maximum
         protection, or can be worn separately. Most of the small orders to date
         have been for the  overboot  whose  main use is in mine  detection  and
         clearance.  We are trying to  emphasize  that the boot itself  provides
         significant protection and, since it is as comfortable, if not more so,
         than  other  military  boots,  it can be worn all day in mine  infested
         areas.

         These  products  have very  expensive  components,  are very complex to
         manufacture,  and this is reflected in their price.  Perhaps it takes a
         lot of cost-benefit  analysis by countries where mines are prevalent in
         order to determine how much a human foot is worth.

         In the Spring of 1997 we had both the boot and  overboot  tested at the
         U.S. Army's Aberdeen Proving Grounds. The results were very impressive,
         and we are using Aberdeen's test reports and pictures in marketing.  We
         will continue to pursue the market for these products.

Competition  for boot contract awards from the U. S. government was very intense
in 1997. The government  will make any option awards under these contracts based
on the  contractor's  performance in the contract's first year and on the option
prices bid.  As we move into the 1998  fiscal  year,  we face the  challenge  of
improving on our performance record.

The  dedication,  experience and talents of all our  co-workers in  Waynesville,
North Carolina and Aguadilla,  Puerto Rico have always been and will continue to
be a key component of whatever we may  accomplish.  This was especially  true in
1997.  You will read later in this Annual Report about the delay in awarding the
combat boot contract.  This  significantly  reduced combat boot shipments in the
third quarter of 1997. After contract award in the fourth quarter, our employees
worked  countless  hours and more than made up for the lack of  shipments in the
third quarter. Our heartfelt gratitude is extended to all of them.








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

September 25, 1997

                                       -4-

<PAGE>



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

                              RESULTS OF OPERATIONS

Comparing the Fiscal Year ended June 28, 1997 to June 29, 1996:

Income before income taxes was  $1,088,000 in the 1997 fiscal year compared with
$1,357,000 in the 1996 fiscal year. The 1996 year included several non-recurring
items which were:

1.   A $601,000  charge for Loss in Affiliate,  representing  Wellco's  $305,000
     equity in the six- month  (July-December,  1995)  loss of  Alba-Waldensian,
     Inc. (Alba),  and the $296,000 write down to fair value of that investment.
     Wellco had owned  400,000  common  shares of Alba  (21.5% of total  shares)
     since  December  30, 1994.  Wellco's  investment  in Alba was  exchanged on
     December  29,  1995,  as part  of the  price  for  Wellco's  repurchase  of
     1,531,272  shares of its common  stock.  Income was also reduced by a Stock
     Repurchase Charge of $110,000, which is the portion of the stock repurchase
     price  allocated  to  an  agreement  limiting  the  selling   shareholders'
     ownership of total Wellco  shares for a period of ten years (see Note 13 to
     the Consolidated Financial Statements).

2.   The total of interest, dividend and investment income was $1,419,000 in the
     1996 year compared to $53,000 of interest  income in 1997. The prior period
     included  gains  resulting  from the sale of all  marketable  securities at
     amounts  significantly  greater than their carrying  value.  All marketable
     securities  were sold to pay for the stock  repurchase.  The current period
     only includes interest income earned on excess operating funds.

Comparative 1997 operating income,  before the above items and interest expense,
was  $1,226,000  as compared with  $688,000 in the prior year.  Several  factors
resulted in the $538,000 increase, the more significant ones being:

         1.       Total  revenues  increased  $1,231,000.  Pairs of combat boots
                  sold to the U. S. government increased approximately 6%. Pairs
                  of combat boots sold to other  customers also increased in the
                  current year.

         2.       Greater  revenues  from the sale of  combat  boots  more  than
                  offset  a  decrease  in  sales of boot  making  machinery  and
                  materials.  The 1997 year does include a significant machinery
                  sale  to a new  customer.  However,  the  1996  year  included
                  significant  boot making materials sales to a foreign customer
                  which  were  not as large as in  1997.  These  sales  can vary
                  significantly  from  period to  period  with the needs of this
                  group of customers.

         3.       Revenues from technical  assistance fees and equipment rentals
                  from  licensees,  which vary with their  shipments,  increased
                  approximately  42% in the  current  year.  In  addition to the
                  licensees  having  increased  shipments in 1997, an additional
                  fee is being  earned  until  April,  1998 related to supplying
                  certain of these customers with additional services.

         4.       Revenues  from  U.  S.  government  research  and  development
                  contracts  decreased $288,000 in 1997. The prior year includes
                  Phase I billings under a multi-phase contract whose purpose is
                  to develop a combat  boot that is more  impact  resistant  and
                  flexible. The government did not commit funding to Phase II of
                  this contract until after the end of the 1997 year.


                                       -5-

<PAGE>



Operating  income for 1997 was  significantly  affected by  increases in certain
costs:

         1.       Interest cost increased  $152,000.  On April 15, 1997,  Wellco
                  was awarded a new contract  from  the U. S. Defense  Personnel
                  Support  Center (DPSC) for their purchases  of  combat  boots.
                  DPSC had estimated award  to be in December,  1996, and Wellco
                  substantially  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 inventory  boots in anticipation
                  of a contract award.  This resulted  in significant borrowings
                  from a bank  line of credit on which  $79,000 of interest cost
                  was incurred.

                  Although  the Note  Payable (see Note 14) does not provide for
                  the  payment  of  interest,   generally  accepted   accounting
                  principles  require the imputation of interest.  This interest
                  cost for 1997, which did not occur in 1996, was $97,000.

         2.       The new DPSC  contract  requires  Wellco to ship combat  boots
                  direct to customers (more than 1,000 locations)  instead of to
                  four  government  warehouses,  as  was  the  case  with  prior
                  contracts.  Direct  customer  shipments  can  be  from  one to
                  several  hundred  pairs  per  order,   compared  to  warehouse
                  shipments which averaged several thousand pairs per shipment.

                  In  addition,  the contract  provides  for maximum  contractor
                  evaluation points for shipping within 4 days of order receipt.
                  Prior  contracts   provided  for  monthly   shipments  against
                  delivery  orders covering  several months.  After the April 15
                  contract   award,   DPSC  agreed  to  let  Wellco   accelerate
                  shipments,  which  had  the  effect  of  reducing  some of the
                  significant  inventory  build-up.  Combat  boot  sales  in the
                  fourth quarter were 120,000  pairs,  almost double the average
                  amount for preceding quarters.

                  All of this caused  excess labor costs,  freight  costs to air
                  ship  materials,  and other  inefficiencies  in developing new
                  procedures   required  by  this  significant  change  in  boot
                  shipment methods.

         3.       In February,  1997 Wellco was awarded a contract from DPSC for
                  the supply of the  intermediate  cold/wet  boot,  which is the
                  first award to Wellco of this type of boot.  The  introduction
                  of this new boot  caused  start up  costs  related  to  labor,
                  maintenance and supplies.

         4.       1997  includes  a  $73,000  reduction  in  revenues  from  the
                  adjustment of certain  estimated  contract price  adjustments,
                  which were  recorded in 1996,  to the actual  amounts  settled
                  with the government.

         5.       Group health insurance, for which the Company is self insured,
                  increased  $69,000 in 1997.  This cost  varies  from period to
                  period  with the actual  amount of health  costs  incurred  by
                  employees.

The percent of income tax  provision to pretax  income for 1997 was 30% compared
to 27% in 1996. The lower 1996 rate reflects the difference between the book and
tax basis of Wellco's investment in Alba, which was disposed of in 1996.

Forward Looking Information:

On April 15, 1997, Wellco was awarded a contract from the U.S. Defense Personnel
Support Center
                                       -6-

<PAGE>



(DPSC)  for 25% of their  purchases  of  combat  boots  for the one year  period
starting  April 15,  with  options  for each of the  ensuing  four  years.  This
contract  requires  delivery in the first year of between  227,000 and  315,000,
which  equates  to  a  total  contract  value  in  the  first  year  of  between
approximately  $13,151,000  and  $18,322,000.  Also on that  date,  three  other
contract awards were made, with one competitor receiving an award for 35% of the
government's combat boot purchases, and two competitors receiving 20% each. This
contract was awarded using the government's  best value method of bid evaluation
under which technical merit is generally more important than price.  Both Wellco
and the 35%  awardee  were rated with the  highest  possible  technical  rating.
However, since Wellco bid higher prices than this competitor, Wellco was awarded
the 25% at its higher  prices.  For the prior  contract  which was  completed in
December, 1996, Wellco was also the 25% supplier.

Before each option  exercise,  the  government  will evaluate each  contractor's
performance during the prior period.  Using this evaluation and factoring in the
contractor's option prices, the government will allocate the option award in the
35%/25%/20%/20%  portions.  The  exercise  of any  option  is at the  unilateral
discretion of the government.

