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 1, 2000

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

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

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

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

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

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

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

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

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

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

As of August  31,  2000,  1,163,246  common  shares  were  outstanding,  and the
aggregate  market value of the common  shares  (based upon the closing  price of
these  shares on the  American  Stock  Exchange  on August  31,  2000) of Wellco
Enterprises, Inc. held by nonaffiliates was approximately $2,400,000.

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




<PAGE>



                                     PART I
Item 1. Business.

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

Footnote 14 to the Consolidated  Financial Statements contains information about
revenues by similar  products and by geographic  areas. The majority of revenues
($14,378,000  in 2000 and  $14,246,000  in 1999)  were  from  sales to the U. S.
government,  primarily the Defense  Supply  Center  Philadelphia  (DSCP),  under
contracts  for the supply of boots used by the U. S. Armed  Forces.  The loss of
this customer would have a material adverse effect on the Company.

For more  than the last  five  years,  the  Company  has  manufactured  and sold
military  combat boots under firm fixed price contracts with DSCP. Boot products
are the general  issue  combat boot,  the hot wet (jungle)  boot and the hot dry
(desert) boot, all  manufactured  using the government  specified  Direct Molded
Sole (DMS)  process.  The Company also supplies the  Intermediate  Cold/Wet Boot
(ICW),  the Infantry  Combat  Boot/Marine  Corps (ICB) and  anti-personnel  mine
protective boots and overboots. The government awards fixed price boot contracts
on the basis of bids from  several  qualified U. S.  manufacturers.  The Company
also  sells  some of these  same boot  products  to other  customers,  including
customers located in 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 2000  fiscal  year was  $711,000  ($0.61  diluted  income per
share)  compared to net loss of $837,000  ($0.72 diluted loss per share) for the
1999 fiscal year. The primary reason operating  results improved was an increase
in pairs of combat boots shipped under  contract with the U.S.  government,  and
the successful completion of the restructuring of manufacturing  operations (see
Footnote 18 to the Consolidated Financial Statements).

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

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

                                      -1-
<PAGE>

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

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

More information about these, and other events affecting  Wellco's 2000 and 1999
operating results, are contained in the Management's  Discussion and Analysis of
Results of Operations  and  Financial  Condition  section of the Company's  2000
Annual  Report to  Shareholders  which is  incorporated  in Part II of this Form
10-K.

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

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

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

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

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

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

(2)  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.

                                       -2-

<PAGE>


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

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

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

The  Company  has a strong  research  and  development  program.  While  not all
research and  development  results in  successful  new  products or  significant
revenues,  the continuing development of new products and processes has been and
will continue to be a significant factor in growth and development.  The Company
developed  the desert  combat boot,  first used in Operation  Desert  Storm.

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

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

The Company's backlog of all sales, not including  license fees and rentals,  as
of September,  2000 was approximately  $10,800,000  compared to $10,200,000 last
year. The Company  estimates that  substantially all of the current year backlog
will be shipped in the 2001 fiscal year. The current year's backlog is more than
the prior year's backlog because the government has substantially  completed its
inventory  reduction program and is purchasing combat boots  substantially equal
to consumption.  In addition, at September, 1999 the Intermediate Cold Wet (ICW)
contract had a backlog of $4,500,000.  The ICW contract was completed in August,
2000 and  therefore no ICW backlog  exists for the current  year.  There are two
solicitations currently open for this ICW boot, one due to be awarded within the
period from  October  through  December  and the other bid closes on October 27,
2000. The Company hopes to be an awardee on one or both of these solicitations.

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

                                       -3-
<PAGE>

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.

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

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

The Company employed an average of 233 persons during the 2000 fiscal year.


Item 2. Properties.

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

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

Management believes all its plants, warehouses and offices are in good condition
and are reasonably suited for the purposes for which they are presently used. As
has been the case for the last several  years,  the volume of operations in 2000
caused the Company's facilities to be used at less than normal capacity.


Item 3. Legal Proceedings.

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

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


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

There were not any  submissions of matters to a vote of security  holders during
the fourth quarter of fiscal year 2000.

                                      -4-
<PAGE>




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

The  information  called for by the  following  items is in the  Company's  2000
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
                                                                             34
----------------- --------------------------------------------------------------
Item 6.           Consolidated Selected Financial Data                        1
----------------- --------------------------------------------------------------
Item 7.           Management's Discussion and Analysis of Results of  Operations
                  and Financial Condition                                   4-9
----------------- --------------------------------------------------------------
Item 7A.          Quantitative and Qualitative Disclosures About
                  Market Risk                                                *
----------------- --------------------------------------------------------------
Item 8.           Financial Statements and Supplementary Data         10-32, 35
----------------- --------------------------------------------------------------

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

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.
--------------------------------------------------------------------------------
There  were no  resignations  by or  dismissals  of any  independent  accountant
engaged by the Company during the 2000 or 1999 fiscal years or during the period
from the end of the 2000 fiscal year through the date of filing this Form 10-K.



                                       -5-

<PAGE>







                                    WELLCO(R)
                                ENTERPRISES, INC.


                                  ANNUAL REPORT
                                      2000





<PAGE>




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

                                                Year Ended
                              July 1,   July 3,   June 27,   June 28,   June 29,
                                 2000      1999       1998       1997       1996
--------------------------------------------------------------------------------
Revenues                     $ 22,225  $ 21,312   $ 23,917   $ 21,199   $ 19,968
--------------------------------------------------------------------------------
Net Income (Loss)                 711      (837)      (337)       758        991
--------------------------------------------------------------------------------
Basic Earnings (Loss) per
Share                            0.61     (0.72)     (0.29)      0.67       0.53
--------------------------------------------------------------------------------
Diluted Earnings (Loss) per
Share                            0.61     (0.72)     (0.29)      0.66       0.52
--------------------------------------------------------------------------------
Cash Dividends Declared Per
Share of Common Stock            0.25      0.20       0.20       0.20      0.125
--------------------------------------------------------------------------------
Total Assets at Year End       12,950    14,853     16,020     15,652     12,697
--------------------------------------------------------------------------------
Long-Term Liabilities at
Year End                      $ 1,593   $ 1,721    $ 2,253    $ 2,789    $ 2,431
--------------------------------------------------------------------------------


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







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

Annual Meeting
November 14, 2000
Corporate Offices
Waynesville, N.C.

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

                                       -1-

<PAGE>



Dear Fellow Shareholders:

Fiscal year 2000 was a year of solid progress for Wellco  Enterprises,  Inc. Our
challenge for the year 2000 was to improve the  efficiency of our  manufacturing
operations  recently  consolidated  in Puerto Rico and we made great  strides in
this area. As fiscal year 2000  progressed,  we were able to shift our strategic
emphasis from  restructuring to the  profitablily of our operations.  We are now
focused on improving our sales and profit  margins.  While we have a ways to go,
we have seen some encouraging signs.

Our financial results for fiscal year 2000, presented in detail on the following
pages, are the best evidence of improvement. In a very competitive market, sales
increased to  $22,225,000  from  $21,312,000 in fiscal year 1999. Net income for
fiscal year 2000 was $711,000 which was reduced by a $338,000 pre-tax charge for
restructuring  and realignment  costs. Also included in the 2000 fiscal year net
income is a non-recurring pretax income item of $203,000  representing the final
settlement of a contract  claim with the U. S.  government.  Operations  for the
1999 fiscal  year  resulted in a $837,000  net loss that  included a  $1,077,000
pretax charge for restructuring and realignment costs.

In fiscal year 1999, we announced  and  implemented  a plan to  restructure  and
realign our  footwear  manufacturing  operations.  Under this plan,  the Company
transferred the majority of the lasting, bottoming and finishing operations from
its  Waynesville,  North  Carolina  facility  and  consolidated  them  with  the
operations of its Aguadilla,  Puerto Rico facility.  This decision by your Board
of Directors and management has proven to be very beneficial.

Implementation of this plan was not easy. For example, most of our military boot
shipments to the U. S. government are against delivery orders received four days
per week, and a significant part of the government's  evaluation of our contract
performance  is based on how fast we ship.  With a lot of planning and hard work
by dedicated  people, we were able to transfer the operations to Puerto Rico and
still ship all orders the same day they were received.

For the past few years,we have reported to you on the U. S. government's program
to significantly  reduce its inventory of Direct Molded Sole (DMS) combat boots,
and the  negative  effect this program had on  operating  results.  Last year we
reported that the U. S. government was on the verge of completing their program.
We are very  glad to  report  that in the  second  half of  fiscal  year 2000 we
started  realizing the results of the  completion  of this program,  as delivery
orders for DMS boots increased significantly.

