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

               (X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended July 2, 2005

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

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

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

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

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

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

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

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

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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes No X ----- ----- .

As of August 31, 2005, 1,270,746 common shares were outstanding, and the
aggregate market value of the common shares (based upon the closing price of
these shares on the American Stock Exchange on August 31, 2005) of Wellco
Enterprises, Inc. held by nonaffiliates was approximately $3,600,000.

Documents incorporated by reference:
         Definitive Proxy Statement, to be dated October 14, 2005, in PART IV.
         Form 10-K for the Fiscal Year Ended July 3, 2004, in PART IV.
         Form 8-K, dated March 4, 2004, in Item 4.
         Definitive Proxy Statement, dated October 17, 2003, in PART IV.
         Definitive Proxy Statement, dated October 18, 2002, in PART IV.
         Definitive Proxy Statement, dated October 13, 2000, in PART IV.
         Definitive Proxy Statement, dated October 17, 1997, in PART IV.
         Definitive Proxy Statement, dated October 18, 1996, in PART IV.
         Form 10-K for the Fiscal Year Ended July 1, 2000, in PART IV.
         Form 10-K for the Fiscal Year Ended July 3, 1982, in PART IV.
<PAGE>


                                     PART I
                                     ------
Item 1. Business.
----------------

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

Footnote 15 to the Consolidated Financial Statements contains information about
revenues by similar sources and by geographic areas. The majority of revenues
($44,249,000 in 2005 and $39,648,000 in 2004) were from sales to the U. S.
government, primarily the Defense Supply Center Philadelphia (DSCP), under
contracts for the supply of boots used by the U. S. Armed Forces. The loss of
this customer would have a material adverse effect on the Company.

For more than the last five years, the Company has manufactured and sold
military combat boots under firm fixed price contracts with DSCP. The primary
boot products supplied DSCP are the hot weather boot and the temperate weather
boot. The government awards fixed price boot contracts on the basis of bids from
several qualified U. S. manufacturers. The Company also sells similar
military-style boot products, as well as anti-personnel mine protective footwear
products, to other customers, including customers located in other countries.

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

Net income for the 2005 fiscal year was $1,907,000 ($1.47 diluted income per
share) compared to net income of $2,448,000 ($1.97 diluted income per share) for
the 2004 fiscal year. Compared to the prior year, total revenues in the current
year increased by $4,774,000. Although the Defense Department's surge need ended
in fiscal year 2005, revenues increased because of the mix of boots sold to the
Defense Department. Although revenues increased, gross profit decreased because
the boot whose sales increased has a lower margin. In addition, some boot sales
in fiscal year 2004 were under a now-expired contract that had a higher margin
than the current contract.

More information about these, and other events affecting Wellco's 2005 and 2004
operating results, are contained in the Management's Discussion and Analysis of
Results of Operations and Financial Condition section of the Company's 2005
Annual Report to Shareholders which is incorporated in Part II of this Form
10-K.

Bidding on U. S.  government boot  solicitations  is open to any qualified U. S.
manufacturer.  In addition to meeting very stringent  manufacturing  and quality
standards,  contractors are required to comply with demanding delivery schedules
and quality standards.

                                      -1-



<PAGE>





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

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

The U. S. government usually evaluates bids received on solicitations for boots
using their "best value" system, under which bidders offering the best value to
the government are awarded the contract, or in the case of multiple contract
awards, a greater portion of total boots contracted. Best value usually involves
an evaluation of performance considerations, such as quality and delivery, with
the prices bid being equally important. As bidders become more equal in the best
value evaluation, price becomes more important.

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 commercial footwear. These methods include the Goodyear Welt
construction, as well as boots bottomed by injection molding. These methods are
used in work shoes, safety shoes, and hiking boots manufactured both in the U.
S. and abroad for the commercial market. Quality, service and reasonable
manufacturing costs are the most important features used to market the Company's
technology, assistance and services.

The Company has a strong research and development program. While not all
research and development results in successful new products or significant
revenues, the continuing development of new products and processes has been and
will continue to be a significant factor in growth and development.

                                      -2-

<PAGE>




Of the total amount spent on research and development, a significant portion is
for 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 total cost of research
and development, the majority of which is company sponsored, for fiscal years
2005, 2004 and 2003 is $78,000, $101,000 and $110,000.

The Company's backlog of all sales, not including license fees and rentals, as
of August 31, 2005 was approximately $17,300,000 compared to $28,000,000 at
August 31, 2004. The Company estimates that substantially all of the current
year backlog will be shipped in the 2006 fiscal year. The current year's backlog
decreased because the Company was awarded an extingency contract in May 2004 to
supply the U.S. Army with the temperate weather boot in the tan color for a
seven month period.

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 799 persons during the 2005 fiscal year.

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

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

Management believes all its plants, warehouses and offices are in good condition
and are reasonably suited for the purposes for which they are presently used.

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

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

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


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

                                      -3-

<PAGE>





There were not any submissions of matters to a vote of security holders during
the fourth quarter of fiscal year 2005.


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

The information called for by the following items is in the Company's 2005
Annual Report to Shareholders which is incorporated starting on the following
page in this Form 10-K:

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

Item 5.           Market for the Registrant's Common Equity and Related
                  Stockholder Matters
                                                                             41
--------------------------------------------------------------------------------

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

Item 7.           Management's Discussion and Analysis of Results
                  of Operations and Financial Condition                    4-13
--------------------------------------------------------------------------------

Item 8.           Consolidated Financial Statements and
                  Supplementary Data                                  14-39, 42
--------------------------------------------------------------------------------

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

We are exposed to interest rate changes primarily as a result of our line of
credit which we use to maintain liquidity and to fund capital expenditures and
expansion. Our market risk exposure with respect to this debt is to changes in
LIBOR. Our line of credit provides for interest on outstanding borrowings at
rates tied to LIBOR. A 1% increase in interest rates on our current borrowings
would have had approximately $ 45,000 impact on income before income taxes. We
do not enter into derivative or interest rate transactions for speculative
purposes.

In the normal course of business and consistent with established policies and
procedures we use the necessary financial instruments to manage the fluctuations
in interest rates. The Company does not have any foreign currency risk.

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

On March 5, 2004, the Registrant filed a Form 8-K reporting under Item 4,
Changes in Registrant's Certifying Accountants, that at a meeting held on March
4, 2004,the audit committee of the Board of Directors of the Company approved
the engagement of Dixon Hughes PLLC, the successor in the merger of its current
independent auditors, Crisp Hughes Evans LLP, and the firm of Dixon Odom PLLC as
its independent auditors effective with the successful merger of the two firms.
On March 1, 2004, the audit committee of the Board of Directors was notified
that the merger of the two firms was completed and that the firm of Crisp Hughes
Evans LLP would resign as independent auditors.

Disclosure was filed in Item 4 of Form 8-K dated March 5, 2004, and is
incorporated herein by reference.


Item 9A.  Controls & Procedures
-------------------------------

(a) Evaluation of Disclosure Controls and Procedures

                                      -4-

<PAGE>


Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the reports that
are filed or submitted under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports that are filed under the Exchange Act is
accumulated and communicated to management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure. Under the supervision of and with the
participation of management, including the chief executive officer and chief
financial officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures as of July 2, 2005, and
based on its evaluation, our chief executive officer and chief financial officer
have concluded that these controls and procedures are effective.

(b) Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting
that occurred during the fourth quarter ended July 2, 2005 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.




                                      -5-

<PAGE>





















                                    WELLCO(R)
                                ENTERPRISES, INC.
                                  ANNUAL REPORT
                                      2005







<PAGE>



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

                                             Fiscal Year Ended

                              July 2,    July 3,   June 28,   June 29,  June 30,
                                 2005       2004       2003       2002      2001
--------------------------------------------------------------------------------
Revenues                     $ 50,467   $ 45,693   $ 24,833  $  19,981  $ 19,417
--------------------------------------------------------------------------------
Net Income                      1,907      2,448   (A)  823        683     1,153
--------------------------------------------------------------------------------
Basic Earnings
per Share                        1.51       2.04       0.70       0.58      0.99
--------------------------------------------------------------------------------
Diluted Earnings
per Share                        1.47       1.97       0.68       0.56      0.97
--------------------------------------------------------------------------------
Cash Dividends
Declared per Share
of Common Stock                  0.60       0.45       0.40       0.40      0.40
--------------------------------------------------------------------------------
Total Assets at Year End       20,804     22,919     15,310     12,929    12,787
--------------------------------------------------------------------------------
Long-Term Liabilities
at Year End                  $  2,462   $  2,112   $  1,972   $  1,328  $  1,532
--------------------------------------------------------------------------------


(A)      After a $228,000 cumulative effect of a change in accounting principle
         (See Note 22 in Consolidated Financial Statements). The cumulative
         effect reduced both basic earnings and diluted earnings per share by
         $0.19.

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



Independent Auditors
Dixon Hughes PLLC
Asheville, N.C.

Annual Meeting
November 15, 2005
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>



Shareholders:

For fiscal year 2005, your company had net income of $1,907,000, equivalent to
basic earnings per share of $1.51 (diluted $1.47), from revenues of $50,467,000.
This compares with net income of $2,448,000, equivalent to basic earnings per
share of $2.04 (diluted $1.97) in the 2004 fiscal year, from revenues of
$45,693,000. The Management's Discussion and Analysis section of this Annual
Report gives you more comparative information as to the reasons for changes
between results for fiscal years 2005 and 2004.

The fiscal year 2004 Annual Report discussed the significant increase in
revenues that resulted from the "surge" for desert boots (now know as the "Army
Combat Boot-Hot Weather) and the simultaneous incorporation into production of
the first contract for the Army's then-new ICB boot (now know as the "Army
Combat Boot-Temperate Weather"). The desert boot surge ceased in the first half
of fiscal year 2005. However, we had significant shipments of the Temperate
Weather boot, which, compared to the desert boot, is much more expensive to
manufacture and has a higher sales price.

Although revenues set a record, overall margins decreased. We operate in a very
competitive environment. Almost all remaining U. S. manufacturers of "heavy"
boots respond to Department of Defense (DOD) solicitations for boots. There can
be up to 10 companies that make an offer for the supply of boots and price is a
major factor in determining who receives a contract. For the two contracts that
make up the majority of fiscal year 2005 revenues, we had to offer prices that
were very competitive.

Our boot manufacturing is done by a wholly owned subsidiary located in Puerto
Rico. The last two years have been very challenging for the factory. After more
than doubling production in fiscal year 2004, significant efforts were made in
fiscal year 2005 to improve manufacturing efficiency and to control costs.
Certain numbers and ratios are used to monitor this factory's cost, and
progressively in 2005 they have shown significant improvement.

Because of a lot of extra effort by administrative personnel, and despite the
103% increase in revenues between fiscal year 2003 and 2005, general and
administrative expenses only increased 14%. Comparing fiscal year 2005 and 2004,
general and administrative expenses decreased 10%.

Our DOD contracts are multi-year, indefinite quantity contracts. Each contract
we have starts with a base year followed by option years. Options are exercised
at the unilateral discretion of the DOD. Assuming option exercise, contracts
have a total "life" of three to five years.

Each contract also provides for a minimum number of pairs that the DOD has to
buy each year and a maximum they may buy. While the multi-year feature gives
assurance of a certain number of years of production, the indefinite quantity
feature makes it very difficult to project what the level of boots sales for any
year will be. The Forward Looking section of Management's Discussion and
Analysis in this Annual Report contains information about options remaining on
our contracts and the minimum and maximum number of pairs.

In September 2005 the Company submitted a response to a solicitation for the
research and development of a Modular Boot System (MBS) for the U. S. military.
Presently, the DOD buys four different boot styles to meet the varied climatic
conditions encountered by military personnel. This solicitation calls for
bidders to submit concepts and models of a MBS that would result in a functional
boot system that would provide comfort in a temperature range of -60(0)F to
120(0)F. If successful, the MBS would replace many, if not all, of the current
boot styles.

After review of solicitations, the Defense Department will make up to two
contract awards, or the Defense Department may determine not to award any

                                       -2-

<PAGE>



contracts.  Of  course,  we  cannot  confidently  predict  if we will  receive a
contract from this  solicitation.  If we did receive a contract award,  the work
will be very  challenging,  and, if our MBS is successful,  could affect our DOD
contracts in the future.

For several years we have sold our military boot products to the "commercial"
(non-DOD) market. In addition to offering "standard" military boots, we offer
boots with comfort and weight-saving features that are not presently available
in standard military boots. While not significant to total revenues, sales of
commercial military boots have slowly grown over the last few years. We recently
made certain changes in our structure that hopefully will increase the growth
rate of these sales.

Going into fiscal year 2006, we have what we judge to be a good level of orders
under our DOD contracts. Delivery under these orders is "heavy" in the December
2005 through February 2006 period. Hopefully, additional orders will follow.

In early August 2005, a sole-source supplier of a major component of our DOD
boots had a significant quality problem. Fortunately, the many quality checks we
perform found this problem before any bad components got into finished boots.
The supplier worked very diligently to identify and fix the problem.
Unfortunately, this problem required that we do additional and time-consuming
quality checks. While the supplier has agreed to reimburse our additional costs,
this problem will result in a delay in our shipments to the DOD in the fiscal
quarter ending October 1, 2005.

In June 2005, Mr. James T. Emerson, who owned 58% of outstanding Wellco shares,
died. In addition to being the majority shareholder, Mr. Emerson made many
contributions through his many years of service as a member of your Board of
Directors. Mr. Emerson's estate currently has sole voting and dispositive power
over the shares.

Fiscal year 2005 was a year of continuing challenges. Just as our employees did
in fiscal year 2004, they responded to these challenges in a strong and
constructive manner. They are developing new skills and refining existing ones.
Our employees are critical to our future operations and are much appreciated.