During the fourth quarter of the 1997 year, Wellco was allowed to accelerate its
first year  shipments  under the contract  awarded April 15. This will result in
combat boot  shipments  under this  contract  through the end of its first year,
which is April 15, 1998, being less than they would have otherwise been.

Since 1992,  the  government  has been reducing its inventory of combat boots by
buying fewer pairs than were consumed.  The current contract  establishes  total
minimum and maximum  pairs to be ordered from all  contractors  for each year of
the contract of 703,220 and 1,055,828, which is less than estimated consumption,
and is also less than the total annual pairs ordered under the prior  contract .
The Company estimates that the government will reach its desired inventory level
between the fourth and fifth years of the  contract,  when it expects  orders to
increase to the level of consumption.

In  February,  1997  Wellco  was  awarded  a  contract  by  DPSC to  supply  the
intermediate  cold/wet boot.  This is the first award to Wellco for this type of
boot. A total of two contracts were awarded and Wellco's  contract is for 40% of
total pairs to be bought in the first year.  The contract  requires  delivery in
the first year of between  80,000 and 122,000 pairs of this boot,  which equates
to a total contract value in the first year of between approximately  $6,400,000
and  $9,600,000.  This contract also gives DPSC two options,  each providing for
total  purchases of between  110,000 and 165,000 pairs of this boot. Each option
award will be allocated 60%/40% between the two contractors, with the contractor
evaluated as having the best  performance in the prior period  receiving the 60%
amount.  The first shipments under this contract  occurred in the fourth quarter
of fiscal year 1997.

On June 25, 1997 DPSC awarded Wellco a contract to supply a new boot, called the
infantry  combat boot,  which will be used by the Marine  Corps.  A total of two
contracts  were  awarded and  Wellco's  contract is for 60% of total pairs to be
bought in the first year.  The contract  requires  delivery in the first year of
between 42,000 and 69,000 pairs of this boot,  which equates to a total contract
value in the first year of between approximately $2,900,000 and $4,800,000. This
contract  also gives DPSC two options,  each  providing  for total  purchases of
between  53,000  and  115,000  pairs of this  boot.  Each  option  award will be
allocated 60%/40% between the two contractors,  with the contractor evaluated as
having  the best  performance  in the prior  period  receiving  the 60%  amount.
Shipments under this contract will start in October, 1997.

The  infantry  combat  boot  requires  construction  methods  and  manufacturing
procedures that are  significantly  different than those presently used, as well
as incorporating certain new materials.  This will cause some training costs and
other manufacturing inefficiencies during initial production.

Ro-Search,  Inc., Wellco's machinery and licensing subsidiary, has received from
its oldest customer an

                                       -7-

<PAGE>



order  ($900,000)  for  footwear  molds which is the largest  single  order ever
placed with Ro-Search.  Shipments under this order will be primarily in the 1998
fiscal year.

See Note 22 to the  Consolidated  Financial  Statements for information  about a
subpoena served on the Company in April 1997.

Except for historical  information,  this annual report includes forward looking
statements that involve risks and uncertainties,  including, but not limited to,
the  receipt  of  contracts  from  the U.  S.  government  and  the  performance
thereunder,  the  ability to control  costs under  fixed  price  contracts,  the
cancellation  of  contracts,  and other risks  detailed from time to time in the
Company's  Securities and Exchange Commission  filings,  including Form 10-K for
the year  ended  June 28,  1997.  Actual  results  may  differ  materially  from
management expectations.

Comparing the Year Ended June 29, 1996 and July 1, 1995:

Income before income taxes for the 1996 fiscal year was  $1,357,000  compared to
$1,212,000  in the 1995 year.  Current  period  income was reduced by a $601,000
charge  for Loss in  Affiliate,  representing  Wellco's  $305,000  equity in the
six-month (July through December,  1995) loss of  Alba-Waldensian,  Inc. (Alba),
and the  $296,000  write down to fair  value of that  investment.  Wellco  owned
400,000  common  shares of Alba (21.5% of total  shares) from  December 30, 1994
until  December  29,  1995,  when these  shares  were  exchanged  as part of the
purchase price for Wellco's  repurchase of 1,531,272 shares of its common stock.
Income was also reduced by a Stock Repurchase  Charge of $110,000,  which is the
portion of the stock  repurchase  price  allocated to an agreement  limiting the
selling shareholders' ownership of total Wellco shares for a period of ten years
(see Note 13 to the Consolidated Financial Statements).

Income before income taxes,  Loss in Affiliate and Stock  Repurchase  Charge was
$2,068,000,  which  compares  to  income  of  $1,143,000  in 1995.  The total of
interest,  dividend and investment  income  increased to $1,419,000 in 1996 from
$464,000 in 1995, primarily because the 1996 includes gains from the sale of all
marketable  securities  previously owned by Wellco.  The net sales proceeds from
the marketable securities' sale were used for the stock repurchase.  Before Loss
in Affiliate,  Stock  Repurchase  Charge and interest,  dividend and  investment
income,  the Company had a pretax  income of $649,000 in 1997 compared to income
of $679,000 in 1996. The major reasons for this change are:

         1.       Revenues increased  $1,965,000.  Pairs of combat boots sold to
                  the U. S. government increased  approximately 9%. From January
                  through June, 1996, Wellco was shipping combat boots under the
                  second option of its current  contract.  From  November,  1994
                  through December, 1995, shipments were under the first option.
                  Both options  were for the same total pairs,  but the delivery
                  period for the  second  option is for a shorter  twelve  month
                  period.  Pairs of combat  boots sold to other  customers  also
                  increased in 1996.

         2.       Greater  revenues  from the sale of  combat  boots  more  than
                  offset a decrease in machinery  sales.  1995 revenues  include
                  significant  machinery  sales to one new  customer  and to one
                  long-time  customer.  These sales can vary  significantly from
                  period to period with the needs of this group of customers.

         3.       Margins  on the  increased  combat  boot  sales  did not fully
                  offset the loss of margins on lower machinery sales.  Revenues
                  from  technical  assistance  fees and  equipment  rentals from
                  licensees, which vary with their shipments, were also lower in
                  1996.

         4.       In 1995, the U. S.  government  issued certain  contract price
                  increase  adjustments,  primarily  for the  increased  cost of
                  leather  used in  manufacturing  combat  boots,  whose  actual
                  amounts

                                       -8-

<PAGE>



were greater than  previously  recorded  estimates.  This  increased 1995 pretax
profits $54,000.

The major categories of fixed and semi-variable manufacturing costs increased by
$50,000.  The cold winter  resulted in utility  costs  increasing  $20,000,  and
insurance  costs,  many of which vary with  revenues and labor costs,  increased
$25,000.

The percentage of income tax provision to pretax income increased to 27% in 1996
from 20% in the 1995,  primarily  because  the Equity in Loss of  Affiliate  and
Stock Repurchase Charge in 1996 are not deductible for income taxes.

                         LIQUIDITY AND CAPITAL RESOURCES

Wellco uses cash from operations to supply most of its normal liquidity needs. A
bank line of credit is maintained for supplying any unforeseen  cash needs.  The
following table summarizes at the end of each year the availability of cash from
the Company's most liquid assets and from its existing borrowing sources:
<TABLE>
<CAPTION>

                                                           ( in thousands)
                                                    1997        1996        1995
                                                    ----        ----        ----
<S>                                               <C>         <C>         <C>    

Cash .......................................      $  181      $  673      $2,423
Marketable Securities, Current .............                                 996
Unused Line of Credit ......................       2,813       1,500       1,480
                                                  ------      ------      ------
Total ......................................      $2,994      $2,173      $4,899
                                                  ======      ======      ======
</TABLE>

The decrease in cash at the end of 1997 was  primarily  due to increased  combat
boot  inventories  and the  investment  in  inventory  for the new  intermediate
cold/wet boot. For the current combat boot contract,  Wellco will be maintaining
a  larger  inventory  to meet  the four day  shipping  requirement  for  maximum
evaluation points.

The  decrease  in cash at the end of 1996 was mainly  caused by an  increase  in
accounts  receivable,  which  resulted  from both an increase in sales of combat
boots to the U. S. government and technical  difficulties in their processing of
invoice payments.  Also in 1996,  marketable securities were sold to pay for the
repurchase of 1,531,272 Wellco common shares.