                                      -2-
<PAGE>

We are well positioned to take advantage of future growth.  With the transfer of
manufacturing  operations to Puerto Rico and the completion of the  government's
inventory  reduction  program,  we can  focus on the  future.  We are  presently
concentrating  our efforts on  developing  new product  lines and  manufacturing
processes to place your Company in excellent  position to take  advantage of new
opportunities  in the military  footwear  area.  These new products  should also
increase our opportunities in the related commercial footwear market segments.

In addition,  the favorable  results during fiscal year 2000 have contributed to
a substantial  improvement in your Company's  financial  liquidity.  Using  cash
provided by fiscal year 2000  operations,  we have reduced  advances against our
bank line of credit by  $1,780,000.  Since July 1, 2000,  we have  substantially
stopped using this line of credit as a source of cash.

Our co-workers at all levels have  contributed  immensely to  accomplishing  the
restructuring  of footwear  manufacturing  operations and to the  improvement of
operating  results.  The way they performed in the past year,  particularly when
faced with many  difficult  tasks that had to be done in a short period of time,
demonstrated that they are very strong, dedicated people.

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





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

September 29, 2000

                                       -3-




<PAGE>



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


                              RESULTS OF OPERATIONS

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

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

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

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



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

                   *       Restructuring  credit  of $  90,000.  In the  quarter
                           ending   April   1,   2000,   the  Company's  actuary
                           completed  calculation   of  actual  pension cost for
                           terminated   employees.   The   estimated   cost  was
                           originally  recorded  in  the  fourth  quarter of the
                           1999 fiscal  year.   The  actual  cost  was  $122,000
                           less  than  originally  estimated.  In  addition, the
                           2000  fiscal  year  includes  $32,000 for health care
                           costs on  terminated  employees  in  addition  to the
                           amount  accrued  at  July 3,  1999.   A  part of  the
                           severance  compensation  for  terminated  Waynesville
                           employees   was   the    continuation    of    health
                           insurance  for  two  months   past  termination.  The
                           Company   is   self   funded   for its  group  health
                           insurance,   and   actual   health   care  costs  for
                           terminated  employees  were  greater  than originally
                           estimated.

Also  included  in the  2000  fiscal  year  is a  non-recurring  income  item of
$203,000,  net of related costs  representing the final settlement of a contract
claim (see Note 16 to the Consolidated Financial  Statements).  In January, 2000
the federal  government's  Alternative Disputes Resolution procedure was used to
reach a final and  non-appealable  settlement  of a contract  claim Wellco filed
against  the U.  S.  government.  In the  1998  fiscal  year,  when  this  claim
originated,  Wellco recognized an income item of $226,000,  net of related costs
which  represented  the  amount  of  the  claim  acknowledged  and  paid  by the
government in 1998.

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

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

                                       -4-

<PAGE>


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

      *   The overall reduction of costs from the consolidation of substantially
          all manufacturing  operations in Puerto Rico.

      *   Semi-variable  costs not  increasing in proportion to the increase  in
          revenues.

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

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

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

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


Forward Looking Information:

For several  years,  DSCP (Defense  Supply Center  Philadelphia,  the government
agency with which Wellco  contracts for the supply of combat boots) was reducing
its inventory of combat boots by purchasing  from  contractors  fewer pairs than
were consumed.  Wellco  believes the government has now completed this inventory
reduction program and is purchasing combat boots at a rate  substantially  equal
to its consumption.

Wellco is  presently  shipping  boots under the third  option year of its combat
boot  contract  which  covers the period from April 16, 2000 to April 15,  2001.
This  contract has one more  one-year  option period after April 15, 2001. It is
not known  whether DSCP intends to exercise the fourth and final  option,  which
would cover the year April 16, 2001  through  April 15,  2002.  If DSCP does not
exercise  the fourth  option,  there  should be another  solicitation  issued to
procure boots.

In August,  2000,  Wellco  completed  shipments  under a three year  contract to
supply DSCP with the  Intermediate  Cold Wet (ICW) boot. DSCP has an outstanding
solicitation  for the next ICW boot  contract  with awards  estimated to be made
within the period from October through December, 2000. As with any solicitation,
Wellco cannot  predict with certainty its success in receiving a contract from a
new solicitation.

Since November,  1998 Wellco has been supplying,  under contract, a state prison
system with an inmate work shoe.  During this period, a prison in that state was
installing a production  facility  where  inmates would  manufacture  this shoe.
Wellco  understands  that  this  facility  is  now  manufacturing  the  shoe  in
quantities to meet the prison  system's  needs and,  therefore the prison system
will not be purchasing this boot from Wellco during the 2001 fiscal year.

As stated in Note 18 to the Consolidated  Financial Statements,  the Company has
filed for a $400,000  reimbursement from the government of Puerto Rico, under an

                                       -5-
<PAGE>

incentive   grant,   relating  to  certain  costs   incurred  in   consolidating
substantially all footwear manufacturing  operations in Puerto Rico. Any amounts
collected will be recorded in the period received.

In June 1998, the Financial  Accounting  Standards Board issued the Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities".  SFAS No. 133  standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts,  by requiring that an entity recognize those items as assets or
liabilities  in the  statement  of  financial  position and measure them at fair
value.  SFAS No. 133 was effective for the Company's first fiscal quarter of the
2001 fiscal year. The Company has analyzed contracts and instruments outstanding
on July 2, 2000 and has  determined  that there is no impact from  adopting this
standard on its consolidated results of operations or financial position.

The Company did not experience any problems with the conversion to Year 2000 and
the cost to update and test equipment and software for Year 2000  compliance was
minimal.  However,  this  does not mean  that a  problem  will not  arise in the
future.

Except for historical  information,  this Annual Report includes forward looking
statements that involve risks and uncertainties,  including, but not limited to,
the  receipt  of  contracts  from  the U.  S.  government  and  the  performance
thereunder,  the  ability to control  costs under  fixed  price  contracts,  the
cancellation  of  contracts,  and other risks  detailed from time to time in the
Company's  Securities and Exchange Commission  filings,  including Form 10-K for
the year ended July 1, 2000.  Those statements  include,  but may not be limited
to,  all  statements  regarding  intent,  beliefs,  expectations,   projections,
forecasts,  and plans of the  Company  and its  management.  Actual  results may
differ  materially  from  management   expectations.   The  Company  assumes  no
obligation to update any forward-looking statements.

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

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

1.  The  1999  loss  includes  a  $1,077,000  charge  for  the  restructure  and
realignment of boot  manufacturing  operations (see Note 18 to the  Consolidated
Financial  Statements).The  Restructuring  and Realignment Costs charged against
1999 operations are made up:



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

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

2. The 1998  loss was  increased  by  approximately  $800,000  of start up costs
incurred in the initial production of the new Infantry Combat  Boot/Marine(ICB).
The ICB contract  required  that Wellco,  within 90 days after  contract  award,
manufacture  and have in inventory a  significant  quantity of this boot. At the
end of this 90 day  period,  the  contract  also  required  Wellco  to have  the
capacity  to quickly  deliver  orders for this boot to Marine  recruit  training
centers  and major  Marine  clothing  stores.  This 90 day period  compares to a
normal "make ready" time in government boot contracts of 165 days or longer.

                                       -6-

<PAGE>


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

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

3. The 1998 loss was  reduced by the  recognition  of a  $226,000  non-recurring
income  item  under  an  agreement  with  the  government  (see  Note  16 to the
Consolidated Financial Statements).

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

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

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

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

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

The rate of income tax  benefit for 1999 was 32%  compared to 36% in 1998.  This

                                       -7-

<PAGE>

decrease was primarily  caused by a reduction in benefit provided by earnings in
Puerto  Rico which are  substantially  exempt  from both Puerto Rico and federal
income taxes.

                         LIQUIDITY AND CAPITAL RESOURCES

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

                                                        ( in thousands)
                                                   2000        1999         1998
                     -----------------------------------------------------------
                     Cash                          $ 73        $ 89        $ 196
                     -----------------------------------------------------------
                     Unused Bank Line of Credit   2,300         520        1,115
                     -----------------------------------------------------------
                     Total                      $ 2,373       $ 609       $1,311
                     -----------------------------------------------------------

The  increase  in the unused line of credit at July 1, 2000  resulted  primarily
from cash  provided by  operations  and  decreases  in accounts  receivable  and
inventory during fiscal year 2000 being used to pay down the line of credit.  In
1999,  cash  from the line of credit  was used to  purchase  equipment  and make
leasehold  improvements  related  to the  consolidation  of  boot  manufacturing
operations in Puerto Rico.