-----------------------------------
David Lutz
Chief Executive Officer and President
September 29, 2005






                                       -3-

<PAGE>



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

RESULTS OF OPERATIONS

Critical Accounting Policies:
-----------------------------

The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America which
require the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the Consolidated Financial
Statements, and revenues and expenses during the periods reported. Actual
results could differ from those estimates. The Company believes the following
are the critical accounting policies which could have the most significant
effect on the Company's reported results and require the most difficult,
subjective or complex judgements by management.

(A)        Impairment of Long-Lived Assets:
              The Company reviews its long-lived assets for impairment whenever
              events or circumstances indicate that the carrying amount of an
              asset may not be recoverable. If the sum of the expected cash
              flows, undiscounted and without interest, is less than the
              carrying amount of the asset, an impairment loss is recognized as
              the amount by which the carrying amount of the asset exceeds its
              fair value. The Company makes estimates of its future cash flows
              related to assets subject to impairment review. One of the most
              critical estimates is future demand, primarily through U. S.
              Department of Defense contracts, for the Company's products.
              Changes to this and other estimates could result in an impairment
              charge in future periods.

(B)        Inventory Valuation:
              Raw materials and supplies are valued at the lower of first-in,
              first-out cost or market. Finished goods and work in process are
              valued at the lower of actual cost, determined on a specific
              identification basis, or market. The Company estimates which
              materials may be obsolete and which products in work in process or
              finished goods may be sold at less than cost, and adjusts their
              inventory value accordingly. Future periods could include either
              income or expense items if estimates change and for differences
              between the estimated and actual amount realized from the sale of
              inventory.

(C)        Recognition of Contract Adjustments:
              From time to time, contract price adjustments will occur which
              require the Company to compute and present to the Defense
              Department for audit its calculation of such adjustments. If the
              adjustment is one of a recurring nature, the Company will record
              its calculation in the period the change occurred. For other
              adjustments, adjustment is not recorded until the period in which
              the Company and the government agree on the amount of adjustment.

(D) Income Taxes:
              The Company records a liability for potential tax assessments
              based on its estimate of the potential exposure. Due to the
              subjectivity and complex nature of the underlying issues, actual
              payments or assessments may differ from estimates. Income tax
              expense in future periods could be adjusted for the difference
              between actual payments and the Company's recorded liability based
              on its assessments and estimates.

              The Company has recorded a valuation allowance for part of its
              deferred tax assets. The valuation allowance is based on an
              evaluation of the uncertainty of future taxable income from

                                       -4-

<PAGE>



              certain jurisdictions.  An adjustment could be required if
              circumstances and events cause the Company to change these
              estimates.

Comparing the Fiscal Year ended July 2, 2005 to the Fiscal Year ended July 3,
2004:
-----------------------------------------------------------------------------

OVERVIEW
--------

Although the Defense Department's surge need ended in fiscal year 2005, revenues
increased because of the mix of boots sold to the Defense Department. Although
revenues increased, gross profit decreased because the boot whose sales
increased has a lower margin. In addition, some boot sales in fiscal year 2004
were under a now-expired contract that had a higher margin than the current
contract.

Comparative results for these two periods is as follows:


                             Fiscal Year    Fiscal Year
                                   Ended          Ended                    % of
(Amounts in thousands)      July 2, 2005   July 3, 2004    Change        Change
--------------------------------------------------------------------------------
Revenues                         $50,467        $45,693    $4,774           10%
--------------------------------------------------------------------------------
Cost of Sales and
Services                          45,232         39,438     5,794           15%
--------------------------------------------------------------------------------
Gross Profit                       5,235          6,255    (1,020)         -16%
--------------------------------------------------------------------------------
General and
Administrative Expenses            2,717          3,009      (292)         -10%
--------------------------------------------------------------------------------
Grant Income                         135             80        55           69%
--------------------------------------------------------------------------------
Operating Income                   2,653          3,326      (673)         -20%
--------------------------------------------------------------------------------
Net Interest Expense                 253            196       (57)          29%
--------------------------------------------------------------------------------
Income Taxes                         493            682       189          -28%
--------------------------------------------------------------------------------
Net Income                        $1,907         $2,448     $(541)         -22%
--------------------------------------------------------------------------------

The Company's primary customer is the Defense Supply Center Philadelphia (DSCP),
the Department of Defense agency with which the Company contracts for the
manufacture of boots used by U. S. Armed Forces personnel. In late March 2003,
DSCP exercised its surge option clause under contracts to manufacture the Direct
Molded Sole (DMS) boot. Surge orders ended in early fiscal year 2005, and the
pairs of DMS boots shipped in 2005 was 256,000 compared to 514,000 pairs in
fiscal year 2004. The DMS boot is currently referred to as the Army Combat
Boot-Hot Weather (HW).

In March 2003, the Company was awarded a multi-year, indefinite quantity
contract to supply the U. S. Army's then-new general issue boot (the ICB boot).
The ICB boot is currently referred to as the Army Combat Boot-Temperate Weather
(TW). During fiscal year 2005, the Company made significant shipments under DSCP
orders for this boot. In addition, the Company was awarded and completed an
exigency contract for this boot. Comparing fiscal year 2005 and 2004, pairs
shipped of the ICB boot increased to 324,000 from 75,000.

Although revenues increased, gross profit decreased. Margins earned on the TW
boot are lower than those earned on the HW boot. In addition, some boot sales in
fiscal year 2004 were under a now-expired contract that had a higher margin than
the current HW boot contract.

                                       -5-

<PAGE>



Revenues from technical assistance fees and equipment rentals from licensees,
which vary with licensee sales, decreased approximately 31% in the 2005 fiscal
year. Some of these licensees have boot contracts with DSCP and their sales
decreased with the end of surge. This revenue decrease also contributed to the
lower gross profit.

The Company's Puerto Rico subsidiary participates in a Puerto Rico government
program under which certain portions of wages paid to new employees in training
are reimbursed to that subsidiary. This reimbursement is recorded as revenues in
the period cash is received. Under this program, $1,385,000 was received and
recorded in fiscal year 2005. The amount received and recorded in fiscal year
2004 was $321,000.

Decreased salary, bonus and travel costs were the major expense categories that
reduced General and Administrative Expenses. In fiscal year 2005, two highly
compensated salaried persons retired. Salary expense in fiscal year 2004
includes both the salaries of these persons and their replacements. Officer
bonuses vary with net profit. In fiscal year 2005, fewer trips were made to the
Company's boot manufacturing factory in Puerto Rico.

Increased interest rates on the bank line of credit caused the increase in
interest expense.

From time to time, the Company receives grants from the government of Puerto
Rico, primarily related to the expansion of manufacturing operations. Grant
income represents the straight-line recognition of grants over the grant period.
The fiscal year 2004 amount represents the last recognition of a grant issued in
1999, and fiscal year 2005 reflects recognition of income from a new grant
covering the fiscal years 2004 through 2008. See Footnote 17 to Consolidated
Financial Statements.

The income tax rate (the percent of Provision for Income Taxes to the Income
Before Income Taxes) for the 2005 fiscal year was 21% compared to 22% for the
prior fiscal year. Income earned by the Company's Puerto Rico subsidiary, which
is exempt from Puerto Rico income tax is currently partially exempt from U. S.
income taxes. Fiscal year 2006 is the last year in which this subsidiary will
have an exemption from U. S. income taxes. See Footnote 11 to the Consolidated
Financial statements.



                                       -6-

<PAGE>



Comparing the Fiscal Year ended July 3, 2004 to the Fiscal Year ended June 28,
2003:
------------------------------------------------------------------------------

Comparative results for these two periods are as follows:


                             Fiscal Year     Fiscal Year
                           Ended July 3,   Ended June 28,                  % of
(Amounts in thousands)              2004             2003    Change      Change
--------------------------------------------------------------------------------
Revenues                       $  45,693        $  24,833  $ 20,860          84%
--------------------------------------------------------------------------------
Cost of Sales and
Services                          39,438           21,272    18,166          85%
--------------------------------------------------------------------------------
Unrecovered Contract
Preparation
Costs                               -                  70       (70)
--------------------------------------------------------------------------------
Gross Profit                       6,255            3,491     2,764          79%
--------------------------------------------------------------------------------
General and
Administrative Expenses            3,009            2,390       619          26%
--------------------------------------------------------------------------------
Grant Income                          80               80        -
--------------------------------------------------------------------------------
Operating Income                   3,326            1,181     2,145         181%
--------------------------------------------------------------------------------
Net Interest Expense                 196               21       175        -833%
--------------------------------------------------------------------------------
Income Taxes                         682              109       573        -525%
--------------------------------------------------------------------------------
Income Before Accounting
Change                             2,448            1,051     1,397         133%
--------------------------------------------------------------------------------
Accounting Change                   -                (228)      228
--------------------------------------------------------------------------------
Net Income                     $   2,448        $     823  $  1,625         197%
--------------------------------------------------------------------------------

The Company's primary customer is the Defense Supply Center Philadelphia (DSCP),
the Department of Defense agency with which the Company contracts for the
manufacture of boots used by U. S. Armed Forces personnel. Since late March
2003, DSCP exercised its surge option clause under contracts to manufacture the
Direct Molded Sole (DMS) boot. Invoked in response to the need for desert boots
used by U. S. Armed Forces personnel in Iraq, the surge option required Wellco
to significantly increase its rate of boot production.

In the 2004 fiscal year, the Company's increased shipments of DMS boots which
were under surge increased revenues approximately $13,800,000. In the 2004
fiscal year, the Company shipments of the new Army ICB boot increased revenues
approximately $6,000,000.

In order to meet the surge requirement, work shifts were added, new employees
were hired, overtime premiums were paid, and premium air freight costs were
incurred for shipping some raw materials and production machinery.

In March 2003, the Company was awarded a contract to supply the U. S. Army's new
ICB boot. About two years ago, the Army decided to replace its all-leather
combat boot, one of the three DMS boots manufactured by Wellco which represents
about half of Wellco's historical sales to DSCP, with the ICB boot. Wellco,
along with two other manufacturers, was awarded a contract to supply this boot.
During the 2004 fiscal year, the Company incurred significant costs (new

                                       -7-

<PAGE>



employee training costs,  materials for production trials,  boot testing,  plant
infrastructure  costs,  etc.) to integrate the  production of this new boot into
the Company's factories.

Although revenues increased significantly because of surge and the new ICB
contract, the excess costs associated with this activity resulted in Cost of
Sales increasing at approximately the same rate as the increase in revenues.

Revenues from technical assistance fees and equipment rentals from licensees,
which vary with licensee sales, were greater in the fiscal year because of
increased sales of certain licensees, primarily licensees that were also under
surge.

Increased salaries and bonus expense caused the majority of the increase in
General and Administrative Expenses. Two persons have been hired to replace two
near-term retirements. Several administrative clerks have been added to do the
work caused by the increased activity level. One in-house sales person has been
added because of increases in commercial sales of military boots. Employee
bonuses substantially vary directly with net income. Travel costs have also
increased as management personnel traveled more frequently to the Company's
primary manufacturing facility in Puerto Rico.

The increase in interest expense was caused by increased use of the Company's
bank line of credit, which was the primary source of cash needed for surge and
the new ICB contract. See the "Liquidity and Capital Resources" section below.

Grant income represents the straight line recognition of a grant issued by the
government of Puerto Rico related to the Company's 1999 consolidation of
manufacturing operations in Puerto Rico. This income was completely recognized
in the fourth quarter of fiscal year 2004.

Prior fiscal year net income was reduced by the write-off of $228,000 of
previously recorded goodwill that was determined to be impaired under Statement
of Financial Accounting Standards No. 142 which became effective in the fiscal
year 2003.

The income tax rate (the percent of Provision for Income Taxes to the Income
Before Income Taxes) for the 2004 fiscal year was 22% compared to 9% for the
prior fiscal year. The income tax rate increase is primarily due to an increase
in the proportion of total Income Before Income Taxes which is subject to full
federal tax. As shown in Footnote 11 to the Consolidated Financial Statements,
income earned by the Company's Puerto Rico subsidiary, which is exempt from
Puerto Rico income tax, and which is partially exempt from U. S. income taxes,
was a smaller percent of total Income Before Income Taxes. The income tax rate
was reduced by 9% from the realization of previously recorded deferred tax
assets whose value had been reduced by a valuation allowance.


Forward Looking Information:
---------------------------

Below is a summary of the Company's current boot contracts with the Defense
Department. The Company's Defense Department boot contracts are indefinite
quantity contracts. This means that each contract specifies a minimum number of
pairs that must be ordered from a contractor and a maximum number of pairs that
may be ordered.

         On September 23, 2005, the Defense Department exercised the second and
         final option year under the Company's Hot Weather boot contract. For
         the first option year, the minimum pairs were 41,000 and the maximum

                                       -8-

<PAGE>



         was 323,000. A total of 163,000 pairs were actually ordered in the
         first option year. For the second option year, the minimum pairs is
         41,000 and the maximum is 256,000. Pairs ordered to date under the
         second option year are 41,000. The second option year is for the period
         October 2005 through September 2006. The Company expects the Defense
         Department to issue a new solicitation for contracts to supply the Hot
         Weather boot starting in October 2006. The Company cannot confidently
         predict its success in receiving a contract award.

         On July 8, 2005, the Defense Department exercised the second option
         year under the Company's Temperate Weather boot contract. For the first
         option year, the minimum pairs were 51,000 and the maximum was 227,000.
         A total of 176,000 pairs were actually ordered in the first option
         year. For the second option year, the minimum pairs are 13,000 and the
         maximum are 227,000. Pairs ordered to date under the second option year
         are 116,000. This contract has two more option years outstanding. The
         exercise of any contract option is the unilateral decision of the
         Defense Department.

The Hot Weather boot contract was awarded to four contractors. Each contractor
was awarded a percent allocation of all Hot Weather boots to be ordered. One
contractor got 35%, Wellco got 30%, one contractor got 20% and the fourth
contractor got 15%.