The following  table  summarizes  the other major sources and (uses) of cash for
the last three years:
<TABLE>
<CAPTION>

                                                             (in thousands)

                                                     1997       1996       1995
                                                     ----       ----       ----
<S>                                               <C>        <C>        <C>    

Net Income Before Depreciation, Net Investment
Income, Equity in (Loss)Income of Affiliate and
Stock Repurchase Charge .......................   $ 1,083    $   810    $ 1,214
Net Change in Accounts Receivable, Inventory,
Accounts Payable and Accrued Liabilities ......    (2,718)    (1,542)       192
Other .........................................        10       (165)      (173)

                                       -9-
                                                             (in thousands)
<PAGE>
                                                     1997       1996       1995 
                                                     ----       ----       ----
Net Cash Provided By (Used In) Operations .....    (1,625)      (897)     1,233
Net Cash From Sale of (Purchases of)
Marketable Securities .........................                5,257      3,653
Cash Used to Repurchase Company's  Stock and
Related Expenses ..............................               (5,579)
Cash From Bank  Line of Credit ................     4,350      4,500
Cash Used to Repay Bank Line of Credit ........    (2,663)    (4,520)
Cash Used to Purchase Affiliate ...............                          (4,475)
Cash Used to Purchase Equipment ...............      (474)      (371)      (295)
Cash Dividends Paid ...........................      (227)      (140)      (221)
Cash From Stock Options Exercised .............       147
Net Decrease in Cash ..........................   $  (492)   $(1,750)   $  (105)
</TABLE>


The increase in inventory, caused by the increase in combat boot inventories and
the  investment in inventory for the new  intermediate  cold/wet  boot,  was the
primary reason operations had a net use of $1,625,000.

To its operating cash needs, Wellco made full use of its $1,500,000 bank line of
credit and established a second bank line of credit for  $3,000,000.  The bank's
commitment for the $3,000,000  line of credit expires on September 24, 1997, and
the  $1,500,000  line is subject to renewal on December 31, 1997.  Subsequent to
June 28,  1997 cash from  combat  boot sales was used to pay off all  borrowings
under the lines.

The primary  reason for the 1996  decrease in cash was the  increase in accounts
receivable,  as explained  above,  and the use of cash for the  Company's  stock
repurchase.  On December  29,  1995,  the Company  repurchased  1,531,272 of its
common shares for a price consisting  partially of a $5,460,000 cash payment and
$119,000 in related  expenses.  The initial payment was partially  financed by a
short term bank loan. All marketable  securities were subsequently sold to repay
the bank loan.

In 1995, cash from the sale of marketable securities was used to pay for part of
the purchase of Alba Waldensian,  Inc. (the affiliate)  common stock.  Cash from
1995 operations was also used to purchase Alba's stock,  purchase  equipment and
pay the cash dividend.

In  fiscal  year  1998 the  Company  plans to  construct  a  warehouse  addition
adjoining its existing facilities in Waynesville,  North Carolina,  at a cost of
approximately of $350,000. A bank has provided a three-year term loan commitment
if needed to finance this addition.  Production of the new infantry  combat boot
will require the purchase of an estimated $200,000 to $250,000 of new machinery,
and may result in total machinery  purchases in 1998 being more than usual.  The
Company believes that cash from operations, the bank line of credit and the bank
term loan commitment will be adequate to meet its cash needs during 1998.

Other  than the  items  mentioned  above,  the  Company  has no  other  material
commitments  for  capital  equipment.  Note  14 to  the  Consolidated  Financial
Statements provides information about a commitment

                                      -10-

<PAGE>



to make  additional  cash payments from a stock  repurchase,  with the amount of
payments  contingent upon net income for the six fiscal years 1997 through 2002.
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.




                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           FOR THE FISCAL YEARS ENDED
                 JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
              (in thousands except per share and number of shares)
<TABLE>
<CAPTION>


                                           JUNE 28,       JUNE 29,       JULY 1,
                                               1997           1996          1995
                                           --------       --------       -------
<S>                                     <C>            <C>           <C>   

REVENUES (Notes  6, 17 and 18) ......   $    21,199    $    19,968   $    18,003
                                        -----------    -----------   -----------
COSTS AND EXPENSES (Notes 10,
                    11 and 19):
 Cost of sales and services .........        17,611         17,168        15,128
                                             
 General and administrative
  expenses ..........................         2,362          2,112         2,152
                                        -----------    -----------   -----------
 Total ..............................        19,973         19,280        17,280
                                        -----------    -----------   -----------

OPERATING INCOME ....................         1,226            688           723
                                        -----------    -----------   -----------
INTEREST EXPENSE (Note 19) ..........           191             39            44

DIVIDEND AND INTEREST INCOME ........            53            215           446

NET INVESTMENT INCOME (Note 4) ......                        1,204            18
                                        -----------    -----------   -----------
INCOME BEFORE EQUITY IN (LOSS)
     INCOME OF AFFILIATE AND
     STOCK REPURCHASE CHARGE ........         1,088          2,068         1,143

EQUITY IN (LOSS) INCOME OF
AFFILIATE
     (Note 5) .......................                         (601)           69

STOCK REPURCHASE CHARGE (Note 13) ...                         (110)
                                        -----------    -----------   -----------

INCOME BEFORE INCOME TAXES ..........         1,088          1,357         1,212


PROVISION FOR INCOME TAXES (Note 12)            330            366           243
                                        -----------    -----------   -----------

NET INCOME ..........................   $       758    $       991   $       969
                                        ===========    ===========   ===========

PER  SHARE  OF  COMMON  STOCK
  (based  on  weighted  average
  number  of  shares
  outstanding) (Note 16):
  Net income ........................   $      0.67    $      0.53   $      0.37
                                        ===========    ===========   ===========
  Weighted average number
  of shares outstanding .............     1,126,113      1,884,648     2,654,418
                                        ===========    ===========   ===========
</TABLE>

See Notes to Consolidated Financial Statements.




                                      -12-

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                         JUNE 28, 1997 AND JUNE 29, 1996
                                 (in thousands)
<TABLE>
<CAPTION>

                                     ASSETS


                                                           JUNE 28,     JUNE 29,
                                                               1997         1996
                                                           --------     --------
<S>                                                        <C>           <C>    

CURRENT ASSETS:
     Cash ..........................................       $   181       $   673
     Receivables (Notes 2 and 8) ...................         4,926         5,242
     Inventories (Notes 3 and 8) ...................         7,677         3,924
     Deferred taxes  (Note 12) .....................           341           258
     Prepaid expenses ..............................             6           119
                                                           -------       -------
     Total .........................................        13,131        10,216
                                                           -------       -------

MACHINERY LEASED TO LICENSEES
     (Note 6) ......................................            36            63

PROPERTY, PLANT AND EQUIPMENT
     (Note 7) ......................................         1,313         1,138

INTANGIBLE ASSETS:
     Excess of cost over net assets of
        subsidiary at acquisition (Note 1) .........           228           228
     Intangible pension asset (Note 10) ............           511           623
                                                           -------       -------
     Total .........................................           739           851
                                                           -------       -------

DEFERRED TAXES (Note 12) ...........................           433           429
                                                           -------       -------

TOTAL ..............................................       $15,652       $12,697
                                                           =======       =======
</TABLE>

See Notes to Consolidated Financial Statements.


                                      -13-

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                         JUNE 28, 1997 AND JUNE 29, 1996
                                 (in thousands)
<TABLE>
<CAPTION>

                             LIABILITIES AND EQUITY


                                                           JUNE 28,     JUNE 29,
                                                               1997         1996
                                                           --------     --------
<S>                                                       <C>          <C>    

CURRENT LIABILITIES:
     Short-term borrowing from bank (Note 8) .........    $  1,687     $   --
     Accounts payable ................................       2,064        1,779
     Accrued liabilities (Notes 9 and 11) ............       1,570        1,302
     Accrued income taxes (Note 12) ..................         357          139
     Current maturity of note payable (Note 14) ......         107
                                                          --------     --------
         Total .......................................       5,785        3,220
                                                          --------     --------

LONG-TERM LIABILITIES:
     Pension obligation (Note 10) ....................       1,759        1,939
     Note payable (Note 14) ..........................       1,030          492

COMMITMENT AND CONTINGENCY (Notes 20 and 21)

STOCKHOLDERS' EQUITY (Notes  5, 13, 15, and 16):
     Common stock, $1.00 par value; 2,000,000
         shares authorized; shares issued and
         outstanding- 1,150,646 at 1997,
         1,123,146 at 1996 ...........................       1,151          374
     Additional paid-in capital ......................         119          598
     Retained earnings ...............................       6,430        6,696
     Pension liability adjustment (Note 10) ..........        (622)        (622)
                                                          --------     --------
         Total .......................................       7,078        7,046
                                                          --------     --------

TOTAL ................................................    $ 15,652     $ 12,697
                                                          ========     ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      -14-

                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                 JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
                                 (in thousands)