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

                                                        (in thousands)
                                                2000          1999          1998
     ---------------------------------------------------------------------------
     Income (Loss) Before Depreciation       $ 1,385        $ (292)        $ 99
     ---------------------------------------------------------------------------
     Net Change in Accounts Receivable,
     Inventory, Accounts Payable
     and Accrued Liabilities                   2,002         1,170          400
     ---------------------------------------------------------------------------
     Deferred Taxes, Tax Refund Receivable,
     and Other                                   (66)          (30)        (427)
     ---------------------------------------------------------------------------
     Net Cash Provided By (Used In)
     Operations                                3,321           848           72
     ---------------------------------------------------------------------------
     Cash From Bank Line of Credit               395           915        1,883
     ---------------------------------------------------------------------------
     Cash Used to Repay Bank Line of Credit   (2,175)         (320)        (685)
     ---------------------------------------------------------------------------
     Cash From Bank Loan for Warehouse
     Addition                                                               400
     ---------------------------------------------------------------------------
     Cash Used for Warehouse Addition                                      (381)
     ---------------------------------------------------------------------------
     Cash Used to Repay Bank Loan               (147)         (145)         (73)
     ---------------------------------------------------------------------------
     Cash Used to Purchase Plant and
     Equipment                                (1,119)       (1,172)      (1,054)
     ---------------------------------------------------------------------------
     Cash Dividends Paid                        (291)         (233)        (233)
     ---------------------------------------------------------------------------
     Cash From Stock Options Exercised                                       86
     ---------------------------------------------------------------------------
     Net Increase (Decrease) in Cash           $ (16)       $ (107)        $ 15
     ---------------------------------------------------------------------------

                                       -8-
<PAGE>


In 2000,  cash provided by  operations  increased by  $2,473,000.  This increase
resulted  primarily  from cash  provided  by income and  reductions  in accounts
receivable ($1,575,000) and inventory ($416,000). Cash was received in 2000 from
a  significant  final  contract  shipment  of  boots in  June,  1999.  Inventory
decreased at the end of 2000  primarily  because the Company was nearing the end
of its contract to supply the ICW boot and its contract to supply a state prison
system with inmate boots.  Cash from  operations  was primarily used to pay down
the bank line of credit and purchase equipment.

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

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

At July 1, 2000,  the Company  had a $800,000  commitment  to  purchase  capital
equipment. Note 11 to the Consolidated Financial Statements provides information
about a potential  cash  payment in the 2003 fiscal year of $701,000  that might
result from Wellco's repurchase of its stock in the 1996 fiscal year.

The bank's  commitment for a total $4,000,000 line of credit expires on December
31, 2000,  and is subject to renewal at the bank's  discretion.  During the 2001
fiscal year, Wellco expects to continue to rely on the bank line of credit.  The
Company  does not know of any  other  demands,  commitments,  uncertainties,  or
trends  that  will  result  in or that are  reasonably  likely  to result in its
liquidity increasing or decreasing in any material way.


                                       -9-

<PAGE>


                            WELLCO ENTERPRISES, INC.
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                           FOR THE FISCAL YEARS ENDED
                      JULY 1, 2000, JULY 3, 1999, AND JUNE
                        27, 1998 (in thousands except per
                                 share amounts)


                                                JULY 1,     JULY 3,     JUNE 27,
                                                   2000        1999         1998
                                              ---------   ---------    ---------
REVENUES (Notes  4, 14 and 15) ...........    $ 22,225    $ 21,312     $ 23,917
                                              --------    --------     --------

COSTS AND EXPENSES:
  Cost of sales and services .............      19,023      19,098       22,340
  Restructuring and realignment
  costs (Note 18) ........................         338       1,077
  General and administrative
  expenses ...............................       2,006       2,136        2,123
                                              --------    --------     --------
  Total ..................................      21,367      22,311       24,463
                                              --------    --------     --------

INCOME FROM CONTRACT CLAIM
  (Note 16) ..............................         203                      226
                                              --------    --------     --------

OPERATING INCOME (LOSS) ..................       1,061        (999)        (320)

INTEREST EXPENSE .........................         238         242          219

DIVIDEND AND INTEREST INCOME .............           1           4           12
                                              --------    --------     --------

INCOME (LOSS) BEFORE INCOME TAXES ........         824      (1,237)        (527)

PROVISION (BENEFIT) FOR INCOME
TAXES (Note 10) ..........................         113        (400)        (190)
                                              --------    --------     --------

NET INCOME (LOSS) ........................         711        (837)        (337)

OTHER COMPREHENSIVE INCOME (LOSS)
(Notes 1 and 8):
  (Increase) Decrease In Additional
  Minimum Pension Liability, Net
  of Tax .................................          76         229         (113)
                                              --------    --------     --------

COMPREHENSIVE INCOME (LOSS) ..............    $    787    $   (608)    $   (450)
                                              ========    ========     ========
EARNINGS (LOSS) PER SHARE
(Note 13):
  Basic earnings (loss) per share ........    $   0.61    $  (0.72)    $  (0.29)
  Diluted earnings (loss) per
  share ..................................    $   0.61    $  (0.72)    $  (0.29)
                                              ========    ========     ========

See Notes to Consolidated Financial Statements.


                                      -10-

<PAGE>


                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                          JULY 1, 2000 AND JULY 3, 1999
                                 (in thousands)

                                     ASSETS


                                                             JULY 1,     JULY 3,
                                                                2000        1999
                                                             -------     -------
CURRENT ASSETS:
      Cash ...........................................      $    73      $    89
      Receivables, net (Notes 2 and 6) ...............        3,108        4,683
      Inventories (Notes 3 and 6) ....................        5,097        5,513
      Deferred taxes  (Note 10) ......................          676          461
      Income tax refund receivable (Note 10) .........                       226
      Prepaid expenses ...............................           37          160
                                                            -------      -------
      Total ..........................................        8,991       11,132
                                                            -------      -------

MACHINERY LEASED TO LICENSEES, net
      (Notes 1 & 4) ..................................           24            6

PROPERTY, PLANT AND EQUIPMENT, net
      (Notes 5 and 6) ................................        3,397        2,970

INTANGIBLE ASSETS:
      Excess of cost over net assets of
         subsidiary at acquisition (Note 1) ..........          228          228
      Intangible pension asset (Note 8) ..............           52           88
                                                            -------      -------
      Total ..........................................          280          316
                                                            -------      -------

DEFERRED TAXES (Note 10) .............................          258          429
                                                            -------      -------

TOTAL ................................................      $12,950      $14,853
                                                            =======      =======



                            (continued on next page)

                                      -11-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                          JULY 1, 2000 AND JULY 3, 1999
                        (in thousands except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                            JULY 1,      JULY 3,
                                                               2000         1999
                                                            -------      -------

CURRENT LIABILITIES:
      Short-term borrowing from bank (Note 6) ........    $  1,700     $  3,480
      Accounts payable ...............................         861        1,046
      Accrued liabilities (Notes 7, 8, 9 and 18) .....       1,559        1,565
      Accrued income taxes (Note 10) .................         629          427
      Current maturity of note payable (Note 11) .....          36          146
                                                          --------     --------
          Total ......................................       4,785        6,664
                                                          --------     --------


LONG-TERM LIABILITIES:
      Pension obligation (Note 8) ....................         892        1,375
      Notes payable (Note 11) ........................         701          346

COMMITMENTS (Note 17)

STOCKHOLDERS' EQUITY (Notes 8, 11 and 12):
      Common stock, $1.00 par value; shares
          authorized- 2,000,000; shares issued and
          outstanding- 1,163,246 .....................       1,164        1,164
      Additional paid-in capital .....................         192          192
      Retained earnings ..............................       5,646        5,618
      Accumulated other comprehensive loss ...........        (430)        (506)
                                                          --------     --------
          Total ......................................       6,572        6,468
                                                          --------     --------

TOTAL ................................................    $ 12,950     $ 14,853
                                                          ========     ========

See Notes to Consolidated Financial Statements.