This Hot Weather boot contract also provides that, after the exercise of each
option, contractor allocation must be the same as that originally awarded for
the minimum number of pairs ordered in that option year. The contract further
provides that, during each option year and after the minimum pairs have been
ordered at the awarded allocation percent, the Defense Department can, based on
the contractor's option price and performance during the prior contract year,
change a contractor's allocation percentage.

In September 2005, Wellco was informed that its allocation percentage for the
first option year, which started in October 2004 and ends September 30, 2005,
had decreased from 30% to 15%. Wellco asked but was not told the specific
factor(s) that resulted in this decrease. Wellco believes that the reduction in
its allocation percentage was due to its not supplying all pairs under surge
delivery orders by the specified delivery date.

When Wellco submitted its solicitation response that resulted in this contract,
the price offered for the 15% allocation was higher than the 30% allocation.
Shipments during the first option have been invoiced and revenues recognized
using the lower 30% allocation price. Wellco believes that its invoice price for
pairs above the minimum should be adjusted to the higher 15% allocation price.
Wellco understands that the Defense Department's interpretation of the contract
is that pairs shipped at the lower percentage are to be invoiced at the lower
30% price. Wellco is consulting its legal counsel about this issue.

The majority of the Company's boots manufacturing operations occur at the
factory of a wholly owned subsidiary located in Puerto Rico. The Company is
participating in a Puerto Rican government program under which it is reimbursed
for part of the compensation paid to certain employees in training. As of July
2, 2005, $852,000 has been filed for, but has not been received or recorded as
revenues, reimbursement under this program. The government of Puerto Rico
recently suspended new contracts for this program. The Company understands that
this suspension will not affect its collection of the $852,000. In the past two
fiscal years, the Company has received and recorded as revenues a total of
$1,700,000 under this program.

In September  2005 the Company  submitted a response to a  solicitation  for the
research and  development of a Modular Boot System (MBS) for the U. S. military.
Presently, the Department of Defense buys four different boot styles to meet the
varied climatic conditions encountered by military personnel. This solicitation

                                       -9-

<PAGE>



calls for bidders to submit  concepts and models of a MBS that would result in a
functional  boot system that would  provide  comfort in a  temperature  range of
-60(0)F to 120(0)F.  If  successful,  the MBS would replace many, if not all, of
the current boot styles.

After review of solicitations, the Defense Department will make up to two
contract awards, or, the Defense Department may determine not to award any
contracts. The Company cannot confidently predict if it will receive a contract
from this solicitation.

The Company has submitted solicitation responses to supply machinery and
assistance for the upgrade of boot manufacturing machinery to factories in three
foreign countries. Two of the three solicitations are judged to be significant.
The Company cannot confidently predict if it will receive a contract from any of
these solicitations.

Income earned by the Company's Puerto Rico subsidiary has for many years been
fully exempt from U. S. income taxes and is currently partially exempt. Fiscal
year 2006 is the last year in which this subsidiary will have any exemption from
U. S. income taxes. See Footnote 11 to the Consolidated Financial statements.

In early August 2005, a sole-source supplier of a major component of our DOD
boots had a significant quality problem. Fortunately, the many quality checks we
perform found this problem before any bad components got into finished boots.
The supplier worked very diligently to identify and fix the problem.
Unfortunately, this problem required that we do additional and time-consuming
quality checks. While the supplier has agreed to reimburse our additional costs,
this problem will result in a delay in our shipments to the DOD in the fiscal
quarter ending October 1, 2005.

The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 will first
apply to the Company's 2008 fiscal year. Section 404 requires the Company to
document, test, and issue an opinion as to the adequacy of their internal
controls over financial reporting. In addition, Section 404 requires the
Company's Independent Accountants to review the Company's internal control
documentation and testing results, and to issue its opinion as to the
correctness of the Company's opinion as to the adequacy of their internal
controls over financial reporting. The Company has received quotations from
outside firms specializing in the review, documentation and testing of internal
controls. Based on these quotations and on reported information about the costs
other companies are incurring, the Company estimates that the cost of the
internal control review and audit will be between $200,000 and $500,000. The
Company cannot reasonably predict whether material weaknesses will be found in
its internal controls over financial reporting.

The  business  of  providing  boots  to the U.  S.  Defense  Department  is very
competitive.  With  more  than 98% of U. S.  footwear  sales  being  of  foreign
manufacture,  the  Company  believes  that  many U. S.  boot  manufacturers  are
attempting to utilize excess U. S. manufacturing  capacity by supplying boots to
the U. S. military under contracts with the Defense Department.


A 1% increase in the assumed discount rate used to compute the Company's pension
benefit obligation would decrease the obligation at June 30, 2005 by
approximately $658,000. Conversely, a 1% decrease in the assumed discount rate
would increase the benefit obligation at June 30, 2005 by approximately
$805,000.

A 1% increase in the assumed discount rate used to compute the Company's retiree
health benefit obligation would decrease the benefit obligation at July 2, 2005
by approximately $31,000. Conversely, a 1% decrease in the assumed discount rate
would increase the benefit obligation at July 2, 2005 by approximately $36,000.

                                      -10-

<PAGE>



                         LIQUIDITY AND CAPITAL RESOURCES

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


                                              (in thousands)
--------------------------------------------------------------------
                                    2005         2004           2003
--------------------------------------------------------------------
Cash and Cash Equivalents            $34          $58           $133
--------------------------------------------------------------------
Unused Bank Line of Credit         5,780        3,220            910
--------------------------------------------------------------------
Total                             $5,814       $3,278         $1,043
--------------------------------------------------------------------


The following table summarizes the cash flow activities for the last three
years:

                                                         (in thousands)

Cash provided by (used in):                   2005           2004          2003
--------------------------------------------------------------------------------
Operating activities                        $3,976       $(1,384)          $906
--------------------------------------------------------------------------------
Investing activities                        (1,497)        (2,066)       (1,183)
--------------------------------------------------------------------------------
Financing activities                        (2,503)          3,375           140
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents     $(24)          $(75)        $(137)
--------------------------------------------------------------------------------


Operating Activities: In the 2005 fiscal year, cash provided by operations was
$3,976,000. Net income of $1,907,000, depreciation of $1,277,000 and a
$2,865,000 decrease in accounts receivable were the main operating sources of
cash. The main uses of operating cash were a decrease of $747,000 in accounts
payable, a decrease of $676,000 in accrued income taxes, a decrease of $266,000
in accrued compensation and an increase of $594,000 in inventory.

Investing Activities: For the 2005 fiscal year, purchases of machinery and other
equipment was $1,497,000.

Financing Activities: For the 2005 fiscal year, the Company's net cash used in
financing activity totaled $2,503,000. Cash of $317,000 was provided from the
exercise of stock options. The use of financing activities were $760,000 to pay
quarterly dividend payments to stockholders and $2,060,000 was used to repay the
line of credit borrowings.

In 2004, cash used by operations was $1,384,000. Net income of $2,448,000 and
depreciation of $1,100,000 was far short of providing the cash needs for an
increase of $2,620,000 in accounts receivable and $4,062,000 in inventory. The
increase in accounts receivable and inventory was primarily caused by surge and
the new ICB contract. $75,000 of cash from the beginning of the fiscal year,
along with $3,190,000 of borrowings from the line of credit and $730,000 from
stock option exercises, provided the cash for purchases of equipment of
$2,066,000and the payment of cash dividends of $545,000.

                                      -11-

<PAGE>




In 2003, cash provided by operations was $906,000. Net income of $823,000 and
depreciation of $995,000 and a $1,832,000 increase in accounts payable were the
main sources. The main use of cash for operations was a $2,076,000 increase in
accounts receivable and a $761,000 increase in inventory. Cash from operations
and $137,000 of cash from the beginning of the fiscal year, along with $590,000
of borrowings from the line of credit, provided the cash for purchases of
equipment and the payment of cash dividends.

The following table shows aggregated information about contractual obligations
as of July 2, 2005:

                                   Payments Due by Period

                              Less Than 1
                      Total          Year  1-3 Years  4-5 Years   After 5 Years
-------------------------------------------------------------------------------
Long-Term
Debt               $300,000           -          -           -         $300,000
-------------------------------------------------------------------------------
Building Lease      843,000      $200,000   $421,000    $222,000            -
--------------------------------------------------------------------------------
Total            $1,143,000      $200,000   $421,000    $222,000       $300,000
--------------------------------------------------------------------------------


During fiscal year 2005, the Company had the following material cash payments
for interest of $247,000, pension plans contributions of $284,000 and income
taxes paid of $966,000. For fiscal year 2006, the Company expects future cash
requirements for these disclosed items to approximate the historical amounts
paid during the previous year.

The Company has a commitment to purchase certain equipment of $200,000 during
the first half of fiscal year 2006. Other than this, Wellco 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.

The bank line of credit of $7,500,000 will expire on December 31, 2005 and will
then be subject to renewal at the discretion of the bank. Historically, the bank
has always renewed the line of credit. Under conditions of substantial reduction
in operations, with little basis for projecting a reversal of such reduction, it
is possible that the bank would cancel or not renew the line of credit. Events
that would cause a substantial reduction in operations include, but are not
limited to, cancellation of existing government contracts or receiving
government contracts that do not provide enough revenues to provide adequate
liquidity.

At July 2, 2005, $5,780,000 of additional borrowings was available under the
bank line of credit and the Company was in compliance with the loan covenants on
that date.

Since the Company's first source of liquidity is cash from operations, a
decrease in sales of the Company's products would reduce this source of
liquidity and result in increased use of the bank line of credit. Based on
information available to date, the Company believes that operations will
continue to be a significant source of cash in fiscal year 2006.

The Promissory Note, Loan Agreement and Security Agreement documenting the bank
line of credit provide that:



                                      -12-

<PAGE>



       o          All amounts borrowed shall become due and immediately payable
                  upon demand of the bank.
       o          The bank's obligation to make advances under the note shall
                  terminate: if the bank makesva demand for payment; if a
                  default under any loan document occurs; or, in any event, on
                  December 31, 2005, unless the Note is extended by the bank
                  under terms satisfactory to the bank.
       o          All amounts borrowed shall become immediately payable if
                  Wellco commences or has commenced against it a bankruptcy or
                  insolvency proceeding, or in the event of default.

Events of default include:


       o          Having a current ratio less than that prescribed by the bank.
       o          Having tangible net worth less than that prescribed by the
                  bank.
       o          Any failure to meet requirements under the Note, Loan
                  Agreement or Security Agreement.


           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Statements throughout this report that are not historical facts are
forward-looking statements. These statements are based on current expectations
and beliefs, and involve numerous risks and uncertainties. Many factors could
affect the Company's actual results, causing results to differ materially from
those expressed in any such forward-looking information.

These factors include, but are 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 July 2, 2005. Those statements
include, but may not be limited to, all statements regarding intent, beliefs,
expectations, projections, forecasts, and plans of the Company and its
management. Actual results may differ materially from management expectations.
The Company assumes no obligation to update any forward-looking statements.




                                    -13-

<PAGE>



                            WELLCO ENTERPRISES, INC.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                           FOR THE FISCAL YEARS ENDED
                  JULY 2, 2005, JULY 3, 2004 AND JUNE 28, 2003
                     (in thousands except per share amounts)

                                                 JULY 2,     JULY 3,   JUNE 28,
                                                    2005        2004       2003
                                                 ------------------------------
REVENUES (Notes  5, 15 and 16) ..............   $ 50,467    $ 45,693   $ 24,833
                                                --------    --------   --------

COSTS AND EXPENSES
  Cost of sales and services ................     45,232      39,438     21,272
  Unrecovered contract preparation
  costs (Note 18) ...........................       --          --           70
  General and administrative expenses .......      2,717       3,009      2,390
                                                --------    --------   --------
  Total .....................................     47,949      42,447     23,732
                                                --------    --------   --------

GRANT INCOME (Note 17) ......................        135          80         80
                                                --------    --------   --------

OPERATING INCOME ............................      2,653       3,326      1,181

NET INTEREST EXPENSE ........................        253         196         21
                                                --------    --------   --------

INCOME BEFORE INCOME TAXES ..................      2,400       3,130      1,160

PROVISION FOR INCOME TAXES (Note 11) ........        493         682        109
                                                --------    --------   --------

INCOME BEFORE CUMULATIVE EFFECT
   OF CHANGE IN ACCOUNTING PRINCIPLE ........      1,907       2,448      1,051

CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE (Notes 2 and 21) ....       --          --          228
                                                --------    --------   --------

NET INCOME ..................................      1,907       2,448        823

OTHER COMPREHENSIVE INCOME (LOSS) (Note 9):
  Decrease (increase) in additional minimum
  pension liability .........................       (157)        324       (924)
                                                --------    --------   --------

COMPREHENSIVE INCOME (LOSS) .................   $  1,750    $  2,772   $   (101)
                                                ========    ========   ========

EARNINGS PER SHARE (Note 14):
  Basic, before cumulative effect ...........   $   1.51    $   2.04   $   0.89
  Cumulative effect .........................       --          --        (0.19)
                                                --------    --------   --------
  Basic, after cumulative effect ............   $   1.51    $   2.04   $   0.70
                                                ========    ========   ========

  Diluted, before cumulative effect .........   $   1.47    $   1.97   $   0.87
  Cumulative effect .........................       --          --        (0.19)
                                                --------    --------   --------
  Diluted, after cumulative effect ..........   $   1.47    $   1.97   $   0.68
                                                ========    ========   ========


DIVIDENDS DECLARED PER SHARE ................   $   0.60    $   0.45   $   0.40
                                                ========    ========   ========

See Notes to Consolidated Financial Statements.