<TABLE>
<CAPTION>

                                              JUNE 28,     JUNE 29,      JULY 1,
                                                  1997         1996         1995
                                              --------     --------      -------
<S>                                             <C>        <C>          <C>    


CASH FLOWS FROM OPERATING
ACTIVITIES:
     Net income ............................    $   758     $   991     $   969
                                                -------     -------     -------
     Adjustments  to  reconcile
     net  income  to net  cash
     provided  (used)  by
     operating activities:
         Depreciation and amortization .....        325         312         332
         Net investment income .............                 (1,204)        (18)
         Equity in loss (income) of
         affiliate .........................                    601         (69)
         Stock repurchase charge ...........                    110
         (Increase) decrease in-
             Accounts receivable ...........        316      (1,975)      1,133
             Inventories ...................     (3,753)        371        (773)
             Other current assets ..........         30          52         (75)
         Increase (decrease)in-
             Accounts payable ..............        285         246        (292)
             Accrued liabilities ...........        215        (116)        270
             Accrued income taxes ..........        218         (68)       (146)
             Pension obligation ............        (68)        (26)        (46)
             Other .........................         49        (191)        (52)
                                                -------     -------     -------
     Total adjustments .....................     (2,383)     (1,888)        264
                                                -------     -------     -------
NET CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES ..................     (1,625)       (897)      1,233
                                                -------     -------     -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Investment in affiliate ...............                             (4,475)
     Net sales  of current
         marketable securities .............                    996       1,898
     Purchases of noncurrent
         marketable securities .............                             (2,343)
     Sales of noncurrent
         marketable securities .............                  4,261       4,098
     Purchases of equipment ................       (474)       (371)       (295)
                                                -------     -------     -------
NET CASH PROVIDED BY (USED IN)
     INVESTING  ACTIVITIES .................       (474)      4,886      (1,117)
                                                -------     -------     -------


                            (continued on next page)

                                     -15-
<PAGE>

                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                 JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
                                 (in thousands)

                                                  JUNE 28,   JUNE 29,    JULY 1,
                                                      1997       1996       1995
                                                  --------   --------    -------

<S>                                               <C>        <C>        <C>    
               
CASH FLOWS FROM FINANCING ACTIVITIES:
     Loan from bank ...........................     4,350      4,500      2,050
     Repayment of bank loan ...................    (2,663)    (4,520)    (2,050)
     Cash dividends paid ......................      (227)      (140)      (221)
     Purchase of common stock .................               (5,579)
     Stock option exercise ....................       147
                                                  -------    -------    -------
NET CASH PROVIDED BY (USED IN)
     FINANCING ACTIVITIES .....................     1,607     (5,739)      (221)
                                                  -------    -------    -------

NET INCREASE (DECREASE) IN CASH ...............      (492)    (1,750)      (105)

CASH AT BEGINNING OF PERIOD ...................       673      2,423      2,528
                                                  -------    -------    -------

CASH AT END OF PERIOD .........................   $   181    $   673    $ 2,423
                                                  =======    =======    =======

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
     Cash paid for-
         Interest .............................   $    94    $    39    $    44
         Income taxes .........................       192        561        779
     Noncash investing and financing
     activity-
         Adjustment of stock repurchase
           note ...............................       646
         Noncash decrease in Investment in
            Affiliate from stock repurchase ...                4,928
         Note issued as part of stock
            repurchase ........................                  492
         Noncash increase in Investment
            in Affiliate ......................                             986
         Noncash increase (decrease ) in
            marketable securities to fair value                 (730)       730
                                                  =======    =======    =======

</TABLE>


See Notes to Consolidated Financial Statements.

                                      -16-


                            WELLCO ENTERPRISES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE FISCAL YEARS ENDED
                 JUNE 28, 1997, JUNE 29, 1996, AND JULY 1, 1995
                        (in thousands except share data)

<TABLE>
<CAPTION>

                                            JUNE 28,      JUNE 29,       JULY 1,
                                                1997          1996          1995
                                            --------      --------       -------
<S>                                            <C>         <C>         <C>    

COMMON STOCK (Notes 13, 15 and 16):
     Balance at beginning of year ..........   $    374    $    885    $    885
     Repurchase of common stock ............                   (511)
     Common stock issued in stock split ....        749
     Stock option exercise .................         28
                                               --------    --------    --------
     Balance at end of year ................      1,151         374         885
                                               --------    --------    --------

ADDITIONAL PAID-IN CAPITAL:
     (Notes 5, 13, 15 and 16):
     Balance at beginning of year ..........        598       1,409         759
     Repurchase of common stock ............                   (811)
     Excess of basis over cost of
         investment in affiliate ...........                                650
     Transfer to Common Stock the par value
         of stock issued in stock split ....       (598)
     Stock option exercise .................        119
                                               --------    --------    --------
     Balance at end of year ................        119         598       1,409
                                               --------    --------    --------

RETAINED EARNINGS (Notes 13, 14 and 16):
     Balance at beginning of year ..........      6,696      15,412      14,664
     Repurchase of common stock ............                 (9,567)
     Adjustment of note payable from stock
         repurchase ........................       (646)
     Transfer to Common Stock the par value
         of stock issued in stock split ....       (151)
     Net income ............................        758         991         969
     Cash dividends (per share: 1997-$.20;
         1996-$.125; 1995-$.083) ...........       (227)       (140)       (221)
                                               --------    --------    --------

     Balance at end of year ................      6,430       6,696      15,412
                                               --------    --------    --------

PENSION LIABILITY ADJUSTMENT (Note 10)
     Balance at beginning of year ..........       (622)       (525)       (306)
     Change for the year ...................                    (97)       (219)
                                               --------    --------    --------
     Balance at end of year ................       (622)       (622)       (525)
                                               --------    --------    --------

UNREALIZED GAIN ON
     MARKETABLE SECURITIES (Note 4) ........                                482
                                               --------    --------    --------

TOTAL STOCKHOLDERS' EQUITY .................   $  7,078    $  7,046    $ 17,663
                                               ========    ========    ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      -17-

                                                      
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended June 28, 1997, June 29, 1996, and July 1, 1995


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  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.

         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  value of financial  instruments at June 28, 1997
                  (cash,   receivables,   accounts  payable  and  note  payable)
                  approximates  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.

         Depreciation

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

         Machinery Leased to Licensees

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

         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.

                                      -18-

<PAGE>



         Pensions

                  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.

         Revenue Recognition

                  All  government  combat boot  production  contracts  are fixed
                  price and usually have a delivery  schedule of twelve  months.
                  If the purchase 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  the  purchase  order  requires  shipment  directly  to the
                  consumer, revenues are recognized upon shipment.

                  Government research and development contracts are typically no
                  more  than one year in  duration.  Revenue  is  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. All years presented contain 52 weeks.

         Estimates

                  The  preparation  of financial  statements in conformity  with
                  generally accepted  accounting  principles requires management
                  to make  estimates  and  assumptions  that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported  amounts of revenues and expenses  during the
                  reporting  period.  Actual  results  could  differ  from those
                  estimates.

         Stock-Based Compensation Plans

                  Statement  of  Financial  Accounting  Standards  No. 123 (SFAS
                  123),   "Accounting  for  Stock-  Based   Compensation,"   was
                  effective as of the  beginning  of the 1997 fiscal year.  SFAS
                  123  provides  for a choice  of using a fair  value  method to
                  record    compensation    expense   related   to   stock-based
                  compensation,   or  to   continue   using   the   compensation
                  recognition  provisions of Accounting Principles Board Opinion
                  25 (APB 25). The Company chose to continue  using APB 25 under
                  which compensation expense 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.

         Recent Statements of the Financial Accounting Standards Board

                  In February,  1997 the Financial  Accounting  Standards  Board
                  issued  Statement of Financial  Accounting  Standards  No. 128
                  (SFAS 128),  "Earnings per Share." This Statement  changes the
                  computation,  presentation  and  disclosure  of  earnings  per
                  share,  and is  effective  for the  Company's  fiscal  quarter
                  ending  December  27,  1997.  Under  SFAS 128,  the  Company's
                  outstanding  stock  options  will  affect the  computation  of
                  diluted earnings per share, and this effect is not expected to
                  be significant.



                                      -19-

<PAGE>



                  In June, 1997 the Financial  Accounting Standards Board issued
                  Statement  of  Financial  Accounting  Standards  No. 130 (SFAS
                  130), "Reporting Comprehensive Income," which is effective for
                  fiscal years beginning after December 15, 1997. This statement
                  establishes   standards   for   reporting   and   display   of
                  comprehensive  income and its components.  Under SFAS 130, the
                  Company's pension liability adjustment would be reported as an
                  item of comprehensive income.