                                      -12-



                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                  JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998
                                 (in thousands)

                                                   JULY 1,    JULY 3,   JUNE 27,
                                                      2000       1999       1998
                                                   -------    -------   --------

CASH FLOWS FROM OPERATING
ACTIVITIES:
      Net income (loss) .......................   $   711    $  (837)   $  (337)
                                                  -------    -------    -------

      Adjustments  to reconcile  net income
     (loss) to net cash provided by (used
      in) operating activities:
          Depreciation and amortization .......       674        545        436
          (Increase) decrease in-
              Receivables .....................     1,575     (2,436)     2,679
              Inventories .....................       416      3,995     (1,831)
              Other current assets ............       134       (263)      (237)
          Increase (decrease) in-
              Accounts payable ................      (185)      (650)      (368)
              Accrued liabilities .............        (6)        75        (80)
              Accrued income taxes ............       202        186       (116)
              Pension obligation ..............      (371)       194        (39)
              Other ...........................       171         39        (35)
                                                  -------    -------    -------

      Total adjustments .......................     2,610      1,685        409
                                                  -------    -------    -------

NET CASH PROVIDED BY (USED IN)
      OPERATING ACTIVITIES ....................     3,321        848         72
                                                  -------    -------    -------


CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of equipment, net .............    (1,119)    (1,172)    (1,435)
                                                  -------    -------    -------

NET CASH PROVIDED BY (USED IN)
      INVESTING  ACTIVITIES ...................    (1,119)    (1,172)    (1,435)
                                                  -------    -------    -------


                            (continued on next page)

                                      -13-

<PAGE>

                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                  JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998
                                 (in thousands)


                                                   JULY 1,    JULY 3,   JUNE 27,
                                                      2000       1999       1998
                                                   -------    -------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from short-term borrowings .....       395        915      1,883
      Repayment of short-term borrowings ......    (2,175)      (320)      (685)
      Proceeds from note payable ..............                             400
      Repayment of note payable ...............      (147)      (145)       (73)
      Cash dividends paid .....................      (291)      (233)      (233)
      Stock option exercise ...................                              86
                                                  -------    -------    -------

NET CASH PROVIDED BY (USED IN)
      FINANCING ACTIVITIES ....................    (2,218)       217      1,378
                                                  -------    -------    -------


NET INCREASE (DECREASE) IN CASH ...............       (16)      (107)        15

CASH AT BEGINNING OF YEAR .....................        89        196        181
                                                  -------    -------    -------


CASH AT END OF YEAR ...........................   $    73    $    89    $   196
                                                  =======    =======    =======


SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
      Cash paid (received) for-
          Interest ............................   $   234    $   233    $   170
          Income taxes ........................      (238)      (377)       141
NONCASH INVESTING AND FINANCING
ACTIVITY:
      Adjustment of stock repurchase note .....   $   392               $  (828)
                                                  =======    =======    =======


See Notes to Consolidated Financial Statements.


                                      -14-
<PAGE>


                            WELLCO ENTERPRISES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE FISCAL YEARS ENDED
                  JULY 1, 2000, JULY 3, 1999, AND JUNE 27, 1998
                        (in thousands except share data)


                                                  JULY 1,    JULY 3,    JUNE 27,
                                                     2000       1999        1998
                                                  -------    -------    --------
COMMON STOCK :
      Balance at beginning of year ............   $ 1,164    $ 1,164    $ 1,151
      Stock option exercise (Notes 12 and 13) .                              13
                                                  -------    -------    -------
      Balance at end of year ..................     1,164      1,164      1,164
                                                  -------    -------    -------


ADDITIONAL PAID-IN CAPITAL:
      Balance at beginning of year ............       192        192        119
      Stock option exercise (Notes 12 and 13) .                              73
                                                  -------    -------    -------
      Balance at end of year ..................       192        192        192
                                                  -------    -------    -------

RETAINED EARNINGS:
      Balance at beginning of year ............     5,618      6,688      6,430
      Adjustment of note payable from stock
      repurchase (Note 11) ....................      (392)                  828
      Net income (loss) .......................       711       (837)      (337)
      Cash dividends (per share:
        2000 - $.25, 1999
        and 1998 - $.20) ......................      (291)      (233)      (233)
                                                  -------    -------    -------
      Balance at end of year ..................     5,646      5,618      6,688
                                                  -------    -------    -------

ACCUMULATED OTHER COMPREHENSIVE LOSS
      Additional Minimum Pension Liability,
      Net of Tax (Note 8):
      Balance at beginning of year ............      (506)      (735)      (622)
      Change for the year .....................        76        229       (113)
                                                  -------    -------    -------
      Balance at end of year ..................      (430)      (506)      (735)
                                                  -------    -------    -------

TOTAL STOCKHOLDERS' EQUITY ....................   $ 6,572    $ 6,468    $ 7,309
                                                  =======    =======    =======

See Notes to Consolidated Financial Statements.

                                      -15-
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended July 1, 2000, July 3, 1999, and June 27, 1998

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

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

     Fair Value of Financial Instruments
              The carrying values of cash,  receivables and accounts  payable at
              July 1, 2000  approximate  fair value.  The carrying  value of the
              note payable from the stock  repurchase  agreement (see Note 11 to
              the  Consolidated  Financial  Statements)  is equal to the present
              value  of  estimated  future  cash  flows  using a  discount  rate
              commensurate with the uncertainties involved and thus approximates
              fair value.

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

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

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

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

                                      -16-
<PAGE>


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

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

         Fiscal Year
              The Company's fiscal year ends on the Saturday closest to June 30.
              Consequently,  the 2000 fiscal year contains 52 weeks of operating
              results.  The 1999 fiscal year  contained 53 weeks and 1998 fiscal
              year contained 52 weeks.

     Estimates
              The  preparation  of  financial   statements  in  conformity  with
              accounting  principles  generally  accepted  in the United  States
              of America requires management to make estimate  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.

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

     Accounting for Derivative Instruments and Hedging Activities
              In June 1998, the Financial  Accounting Standards Board issued the
              Statement  of  Financial  Accounting  Standards  (SFAS)  No.  133,
              "Accounting  for Derivative  Instruments and  Hedging Activities".
              SFAS   No.  133   standardizes  the   accounting  for   derivative
              instruments, including  certain  derivative  instruments  embedded
              in other contracts,  by requiring that an entity  recognize  those
              items  as  assets  or  liabilities  in  the statement of financial
              position  and  measure  them  at  fair  value.  SFAS  No.  133 was
              effective  for the  Company's  first  fiscal  quarter  of the 2001
              fiscal  year.  The Company has analyzed contracts and  instruments
              outstanding on July  2, 2000 and has  determined  that there is no
              impact from adopting this  standard  on  its  consolidated results
              of operations or financial position.

2.  RECEIVABLES:

     The majority of receivables at July 1, 2000 are from the U. S.  Government.
     The Company's  policy  is to  require either  a confirmed  irrevocable bank

                                      -17-
<PAGE>

     letter of credit  or  advance  payment on  significant order  from  foreign
     customers.  Allowances  for  doubtful  accounts in  2000 and  1999 are  not
     significant.

     Receivables  at  July 1,  2000  include  $150,000  from  the  Puerto  Rican
     government  for reimbursement  of certain  costs made to the current Puerto
     Rican facility.

3.  INVENTORIES:

     The components of inventories are:
                                                          (in thousands)
                                                         2000        1999
                    -----------------------------------------------------
                    Finished Goods                    $ 1,811     $ 1,948
                    -----------------------------------------------------
                    Work in Process                     1,224       1,712
                    -----------------------------------------------------
                    Raw Materials and Supplies          2,062       1,853
                    -----------------------------------------------------
                    Total                             $ 5,097     $ 5,513
                    -----------------------------------------------------

 4.  MACHINERY LEASED TO LICENSEES:

     Accumulated  depreciation  netted  against the cost of leased assets in the
     2000 and 1999  Consolidated  Balance Sheets is $1,521,000  and  $1,513,000,
     respectively.  Rental  revenues for the fiscal years 2000,  1999,  and 1998
     were $116,000, $100,000 and $141,000, respectively,  substantially  all  of
     which vary with lessees' production or shipments.

5.  PROPERTY, PLANT AND EQUIPMENT:

     The components of property, plant and equipment are summarized as follows:
                                                               (in thousands)
                                                                       Estimated
                                              2000       1999        Useful Life
              ------------------------------------------------------------------
              Land                           $ 107      $ 107           N/A
              ------------------------------------------------------------------
              Buildings                      1,176      1,176        40-45 Years
              ------------------------------------------------------------------
              Machinery & Equipment          5,034      4,139         2-20 Years
              ------------------------------------------------------------------
              Furniture & Fixtures             873        792         2-10 years
              ------------------------------------------------------------------
              Leasehold Improvements           526        457                 *
              ------------------------------------------------------------------
              Total Cost                   $ 7,716    $ 6,671
              ------------------------------------------------------------------
              Total Accumulated Depreciation and
              Amortization                 $ 4,319    $ 3,701
              ------------------------------------------------------------------

              *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.

                                      -18-
<PAGE>


6.  LINES OF CREDIT:

     The Company  maintains a $4,000,000  bank line of credit.  The line,  which
     expires   December  31,  2000,  can  be  renewed  annually  at  the  bank's
     discretion.  This  line of  credit  is  secured  by a  blanket  lien on all
     machinery and equipment  (carrying value of $2,023,000 at July 1, 2000) and
     all  non-governmental  receivables  and  inventory  ($1,008,000  at July 1,
     2000).  At July 1, 2000,  borrowings on the line of credit were  $1,700,000
     with $2,300,000 available in additional borrowings.

     Interest  is at the prime  rate of 9.5% at July 1,  2000.  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 1, 2000.  The  covenants are subject to review at the end
     of each fiscal quarter.