                                      -14-

<PAGE>



                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                          JULY 2, 2005 AND JULY 3, 2004
                                 (in thousands)

                                     ASSETS


                                                             JULY 2,     JULY 3,
                                                                2005        2004
                                                             -------------------

CURRENT ASSETS:
      Cash and cash equivalents ....................       $    34       $    58
      Receivables, net (Notes 3 and 7) .............         3,205         6,070
      Inventories (Notes 4 and 7) ..................        11,657        11,063
      Deferred taxes  (Note 11) ....................           266           357
      Prepaid expenses .............................           304           244
                                                           -------       -------
      Total ........................................        15,466        17,792
                                                           -------       -------

MACHINERY LEASED TO LICENSEES, net
      (Notes 2 and 5) ..............................            11            17

PROPERTY, PLANT AND EQUIPMENT, net
      (Notes 6 and 7) ..............................         5,317         5,091

INTANGIBLE ASSETS:
      Intangible pension asset (Note 9) ............            10            19
                                                           -------       -------

TOTAL ..............................................       $20,804       $22,919
                                                           =======       =======




                            (continued on next page)

                                      -15-

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                          JULY 2, 2005 AND JULY 3, 2004
                        (in thousands except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                           JULY 2,       JULY 3,
                                                              2005          2004
                                                           ---------------------

CURRENT LIABILITIES:
      Short-term borrowing from bank (Note 7) ......     $  1,720      $  3,780
      Accounts payable .............................        2,912         3,659
      Accrued compensation .........................        1,016         1,282
      Accrued liabilities (Notes 8, 9 and 17) ......          285           309
      Accrued income taxes (Note 11) ...............          649         1,325
                                                         --------      --------
          Total ....................................        6,582        10,355
                                                         --------      --------

LONG-TERM LIABILITIES:
      Pension obligation (Note 9) ..................        1,485         1,337
      Notes payable (Note 12) ......................          231           222
      Other accrued liabilites (Note 10) ...........          425           387
      Deferred grant income (Note 17) ..............          124          --
      Deferred taxes  (Note 11) ....................          128            88
      Deferred revenues (Note 12) ..................           69            78

COMMITMENTS (Note 20)

STOCKHOLDERS' EQUITY (Notes 9, 12 and 13):
      Common stock, $1.00 par value; shares
          authorized - 2,000,000; shares
          issued and outstanding - 1,270,746
          and 1,245,046, respectively ..............        1,271         1,245
      Additional paid-in capital ...................        1,319         1,027
      Retained earnings ............................       10,646         9,499
      Accumulated other comprehensive loss .........       (1,476)       (1,319)
                                                         --------      --------
          Total ....................................       11,760        10,452
                                                         --------      --------

TOTAL ..............................................     $ 20,804      $ 22,919
                                                         ========      ========

See Notes to Consolidated Financial Statements.



                                      -16-
<PAGE>



                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                  JULY 2, 2005, JULY 3, 2004 AND JUNE 28, 2003
                                 (in thousands)

                                                  JULY 2,    JULY 3,   JUNE 28,
                                                     2005       2004       2003
                                                  -----------------------------

CASH FLOWS FROM OPERATING
ACTIVITIES:
      Net income ..............................   $ 1,907    $ 2,448    $   823
                                                  -------    -------    -------
      Adjustments to reconcile net income
      to net cash provided by (used in)
      operating activities:
          Cumulative effect of change
          in accounting principle .............      --         --          228
          Depreciation and amortization .......     1,277      1,100        995
          Deferred income taxes ...............       131         (4)        44
          Non-cash asset impairment ...........      --         --           70
          Grant monies received
          (Non-cash grant income) .............       189        (80)       (80)
          Non-cash interest expense ...........         9          9          8
          Non-cash reduction in deferred
          revenues ............................        (9)        (9)        (8)
          (Increase) decrease in-
              Receivables .....................     2,865     (2,620)    (2,076)
              Inventories .....................      (594)    (4,062)      (761)
              Other current assets ............       (60)        25         57
          Increase (decrease) in-
              Accounts payable ................      (747)       521      1,832
              Accrued compensation ............      (266)       564        (82)
              Other accrued liabilities .......       (50)       102         95
              Accrued income taxes ............      (676)       603        (47)
              Pension obligation ..............      --           19       (192)
                                                  -------    -------    -------
      Total adjustments .......................     2,069     (3,832)        83
                                                  -------    -------    -------
NET CASH PROVIDED BY (USED IN)
      OPERATING ACTIVITIES ....................     3,976     (1,384)       906
                                                  -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of equipment ..................    (1,497)    (2,066)    (1,183)
                                                  -------    -------    -------

NET CASH USED IN INVESTING ACTIVITIES .........    (1,497)    (2,066)    (1,183)
                                                  -------    -------    -------


                            (continued on next page)

                                      -17-

<PAGE>


                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                  JULY 2, 2005, JULY 3, 2004 AND JUNE 28, 2003
                                 (in thousands)

                                                  JULY 2,    JULY 3,   JUNE 28,
                                                     2005       2004       2003
                                                  -----------------------------


CASH FLOWS FROM FINANCING ACTIVITIES:
      Net advances (repayments) of
      line of credit borrowings ...............    (2,060)     3,190        590
      Cash dividends paid .....................      (760)      (545)      (474)
      Stock option exercise and tax benefit ...       317        730         24
                                                  -------    -------    -------
NET CASH PROVIDED BY (USED IN)
      FINANCING ACTIVITIES ....................    (2,503)     3,375        140
                                                  -------    -------    -------

NET DECREASE IN CASH AND
      CASH EQUIVALENTS ........................       (24)       (75)      (137)

CASH AND CASH EQUIVALENTS AT
      BEGINNING OF YEAR .......................        58        133        270
                                                  -------    -------    -------

CASH AND CASH EQUIVALENTS AT
      END OF YEAR .............................   $    34    $    58    $   133
                                                  =======    =======    =======


SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid (received) for-
          Interest ............................   $   247    $   191    $    22
          Income taxes paid (refunded) ........       966        (22)       113

NONCASH INVESTING AND FINANCING
FLOW IACTIVITY:N:
          Increase in leasehold improvements ..   $  --      $    38    $  --
                                                  =======    =======    =======


See Notes to Consolidated Financial Statements.




                                      -18-

<PAGE>




                            WELLCO ENTERPRISES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE FISCAL YEARS ENDED
                  JULY 2, 2005, JULY 3, 2004 AND JUNE 28, 2003
                        (in thousands except share data)


                                                JULY 2,     JULY 3,    JUNE 28,
                                                   2005        2004        2003
                                                --------------------------------
COMMON STOCK :
      Balance at beginning of year .........   $  1,245    $  1,186    $  1,183
      Stock option exercise (Note 13) ......         26          59           3
                                               --------    --------    --------
      Balance at  end of year ..............      1,271       1,245       1,186
                                               --------    --------    --------

ADDITIONAL PAID-IN CAPITAL:
      Balance at beginning of year .........      1,027         357         336
      Stock option exercise (Note 13) ......        233         566          21
      Tax benefit from stock
      option plans .........................         59         104        --
                                               --------    --------    --------
      Balance at  end of year ..............      1,319       1,027         357
                                               --------    --------    --------

RETAINED EARNINGS:
      Balance at beginning of year .........      9,499       7,596       7,247
      Net income ...........................      1,907       2,448         823
      Cash dividends (per share:
          2005 - $.60, 2004 - $.45,
          2003 - $.40) .....................       (760)       (545)       (474)
                                               --------    --------    --------
      Balance at end of year ...............     10,646       9,499       7,596
                                               --------    --------    --------

ACCUMULATED OTHER COMPREHENSIVE LOSS
      Additional minimum pension
      liability, net of tax (Note 9):
      Balance at beginning of year .........     (1,319)     (1,643)       (719)
      Change for the year ..................       (157)        324        (924)
                                               --------    --------    --------
      Balance at end of year ...............     (1,476)     (1,319)     (1,643)
                                               --------    --------    --------

TOTAL STOCKHOLDERS' EQUITY .................   $ 11,760    $ 10,452    $  7,496
                                               ========    ========    ========

See Notes to Consolidated Financial Statements.



                                      -19-

<PAGE>







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended July 2, 2005, July 3, 2004, and June 28, 2003

1. BUSINESS OPERATIONS:

         Substantially all of the Company's operating activity is from the sale
         of military and other rugged footwear, the sale of specialized
         machinery and materials for the manufacture of this type of footwear
         and the rendering of technical assistance and other services to
         licensees for the manufacture of this type of footwear. The majority of
         revenues ($44,249,000 in 2005, $39,648,000 in 2004, and $18,209,000 in
         2003) were from sales to the U. S. government, primarily the Defense
         Supply Center Philadelphia (DSCP), under contracts for the supply of
         boots used by the U. S. Armed Forces. The loss of this customer would
         have a material adverse effect on the Company.

         Bidding on U. S. government boot solicitations is open to any qualified
         U. S. manufacturer. Bidding on contracts is very competitive. U. S.
         footwear manufacturers have been adversely affected by sales of
         footwear made in low labor cost countries. This has significantly
         affected the competition for contracts to supply boots  to U. S. Armed
         Forces, which  by law must be made in the U. S.

         Most boot contracts are for multi-year periods. Therefore, a bidder not
         receiving an award from a significant solicitation could be adversely
         affected for several years. In addition, current boot contracts contain
         options for additional pairs that are exercisable at the government's
         discretion. The Company cannot predict with certainty its success in
         receiving a contract from any of the above solicitations.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

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

         Receivables
                  Accounts receivable from the sale of products or services are
                  recorded at net realizable value and the Company grants credit
                  to customers on an unsecured basis. The Company provides an
                  allowance for doubtful collections that is based upon a review
                  of outstanding receivables, historical collections
                  information, and existing economic conditions. Normal trade
                  receivables are due 30 days after the issuance of the invoice.
                  Receivables past due more than 120 days are considered
                  delinquent. Delinquent receivables are written off based on
                  individual credit evaluations and specific circumstances of
                  the customer.



                                      -20-

<PAGE>



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

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

         Fair Value of Financial Instruments
                  The carrying values of cash, receivables and accounts payable
                  at July 2, 2005 and July 3, 2004 approximate fair value. The
                  carrying value of the notes payable (see Note 12 to the
                  Consolidated Financial Statements) is equal to the present
                  value of estimated future cash flows using a discount rate
                  commensurate with the uncertainties involved and thus
                  approximates fair value.

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

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

         Research and Development Costs
                  All research and development costs are expensed as incurred
                  unless subject to reimbursement. The amount charged against
                  income was approximately $78,000 in 2005, $101,000 in 2004 and
                  $110,000 in 2003.

         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 was not being amortized.
                  This asset arose prior to 1970 and, in the opinion of
                  management, there was not any diminution in its value under
                  the guidance of APB Opinion No. 17. Effective for the
                  Company's 2003 fiscal year, Statement of Financial Accounting
                  Standards No. 142 (SFAS 142), Goodwill and Other Intangible
                  Assets, supersedes APB Opinion No. 17.

                  Statement of Financial Accounting Standards No. 142 (SFAS 142,
                  "Goodwill and Other Intangible Assets) was effective with the
                  Company's 2003 fiscal year. Under SFAS 142, this goodwill was
                  deemed impaired and was written off as a cumulative effect of
                  change in accounting principle at June 28, 2003, as explained
                  in Footnote 22.

                                      -21-

<PAGE>





         Revenue Recognition
                  Two of the Company's current boot contracts require a bill and
                  hold procedure. Under bill and hold, the government issues a
                  specific boot production order which, when completed and ready
                  for shipment, is inspected and accepted by the Quality
                  Assurance Representative (QAR), thereby transferring ownership
                  to the government. Under the bill and hold procedure, after
                  inspection and acceptance by the QAR, the boots become
                  "government-owned property". Also, after QAR inspection and
                  acceptance, Wellco invoices and receives payment from the
                  government, and warehouses and distributes the related boots
                  against government-issued requisition orders, which Wellco
                  receives five days per week. Government-owned boots stored in
                  Wellco's warehouse are complete, including packaging and
                  labeling. The bill and hold procedure requires physical
                  segregation and specific identification of government-owned
                  boots and, because they are owned by the government, Wellco
                  cannot use them to fill any other customers' orders. Wellco
                  has certain custodial responsibilities for these boots,
                  including loss or damage, which Wellco insures. The related
                  insurance policies specifically provide that loss payment on
                  finished stock and sold personal property completed and
                  awaiting delivery is based on Wellco's selling price. The bill
                  and hold procedure also provides that at the end of any
                  one-year term when an option is not exercised, the government
                  is to take final delivery of any and all of its remaining
                  inventory within six months. In accordance with guidance
                  issued under Securities and Exchange Commission Staff
                  Accounting Bulletin No. 101, Revenue Recognition in Financial
                  Statements, revenues from bill and hold transactions are
                  recognized at the time of acceptance by the QAR.

                  Certain shoe-making machinery is leased to licensees under
                  twenty-year cancelable operating leases. Lease payments are
                  variable based on the quantity of boots manufactured and sold
                  by the lessee to its customers and the contractual rental fee
                  per pair of boots. There are no base rental amounts or
                  contingent rentals contained in the agreements. Rental income
                  is recognized by the Company when the lessee manufactures and
                  sells boots to the customer and is based upon the quantity of
                  boots manufactured or shipped by the lessee times the fixed
                  rate per pair of boots contained in the lease agreements.

                  The Company earns service fees for providing customers with
                  technical assistance in the manufacture of boots. The related
                  agreements under which these services are provided are for a
                  fixed term and expire in calendar years 2005-2007. The Company
                  records service fee revenues at a fixed rate per pair of boots
                  times the quantity of boots manufactured and sold by the
                  customer.

                  Revenues from the sale of machinery and materials are recorded
                  at the time of shipment from our factory (FOB factory) or at
                  the time of receipt by the customer (FOB destination). Other
                  than a one-year warranty, the Company does not have any
                  continuing responsibility related to machines sold. Warranty
                  costs are diminimus.

         Shipping and Handling Costs
                  Shipping and handling costs are charged to Cost of Sales and
                  Services in the period incurred. Any amounts paid by customers
                  for shipping and handling are included in Revenues.