                  In June, 1997 the Financial  Accounting Standards Board issued
                  Statement  of  Financial  Accounting  Standards  No. 131 (SFAS
                  131), "Disclosures About Segments of an Enterprise and Related
                  Information," which is effective for the Company's fiscal year
                  ending  July 3,  1999.  This  Statement  supersedes  Financial
                  Accounting  Standards  Board Statement No. 14, which presently
                  determines the Company's  segment and related  reporting,  and
                  under  which the Company has one  segment.  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  believes  that the only  significant  effects  on its
                  disclosures  resulting  from SFAS 131 would be the  additional
                  disclosures  if it has  more  than  one  reportable  operating
                  segment.  The Company has not as yet determined if it has more
                  than one reportable operating segment under SFAS 131.

2. RECEIVABLES:

          The majority of receivables at June  28,  1997  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
          1997 and 1996 are not significant.

3.  INVENTORIES:

    The components of inventories are:
<TABLE>
<CAPTION>

                                                              (in thousands)
                                                           1997             1996
                                                           ----             ----
<S>                                                      <C>              <C>    

Finished Goods ...............................           $2,551           $1,296
Work in Process ..............................            2,647            1,267
Raw Materials and Supplies ...................            2,479            1,361
                                                         ------           ------
Total ........................................           $7,677           $3,924
                                                         ======           ======
</TABLE>

4. MARKETABLE SECURITIES:

    In the 1996 fiscal year, all marketable  securities were sold to provide the
    majority  of the  cash  portion  of the  consideration  paid  by  Wellco  to
    repurchase 1,531,272 shares of its outstanding common stock (see Note 13).

     Proceeds from the sale of Marketable  Securities  classified under SFAS 115
     for 1996 and 1995 were $4,261,000 and $4,098,000.  Gross realized gains and
     losses, and unrealized losses for 1996 and 1995 were as follows:

                                     -20-

<PAGE>

<TABLE>
<CAPTION>


                                                            (in thousands)
                                                        1996               1995
                                                        ----               ----
<S>                                                  <C>                <C>   
Gross Realized Gains .....................           $ 1,326            $   354
Gross Realized Losses ....................              (122)              (142)
Unrealized Loss ..........................                                 (194)
                                                     -------            -------
Net Investment Income ....................           $ 1,204            $    18
                                                     =======            =======
</TABLE>


     Applying  FAS 115 to the July 1,  1995  Consolidated  Financial  Statements
     resulted in corporate equity and debt securities being stated at their fair
     value (an  increase of  $730,000  over  adjusted  cost) with an increase in
     Stockholders'  Equity, after the effect of income taxes, of $482,000.  Fair
     value is usually current market value at the financial statement date.

5.   INVESTMENT IN AFFILIATE:

     On December  30, 1994  Wellco  purchased  from  Coronet  Insurance  Company
     (Coronet) for cash 400,000  shares of the common stock of Alba  Waldensian,
     Inc. (Alba) which  represented  21.5% of total Alba common shares.  Because
     Coronet  owned more than 50% of Wellco's  total  outstanding  common stock,
     Wellco recorded as its carrying value of this investment Coronet's basis in
     these Alba shares.  The excess of that basis over Wellco's cost  ($986,000)
     increased  Additional  Paid-In  Capital by  $650,000,  net of the effect of
     income taxes  ($336,000).  Through  December 29, 1995,  this investment was
     accounted for using the equity method.

     Operating  results  for the fiscal  year ended June 29,  1996  includes  as
     Equity in Loss of  Affiliate a charge of  $601,000,  representing  Wellco's
     $305,000  equity in Alba's loss for the six-month  period from July through
     December, 1995 and a $296,000 reduction of this investment's carrying value
     to fair value. On December 29, 1995,  these shares were used as part of the
     consideration  paid for the  repurchase  of  1,531,272  shares of  Wellco's
     common  stock (See Note 13).  Operating  results  for the fiscal year ended
     July 1, 1995 includes $69,000 as Equity in Income of Affiliate representing
     Wellco's equity in Alba's net income for the six-month  period from January
     through June, 1995.

     Other  than  this  investment,  there  were no  business  relationships  or
     transactions between Wellco and Alba.

6.   MACHINERY LEASED TO LICENSEES:

     Accumulated  depreciation  netted  against the cost of leased assets in the
     1997 and 1996  consolidated  balance sheets is $1,483,000  and  $1,456,000.
     Rental  revenues for the fiscal years 1997,  1996,  and 1995 were $178,000,
     $128,000  and  $122,000,  substantially  all of which  vary  with  lessees'
     production or shipments.

7.   PROPERTY, PLANT AND EQUIPMENT:

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

                                      -21-

<PAGE>

<TABLE>
<CAPTION>


                                                   (in thousands)
                                                                       Estimated
                                         1997         1996           Useful Life
                                         ----         ----           -----------
<S>                                    <C>          <C>              <C>    

Land                                     $107         $107
Buildings                                 774          774              45 Years
Machinery &
Equipment                               2,797        2,430            2-20 Years
Furniture & Fixtures                      610          532            2-10 years
Leasehold
Improvements                               63           63                     *
Total Cost                             $4,351       $3,906
Total Accumulated
Depreciation                           $3,038       $2,768
</TABLE>


                      *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.

8.   LINES OF CREDIT:

     The  Company  maintains a  $1,500,000  unsecured  bank line of credit.  The
     unsecured line, which expires December 31, 1997, can be renewed annually at
     the bank's discretion.  At June 28, 1997, the unsecured line was fully used
     with no additional borrowings available under this line.

     During the third  quarter of 1997,  the Company  entered into a second bank
     line of credit  for  $3,000,000.  Both of these  lines were used to provide
     cash for a significant  increase in combat boot  inventory,  in preparation
     for a quick response  requirement  under a new U.S.  government combat boot
     contract,  and the inventory of the new  intermediate  cold/wet  boot.  The
     bank's  commitment for the  $3,000,000  line of credit expires on September
     24, 1997. The second line is secured by a blanket lien on all machinery and
     equipment and all  non-governmental  accounts  receivable  ($1,161,000) and
     inventory ($1,003,000). At June 28, 1997, borrowings on the secured line of
     credit were $187,000 with $2,813,000 available in additional borrowings.

     Interest  for both  lines is at the  prime  rate of 8.5%.  The bank  credit
     agreement contains, among other provisions, defined levels of net worth and
     current ratio  requirements  and the Company was in  compliance  with these
     requirements at June 28, 1997.

     In the fiscal year 1998 the Company plans to construct a warehouse addition
     adjoining its existing facilities in Waynesville, North Carolina, at a cost
     of  approximately  of $350,000.  A bank has provided a $400,000  three-year
     term loan commitment to finance the construction if needed.  The commitment
     expires on October 24, 1997.

9.   ACCRUED LIABILITIES:
     The components of accrued liabilities are:

                                     -22-

<PAGE>

<TABLE>
<CAPTION>


                                                      (in thousands)

                                                           1997             1996
                                                           ----             ----
<S>                                                      <C>              <C>    

Compensation .................................           $  892           $  793
Pension ......................................              133              166
Retiree Health Benefits ......................              170              110
Contribution .................................              115               70
Other ........................................              260              163
                                                         ------           ------
Total ........................................           $1,570           $1,302
                                                         ======           ======
</TABLE>


10. PENSION PLANS:

     The Company's  pension plans provide  retirement  benefits  based on either
     years of service or final average annual earnings.

     The components of pension expense  computed in accordance with Statement of
     Financial Accounting Standards No. 87  (Employers' Accounting For Pensions)
     are:

<TABLE>
<CAPTION>
                                                              (in thousands)
                                                   1997        1996        1995
                                                   ----        ----        ----
<S>                                               <C>         <C>         <C>    

Benefits Earned for Service in the
Current Year ...............................      $ 147       $ 148       $ 134
Interest on the Projected Benefit
Obligation .................................        388         368         357
Return on Plan Assets ......................       (234)       (206)       (207)
Amortization of: Unrecognized Net
Pension Obligation at July 1, 1987;
Cost of Benefit Changes Since That
Date; and Gains and Losses
Against Actuarial  Assumptions .............        163         156         129
                                                  -----       -----       -----
Pension Expense ............................      $ 464       $ 466       $ 413
                                                  =====       =====       =====
</TABLE>

The  liability  of the  plans at June  28,  1997  and  June  29,  1996,  and the
components of the pension liability accrued in the balance sheets are:

<TABLE>
<CAPTION>

                                                               (in thousands)
Pension Liability:                                              1997       1996
                                                                ----       ----

Accumulated Benefit Obligation, Substantially
  All Vested ...........................................      $5,152     $5,054
Obligation for Actuarially Projected Future
  Salary Increases .....................................         297        291