7.  ACCRUED LIABILITIES:

     The components of accrued liabilities are:
                                                        (in thousands)
                                                      2000          1999
              ----------------------------------------------------------
              Compensation                           $ 930         $ 738
              ----------------------------------------------------------
              Pension Benefits                         124           161
              ----------------------------------------------------------
              Retiree Health Benefits (Note 9)         146           170
              ----------------------------------------------------------
              Restructuring Reserve (Note 18)                        119
              ----------------------------------------------------------
              Interest Expense                         159           155
              ----------------------------------------------------------
              Accrued Lease Payments (Note 17)          83
              ----------------------------------------------------------
              Other                                    117           222
              ----------------------------------------------------------
              Total                                $ 1,559       $ 1,565
              ----------------------------------------------------------

8. PENSION PLANS:

     The Company has two  non-contributory,  defined benefit pension plans.  The
     components  of pension  expense,  included in Cost of Sales and Services in
     the Consolidated  Statements of Operations and Comprehensive  Income (Loss)
     are as follows:
                                                             (in thousands)
                                                       2000      1999      1998
              ------------------------------------------------------------------
              Benefits Earned for Service in the
              Current Year                           $ 138     $ 159      $ 139
              ------------------------------------------------------------------
              Interest on the Projected Benefit
              Obligation                               346       393        394
              ------------------------------------------------------------------
              Return on Plan Assets                   (267)     (255)      (254)
              ------------------------------------------------------------------

                                      -19-
<PAGE>
                                                       2000      1999      1998
              ------------------------------------------------------------------
              Amortization of: Unrecognized Net
              Pension Obligation at July 1, 1987;
              Cost of Benefit Changes Since That
              Date; and Gains and Losses
              Against Actuarial  Assumptions           118       174        162
              ------------------------------------------------------------------
              Pension Expense                          335       471        441
              ------------------------------------------------------------------

     The 1999  Consolidated  Statements of Operations and  Comprehensive  Income
     (Loss) included as a part of the  Restructuring  and Realignment  Costs, an
     estimated cost of $431,000  relating to the  curtailment  and settlement of
     pension  liabilities  for  terminated  employees  ($220,000  of  previously
     unrecognized  prior  service cost and $211,000 of  previously  unrecognized
     actuarial  losses).  The actuary  computed  the actual  amounts as $309,000
     ($193,000 for prior service cost and $116,000 for actuarial  loss), and the
     Restructuring   and  Realignment  Costs  shown  in  the  2000  Consolidated
     Statements of Operations and Comprehensive  Income (Loss) include an income
     item of $122,000  adjusting the previously  recorded estimate to the actual
     amount.

     Below are various analyses and other information  relating to the Company's
     pension  liability,  assets and  expense  as of June 30,  2000 and June 30,
     1999, (all amounts are in thousands except for those indicated as percent):

    Change in Benefit Obligation:                   2000         1999
    ------------------------------------------------------------------
    Benefit Obligation at Beginning of Year      $ 5,722      $ 5,815
    ------------------------------------------------------------------
    Current Year Service Cost                        138          159
    ------------------------------------------------------------------
    Interest Cost on Projected Liability             346          393
    ------------------------------------------------------------------
    Benefit Payments                                (499)        (531)
    ------------------------------------------------------------------
    Curtailment of Liability for Terminated
    Employees                                       (417)
    ------------------------------------------------------------------
    Actuarial (Gain) Loss                            (64)        (123)
    ------------------------------------------------------------------
    Increased Liability from Plan Amendments                        9
    ------------------------------------------------------------------
    Benefit Obligation at End of Year             $ 5,226     $ 5,722
    ------------------------------------------------------------------


    Change in Plan Assets:                          2000         1999
    ------------------------------------------------------------------
    Fair Value of Plan Assets at Beginning
    of Year                                       $ 3,881     $ 3,530
    ------------------------------------------------------------------
    Company Contributions                             580         621
    ------------------------------------------------------------------
    Actual Return on Plan Assets                      352         261
    ------------------------------------------------------------------
    MetLife Demutualization                           302
    ------------------------------------------------------------------
    Benefit Payments                                 (499)       (531)
    ------------------------------------------------------------------

                                      -20-
<PAGE>
    Change in Plan Assets:                          2000         1999
    ------------------------------------------------------------------
    Settlement Payments to Terminated Employees      (477)
    ------------------------------------------------------------------
    Fair Value of Plan Assets at End of Year      $ 4,139     $ 3,881
    ------------------------------------------------------------------


    Reconciliation of Funded Status:
    ------------------------------------------------------------------
    Funded Status                                $ (1,087)   $ (1,842)
    ------------------------------------------------------------------
    Unrecognized Transitional Amount                   81          98
    ------------------------------------------------------------------
    Unrecognized Actuarial Loss                       589         868
    ------------------------------------------------------------------
    Unrecognized Prior Service Cost                   104         194
    ------------------------------------------------------------------
    Net Amount Recognized                          $ (313)     $ (682)
    ------------------------------------------------------------------


    Amounts Recognized in the Consolidated Balance Sheets:
    ------------------------------------------------------------------
    Intangible Pension Asset                         $ 52        $ 88
    ------------------------------------------------------------------
    Deferred Tax Asset                               222          260
    ------------------------------------------------------------------
    Accumulated Other Comprehensive Loss             430          506
    ------------------------------------------------------------------
    Accrued Pension Liability:
    ------------------------------------------------------------------
       Prepaid Benefit Cost                           44
    ------------------------------------------------------------------
       Booked                                       (357)        (682)
    ------------------------------------------------------------------
       Additional                                   (704)        (854)
    ------------------------------------------------------------------
    Net Amount Recognized in Financial Statements   (313)        (682)
    ------------------------------------------------------------------


    CERTAIN ACTUARIAL ASSUMPTIONS:                  2000         1999
    ------------------------------------------------------------------
    Assumed Discount Rate                           7.5%          7.5%
    ------------------------------------------------------------------
    Expected Long-Term Rate of Return on Plan
    Assets                                          7.5%          7.5%
    ------------------------------------------------------------------
    Rate of Compensation Increase, For the One
    Plan Whose Benefits Are Pay Related             5.5%          5.0%
    ------------------------------------------------------------------

     At June 30,  2000,  one of the  pension  plans has a benefit  obligation  (
     $2,569,000) that is greater than its plan assets ($1,865,000)  resulting in
     the  additional  liability  of $704,000.  At June 30, 1999,  both plans had
     benefit obligations that were greater than their plan assets.

     The Consolidated  Statement of Operations and  Comprehensive  Income (Loss)
     shows the amount included in Other Comprehensive  Income that resulted from

                                      -21-
<PAGE>

     recording  the  pension  liability  that has not yet been  charged  against
     operations.

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

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


9. RETIREE HEALTH BENEFITS:

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

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

     The cost of retiree  health  benefits  included in the 2000,  1999 and 1998
     Statements of Operations and Comprehensive Income (Loss) was:
                                                              (in thousands)
                                                         2000     1999      1998
                ----------------------------------------------------------------
                Benefits Earned for Current Service       $ 8     $ 35      $ 23
                ----------------------------------------------------------------
                Interest Cost on Accumulated Liability     14       24        23
                ----------------------------------------------------------------
                Amortization of the July 4, 1993
                Liability                                  14       14        14
                ----------------------------------------------------------------
                Total Cost                               $ 36     $ 73      $ 60
                ----------------------------------------------------------------


     An analysis of the total liability for the last two fiscal years, including
     a reconciliation  of the liability in the Consolidated  Balance Sheets (see
     Note 7) at July 1, 2000 and July 3, 1999 is:


                                                                  (in thousands)
                                                                 2000      1999
      --------------------------------------------------------------------------
      Total Liability at Beginning of Year                     $ 207      $ 381
      --------------------------------------------------------------------------
      Liability for Current Service                                8         35
      --------------------------------------------------------------------------
      Interest on Liability                                       14         24
      --------------------------------------------------------------------------
      Benefit Payments                                           (60)       (81)
      --------------------------------------------------------------------------

                                      -22-
<PAGE>
                                                                 2000      1999
      --------------------------------------------------------------------------
      Actuarial Loss                                             221         21
      --------------------------------------------------------------------------
      Reduction in Liability for Employment Terminations
      (Note 18)                                                            (173)
      --------------------------------------------------------------------------
      Total Liability at End of Year                             390        207
      --------------------------------------------------------------------------
      Less Unamortized Liability at July 4, 1993                 (59)       (73)
      --------------------------------------------------------------------------
      Unrecognized Gain (Loss)                                  (185)        36
      --------------------------------------------------------------------------
      Liability Recognized in the Consolidated Balance
      Sheets                                                     146        170
      --------------------------------------------------------------------------

     The  assumed  health care cost trend rate used to project  expected  future
     cost was 15% in 2000 (11.25% in 1999),  gradually  decreasing to 6% by 2006
     and remaining at 6% thereafter. The assumed discount rate used to determine
     the  accumulated  liability was 7.5% for 2000 and 1999.  The effect of a 1%
     increase  in the  assumed  health care cost trend rate for each future year
     would  not have a  significant  effect on the  service  and  interest  cost
     components of the current period cost or on the accumulated liability.