                                      -22-

<PAGE>



         Cost of Sales and Services
                  Cost of sales and services includes raw materials and
                  freight-in on raw materials, direct and indirect manufacturing
                  labor, employee fringe benefits on manufacturing labor,
                  manufacturing supplies, purchasing and receiving costs,
                  material inspection costs, warehousing costs, internal
                  transfer costs, product distribution costs including shipping
                  and handling, repairs and maintenance, supervisors salaries,
                  depreciation on manufacturing equipment, and other
                  manufacturing overhead costs.

         General and Administrative Expenses
                  General and Administrative Expenses include administrative
                  personnel compensation costs, legal and audit costs,
                  depreciation on administrative equipment, stock expense and
                  director fees, travel costs, office supplies, and other such
                  costs not directly related to the manufacture of the Company's
                  products. Since the majority of its products are sold to the
                  U. S. government, the Company does not incur significant
                  selling costs, such as sales commissions and advertising.

         Impairment of Long-Lived Assets
                  The Company reviews its long-lived assets, including
                  intangible assets, for impairment whenever events or
                  circumstances indicate that the carrying amount of an asset
                  may not be recoverable. If the sum of the expected cash flows,
                  undiscounted and without interest, is less than the carrying
                  amount of the asset, an impairment loss is recognized as the
                  amount by which the carrying amount of the asset exceeds its
                  fair value. The Consolidated Statement of Operations and
                  Comprehensive Income for the fiscal years 2003 include a
                  write-down of $70,000 related to equipment purchased during
                  contract preparation for the manufacture of berets.

         Self-Funded Group Health Insurance
                  The cost of employee group health insurance is recorded in the
                  period in which the health care costs are incurred including
                  an estimate of the incurred but not reported claims. Third
                  party administrator fees are recorded in the month to which
                  they apply. The cost of stop loss insurance is recorded in the
                  month to which it applies. The liability for incurred but not
                  reported insurance claims is accrued and included in the
                  Accounts Payable caption in the Consolidated Balance Sheets.

         Fiscal Year
                  The Company's fiscal year ends on the Saturday closest to June
                  30. Consequently, the 2005 and 2003 fiscal years contained 52
                  weeks each of operating results while the 2004 fiscal year
                  contained 53 weeks.

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

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

         Stock-Based Compensation Plans
                  The Company accounts for its stock-based compensation plans
                  using the compensation recognition provisions of Accounting

                                      -23-

<PAGE>



                  Principles Board Opinion 25 (APB 25), "Accounting for Stock
                  Issued to Employees". The Company also provides the
                  disclosures required by Statement of Financial Accounting
                  Standards No. 148 (SFAS 148), "Accounting for Stock-Based
                  Compensation- Transition and Disclosure." Compensation expense
                  under the APB 25 method is recognized when there is a
                  difference between the exercise price for stock options and
                  the stock's market price on the measurement date, which for
                  the Company, is normally the date of award.

3. RECEIVABLES:

         The majority of receivables at July 2, 2005 and July 3, 2004 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 2005, 2004 and 2003 are not significant.

4. INVENTORIES:

         The components of inventories are:
                                                       (in thousands)

                                                     2005            2004
-------------------------------------------------------------------------
Finished Goods                                   $  4,853        $  2,228
-------------------------------------------------------------------------
Work in Process                                     2,880           2,771
-------------------------------------------------------------------------
Raw Materials and Supplies                          3,924           6,064
-------------------------------------------------------------------------
Total                                            $ 11,657        $ 11,063
-------------------------------------------------------------------------

5. MACHINERY LEASED TO LICENSEES:

         Accumulated depreciation netted against the cost of leased assets in
         the Consolidated Balance Sheets at July 2, 2005 and July 3, 2004 is
         $1,549,000 and $1,543,000, respectively. Rental revenues for the fiscal
         years 2005, 2004, and 2003 were $291,000, $279,000 and $178,000,
         respectively, and vary with lessees' production or shipments.

6. PROPERTY, PLANT AND EQUIPMENT:

         The components of property, plant and equipment are summarized as
         follows:
                                (in thousands)

                               2005          2004         Estimated Useful Life
-------------------------------------------------------------------------------
Land                       $    107     $     107                     N/A
-------------------------------------------------------------------------------
Buildings                     1,439         1,439                 40-45 Years
-------------------------------------------------------------------------------
Machinery & Equipment        10,846         9,553                  2-20 Years
-------------------------------------------------------------------------------
Furniture & Fixtures          1,059           985                  2-10 years
-------------------------------------------------------------------------------


                                      -24-

<PAGE>



                               2005          2004         Estimated Useful Life
-------------------------------------------------------------------------------
Leasehold Improvements          809           809                             *
-------------------------------------------------------------------------------
Total Cost                 $ 14,260     $  12,893
-------------------------------------------------------------------------------
Total Accumulated
Depreciation and
Amortization               $  8,943     $   7,802
-------------------------------------------------------------------------------
*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.

7. LINES OF CREDIT:

         On October 21, 2004, the Company increased its line of credit from
         $5,000,000 to $7,500,000 . On December 9, 2004, the Company increased
         its line of credit to $10,000,000 through February 28, 2005 and then
         the line was reduced to $9,000,000 through April 30, 2005. The
         Company's line of credit was renewed on May 2, 2005 and the line was
         reduced back to $7,500,000. The Company's line of credit expires on
         December 31, 2005 and can be renewed annually at the bank's discretion.
         At July 3, 2005, borrowings on this line of credit were $1,720,000 with
         $5,780,000 available in additional borrowings.

         Interest is at the London Interbank Offered Rate (LIBOR) plus 2.25
         points or 5.59% at July 2, 2005. The bank credit agreement contains,
         among other provisions, defined levels of net worth and current ratio
         requirements. The Company was in compliance with the loan covenants at
         July 2, 2005. The covenants are subject to review at the end of each
         fiscal quarter. This line of credit is secured by a blanket lien on all
         machinery and equipment, receivables and inventory.

         Historically, the bank has always renewed the line of credit. Under
         conditions of substantial reduction in operations, with little basis
         for projecting a reversal of such reduction, it is possible that the
         bank would cancel the line of credit or not renew it when it expires.
         Events that would cause a substantial reduction in operations include:
         cancellation of existing government contracts that are being solicited;
         not receiving future government contracts; and, receiving government
         contracts that do not provide enough revenues to provide adequate
         liquidity.

8. ACCRUED LIABILITIES:

         The components of accrued liabilities are:
                                              (in thousands)

                                        2005           2004
-----------------------------------------------------------
Interest Expense (Note 12)            $    2         $    2
-----------------------------------------------------------
Accrued Lease Payments (Note 20)          56             93
-----------------------------------------------------------
Deferred Grant Revenues (Note 17)         65              -
-----------------------------------------------------------
Other                                    162            214
-----------------------------------------------------------
Total                                 $  285         $  309
-----------------------------------------------------------


                                      -25-

<PAGE>



9. PENSION PLANS:

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

                                                      (In thousands)

                                               2005        2004       2003
--------------------------------------------------------------------------
Benefits Earned for Service in the
Current Year                                 $  146     $   129    $   132
--------------------------------------------------------------------------
Interest on the Projected Benefit
Obligation                                      348         355        365
--------------------------------------------------------------------------
Expected Return on Plan Assets                 (312)       (297)      (286)
--------------------------------------------------------------------------
Amortization of: Unrecognized Net
Pension Obligation at July 1, 1987;
Cost of Benefit Changes Since That
Date; and Gains and Losses                       61         116         80
--------------------------------------------------------------------------
Against Actuarial  Assumptions
Pension Expense                              $  243     $   303    $   291
--------------------------------------------------------------------------

         Below are various  analyses  and other  information  relating  to the
         Company's pension  liability,  assets  and  expense  as of July 2005
         and July  2004,  (all amounts are in thousands except for those
         indicated as percent):

Change in Benefit Obligation:                       2005          2004
----------------------------------------------------------------------
Benefit Obligation at Beginning of Year        $   5,817     $   6,158
----------------------------------------------------------------------
Current Year Service Cost                            146           129
----------------------------------------------------------------------
Interest Cost on Projected Liability                 348           355
----------------------------------------------------------------------
Benefit Payments                                    (529)         (533)
----------------------------------------------------------------------
Actuarial (Gain)Loss                                 813          (292)
----------------------------------------------------------------------
Benefit Obligation at End of Year              $   6,595     $   5,817


Change in Plan Assets:                              2005          2004
----------------------------------------------------------------------
Fair Value of Plan Assets at Beginning
of Year                                        $   4,704     $   4,374
----------------------------------------------------------------------
Company Contributions                                284           283
----------------------------------------------------------------------
Actual Return on Plan Assets                         383           580
----------------------------------------------------------------------


                                      -26-

<PAGE>



Change in Plan Assets:                              2005          2004
----------------------------------------------------------------------
Benefit Payments                                    (529)         (533)
----------------------------------------------------------------------
Fair Value of Plan Assets at End of Year       $   4,842     $   4,704
----------------------------------------------------------------------


Reconciliation of Funded Status:                    2005          2004
----------------------------------------------------------------------
Funded Status                                  $  (1,752)    $  (1,113)
----------------------------------------------------------------------
Unrecognized Actuarial Loss                        2,008         1,319
----------------------------------------------------------------------
Unrecognized Prior Service Cost                       10            19
----------------------------------------------------------------------
Net Amount Recognized                          $     266     $     225
----------------------------------------------------------------------


Amounts Recognized in the Consolidated Balance
Sheets:                                             2005          2004
----------------------------------------------------------------------
Intangible Pension Asset                       $      10     $      19
----------------------------------------------------------------------
Accumulated Other Comprehensive Loss               1,476         1,319
----------------------------------------------------------------------

Accrued Pension Liability:
----------------------------------------------------------------------
   Prepaid Benefit Cost                              521           478
----------------------------------------------------------------------
   Accrued Benefit Cost                             (256)         (254)
----------------------------------------------------------------------
   Additional Minimum Pension Liability           (1,485)       (1,337)
----------------------------------------------------------------------
Net Amount Recognized in Financial
Statements                                     $     266     $     225
----------------------------------------------------------------------


Accumulated Benefit Obligation in Excess of Plan
Assets:                                             2005          2004
----------------------------------------------------------------------
Projected Benefit Obligation                   $   6,595    $    5,817
----------------------------------------------------------------------
Accumulated Benefit Obligation                     6,062         5,460
----------------------------------------------------------------------
Fair Value of Plan Assets                      $   4,842    $    4,704
----------------------------------------------------------------------


                                                    2005          2004
----------------------------------------------------------------------
Increase (Decrease) in Minimum Liability
Included in Other Comprehensive Income         $     157    $     (324)
----------------------------------------------------------------------


                                      -27-

<PAGE>




Weighted-average assumptions used to determine
benefit obligations:                                2005          2004
----------------------------------------------------------------------
Assumed Discount Rate                              5.00%         6.25%
----------------------------------------------------------------------
Rate of Compensation Increase, For the
Pay Related Benefit Plan                           5.50%         5.50%
----------------------------------------------------------------------


Weighted-average assumptions used to determine
net periodic benefit cost:                          2005          2004
----------------------------------------------------------------------
Assumed Discount Rate                              6.25%         6.00%
----------------------------------------------------------------------
Expected Long-Term Rate of Return on Plan Assets   6.75%         6.75%
----------------------------------------------------------------------
Rate of Compensation Increase, For the Pay
Related Benefit Plan                               5.50%         5.50%
----------------------------------------------------------------------

PLAN ASSETS:

Pension plan's weighted-average asset
allocations by asset category:                      2005          2004
----------------------------------------------------------------------
Equity Securities                                    45%           46%
----------------------------------------------------------------------
Debt Securities                                       5%            5%
----------------------------------------------------------------------
Real Estate                                           0%            0%
----------------------------------------------------------------------
Other                                                50%           49%
----------------------------------------------------------------------
Total                                               100%          100%
----------------------------------------------------------------------

         This allocation and investment funds was selected as one that limits
         risk while providing higher returns on plan assets then guaranteed rate
         funds, while still providing adequate liquidity to meet payments to
         retirees.

         In  developing  the assumed  weighted-average  long-term  rate of
         return on plan assets,  the Company used  information  from its third
         party pension plan assets manager, including their review of asset
         class return expectations and long-term inflation  assumptions.  Also
         considered in setting this rate is the historical return on plan
         assets.

CASH FLOWS:

         Contributions

         Contributions to the pension plan for fiscal year 2006 are expected to
         be $367,000.



                                      -28-

<PAGE>




Estimated Future Benefit Payments (In thousands)          Amount
----------------------------------------------------------------
2006                                                    $    463
----------------------------------------------------------------
2007                                                         453
----------------------------------------------------------------
2008                                                         449
----------------------------------------------------------------
2009                                                         449
----------------------------------------------------------------
2010                                                         438
----------------------------------------------------------------
2011-2015                                                  2,296
----------------------------------------------------------------

         At July 2005, one of the pension plans has a benefit obligation
         ($2,696,000) that is greater than its plan assets ($2,180,000)
         resulting in the additional liability of $1,037,000 and at June 2004,
         the plan had a benefit obligation ($2,520,000) that was greater than
         its plan assets ($2,109,000) resulting in the additional liability of
         $890,000. At July 2005, the other pension plan has a benefit obligation
         ($3,367,000) that is greater than its plan assets ($2,663,000)
         resulting in the additional liability of $448,000 and at June 2004,
         this plan had a benefit obligation ($3,297,000) that is greater than
         its plan assets ($2,595,000) resulting in the additional liability of
         $447,000.

          A 1% increase in the assumed discount rate would decrease the benefit
         obligation at July 2005 by $658,000. Conversely, a 1% decrease in the
         assumed discount rate would increase the benefit obligation at July
         2005 by $805,000.

         The Consolidated Statements of Operations and Comprehensive Income
         shows the amount included in Other Comprehensive Income (Loss) that
         resulted from recording the additional minimum pension liability which
         represents the portion of the pension liability that has not yet been
         charged against operations. A valuation allowance is recorded for the
         deferred tax asset ($502,000) that arises from the cumulative Other
         Comprehensive Income (Loss).