                                      -23-

<PAGE>



Pension Liability:                                              1997       1996
                                                                ----       ----
<S>                                                          <C>        <C>   
Projected Benefit Obligation .............................     5,449      5,345
Plan Assets at Fair Value ................................    (3,261)    (2,949)
Projected Obligation Greater than Assets .................     2,188      2,396
Less Projected Future Salary Increases ...................      (296)      (291)
Pension Liability Recognized in the Consolidated
Financial Statements .....................................   $ 1,892    $ 2,105


Components of Pension Liability:
Unamortized Costs Not Yet Charged Against Operations-
Net Obligation at July 1, 1987 ...........................       355        426
Net Obligation From Changes to the Plans Since
July 1, 1987 .............................................       323        369
Net Loss From Actuarial Assumptions Being Different
Than Actual ..............................................     1,072      1,061
Less Projected Future Salary Increases ...................      (296)      (291)
Total Liability Not Yet Charged Against Operations .......     1,454      1,565
Amount of Liability That Has Been Charged Against
Operations ...............................................       438        540
Total Pension Liability ..................................   $ 1,892    $ 2,105
</TABLE>

     The pension  liability not yet charged against  operations is a part of the
     long-term pension obligation  liability.  This liability at June 28,1997 is
     offset by an  intangible  pension  asset of $511,000  ($623,000 at June 29,
     1996) and an equity  reduction,  net of income taxes,  of $622,000 for 1997
     and 1996. Plan assets are invested in the General Investment Account of the
     Company's  actuary.  This account invests primarily in high-quality,  fixed
     income  mortgage  obligations  and  corporate  bonds.  The assumed  average
     discount rate and the expected  long-term  rate of return on plan assets is
     7.5% for 1997 and 1996. To the extent projected benefits are based on final
     average  annual  earnings,  the assumed  rate of annual  increase in future
     salary levels is 5.5%.

11. 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, "Employers Accounting for Postretirement Benefits Other Than Pensions"
     (FAS 106). The liability at the date of adoption of FAS 106 ( July 4, 1993)
     is being recognized over employee future service lives.

     Employees of the North Carolina plant who meet certain  criteria and retire
     early (age 62-64) or 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 benefit prior to costs actually being incurred.

                                      -24-

<PAGE>


     The  cost of  retiree  health  benefits  included  in  1997,  1996 and 1995
     Statements of Operations as computed under FAS 106 was:
<TABLE>
<CAPTION>
                                                                                                               (in thousands)

                                                          1997     1996     1995
                                                          ----     ----     ----
<S>                                                        <C>      <C>      <C>   

Benefits Earned for Current Service .................      $25      $26      $20
Interest Cost on Accumulated Liability ..............       24       22       20
Amortization of the July 4, 1993 Liability ..........       14       13       13
                                                           ---      ---      ---
Total Cost ..........................................      $63      $61      $53
                                                           ===      ===      ===
</TABLE>


     The  reconciliation  of the total  liability  to the amount  included  as a
     liability in the  Consolidated  Balance Sheet (see Note 9) at June 28, 1997
     and June 29, 1996 is:
<TABLE>
<CAPTION>

                                                                (in thousands)

Accumulated Liability For:                                       1997      1996
                                                                 ----      ----
<S>                                                             <C>       <C>    

Retired Employees ..........................................    $  16     $   4
Fully Qualified Employees ..................................        0         7
Other Employees ............................................      268       293
Total ......................................................      284       304
Less Balance of Unrecognized Liability at July 4, 1993 .....     (227)     (240)
Unrecognized Net Gain Since July 4, 1993 ...................      113        46
Liability Recognized in the Consolidated Balance Sheet .....    $ 170     $ 110
</TABLE>

     The  assumed  health care cost trend rate used to project  expected  future
     cost was 11.0% in 1997 (12.4% in 1996),  gradually decreasing to 6% by 2004
     and remaining at 6% thereafter. The assumed discount rate used to determine
     the accumulated liability was 8% for 1997 and 7.75% for 1996. The effect of
     a 1% increase  in the  assumed  health care cost trend rate for each future
     year would not have a  significant  effect on the service and interest cost
     components of the current period cost or on the accumulated liability.

12. 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:
<TABLE>
<CAPTION>

                                                 (in thousands)

Federal:                                       1997           1996          1995
                                               ----           ----          ----
<S>                                          <C>            <C>            <C>   

Currently Payable ..................         $ 355          $ 457          $ 143
Deferred ...........................           (87)          (185)            45


                                      -25-

<PAGE>



Federal:                                       1997           1996          1995
                                               ----           ----          ----
<S>                                           <C>           <C>            <C>    

Total Federal .....................            268            272            188
State .............................             62             94             55
Total Provision ...................           $330           $366           $243
</TABLE>

A  reconciliation  of the effective  income tax rate for the 1997, 1996 and 1995
fiscal years is as follows:

<TABLE>
<CAPTION>

                                                         1997     1996     1995
                                                         ----     ----     ----
<S>                                                       <C>      <C>     <C>   

Statutory Federal Income Tax Rate ...................     34%      34%      34%
Current Period Income of Puerto Rico Subsidiary
Substantially Exempt From Puerto Rican and
Federal Income Taxes ................................     (7%)     (7%)    (11%)
State Taxes, Net of Federal Tax Benefit .............      5%       5%       4%
Difference in Book and Tax Basis of Investment
in Affiliate ........................................     (6%)
Standstill Agreement ................................      3%
Untaxed Portion of Dividend Income ..................               *       (5%)
Other ...............................................     (2%)     (2%)     (2%)
Effective Income Tax Rate ...........................     30%      27%      20%
                     * less than 1%
</TABLE>

     Income  earned in Puerto Rico by the Company's  Puerto Rican  subsidiary is
     90% exempt from Puerto  Rican  income tax through  2000.  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,  subject to a phase out for existing companies, the federal tax
     credit on this income 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  ($4,324,000 at June 28, 1997) 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.

     Significant  components of the Company's  deferred tax assets (no valuation
     allowance  considered  necessary)  and  liabilities as of the end of fiscal
     1997 and 1996 are as follows:

                                      -26-

<PAGE>

<TABLE>
<CAPTION>


                                                             (in thousands)

Deferred Tax Assets:                                               1997     1996
                                                                   ----     ----
<S>                                                                <C>      <C>   

Pension Cost Charged Against Financial Statement Income,
Not Yet Deducted From Taxable Income .........................     $104     $126
Tax Effect of Pension Liability Charged Against Equity .......      320      320
Employee Compensation Charged Against Financial
Statement Income, Not Yet Deducted From Taxable Income .......      158      146
Additional Costs Inventoried for Tax Purposes ................      142       85
Other ........................................................       99       61
Total Deferred Tax Asset .....................................      823      738
Deferred Tax Liabilities:
Depreciation Deducted From Taxable Income Not Yet
Charged Against Financial Statement Income ...................       49       51
Net Deferred Tax Asset .......................................     $774     $687
</TABLE>


13. REPURCHASE OF STOCK:

     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. Cash of $5,460,000 and 400,000 shares of Alba-Waldensian, Inc. (Alba)
     common stock was paid to Coronet and Affiliates for these Wellco shares. In
     addition,  the Stock Repurchase  Agreement provides that certain additional
     payments may be made through Wellco's fiscal year 2003 (see Note 14). Under
     North  Carolina  law  the  shares  repurchased  constitute  authorized  but
     unissued shares.

     The  Stock  Repurchase  Agreement  provides  that for a period of ten years
     after December 29, 1995 Coronet and Affiliates  will limit their  ownership
     of Wellco  common stock to not more than 20% of total  shares  outstanding.
     The Consolidated Statement of Operations for the fiscal year ended June 29,
     1996 included a Stock Repurchase Charge of $110,000  representing the value
     assigned to this limitation.

     This  repurchase  was recorded at the cash paid, the fair value of the Alba
     shares,  the present value of the  additional  amount  projected to be paid
     through  fiscal  year 2002,  and the amount of  investment  banker,  legal,
     accounting and other costs  incurred  related to this share  repurchase,  a
     total  of  $10,884,000.  The par  value  of the  common  stock  repurchased
     ($511,000)  was charged  against  Common Stock.  The excess of total amount
     paid over the par value of Wellco's common stock repurchased was charged to
     Additional Paid-In Capital ($811,000) and Retained Earnings ($9,567,000).

     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

                                      -27-

<PAGE>

     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. However, as of
     June  28,  1997,  the  opinion  of  Company's  management   anticipates  no
     significant  adverse impact to the financial  statements as a result of the
     resolution of any uncertainty raised by this matter.