10. INCOME TAXES:

     The Company accounts for the provision and liability for income taxes using
     Statement of Financial Accounting Standards No. 109, "Accounting for Income
     Taxes." The provision for income taxes consist of the following:

                                                             (in thousands)
                                                       2000      1999      1998
           ---------------------------------------------------------------------
           Federal Provision (Benefit):
           ---------------------------------------------------------------------
               Currently Payable (Refundable)        $ 158      $(158)    $(294)
           ---------------------------------------------------------------------
               Deferred                                (83)      (252)       76
           ---------------------------------------------------------------------
               Total Federal                            75       (410)     (218)
           ---------------------------------------------------------------------
           State Provision Currently Payable            38         10        28
           ---------------------------------------------------------------------
           Total Provision (Benefit)                 $ 113      $(400)    $(190)
           ---------------------------------------------------------------------

     A  reconciliation  of the effective  income tax rate for the 2000, 1999 and
1998 fiscal years is as follows:


                                                       2000      1999      1998
           ---------------------------------------------------------------------
           Statutory Federal Income Tax (Benefit)
           Rate                                         34%     (34%)      (34%)
           ---------------------------------------------------------------------
           Current Period Income of Puerto Rico
           Subsidiary Substantially Exempt From
           Puerto Rican and Federal Income Taxes       (25%)     (1%)       (9%)
           ---------------------------------------------------------------------
           State Taxes, Net of Federal Tax Benefit       5%       1%         4%
           ---------------------------------------------------------------------

                                      -23-
<PAGE>
                                                        2000      1999      1998
           ---------------------------------------------------------------------
           Untaxed Foreign Sales Corporation Income      *        *         (2%)
           ---------------------------------------------------------------------
           Non-deductible Expenses                       *        *          4%
           ---------------------------------------------------------------------
           Other                                         *        2%         1%
           ---------------------------------------------------------------------
           Effective Income Tax (Benefit) Rate          14%     (32%)      (36%)
           ---------------------------------------------------------------------
                     * less than 1%

     Income  earned in Puerto Rico by the Company's  Puerto Rican  subsidiary is
     90% exempt from Puerto Rican income tax through 2000. In  conjunction  with
     the  consolidation  of boot  manufacturing  operations in Puerto Rico,  the
     Company has applied  for,  and expects to  receive,  a new  multi-year  tax
     exemption  grant with terms  similar to the present one.  Income  earned in
     Puerto  Rico by this  subsidiary  has not been  subject  to  United  States
     federal income tax. The Small Business Job Protection Act (Act),  passed by
     Congress  on  August  2, 1996 and  subsequently  signed  by the  President,
     terminated the federal tax credit on this income subject to a phase out for
     existing companies,  for tax years beginning after December 31, 1996. Under
     the phase out, the Company should receive a full credit through fiscal year
     2002. For fiscal years 2003 through 2006,  the credit will be limited,  and
     will be completely eliminated starting with the 2007 fiscal year.

     The accumulated undistributed earnings ($5,543,000 at July 1, 2000) of this
     subsidiary are subject to a Puerto Rican tollgate tax (5%) when remitted to
     the parent  Company.  Accrued tax  liabilities  have been  provided for the
     tollgate tax reasonably expected to be paid in the future.

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

     Significant components of the Company's deferred tax assets and liabilities
     as of the end of fiscal 2000 and 1999 are as follows:
                                                                  (in thousands)
      Deferred Tax Assets:                                       2000      1999
      --------------------------------------------------------------------------
      Pension Cost Charged Against Financial Statement Income,
      Not Yet Deducted From Taxable Income                      $ 79      $ 216
      --------------------------------------------------------------------------
      Tax Effect of Pension Liability Charged Against Equity     222        260
      --------------------------------------------------------------------------
      Employee Compensation Charged Against Financial
      Statement Income, Not Yet Deducted From Taxable Income     173        200
      --------------------------------------------------------------------------
      Additional Costs Inventoried for Tax Purposes               54         64
      --------------------------------------------------------------------------
      Federal NOL Carryforward                                   399        179
      --------------------------------------------------------------------------
      State NOL Carryforward                                     285        270
      --------------------------------------------------------------------------
      Alternative Minimum Tax Credit                              70         36
      --------------------------------------------------------------------------
      Other                                                       69         90
      --------------------------------------------------------------------------
      Total Deferred Tax Assets                                1,351      1,315
      --------------------------------------------------------------------------

                                      -24-
<PAGE>

      Deferred Tax Assets:                                      2000       1999
      --------------------------------------------------------------------------
      Valuation Allowance                                       (339)      (360)
      --------------------------------------------------------------------------
      Net Deferred Tax Assets                                  1,012        955
      --------------------------------------------------------------------------
      Deferred Tax Liabilities:
      --------------------------------------------------------------------------
      Depreciation Deducted From Taxable Income Not Yet
      Charged Against Financial Statement Income                  78         65
      --------------------------------------------------------------------------
      Net Deferred Tax Assets                                  $ 934      $ 890
      --------------------------------------------------------------------------

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

     The Company has an operating loss carryforward of $1,175,000, which expires
     in 2019 and 2020,  available to reduce future federal  taxable  income.  In
     addition, $4,379,000 of operating loss carryforward,  which expires in 2003
     through 2005, is available to reduce certain  future state taxable  income.
     The  benefit of this state  operating  loss  carryforward  is a part of the
     Company's deferred tax valuation reserve.

11.  NOTES PAYABLE:

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

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

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

     Generally  accepted  accounting  principles  require that an  obligation be
     reflected in the Consolidated  Balance Sheets for the estimated  additional
     payments that would be made if the Agreement is enforceable. Since the date
     of stock repurchase,  Wellco's  Consolidated Balance Sheets have included a
     Note Payable  representing the present value of the estimated  amounts that
     would be paid if the Agreement is enforceable.  The amount of the estimated
     payment due in fiscal year 2003, discounted at a rate of 8.5%, is  $701,000
     at 7/1/00.

                                      -25-
<PAGE>


     The Stock Repurchase  Agreement, as drafted, provides that actual payments,
     if any, would only be made in the amount by which 60% of each fiscal year's
     net income  exceeds a certain  defined amount,  calculated on  a cumulative
     basis, and applying to fiscal years 1997 through 2002. The Note Payable has
     been calculated  on this basis.  The Company  revised its  estimate  of the
     amount that  might be  paid during  fiscal years 2000 and 1998.  For fiscal
     year 2000  during which there was  a return to  profitability,  the revised
     estimate  increased  the Note  Payable  and decreased Retained  Earnings by
     $392,000  (as  required  by  generally  accepted accounting  principles for
     stock repurchases). For fiscal year 1998 during which there was a net loss,
     the revised  estimate  decreased  the Note  Payable  and increased Retained
     Earnings  by  $828,000.

     The  Stock  Repurchase  Agreement  does not  provide  for  the  payment  of
     interest.  However,  generally accepted  accounting principles require that
     interest be imputed. Interest expense on the Stock Repurchase Agreement for
     the fiscal years  2000,  1999,  and 1998  was  $3,000,  $10,000 and $49,000
     respectively.   Total payments  under the note cannot exceed $1,531,000 and
     all  obligations  under  the  note  terminate after  the 2003  fiscal  year
     payment.

     In  1998,  a bank  provided  a three  year  term  loan as part of the  cash
     required to construct a new  warehouse  adjoining  the  Company's  existing
     facilities in Waynesville,  North Carolina. This loan is payable in monthly
     installments  of $12,125 plus interest at the bank's prime rate of 9.5% and
     three monthly  installments or $36,000 was  outstanding  under this loan at
     July 1, 2000.