         In addition, the Company provides retirement benefits to certain
         employees through deferred compensation contracts and the unfunded
         liability associated with these contracts was $71,000 at July 2, 2005
         and $92,000 at July 3, 2004.  Benefit measurements for the pension plan
         is June 30, 2005 and June 30, 2004.


10. RETIREE HEALTH BENEFITS:

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

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

                                      -29-

<PAGE>



         The cost of retiree health benefits included in the accompanying
         Statements of Operations and Comprehensive Income was:
                                                     (in thousands)

                                                  2005     2004     2003
         ---------------------------------------------------------------
         Benefits Earned for Current Service      $ 35     $ 36     $ 28
         ---------------------------------------------------------------
         Interest Cost on Accumulated Liability     19       24       22
         ---------------------------------------------------------------
         Amortization of the July 4, 1993
         Liability                                   4        4        4
         ---------------------------------------------------------------
         Total Cost                               $ 58     $ 64     $ 54
         ---------------------------------------------------------------

         An analysis of the total liability for the last two fiscal years,
         including a reconciliation of the liability in the Consolidated Balance
         Sheets (see Note 8) at July 2, 2005 and July 3, 2004 is as follows:

                                                     (in thousands)

                                                           2005     2004
------------------------------------------------------------------------
Total Obligation at Beginning of Year                    $  295  $   414
------------------------------------------------------------------------
Liability for Current Service                                35       36
------------------------------------------------------------------------
Interest on Liability                                        19       24
------------------------------------------------------------------------
Benefit Payments                                             -        -
------------------------------------------------------------------------
Actuarial (Gain) Loss                                        34      (82)
------------------------------------------------------------------------
Total Obligation at End of Year                             383      392
------------------------------------------------------------------------
Less Unamortized Liability at July 4, 1993                  (37)     (42)
------------------------------------------------------------------------
Unrecognized Loss                                             8      (55)
------------------------------------------------------------------------
Liability Recognized in the Consolidated Balance Sheets  $  354  $   295
------------------------------------------------------------------------

         The assumed health care cost trend rate used to project expected future
         cost was 12% in 2005 and 15% in 2004, gradually decreasing to 6% by
         2010 and remaining at 6% thereafter. The assumed discount rate used to
         determine the accumulated liability was 5.00% for 2005 and 6.25% for
         2004.

         A 1% increase in the assumed health care cost trend rate would
         increase the benefit obligation at July 2, 2005 by $12,000. Conversely,
         a 1% decrease in the assumed health care cost trend rate would decrease
         the benefit obligation at July 2, 2005 by $11,000.

         A 1% increase in the assumed discount rate would decrease the benefit
         obligation at July 2, 2005 by $31,000. Conversely, a 1% decrease in the
         assumed discount rate would increase the benefit obligation at July 2,
         2005 by $36,000. Benefit measurements for the plan is June 30, 2005 and
         June 30, 2004.


                                      -30-

<PAGE>



11. 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 consists of the
         following:
                                                    (In thousands)

                                                 2005       2004         2003
-----------------------------------------------------------------------------
Federal Provision:
-----------------------------------------------------------------------------
    Currently Payable                         $   354     $  666        $  50
-----------------------------------------------------------------------------
    Deferred                                      131         (4)          44
-----------------------------------------------------------------------------
    Total Federal                                 485        662           94
-----------------------------------------------------------------------------
State Provision Currently Payable                   8         20           15
-----------------------------------------------------------------------------
Total Provision                               $   493     $  682        $ 109
-----------------------------------------------------------------------------

         A reconciliation of the effective income tax rate for the 2005, 2004
         and 2003 fiscal years is as follows:

                                                 2005       2004         2003
-----------------------------------------------------------------------------
Statutory Federal Income Tax Rate                  34%        34%          34%
-----------------------------------------------------------------------------
Current Period Income of Puerto Rico
Subsidiary Substantially Exempt From Puerto
Rican and Federal Income Taxes                    (13)%       (5)%        (28)%
------------------------------------------------------------------------------
Deferred Tax Valuation Allowance (Reversal of
Previously Recorded Valuation Allowance)           (2)%       (9)%         -
------------------------------------------------------------------------------
State Taxes, Net of Federal Tax Benefit             -          1%           1%
------------------------------------------------------------------------------
Other                                               1%         1%           2%
------------------------------------------------------------------------------
Effective Income Tax Rate                          20%        22%           9%
------------------------------------------------------------------------------

         Income earned in Puerto Rico by the Company's Puerto Rican wholly-owned
         subsidiary was 90% exempt from Puerto Rican income tax through 2000.
         Effective July 1, 2000, the Company received a new multi-year tax
         exemption grant that provided for a flat income tax rate of 2% and
         eliminated the withholding tax (5%) on dividends paid. 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)
         terminated the federal tax credit on this income subject to a phase out
         for existing companies, for tax years beginning after December 31,
         1996. Under the phase out, the Company received a full credit through
         fiscal year 2002. For fiscal years 2003 through 2006, the credit is
         limited, and will be completely eliminated starting with the 2007
         fiscal year.

         The accumulated undistributed earnings ($2,848,000) through July 1,
         2000 of this subsidiary are subject to the 5% Puerto Rican withholding

                                      -31-

<PAGE>



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

         Significant components of the Company's deferred tax assets and
         liabilities as of the end of fiscal 2005 and 2004 are as follows:

                                                                (in thousands)

Deferred Tax Assets:                                          2005         2004
-------------------------------------------------------------------------------
Tax Effect of Pension Liability Charged Against Equity      $  502       $  448
-------------------------------------------------------------------------------
Employee Compensation Charged Against Financial
Statement Income, Not Yet Deducted From Taxable
Income                                                         286          383
-------------------------------------------------------------------------------
Additional Costs Inventoried for Tax Purposes                   98           91
-------------------------------------------------------------------------------
State NOL Carryforward                                          49          165
-------------------------------------------------------------------------------
Alternative Minimum Tax Credit                                 102          277
-------------------------------------------------------------------------------
Other                                                          391          229
-------------------------------------------------------------------------------
Deferred Tax Assets Before Valuation Allowance               1,428        1,593
-------------------------------------------------------------------------------
Valuation Allowance                                         (1,162)      (1,236)
-------------------------------------------------------------------------------
Total Deferred Tax Assets                                      266          357
-------------------------------------------------------------------------------
Deferred Tax Liabilities:
Depreciation and Prepaid Pension Costs Deducted From
Taxable Income Not Yet Charged Against Financial
Statement Income                                               128           88
-------------------------------------------------------------------------------
Net Deferred Tax Assets (Liabilities)                       $  138       $  269
-------------------------------------------------------------------------------

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

         The Company has state operating loss carryforwards of approximately
         $708,000, which begin to expire in 2013, available to reduce future
         state taxable income.

12. NOTES PAYABLE:

         As part of an agreement with a customer for which the Company provides
         certain technology and equipment, in April, 2001 that customer loaned
         the Company $300,000. The loan agreement provides for quarterly
         interest payments at an annual rate of 3% with the $300,000 principal
         due in April 2011. Because this interest rate is less than the market
         rate, the Company recorded the note payable discounted at a market rate
         of 8% ($196,000), and is recording interest expense at this rate. The
         difference between interest at the 8% and 3% rates ($104,000) was
         recorded as deferred service income, which is being recognized over the
         10-year life of the loan agreement. The Company attributed the
         difference between the stated 3% rate and the market rate of 8% as part
         of its compensation for technology and equipment provided to the
         customer. The Consolidated Statements of Operations and Comprehensive

                                      -32-

<PAGE>



         Income for the fiscal years 2005, 2004 and 2003 include service fee
         income of $9,000, $9,000 and $8,000, respectively, and interest expense
         of $18,000, $17,000 and $17,000, respectively. The Consolidated Balance
         Sheets at July 2, 2005 and at July 3, 2004 includes $231,000 and
         $222,000, respectively, for this note, and $69,000 and $78,000,
         respectively, as deferred service income.

13. STOCK OPTIONS:

         On July 12, 2000, the Company and its Chairman of the Board executed an
         Agreement under which the Chairman was granted options to purchase up
         to 50,000 shares of the Company's common stock at an exercise price of
         $9.125 per share with such options vesting in 2005 or earlier if
         certain performance targets are met. As of July 2, 2005, 50,000 shares
         under the Agreement have vested. Expiration of such options shall be
         the earlier of the fifth anniversary of the date on which such options
         vest or one year after the Chairman's separation from employment under
         the Agreement (see Note 19 to the Consolidated Financial Statements).

         The 1999 Stock Option Plan for Key Employees (1999 Employee Plan) and
         the 1999 Stock Option Plan for Non-Employee Directors (1999 Director
         Plan) provide for granting options to purchase 90,000 shares and 21,000
         shares, respectively. As of July 2, 2005 options have been granted for
         65,000 shares under the 1999 Employee Plan and 11,000 shares under the
         1999 Director Plan. The plans permit the issuance of either incentive
         stock options or non-qualified stock options.

         The 1997 Stock Option Plan for Key Employees (1997 Employee Plan) and
         the 1997 Stock Option Plan for Non-Employee Directors (1997 Director
         Plan) provide for granting options to purchase 99,000 shares and 16,000
         shares, respectively. As of July 2, 2005 options have been granted for
         84,000 shares under the 1999 Employee Plan and 10,000 shares under the
         1999 Director Plan.

         The 1996 Stock Option Plan for Key Employees provides for granting
         options to purchase 60,000 shares. At July 2, 2005 options have been
         granted for 52,500 shares.

         Under all of the above Plans, option price is the market price on the
         date granted, and options have a life of 10 years from the date
         granted. As of July 2, 2005, all granted options are exercisable.

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


                                                                 Weighted-
                                                 No. of            Average
Option Shares:                                   Shares     Exercise Price
--------------------------------------------------------------------------
Outstanding at June 29, 2002                    213,500             $9.79
--------------------------------------------------------------------------
Exercised                                        (3,000)             8.00
--------------------------------------------------------------------------
Forfeited                                       (12,000)             9.67
--------------------------------------------------------------------------
Outstanding at June 28, 2003                    198,500              9.78
--------------------------------------------------------------------------
Exercised                                       (59,300)            10.55
--------------------------------------------------------------------------
Outstanding at July 3, 2004                     139,200              9.46
--------------------------------------------------------------------------
Exercised                                       (25,700)            10.01
--------------------------------------------------------------------------


                                      -33-

<PAGE>

                                                                Weighted-
                                                 No. of            Average
Option Shares:                                   Shares     Exercise Price
--------------------------------------------------------------------------
Forfeited                                        (2,000)            12.00
--------------------------------------------------------------------------
Outstanding at July 2, 2005                     111,500             $9.29
--------------------------------------------------------------------------

         The following table summarizes information about fixed stock options
         outstanding at July 2, 2005:

                                                               Weighted-Average
                                                                      Remaining
           Range of Exercise        Weighted Average           Contractual Life
Number                Prices          Exercise Price                   in Years
-------------------------------------------------------------------------------
15,000                 $5.00                   $5.00                       0.6
-------------------------------------------------------------------------------
32,000         $12.00-$17.50                  $12.34                       2.0
-------------------------------------------------------------------------------
20,500                 $8.00                   $8.00                       4.0
-------------------------------------------------------------------------------
44,000                 $9.13                   $9.13                       5.0
-------------------------------------------------------------------------------


         The following table summarizes information concerning options issued,
         options available for future issuance and approval of plans by security
         holders at July 2, 2005:

                           (A)              (B)                (C)
--------------------------------------------------------------------------------
                                                            Number of
                                                            Securities
                                                            Remaining Available
                       Number of                            for Future Issuance
                       Securities to be   Weighted-         Under Equity
                       Issued Upon        Average           Compensation Plans
                       Exercise of        Exercise Price    (Excluding
                       Outstanding        of Outstanding    Securities Reflected
Plan Category          Options            Options           in Column (A))
--------------------------------------------------------------------------------
Equity Compensation
Plans Approved by
Security Holders          111,500          $9.29                       63,500
--------------------------------------------------------------------------------
Equity Compensation
Plans Not Approved by
Security Holders           -                 -                           -
--------------------------------------------------------------------------------
Total                     111,500          $9.29                       63,500
--------------------------------------------------------------------------------

                                      -34-

<PAGE>


         The Company has applied the intrinsic value based method of accounting
         prescribed by APB Opinion No. 25 and related interpretations in
         accounting for stock-based compensation plans.  Accordingly, no
         compensation cost is reflected in net income for stock option awards as
         all options granted had an exercise price equal to or in excess of the
         market value of the underlying common stock on the date of grant.

         The Company has adopted the disclosure provisions of SFAS No. 148,
         "Accounting for Stock-Based Compensation-Transition and Disclosure, an
         amendment of FASB Statement No.123" and the following table illustrates
         the pro forma effect on net income and income per share in 2005, 2004
         and 2003 had the fair value recognition provisions of SFAS No.123
         "Accounting for Stock-Based Compensation" been applied to stock-based
         employee compensation.