14. NOTE PAYABLE:

     Note 13 gives  information  about certain  additional  payments that may be
     made under the Stock Repurchase Agreement, as well as information about the
     uncertainty as to the  Agreement's  enforceability.  Notwithstanding  this,
     generally  accepted  accounting  principles  require that an  obligation be
     reflected  as a Note  Payable 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 each estimated payment, discounted at a rate of
     8.5%, is shown in the following table:
<TABLE>
<CAPTION>

<S>                                                     <C>    

Paid in
Fiscal Year                                                 Amount
1998                                                      $107,325
1999                                                       152,418
2000                                                       165,374
2001                                                       179,430
2002                                                       194,682
2003                                                       338,472
Total                                                   $1,137,701
</TABLE>

     During the 1997 fiscal year,  the Company  revised its initial  estimate of
     the amount that might be paid.  This increased the Note Payable as shown in
     the Consolidated Balance Sheet and reduced Retained Earnings by $646,000.

     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 Stock  Repurchase  Agreement  does not
     provide for the payment of interest. However, generally accepted accounting
     principles  require  that  interest  be  imputed,  and  $97,000 of interest
     expense was recorded in 1997.  Total  payments under the note cannot exceed
     $1,531,000  and all  obligations  under the note  terminate  after the 2003
     fiscal year payment.

                                   -28-

<PAGE>



15. STOCK OPTIONS:

     On February 6, 1996, the Board of Directors  approved the 1996 Stock Option
     Plan  (1996  Plan)  providing  for the  granting  of stock  options  to key
     employees. The 1996 Plan was subsequently approved by shareholders at their
     1996 Annual  Meeting.  The Company  also has a small  number of granted and
     unexercised,  fully  exercisable  stock options under the 1985 Stock Option
     Plan. All options available under the 1985 Plan have been granted.

     Under the 1996 Plan, the  Compensation  Committee of the Board of Directors
     is  authorized  to grant  stock  options  for the  purchase of up to 60,000
     shares of the  Company's  common  stock.  This Plan  provides  that  option
     exercise prices will be market price on the date granted, that options have
     a life of 10 years from the date of grant and are  immediately  exercisable
     on the date granted.  Options for 52,500 shares have been granted under the
     1996 Plan.

     Transactions  involving  these  Plans for the last three  fiscal  years are
summarized below:
<TABLE>
<CAPTION>


                                                    No. of      Weighted Average
Option Shares:                                      Shares        Exercise Price
<S>                                                <C>                    <C>    
Outstanding at July 3, 1994 and July 1, 1995         2,100                 $5.50
Granted                                             52,500                  5.32
Outstanding at June 29, 1996                        54,600                  5.33
Exercised                                          (27,500)                 5.34
Outstanding at June 28, 1997                        27,100                 $5.32
</TABLE>



     The  following  table  summarizes  information  about fixed  stock  options
     outstanding at June 28, 1997, all of which are fully exercisable:
<TABLE>
<CAPTION>
<S>           <C>                   <C>                         <C>   

                                                                Weighted Average
                                                                       Remaining
              Range of Exercise     Weighted Average            Contractual Life
Number                   Prices       Exercise Price                    in Years
27,100              $5.00-$5.75                $5.32                         9.2
</TABLE>


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


                                                                           1996
                                                                           ----
Net Income, As Reported                                                    $991


                                      -29-

<PAGE>
                                                                           1996
                                                                           ----
Net Income, Pro Forma                                                      $957
Net Income Per Share, As Reported                                          $.53
Net Income Per Share, Pro Forma                                            $.51

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


Expected Dividend Yield                                                    3.78%
Expected Stock Price Volatility                                           19.24%
Risk-Free Interest Rate                                                    5.48%
Expected Life of Options in Years                                          2.29

     The weighted average fair value of options granted during 1996 was $.65 per
share.

     On July 2, 1997, the Board of Directors approved the 1997 Stock Option Plan
     (1997 Plan) providing for the granting of options for the purchase of up to
     115,000 shares of the Company's common stock. The Compensation Committee of
     the  Board  of  Directors   has  granted  to  certain  key   employees  and
     non-employee  directors  options for the purchase of 105,000  shares at the
     market price on the date granted ($12.00 per share).  The 1997 Stock Option
     Plan is  subject  to,  and  the  grants  thereunder  are  contingent  upon,
     shareholder  approval at the  November  18,  1997 Annual  Meeting of Wellco
     shareholders.

16. STOCK SPLIT:

     All  common  shares  and per  share  amounts  have  been  adjusted  to give
     retroactive  effect to a three-for- one stock split affected 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).

17. SEGMENT AND REVENUE INFORMATION:

     The  Company  operates  in one  industry  segment.  Substantially  all  the
     Company's  operating  activity  is from the sale of military  footwear  and
     related items, whether sold directly by the Company or its licensees.

     Revenues by class of product,  major customer and export revenues for 1997,
     1996 and 1995 were:
                                                       Percent of Total Revenues

                                                   1997        1996         1995
                                                   ----        ----         ----
Revenues By Class of Product:
Sales of Footwear and Related Items                 96%         97%          96%


                                      -30-

<PAGE>
                                                   1997        1996         1995
                                                   ----        ----         ----
Revenues From Licensees                              4%          3%           4%
Total                                              100%        100%         100%
Major Customer-U. S. Government                     69%         70%          66%
Export Revenues                                      8%         12%          12%

     The  majority  of  export  revenues  are  to  Central  and  South  American
countries.


18. GOVERNMENT BOOT CONTRACT REVENUES:

     Revenues  in  1997 include $49,000  representing  the estimated  amount  of
     certain  contract  actions  not  yet settled  with  the U.  S.  government.
     Any difference between these  estimates and the actual  amounts  agreed  to
     will be  included in  the  period  of  settlement.   Income  before  income
     taxes  in 1997 was decreased by $73,000,  and was  increased by  $54,000 in
     1995,  from contract  actions  settled  with  the U. S. government in those
     years  at  amounts different than of previously recorded estimates.

19. RECLASSIFICATIONS:

     Certain  prior-year  amounts  have been  reclassified  to conform  with the
current-year presentation.

20. COMMITMENT:

     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  shares that could be purchased  at June 28, 1997 is  approximately
     83,000.


21. CONTINGENCY:

     In April 1997,  the  Company  was served with a subpoena  issued by a grand
     jury empaneled in the United States District Court for the Eastern District
     of Pennsylvania  which requires the production of certain documents for the
     period  January 1, 1990 until April 29, 1997. The Company has been informed
     through its legal  counsel  that the grand jury is  investigating  possible
     violations  of  antitrust  laws  primarily   involving   alleged  collusive
     activities among manufacturers of combat boots for the U.S. government. The
     Company  is  cooperating  in this  investigation,  does not  believe it has
     engaged in any illegal  conduct and does not believe  that this matter will
     have a material  adverse  effect on the  Company's  financial  position  or
     results of future operations.  However, the Company cannot predict what the
     final outcome of this matter will be.

     In 1988, the Company and other military combat boot manufacturers responded
     to subpoenas  which  investigated  possible  violation  of  antitrust  laws
     involving bids submitted on military combat boot  procurements  for January
     1, 1979 through May 6, 1988. This  investigation  was closed in 1992 and no
     legal action resulted from it.

                                      -31-

<PAGE>

                       INDEPENDENT AUDITORS' REPORT




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

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Wellco
Enterprises,  Inc. and  subsidiaries  as of June 28, 1997 and June 29, 1996, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for each of the three years in the period ended June 28, 1997.  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  also  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 Wellco  Enterprises,  Inc.  and
subsidiaries  as of June 28,  1997 and June 29,  1996,  and the results of their
operations  and their cash flows for each of the three years in the period ended
June 28, 1997 in conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP
Charlotte, North Carolina

September 12, 1997

                                      -32-

<PAGE>

                            WELLCO ENTERPRISES, INC.
                PRICE RANGE, DIVIDENDS AND MARKET OF COMMON STOCK
<TABLE>
<CAPTION>

                                      Fiscal Year 1997 Quarter
<S>                              <C>          <C>            <C>          <C>    

                                  First       Second          Third       Fourth
Market Price Per Share-
High                             10 1/3           15         14 5/8       14 3/4
Low                               6 1/2            8              9       11 1/2
Per Share Cash Dividend Declared                $.10                        $.10


                                       Fiscal Year 1996 Quarter

                                   First      Second           Third      Fourth
Market Price Per Share-
High                               5 1/2       5 1/2               6      10 5/6
Low                                5 1/6           5               5       5 3/4
Per Share Cash Dividend Declared            $.04 1/6                    $.08 1/3

</TABLE>

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 August 26, 1997
was 287.

All per  share  amounts  have  been  adjusted  to give  retroactive  effect to a
three-for-one split in the form of a stock dividend paid on January 3, 1997.