12. STOCK OPTIONS:

     The  Board of  Directors  approved  the  1999  Stock Option  Plan  for  Key
     Employees (1999 Key Employees Plan) and the 1999 Stock Option Plan for Non-
     Employee Directors (1999 Non-Employee  Directors Plan). These Plans provide
     for the granting of  options to  purchase 90,000  shares (1999 Key Employee
     Plan)  and  21,000  shares  (1999  Non-Employee  Directors  Plan),  and  at
     July 1, 2000 options for  the purchase  of 70,000  shares had been  granted
     under  the  1999  Key  Employee  Plan  and  11,000  shares  under  the 1999
     Non-Employee   Directors Plan.   The  plans  permit  the issuance of either
     incentive stock options or non-qualified  stock options.  Under both Plans,
     the option  price is the market price on the date granted, and options have
     a life of 10 years from the date  granted.  Options  granted  under both of
     these  plans  were  fully  exercisable  on  the  date  granted,  except for
     certain   options   granted   to  certain  officers  which  are  not  fully
     exercisable  until  future years in  order to qualify  them for certain tax
     treatment.   Options  for the  purchase of  71,000 shares  were immediately
     exercisable, and 7,750 become exercisable during fiscal year  2001 with the
     remaining 2,250 options being  exercisable in fiscal year 2002.

     The   Board  of  Directors   approved  the 1997  Stock Option  Plan for Key
     Employees  (1997  Key Employees  Plan) and the  1997 Stock  Option Plan for
     Non-Employee  Directors (1997  Non-Employee  Directors  Plan).  These Plans
     provide for the granting  of options  to purchase  99,000 shares (1997  Key
     Employee  Plan) and  16,000  shares  (1997  Non-Employee  Directors  Plan),
     and at  July 1, 2000  options for  the purchase  of 93,000  shares had been
     granted  under the 1997  Key Employee Plan and 14,000 shares under the 1997
     Non-Employee  Directors Plan.  Under both Plans,  the option  price  is the
     market price on the date  granted and  options have a life of 10 years from
     the date granted.  Options granted under  both of these  plans  were  fully
     exercisable  on  the date  granted except  for certain  options  granted to
     certain  officers which are not fully  exercisable  until  future  years in
     order  to  qualify   them  for  certain  tax  treatment.    Options for the
     purchase of 83,600  shares were exercisable by 1998 fiscal year end, 11,700
     became  exercisable  during  1999, 8,300  became  exercisable  during 2000,
     with the  remaining  3,400 options being exercisable in 2001.

                                      -26-
<PAGE>


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

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


                                                  No. of        Weighted-Average
             Option Shares:                       Shares          Exercise Price
             -------------------------------------------------------------------
             Outstanding at June 28, 1997         27,100                   $5.32
             -------------------------------------------------------------------
             Granted                             107,000                   12.10
             -------------------------------------------------------------------
             Exercised                           (12,600)                   6.73
             -------------------------------------------------------------------
             Forfeited                            (2,000)                  12.00
             -------------------------------------------------------------------
             Outstanding at June 27, 1998        119,500                   11.13
             -------------------------------------------------------------------
             Expired                              (1,500)                   5.50
             -------------------------------------------------------------------
             Outstanding at July 3, 1999         118,000                   11.20
             -------------------------------------------------------------------
             Granted                              81,000                    8.00
             -------------------------------------------------------------------
             Forfeited                            (9,000)                  12.00
             -------------------------------------------------------------------
             Outstanding at July 1, 2000         190,000                   $9.80
             -------------------------------------------------------------------


     The  following  table  summarizes  information  about fixed  stock  options
outstanding at July 1, 2000:

                                                                Weighted-Average
                                                                       Remaining
                 Range of Exercise      Weighted Average        Contractual Life
      Number                Prices        Exercise Price                in Years
      --------------------------------------------------------------------------
      15,000                 $5.00                 $5.00                     5.0
      --------------------------------------------------------------------------
      94,000         $12.00-$17.50                $12.12                     7.0
      --------------------------------------------------------------------------
      81,000                 $8.00                 $8.00                     9.0
      --------------------------------------------------------------------------

     Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
     for  Stock-Based  Compensation,"  became  effective for the Company's  1997
     fiscal  year.  As  allowed by SFAS 123,  the  Company  elected to  continue
     applying the  compensation  expense  recognition  provisions  of Accounting
     Principles  Board  Opinion  25 and  related  interpretations,  and  has not
     recognized  compensation expense for its Plans. If compensation expense had
     been  recognized,  using  the fair  value of  options  on the date  granted
     computed under the method prescribed by SFAS 123, net income (loss) and net
     income  (loss) per share would have been  changed to the pro forma  amounts
     shown below for fiscal years 2000, 1999 and 1998 (in thousands,  except per
     share amounts):

                                      -27-
<PAGE>



                                               2000          1999          1998
       -------------------------------------------------------------------------
       Net Income (Loss), As Reported         $ 711        $ (837)       $ (337)
       -------------------------------------------------------------------------
       Net Income (Loss), Pro Forma           $ 562        $ (878)       $ (626)
       -------------------------------------------------------------------------
       Basic Earnings (Loss) Per Share,
       As Reported                           $ 0.61       $ (0.72)      $ (0.29)
       -------------------------------------------------------------------------
       Basic Earnings (Loss) Per Share,
       Pro Forma                             $ 0.48       $ (0.75)      $ (0.54)
          ----------------------------------------------------------------------

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


                                                             2000          1998
                  --------------------------------------------------------------
                  Expected Dividend Yield                   3.125%         1.67%
                  --------------------------------------------------------------
                  Expected Stock Price Volatility           33.45%        39.40%
                  --------------------------------------------------------------
                  Risk-Free Interest Rate                    5.83%         5.55%
                  --------------------------------------------------------------
                  Expected Life of Options in Years          3.0           2.9
                  --------------------------------------------------------------
                  Weighted-Average Fair Value of Options
                  Granted                                   $1.69         $3.54
                  --------------------------------------------------------------


     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.


13.  EARNINGS PER SHARE:

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

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

                                      -28-
<PAGE>


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


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


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


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



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


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

14. SEGMENT AND REVENUE INFORMATION:
     The  Company  adopted Statement  of Financial  Accounting Standards No. 131
     (SFAS 131), "Disclosures  About  Segments of  an  Enterprise   and  Related
     Information,"  in the 1999 fiscal  year.  SFAS 131 requires  disclosure  of
     financial and descriptive  information about reportable operating segments,
     revenues by products or services,  and  revenues  and assets by  geographic
     areas.

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

                                      -29-
<PAGE>


     Information about the Company's revenues is as follows:
                                                            (in thousands)
                                                   2000        1999         1998
    ----------------------------------------------------------------------------
    Sales of Footwear and Related Items        $ 21,738    $ 20,913     $ 22,745
    ----------------------------------------------------------------------------
    Revenues from Licensees                         487         399        1,172
    ----------------------------------------------------------------------------
    Total Revenues by Major Product Group      $ 22,225    $ 21,312     $ 23,917
    ----------------------------------------------------------------------------

    ----------------------------------------------------------------------------
    Revenues from U. S. Customers             $ 20,740    $ 18,816      $ 22,653
    ----------------------------------------------------------------------------
    Revenues from International Customers        1,485       2,496         1,264
    ----------------------------------------------------------------------------
    Total Revenues by Geographic Region       $ 22,225    $ 21,312      $ 23,917
    ----------------------------------------------------------------------------

    ----------------------------------------------------------------------------
    Location of Major International Customers:
    ----------------------------------------------------------------------------
    Latin America                                $ 212     $ 1,252         $ 529
    ----------------------------------------------------------------------------
    Canada                                         195         833           369
    ----------------------------------------------------------------------------
    Asia/Pacific                                   209       $ 374         $ 331
    ----------------------------------------------------------------------------
    Mexico                                         281
    ----------------------------------------------------------------------------
    United Kingdom                               $ 509
    ----------------------------------------------------------------------------

    ----------------------------------------------------------------------------
    Major Customer- U. S. Government           $ 14,378   $ 14,246      $ 17,326
    ----------------------------------------------------------------------------

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

     15. GOVERNMENT BOOT CONTRACT REVENUES:

     From time to time,  the  Company  records  estimates  of  revenues or costs
     associated  with  certain  contract  actions not yet settled with the U. S.
     government.  Any difference  between these estimates and the actual amounts
     agreed  to  are  included  in the  period  of  settlement.  There  were  no
     significant  unsettled  contract  actions  at July 1,  2000.  There were no
     significant  differences  between estimated and actual amounts for contract
     actions settled in fiscal years 2000, 1999 and 1998.

16. CONTRACT CLAIM:

     In April 1998 Wellco  executed an  Agreement  with  Defense  Supply  Center
     Philadelphia  (DSCP).  The Agreement  provides that DSCP will reimburse the
     Company for certain costs incurred related to contract  performance  during
     the fourth  quarter of the 1997 fiscal  year and the first two  quarters of

                                      -30-
<PAGE>

     the 1998 fiscal year.  Wellco  maintained that it was due reimbursement for
     costs incurred in performing in accordance with a prior DSCP interpretation
     of the contract.  This interpretation was later changed to the detriment of
     Wellco.  The Agreement  provided that any  disagreement  between Wellco and
     DSCP on an item of cost will be subject to binding arbitration.