                                                2005       2004        2003
---------------------------------------------------------------------------
Net Income, As Reported (in thousands)       $ 1,907    $ 2,448      $  823
---------------------------------------------------------------------------
Net Income, Pro Forma (in thousands)         $ 1,889    $ 2,430      $  800
---------------------------------------------------------------------------
Basic Earnings Per Share, As Reported        $  1.51    $  2.04      $ 0.70
---------------------------------------------------------------------------
Basic Earnings Per Share, Pro Forma          $  1.49    $  2.02      $ 0.68
---------------------------------------------------------------------------
Diluted Earnings Per Share, As Reported      $  1.47    $  1.97      $ 0.68
---------------------------------------------------------------------------
Diluted Earnings Per Share, Pro Forma        $  1.45    $  1.95      $ 0.66
---------------------------------------------------------------------------


14. EARNINGS PER SHARE:

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

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

                                              For the Fiscal Year Ended 7/02/05
                                            Net Income    Shares      Per-Share
                                           (Numerator) (Denominator)     Amount
--------------------------------------------------------------------------------
Basic EPS Available to
Shareholders                             $  1,907,000    1,263,938      $  1.51
--------------------------------------------------------------------------------
Effect of Dilutive Stock-based
Compensation Arrangements                                   34,362
--------------------------------------------------------------------------------
Diluted EPS Available to
Shareholders                             $  1,907,000    1,298,300      $  1.47
--------------------------------------------------------------------------------


                                      -35-

<PAGE>




                                              For the Fiscal Year Ended 7/03/04
                                            Net Income    Shares      Per-Share
                                           (Numerator) (Denominator)     Amount
--------------------------------------------------------------------------------
Basic EPS Available to
Shareholders                             $  2,448,000    1,200,937      $  2.04
--------------------------------------------------------------------------------
Effect of Dilutive Stock-based
Compensation Arrangements                                   43,017
--------------------------------------------------------------------------------
Diluted EPS Available to
Shareholders                             $  2,448,000    1,243,954      $  1.97
--------------------------------------------------------------------------------

                                              For the Fiscal Year Ended 6/28/03
                                            Net Income    Shares      Per-Share
                                           (Numerator)  (Denominator)    Amount
--------------------------------------------------------------------------------
Income Before Accounting Change          $  1,051,000    1,184,242      $  0.89
Cumulative Effect of Accounting
Change                                       (228,000)
--------------------------------------------------------------------------------
Net Income Available to
Shareholders                                  823,000    1,184,242      $  0.70
--------------------------------------------------------------------------------
Effect of Dilutive Stock-based
Compensation Arrangements                                   26,687
--------------------------------------------------------------------------------
Diluted EPS Available to
Shareholders                             $    823,000    1,210,929      $  0.68
--------------------------------------------------------------------------------


15. SEGMENT AND REVENUE INFORMATION:

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

         Information about the Company's revenues is as follows:

                                                         (in thousands)
                                               2005          2004         2003
--------------------------------------------------------------------------------
Sales of Footwear and Related Items        $ 49,530      $ 44,327     $ 24,012
--------------------------------------------------------------------------------
Revenues from Licensees                         937         1,366          821
--------------------------------------------------------------------------------
Total Revenues by Major Product Group      $ 50,467      $ 45,693     $ 24,833
--------------------------------------------------------------------------------


                                      -36-

<PAGE>



                                               2005          2004         2003
-------------------------------------------------------------------------------
Revenues from U. S. Customers              $ 49,108      $ 45,344     $  24,631
--------------------------------------------------------------------------------
Revenues from International Customers         1,359           349           202
--------------------------------------------------------------------------------
Total Revenues by Geographic Region        $ 50,467      $ 45,693     $  24,833
--------------------------------------------------------------------------------

Location of Major International Customers:
--------------------------------------------------------------------------------
Latin America                              $    116      $    153     $     127
--------------------------------------------------------------------------------
Canada                                           -             14            12
--------------------------------------------------------------------------------
Asia/Pacific                                     40           171            47
--------------------------------------------------------------------------------
Mexico                                          137             2             2
--------------------------------------------------------------------------------
United Kingdom/Europe/South Africa            1,066             9            14
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Major Customer- U. S. Government           $ 44,249      $ 39,648     $  18,209
--------------------------------------------------------------------------------

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

16. GOVERNMENT BOOT CONTRACT REVENUES:

         From time to time, the Company records estimates of revenues or costs
         associated with certain contract actions before the amount of such
         actions are settled with the DSCP. Any differences between these
         estimates and the actual amounts agreed to are included in the period
         of settlement.

17. GRANT MONEY RECEIVED:

         The Company received $400,000 ($100,000 in November, 2000 and a final
         payment of $300,000 on July 2, 2001) from the government of Puerto Rico
         under a Special Incentives Contract related to its 1999 consolidation
         of boot manufacturing operations in Puerto Rico, which was completed in
         fiscal year 2001. The grant required the Company to maintain operations
         in Puerto Rico for five years (fiscal years 2000 through 2004).  Grant

                                      -37-

<PAGE>



         income was not recognized until the $100,000 was received in November,
         2000, and the 2001 Consolidated Statement of Operations and
         Comprehensive Income included, as a catch-up adjustment, $160,000 of
         grant income. After the Contract was executed on May 23, 2001, and
         subsequent to receiving the final $300,000 payment, grant income
         recognized on a straight line basis over this five year period at the
         rate of $20,000 per fiscal quarter. The Consolidated Statements of
         Operations and Comprehensive Income for the fiscal years 2004 and 2003
         include an income item from this grant of $80,000. As of July 3, 2004,
         all of the deferred grant income from this first grant had been
         recognized.

         In December 2004, the Company received $280,000 from the government of
         Puerto Rico and another $43,000 in April 2005 under a Special
         Incentives Contract related to creating new job opportunities in its
         boot manufacturing operations in Puerto Rico. The grant is for a five
         year period (fiscal years 2004 through 2008) and requires the Company
         to maintain a certain level of employment in Puerto Rico over the grant
         period. If this requirement is not met, the Company may be required to
         refund a pro-rata portion of the total grant. The grant is for a
         maximum of $526,000 and monies are disbursed based upon certain
         expenditures made by the Company. The Company's policy is to recognize
         grant monies pro-rata over the five year grant period, with grant
         income first recognized in the period in which it is received. The
         Consolidated Statements of Operations and Comprehensive Income for the
         fiscal year 2005 recognized $135,000 as grant income including $70,000
         that related to grant periods prior to fiscal year 2005.

18. UNRECOVERED CONTRACT PREPARATION COSTS:

         In October, 2001, Wellco submitted a solicitation response to a DSCP
         procurement for berets to be used by U. S. Army personnel. Wellco did
         not have any prior experience in manufacturing berets or similar
         knitted products. Since submitting its response, certain costs were
         incurred in order to learn beret manufacturing operations and
         procedures, and to demonstrate to the government that Wellco had the
         capability to manufacture and deliver berets within the government's
         required delivery schedule.

         In July, 2002, Wellco received notification that the contract awardee
         was another company. At June 29, 2002, beret manufacturing machinery
         was written down by $159,000 to an amount equal to the estimated amount
         for which this machinery could be sold. Based on revised estimates of
         the resale value, the beret manufacturing machinery was further written
         down by $70,000 and shown as Unrecovered Contract Preparation Costs in
         the Consolidated Statements of Operations and Comprehensive Income for
         the fiscal year ended June 28, 2003.

19. RELATED PARTY TRANSACTIONS:

         The Company has an Agreement with its former Chairman of the Board of
         Directors under which certain payments are to be made to the former
         Chairman for a five-year period commencing January 2000. These payments
         are computed as certain fixed percentages of revenues earned by the
         Company and related to certain products, as defined, that the former
         Chairman has been instrumental in conceiving or developing. The amount
         paid under this agreement since its inception and through July 2, 2005
         was $7,000.

20. COMMITMENTS:

         The Company has a non-cancelable operating lease with a Puerto Rican
         governmental agency for its manufacturing facility. The term of the
         lease is for ten years, beginning July 1, 1999 with monthly payments
         that commenced on January 1, 2000. Total lease payments for the period
         July 3, 2005 through June 30, 2009 are $843,000.  Lease payments for

                                      -38-

<PAGE>



         each of the Company's four fiscal years ending after July 2, 2005 are:
         $200,000, $207,000, $214,000 and $222,000. Lease expense for the
         Company's current Puerto Rican facility in the 2005 fiscal year was
         $156,000. The Company leased more square footage during fiscal year
         2005. Lease expense for 2004 and 2003 fiscal years was $142,500 each
         year.

21. PUERTO RICAN GOVERNMENT REFUND:

         The majority of the Company's boot manufacturing operations occur at
         the factory of a wholly-owned subsidiary located in Puerto Rico. The
         Company is participating in a Puerto Rican government program to assist
         manufacturers in the training of new or expanded work force under which
         the Company is reimbursed for part of the compensation paid to certain
         employees. The Consolidated Statements of Operations for fiscal years
         2005 and 2004 include $1,385,000 and $321,000 as Revenues from this
         program.

         The Company has filed a reimbursement claim for an additional $852,000
         for compensation paid employees and expensed through July 2, 2005. The
         Company's policy is to recognize reimbursement as a revenue in the
         period that they are received.

22. GOODWILL:

         Statement of Financial Accounting Standards No. 142 (SFAS 142,
         "Goodwill and Other Intangible Assets") was effective with the
         Company's 2003 fiscal year. The excess of cost over net assets of
         subsidiary at acquisition (goodwill) was reviewed for impairment in
         conjunction with the adoption of SFAS 142. SFAS No. 142 provides for a
         specific method to determine if goodwill is impaired and the
         application of this method resulted in the $228,000 of goodwill being
         deemed as impaired. As required under SFAS 142, the Company charged
         this goodwill against the Consolidated Statements of Operations and
         Comprehensive Income as the cumulative effect of change in accounting
         principle. In applying the SFAS 142 method, conservative assumptions
         and estimates were used, which may not be indicative of future results.

         The changes in the carrying amount of goodwill was as follows

                                                  ( in thousands)

                                                            2003
----------------------------------------------------------------
Excess of cost over net assets of subsidiary
at acquisition, at beginning of year                      $  228
----------------------------------------------------------------
Cumulative effect of change in accounting
principle                                                   (228)
----------------------------------------------------------------
Excess of cost over net assets of subsidiary              $    0
at acquisition, at end of year
----------------------------------------------------------------


                                      -39-

<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheets of Wellco
Enterprises, Inc. and subsidiaries (the "Company") as of July 2, 2005 and July
3, 2004, and the related consolidated statements of operations and comprehensive
income, stockholders' equity, and cash flows for each of the three years in the
period then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
July 2, 2005 and July 3, 2004 and the results of their operations and their cash
flows for each of the three years in the period then ended in conformity with
accounting principles generally accepted in the United States of America.


DIXON HUGHES PLLC

Asheville, North Carolina
September 28, 2005


                                      -40-

<PAGE>




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

                                               Fiscal Year 2005 Quarters

                                       First   Second    Third    Fourth
------------------------------------------------------------------------
Market Price Per Share-
------------------------------------------------------------------------
High                                  $21.24   $21.00   $16.65    $13.81
------------------------------------------------------------------------
Low                                   $16.60   $14.25   $13.71    $11.70
------------------------------------------------------------------------
Per Share Cash Dividend Declared       $0.15    $0.15    $0.15     $0.15
------------------------------------------------------------------------


                                               Fiscal Year 2004 Quarters

                                       First   Second    Third    Fourth
------------------------------------------------------------------------
Market Price Per Share-
------------------------------------------------------------------------
High                                  $11.10   $11.75   $22.69    $23.80
------------------------------------------------------------------------
Low                                    $8.55    $9.80   $11.40    $12.00
------------------------------------------------------------------------
Per Share Cash Dividend Declared       $0.10    $0.10    $0.10     $0.15
------------------------------------------------------------------------


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

The number of holders of record of Wellco's Common Stock as of September 16,
2005 was 176.



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


                                     -41-

<PAGE>




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


                                               Fiscal Year 2005 Quarters

                                       First   Second    Third    Fourth
------------------------------------------------------------------------
Revenues                            $ 10,621 $ 13,974 $ 14,646  $ 11,226
------------------------------------------------------------------------
Cost of Sales and Services             9,387   12,505   13,731     9,609
------------------------------------------------------------------------
Net Income                               397      521      209       780
------------------------------------------------------------------------
Basic Earnings Per Share                0.32     0.41     0.16      0.62
------------------------------------------------------------------------
Fully Diluted Earnings Per Share    $   0.31 $   0.40 $   0.16  $   0.60
------------------------------------------------------------------------


                                               Fiscal Year 2004 Quarters

                                       First   Second    Third     Fourth
-------------------------------------------------------------------------
Revenues                            $  8,617 $ 11,389 $ 11,513  (A)14,174
-------------------------------------------------------------------------
Cost of Sales and Services             7,490   10,122    9,914     11,912
-------------------------------------------------------------------------
Net Income                               416      551      623        858
-------------------------------------------------------------------------
Basic Earnings Per Share                0.35     0.46     0.52       0.70
-------------------------------------------------------------------------
Fully Diluted Earnings Per Share    $   0.35 $   0.46 $   0.50  $    0.66
-------------------------------------------------------------------------

(A) Includes sales of 55,000 pairs of black ICB boots under new contract.




                                      -42-

<PAGE>




Officers and Directors

DAVID LUTZ
Chief Executive Officer, President,  Chief Operating Officer and Chairman,
Board of Directors

HORACE AUBERRY
Chairman Emeritus, Board of Directors

ROLF KAUFMAN
Vice Chairman of the Board

FRED K. WEBB, Jr.
Vice President of Marketing

Officers

CHRIS CASTLEBERRY
Executive Vice President

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

TAMMY FRANCIS
Treasurer, Assistant Secretary and Controller

Directors

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

SARAH E. LOVELACE
Executrix of the estate of James T. Emerson

CLAUDE S.  ABERNETHY, Jr.

                                      -43-

<PAGE>



Senior Vice President of IJL Wachovia

KATHERINE J. EMERSON
Information Systems Controller and CPA
Master Gage and Tool Company

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



                                      -44-

<PAGE>


                                    PART III

Responsive information called for by the following Items 10, 11, 12. 13 and 14,
except for certain information about executive officers provided and the
Registrant's Code of Ethics presented 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 14, 2005, 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
--------------------------------------------------------------------------------

David Lutz, CPA             60      Chairman, Board of Directors,
                                    Chief Executive Officer, President,
--------------------------------------------------------------------------------

Horace Auberry              74      Chairman Emeritus, Board of Directors
--------------------------------------------------------------------------------

Rolf Kaufman                75      Vice Chairman, Board of Directors
--------------------------------------------------------------------------------

Chris Castleberry           32      Executive Vice President
--------------------------------------------------------------------------------

Fred K. Webb, Jr.           45      Vice President of Marketing
--------------------------------------------------------------------------------

Richard A. Wood, Jr.        68      Secretary
--------------------------------------------------------------------------------

Tammy Francis, CPA          46      Controller, Treasurer and  Assistant
                                                     Secretary
--------------------------------------------------------------------------------

Effective January 1, 2002, Mr. Lutz was elected Chairman of the Board of
Directors and Chief Executive Officer and has been serving as President and
Director for more than five years.