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

                                      -33-

<PAGE>



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

                                  Fiscal Year 1997 Quarter
<S>                              <C>          <C>       <C>              <C>   

                                  First       Second      Third           Fourth
Revenues                         $4,990       $4,738     $2,501           $8,970
Cost of Sales and Services        4,086        3,917      2,008            7,600
Net Income                          298          208    (A) (91)         (B) 343
Net Income (Loss) Per Share        $.27         $.18      $(.08)            $.30

                                   Fiscal Year 1996 Quarter

                                   First       Second      Third          Fourth
Revenues                          $4,378       $4,656     $5,484          $5,450
Cost of Sales and Services         3,959        4,154      4,648           4,407
Net Income                       (C) (71)     (D) 118    (E) 584         (F) 360
Net Income (Loss) Per Share (G)   $(.027)       $.043       $.52            $.32
</TABLE>

(A)      In December 1996, Wellco substantially  completed combat boot shipments
         under the prior  combat boot  contract,  and since it was not awarded a
         new contract until April 15, 1997, pairs of combat boots shipped in the
         quarter ended March 29, 1997 were significantly less that normal.

(B)      Reduced by $76,000  contribution to the Wellco  Foundation.  Reduced by
         $28,000  representing  the  adjustment of tax  provisions for the first
         three quarters,  made at estimated  annual  effective tax rates, to the
         actual  rate for the year.  Reduced by $54,000 of interest  cost.  Also
         reduced by excess labor costs,  freight costs and other  inefficiencies
         caused by a significant change in combat boot shipment methods.

(C) Reduced by $102,000 equity in loss of affiliate.

(D)      Increased  by $585,000  of  investment  income.  Reduced by $410,000 of
         equity in loss of affiliate and $94,000 stock repurchase charge.

(E) Increased by $347,000 of investment income.

(F)      Reduced by $46,000 contribution to the Wellco Foundation.  Increased by
         $42,000  representing  the  adjustment of tax  provisions for the first
         three quarters,  made at estimated  annual  effective tax rates, to the
         actual rate for the year.

(G)      Net  income  per share for the third and  fourth  quarters  is based on
         1,123,146  shares,  reduced from 2,654,418 shares in the prior quarters
         after the December 29, 1995 repurchase of Wellco shares.

                                      -34-

<PAGE>

Officers and Directors

HORACE AUBERRY
Chairman of the Board and Chief Executive Officer

ROLF KAUFMAN
Vice Chairman of the Board

DAVID LUTZ
President and Chief Operating Officer and Treasurer

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.


Directors

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

JAMES T. EMERSON
Retired Engineer

JOSEPH MINIO
President and Chief Executive Officer of Belle Haven Management, Ltd.

J. AARON PREVOST
Retired Banker

WILLIAM D. SCHUBERT
Principal of Advanced Management Concepts
(Management Consultants)

FRED K. WEBB, JR.
Accounting Team Leader  for United Guaranty Corporation

                                      -35-

<PAGE>
                                    PART III

Responsive  information  called  for by the  following  Items 10, 11, 12 and 13,
except for certain  information about executive officers provided below, will be
filed  not later  than 120 days  after  the  close of the  fiscal  year with the
Securities and Exchange  Commission in a Proxy Statement dated October 17, 1997,
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               66              Chairman of the Board of Directors,
                                             Chief Executive Officer
Rolf Kaufman                 66              Vice Chairman, Board of Directors
Sven Oberg                   58              Vice President-Technical Director
David Lutz, CPA              52              President, Treasurer and Director
Richard A. Wood, Jr.         60              Secretary
Tammy Francis, CPA           38              Controller


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.  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.

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

Item 11. Executive Compensation.  (Executive Compensation)

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

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

Since the  beginning  of the 1997  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.

                                       -6-

<PAGE>



Since the beginning of the 1997  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' Report                                                 10
The following consolidated financial statements of
Wellco Enterprises, Inc. are in the Registrant's 
1997 Annual Report which is integrated into Part II 
of this Form 10-K immediately after page 5
Balance Sheets-at June 28, 1997  and June 29, 1996                        13-14*
Statements of Operations-years ended June 28,1997,
June 29, 1996 and July 1, 1995                                               12*
Statements of Cash Flows-years ended June 28, 1997,
June 29, 1996 and July 1, 1995                                            15-16*
Statements of Stockholders' Equity-years ended
June 28, 1997, June 29, 1996 and July 1, 1995                                17*
Notes to Consolidated Financial Statements                                18-31*

* Page number in the 1997 Annual Report to Shareholders integrated in Part II of
this Form 10-K.

2. Financial Statement Schedules

                                                                            Page
                                                                          Number
Schedule II          Valuation and Qualifying Accounts                       12

All other schedules are omitted because they are not applicable or not required.

Exhibits

Exhibit                                                                     Page
Number      Description                                                   Number
   3        Articles of Incorporation and By-Laws                            (a)
  10        Material Contracts:


                                       -7-

<PAGE>



Exhibit                                                                     Page
Number         Description                                                Number
               A. Bonus Arrangement*                                         (b)
               B. 1985 Stock Option Plan for Key Employees of Wellco Enterprises
                  , Inc.*                                                    (c)
               C. 1996 Stock Option Plan for Key Employees of Wellco Enterprises
                  , Inc.*                                                    (d)
      21       Subsidiaries of Registrant                                    13
      23       Consent of Experts                                            (e)

* 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

         (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 22, 1985, and is incorporated herein by reference.

         (d)      Exhibit  was filed as Exhibit A to the Proxy  Statement  dated
                  October 18, 1996, and is incorporated herein by reference.

         (e) Consent is contained  in opinion of  independent  certified  public
accountants on page 10.

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

There were no reports on Form 8-K for the three months ended June 28, 1997.


                                       -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:  September 25, 1997

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/ James T. Emerson
James T. Emerson, Director



Date:  September 25, 1997





                                       -9-

<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  as of June 28, 1997 and June 29, 1996, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for each of the three years in the period  ended June 28,  1997.  Our
audits also included the  financial  statement  schedule  filed under Part IV of
Item 14(a)2. These financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule 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 Wellco  Enterprises,  Inc.  and
subsidiaries  as of June 28,  1997 and June 29,  1996,  and the results of their
operations  and their cash flows for each of the three years in the period ended
June 28, 1997 in conformity with generally accepted accounting principles. Also,
in our opinion,  such financial statement schedule,  when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

We  consent  to the  incorporation  by  reference  of the  above  report  in the
Prospectus  constituting  part of the Registration  Statement  33-8246 of Wellco
Enterprises, Inc. on Form S-8.


DELOITTE & TOUCHE LLP
Charlotte, North Carolina

September 12, 1997


                                      -10-

<PAGE>



                            WELLCO ENTERPRISES, INC.
                                    FORM 10-K
                         FISCAL YEAR ENDED JUNE 28, 1997
               INDEX TO FINANCIAL STATEMENT SCHEDULE AND EXHIBITS


                                                                            Page
Financial Statement Schedule:                                             Number
Schedule II-Valuation and Qualifying Accounts                                12
Exhibits:
Exhibit 3-Articles of Incorporation and By-Laws                              (a)
Exhibit 10 A.-Bonus Arrangement                                              (b)
Exhibit 10 B.-1985 Stock Option Plan for Key Employees
of Wellco Enterprises, Inc.                                                  (c)
Exhibit 10 C.-1996 Stock Option Plan for Key Employees 
of Wellco Enterprises, Inc.                                                  (d)
Exhibit 21-Subsidiaries of Registrant                                        13
Exhibit 23-Consent of Experts                                                (e)

(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 22,
         1985, and is incorporated herein by reference.

(d)      Exhibit was filed as Exhibit A to the Proxy Statement dated October 18,
         1996, and is incorporated herein by reference.

(e) Consent is contained in opinion of Independent  Certified Public Accountants
on page 10.


                                      -11-

<PAGE>



                                                                     SCHEDULE II

             WELLCO ENTERPRISES, INC. AND WHOLLY-OWNED SUBSIDIARIES
                               VALUATION ACCOUNTS
    FOR THE FISCAL YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 AND JULY 1, 1995



                    BALANCE AT     ADDITIONS
                  BEGINNING OF    CHARGED TO                          BALANCE AT
DESCRIPTION               YEAR        INCOME        DEDUCTIONS       END OF YEAR
Allowance for  
doubtful
accounts-
1997                       $37       $21 (A)                                 $58
1996                        37                                                37
1995                        43                            6 (B)               37

(A) Additions for allowance for doubtful accounts.

(B) Write off of uncollectible accounts.

                                      -12-

<PAGE>