Also, effective January 1, 2002, Mr. Auberry retired from Chief Executive Office
and is serving as Chairman Emeritus. Prior to serving as Chairman Emeritus, Mr.
Auberry served as Chairman of the Board of Directors for more than five years.

Mr. Castleberry has been an employee with the Company since April 2000 and was
elected Executive Vice President in 2004. He was Vice-President, Technical
Director from 2001 to 2004. From 1996 until 2000, he was a plant engineer for
Converse Corporation, Inc.

Mr. Webb has been a director since 1996 and an employee with the Company since
August 1998. In February 1999, Mr. Webb was elected Vice President of Marketing.
Mr. Webb was employed as an Accounting Team Leader with United Guaranty
Corporation from 1989 until 1998.

Ms. Francis has been Controller since October, 1996 and was elected Treasurer in
2003 and Assistant Secretary in 1998.

                                      -6-


<PAGE>




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

The Registrant has a Code of Conduct and Ethics that applies to, among others,
its principal executive officer, principal financial officer and principal
accounting officer or controller.

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 2005 fiscal year, no executive officer of the
Registrant or member of his immediate family or record or beneficial owner of
more than 5% of the Company's stock has had any transaction or series of similar
transactions with the Registrant or any of its subsidiaries exceeding $60,000,
and there are no currently proposed transactions exceeding $60,000.

Since the beginning of the 2005 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.

Item 14.  Principal Accountant Fees and Services.
(Independent Auditors Fees and Services)
--------  --------------------------------------



                                      -7-


<PAGE>





                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
-------  ---------------------------------------------------------------

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

1. All Financial Statements


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

The following consolidated financial statements of Wellco
Enterprises, Inc. are in the Registrant's 2005 Annual Report to
Shareholders which is integrated into
Part II of this Form 10-K immediately after page 4
--------------------------------------------------------------------------------
Consolidated Balance Sheets - at July 2, 2005 and July 3, 2004           15-16*
--------------------------------------------------------------------------------
Consolidated Statements of Operations and Comprehensive Income
- for the years ended July 2, 2005, July 3, 2004 and June 28, 2003          14*
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows - for the years ended
July 2, 2005, July 3, 2004 and June 28, 2003                             17-18*
--------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity - for the years
ended July 2, 2005, July 3, 2004 and June 28, 2003                          19*
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm                     40*
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements                               20-39*
--------------------------------------------------------------------------------

* Page number in the 2005 Annual Report to Shareholders included in Part II of
this Form 10-K.


2. Financial Statement Schedules

                                                                           Page
                                                                         Number
--------------------------------------------------------------------------------
Schedule II        Valuation and Qualifying Accounts                        21
--------------------------------------------------------------------------------

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

3. Exhibits
-----------

Exhibit                                                                    Page
 Number           Description                                            Number
--------------------------------------------------------------------------------
       3          Articles of Incorporation and By-Laws                     (j)
--------------------------------------------------------------------------------
       10         Material Contracts:
--------------------------------------------------------------------------------
                  A. Bonus Arrangement* (b)
--------------------------------------------------------------------------------

                                      -8-

<PAGE>
Exhibit                                                                    Page
 Number           Description                                            Number
--------------------------------------------------------------------------------
                  B. 1996 Stock Option Plan for Key Employees of Wellco
                  Enterprises, Inc.*                                        (c)
--------------------------------------------------------------------------------
                  C. 1997 Stock Option Plan for Key Employees of Wellco
                  Enterprises, Inc.*                                        (d)
--------------------------------------------------------------------------------
                  D. 1997 Stock Option Plan for Non-Employee Directors of Wellco
                  Enterprises, Inc.*                                        (e)
--------------------------------------------------------------------------------
                  E. 1999 Stock Option Plan for Key Employees of Wellco
                  Enterprises, Inc.*                                        (f)
--------------------------------------------------------------------------------
                  F. 1999 Stock Option Plan for Non-Employee Directors of Wellco
                  Enterprises, Inc.*                                        (g)
--------------------------------------------------------------------------------
                  G. Employment Agreement with Chairman of Wellco's Board of
                  Directors*                                                (h)
--------------------------------------------------------------------------------
                  H. Amended Employment Agreement with Chairman of Wellco's
                  Board of Directors*                                       (i)
--------------------------------------------------------------------------------
       14         Code of Conduct and Ethics                                (k)
--------------------------------------------------------------------------------
       21         Subsidiaries of Registrant                                13
--------------------------------------------------------------------------------
       23         Consent of Expert                                         14
--------------------------------------------------------------------------------
       31         Certifications of the Chief Executive Officer and
                  Chief Financial Officer under Section 302 of the
                  Sarbanes-Oxley Act of 2002, filed herewith.           15 - 18
--------------------------------------------------------------------------------
       32         Certifications of the Chief Executive Officer and
                  Chief Financial Officer under
                  Section 906 of the Sarbanes-Oxley Act of 2002,
                  filed herewith.                                        19 -20
--------------------------------------------------------------------------------


* Management Compensation Arrangement/Plan.

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

     Exhibit 3        $40.00
     Exhibit 10 A.      2.00
     Exhibit 10 B.      3.00
     Exhibit 10 C.      3.00
     Exhibit 10 D.      3.00
     Exhibit 10 E.      3.00
     Exhibit 10 F.      3.00
     Exhibit 10 G.      3.00
     Exhibit 10 H.      3.00
     Exhibit 14       This exhibit will be furnished without charge upon
                      receipt of a written request to the Corporate Secretary at
                      the address shown above.

                                      -9-
<PAGE>



         (a)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended July 1, 1995, and is incorporated herein by reference.
         (b)  Exhibit was filed in PART IV of Form 10-K for the fiscal year
              ended July 3, 1982, and is incorporated herein by reference.
         (c)  Exhibit was filed as Exhibit A to the Proxy Statement dated
              October 18, 1996, and is incorporated herein by reference.
         (d)  Exhibit was filed as Exhibit A to the Proxy Statement dated
              October 17, 1997, and is incorporated herein by reference.
         (e)  Exhibit was filed as Exhibit B to the Proxy Statement dated
              October 17, 1997, and is incorporated herein by reference.
         (f)  Exhibit was filed as Exhibit A to the Proxy Statement dated
              October 13, 2000, and is incorporated herein by reference.
         (g)  Exhibit was filed as Exhibit B to the Proxy Statement dated
              October 13, 2000, and is incorporated herein by reference.
         (h)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended July 1, 2000, and is incorporated herein by reference.
         (i)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended June 29, 2002, and is incorporated herein by reference.
         (j)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended July 3, 2004, and is incorporated herein by reference.
         (k)  Exhibit was filed in Part IV of Form 10-K for the fiscal year
              ended July 3, 2004, and is incorporated herein by reference.


                                      -10-


<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/ David Lutz
----------------------------------------------------------------------------

By: David Lutz, Chief Executive Officer, President and Chairman of the
Board of Directors
(Chief Executive Officer)
----------------------------------------------------------------------------


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

By: Tammy Francis, Controller and Treasurer
 (Chief Financial Officer)
----------------------------------------------------------------------------


Date: September 30, 2005

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, Director                   Rolf Kaufman, Director
--------------------------------------------------------------------------------


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

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


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

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



Date: September 30, 2005



                                      -11-

<PAGE>








             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheets of Wellco
Enterprises, Inc. and subsidiaries (the "Company") as of July 2, 2005 and July
3, 2004 and the related consolidated statements of operations and comprehensive
income, stockholders' equity, and cash flows for each of the three years in the
period then ended. Our audits also included the financial statement schedule
listed in the Index at Item 15(a)(2).These consolidated financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and the schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements and schedule are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
July 2, 2005 and July 3, 2004 and the results of their operations and their cash
flows for each of the three years in the period then ended in conformity with
accounting principles generally accepted in the United States of America. 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.




DIXON HUGHES PLLC

Asheville, North Carolina
September 28, 2005

                                      -12-





<PAGE>







                                                                    Exhibit 21

                            WELLCO ENTERPRISES, INC.
                         SUBSIDIARIES OF THE REGISTRANT



                                                           Percentage of Voting
                           Jurisdiction of                     Securities Owned
  Name of Company          Incorporation                    by Immediate Parent
--------------------------------------------------------------------------------
  Wellco Enterprises, Inc.  North Carolina                           Registrant
--------------------------------------------------------------------------------
  Wholly-Owned Subsidiaries:
--------------------------------------------------------------------------------
  Ro-Search, Incorporated   North Carolina                                100%
--------------------------------------------------------------------------------
  Mo-Ka Shoe Corporation    Delaware                                      100%
--------------------------------------------------------------------------------
All of the Registrant's wholly-owned subsidiaries are included in the
consolidated financial statements.





                                      -13-

<PAGE>





                                                                    Exhibit 23

                            WELLCO ENTERPRISES, INC.
            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the  incorporation by reference in the Registration  Statement No.
1-333-72824  of  Wellco  Enterprises,  Inc.  on  Form  S-8 of our  report  dated
September  28,  2005  appearing  in this  Annual  Report  on Form 10-K of Wellco
Enterprises, Inc. for the fiscal year ended July 2, 2005.



DIXON HUGHES PLLC

Asheville, North Carolina
September 28, 2005




                                      -14-



<PAGE>







                                                                    Exhibit 31

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 2, 2005
              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
           18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002




I, David Lutz, certify that:

1.       I have reviewed this annual report on Form 10-K of Wellco
         Enterprises, Inc.(the registrant);

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

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

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

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

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and
                  (c) Disclosed in this report any change in the registrant's
                  internal controls over financial reporting that occurred
                  during the registrant's fourth fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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

                                      -15-


<PAGE>



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

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


 Date: September 30, 2005

       /s/ David Lutz
  By: David Lutz, Chief Executive Officer and President
  (Chief Executive Officer)

                                      -16-

<PAGE>





                                                                    Exhibit 31

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 2, 2005
              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
        18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002





I, Tammy Francis, certify that:

1.       I have reviewed this annual report on Form 10-K of Wellco
         Enterprises, Inc.(the registrant);

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

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

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

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

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

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

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

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

                                      -17-


<PAGE>



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

Date: September 30, 2005

      /s/ Tammy Francis
By: Tammy Francis, Controller and Treasurer
 (Chief Financial Officer)



                                      -18-





<PAGE>








                                                                    Exhibit 32

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 2, 2005
              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
        18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, David Lutz, certify that:

1.       I am the chief executive officer of Wellco Enterprises, Inc.

2.       Attached to this certification is Form 10-K for the fiscal year ended
         July 2, 2005, a periodic report (the "periodic report") filed by the
         issuer with the Securities Exchange Commission pursuant to Section
         13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
         Act:), which contains financial statements.

3.       I hereby  certify,  pursuant  to 18 U.S.C.  Section  1350,  as  adopted
         pursuant  to  Section  906 of the Sarbanes-Oxley Act of 2002, that

                 o     the periodic report containing the financial
                       statements fully complies with the requirements of
                       Section 13(a) or 15(d) of the Exchange Act, and

                 o     the information in the periodic report fairly presents,
                       in all material respects, the financial condition and
                       results of operations of the issuer for the periods
                       presented.


         Date: September 30, 2005


         /s/ David Lutz
         By: David Lutz, Chief Executive Officer and President
         (Chief Executive Officer)

A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by Wellco Enterprises Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.

This certification will not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that
section. This certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934 even if the document with which it is submitted to the Securities and
Exchange Commission is so incorporated by reference.

                                      -19-
<PAGE>




                                                                     Exhibit 32

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 2, 2005
              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
        18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, Tammy Francis, certify that:

1.       I am the chief financial officer of Wellco Enterprises, Inc.

2.       Attached to this certification is Form 10-K for the fiscal year ended
         July 2, 2005, a periodic report (the "periodic report") filed by the
         issuer with the Securities Exchange Commission pursuant to Section
         13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
         Act:), which contains financial statements.

3.       I hereby certify, pursuant to 18 U.S.C.  Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

                 o     the periodic report containing the financial
                       statements fully complies with the requirements of
                       Section 13(a) or 15(d) of the Exchange Act, and

                 o     the information in the periodic report fairly presents,
                       in all material respects, the financial condition and
                       results of operations of the issuer for the periods
                       presented.

Date: September 30, 2005


         /s/ Tammy Francis
By: Tammy Francis, Controller and Treasurer
(Chief Financial Officer)

A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by Wellco Enterprises Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.


This certification will not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that
section. This certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934 even if the document with which it is submitted to the Securities and
Exchange Commission is so incorporated by reference.


                                      -20-

<PAGE>




                                                                   SCHEDULE II

             WELLCO ENTERPRISES, INC. AND WHOLLY-OWNED SUBSIDIARIES
    VALUATION ACCOUNTS FOR THE FISCAL YEARS ENDED JULY 2, 2005, JULY 3, 2004
                               AND JUNE 28, 2003



                     Balance at      Additions
                   Beginning of     Charged to                   Balance at End
 Description            of Year     Income (A)    Deductions(B)         of Year
--------------------------------------------------------------------------------
Allowance for
Doubtful Accounts-
--------------------------------------------------------------------------------
           2005            $37         -                -               $37
--------------------------------------------------------------------------------
           2004            $28        10                 1              $37
--------------------------------------------------------------------------------
           2003            $28         3                 3              $28
--------------------------------------------------------------------------------

(A) Additions for allowance for doubtful accounts.
(B) Write-off of uncollectible accounts.


                                      -21-

<PAGE>























                                      -45-

<PAGE>