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

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

17. COMMITMENTS:

     Under a  Resolution  of its  Board of  Directors,  Wellco is  committed  to
     purchase its Common Stock which,  as of September 6, 1990,  was owned by or
     under option with an active or retired employee at that date. This purchase
     is at  the  employee  or  retiree  option  and  is  activated  only  by the
     termination of employment or death of the retiree. The purchase price is to
     be based on  Wellco's  tangible  book  value at the time of  purchase.  The
     maximum  number  of  shares  that  could be  purchased  at July 1,  2000 is
     approximately 81,000.

     The  Company has a  non-cancelable  operating  lease with the Puerto  Rican
     governmental agency for its manufacturing  facility.  The term of the lease
     is for ten  years,  beginning  July 1,  1999  with  monthly  payments  that
     commenced on January 1, 2000.  Total lease  payments for the period January
     1, 2000 through June 30, 2009 are  $1,425,000.  Lease  payments for each of
     the  Company's  five fiscal years ending after July 1, 2000 are:  $120,000,
     $120,000,  $135,000, $150,000 and $156,000. Lease expense for the Company's
     current Puerto Rican  facility in the 2000 fiscal year was $142,500.  Lease
     expense for the Company's former Puerto Rican facility in the 1999 and 1998
     fiscal years was $59,000 each year.

     At July 1, 2000, the Company had a $800,000 commitment to purchase  capital
     equipment.

18. RESTRUCTURING AND REALIGNMENT COSTS:

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

     The execution of this plan,  which  started in early May 1999,  resulted in
     the  elimination of 77 employment  positions at the Company's  Waynesville,
     North  Carolina  facility,  and in the transfer of a significant  amount of
     Waynesville  machinery  and materials to  Aguadilla.  Approximately  80 new
     personnel were added and trained in Aguadilla and the Aguadilla  operations
     have been moved to a larger  facility  which  incorporates  the  operations
     transferred from Waynesville.

                                      -31-
<PAGE>


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

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


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


     After July 1, 2000,  the Company  expects no additional  restructuring  and
     realignment costs associated with this plan.

     The Company has filed for a $400,000  reimbursement  from the government of
     Puerto Rico, under an incentive  grant,  relating to certain costs incurred
     in consolidating  substantially  all footwear  manufacturing  operations in
     Puerto Rico. Any amounts collected will be recorded in the period received.

                                      -32-
<PAGE>





INDEPENDENT AUDITORS' REPORT



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

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Wellco
Enterprises,  Inc. and subsidiaries  (the "Company") as of July 1, 2000 and July
3, 1999, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' equity, and cash flows for each of the three fiscal
years in the period  ended  July 1, 2000.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  such consolidated  financial statements present fairly, in  all
material respects,  the  financial position  of the Company  as of  July 1, 2000
and July 3, 1999,  and the results of its operations  and  comprehensive  income
(loss) and its cash flows for each of the three fiscal years in the period ended
July 1, 2000 in conformity with accounting  principles generally accepted in the
United State of America.

DELOITTE & TOUCHE LLP
Charlotte, North Carolina

September 28, 2000

                                      -33-
<PAGE>


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

                            Fiscal Year 2000 Quarters

                                          First    Second     Third       Fourth
--------------------------------------------------------------------------------
Market Price Per Share-
--------------------------------------------------------------------------------
High                                      8 1/8    8 3/8      8 1/8       10 1/2
--------------------------------------------------------------------------------
Low                                       7        7          6 7/8        7 1/4
--------------------------------------------------------------------------------
Per Share Cash Dividend Declared                   $.10                     $.15
--------------------------------------------------------------------------------


                            Fiscal Year 1999 Quarters

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


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  15,
2000 was 261.



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



                                      -34-
<PAGE>


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

                            Fiscal Year 2000 Quarters

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





                            Fiscal Year 1999 Quarters

                                          First    Second     Third       Fourth
--------------------------------------------------------------------------------
Revenues                                $ 4,957   $ 3,829   $ 4,383     $ 8,143
--------------------------------------------------------------------------------
Cost of Sales and Services                4,484     3,667     3,841       7,106
--------------------------------------------------------------------------------
Net Loss                                   (149)     (278) (C) (376)    (C) (34)
--------------------------------------------------------------------------------
Basic Loss Per Share                    $ (0.13)  $ .024    $ (0.32)    $ (0.03)
--------------------------------------------------------------------------------



     (A)Reduced by $359,000 in the first  quarter,  $19,000 in the third quarter
     and  $7,000  in  the  fourth  quarter,   representing   restructuring   and
     realignment costs. See Note 18 to the Consolidated Financial Statements.

     (B)Increased by $47,000 representing a restructuring credit of $122,000 due
     to the  difference in the  estimated and actual  pension cost of terminated
     employees  and  realignment  costs  of  $75,000.    See   Note  18  to  the
     Consolidated  Financial  Statements.  Also,  increased  by $203,000 for the
     contract  claim  discussed  in  Note  16  to  the  Consolidated   Financial
     Statements.

     (C)Reduced  by  $403,000 in the third  quarter  and  $413,000 in the fourth
     quarter,  representing  restructuring and realignment costs. See Note 18 to
     the Consolidated Financial Statements.


                                      -35-
<PAGE>


Officers and Directors

HORACE AUBERRY
Chairman of the Board and Chief Executive Officer

ROLF KAUFMAN
Vice Chairman of the Board

DAVID LUTZ
President and Chief Operating Officer and Treasurer

FRED K. WEBB, Jr.
Vice President of Marketing

Officers

SVEN E. OBERG
V. P. - Technical Director

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

TAMMY FRANCIS
Assistant Secretary and Controller
Directors

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

JAMES T. EMERSON
Retired Engineer

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

J. AARON PREVOST
Retired Banker

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

                                      -36-
<PAGE>




                                    PART III

Responsive  information  called  for by the  following  Items 10, 11, 12 and 13,
except for certain  information about executive officers provided below, will be
filed  not later  than 120 days  after  the  close of the  fiscal  year with the
Securities and Exchange  Commission in a Proxy Statement dated October 13, 2000,
and  is  incorporated  herein  by  reference.  After  each  item  and  shown  in
parenthesis  is the proxy  heading for the  section  containing  the  responsive
information.

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

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

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

          Name                 Age     Office
          ----------------------------------------------------------------------
          Horace Auberry        69     Chairman of the Board of Directors, Chief
                                       Executive Officer
          ----------------------------------------------------------------------
          David Lutz, CPA       55     President, Treasurer and Director
          ----------------------------------------------------------------------
          Rolf Kaufman          70     Vice Chairman, Board of Directors
          ----------------------------------------------------------------------
          Sven Oberg            61     Vice President-Technical Director
          ----------------------------------------------------------------------
          Fred K. Webb, Jr.     40     Vice President of Marketing
          ----------------------------------------------------------------------
          Richard A. Wood, Jr.  63     Secretary
          ----------------------------------------------------------------------
          Tammy Francis, CPA    41     Controller, Assistant Secretary
          ----------------------------------------------------------------------


In 1996, Mr. Kaufman  retired from the office of President and remains active as
a consultant to the Company  serving in the position as Vice Chairman,  Board of
Directors.  Mr. Lutz was elected to the office of President in 1996,  previously
serving as Secretary/ Treasurer.  Ms. Francis has been Controller since October,
1996 and was elected Assistant  Secretary in November,  1998. She was Controller
of Atlas Precision,  Inc., an injection  molding  manufacturer,  from 1995 until
October,  1996.  From 1990 until 1995, she was Manager of Finance and Accounting
at Haywood Electric Membership  Corporation,  a rural utility company.  Prior to
becoming  Secretary  of the  Company in 1996,  Mr. Wood served for more than the
past five years as Assistant Secretary. Mr. Wood is a partner in the law firm of
McGuire,  Wood & Bissett,  general  counsel to the Company.  Mr. Webb has been a
director  since 1996 and an employee  with the Company  since  August  1998.  In
February 1999,  Mr. Webb was elected Vice  President of Marketing.  Mr. Webb was
employed as an Accounting Team Leader with United Guaranty Corporation from 1989
until 1998.

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

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

                                      -6-
<PAGE>


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 2000  fiscal  year,  no  executive  officer  of the
Registrant or member of his immediate  family has had any  transaction or series
of similar transactions with the Registrant or any of its subsidiaries exceeding
$60,000, and there are no currently proposed transactions exceeding $60,000.

Since the beginning of the 2000 fiscal year, no -
         (1)  executive  officer  of the  Registrant  or member of his immediate
              family,
         (2)  corporation  or  organization  of  which  any  such  person  is an
              executive officer, partner, owner or 10% or more beneficial owner,
              or
         (3)  trust or other  estate in which any such person has a  substantial
              interest  or as to which  such  person  serves as  trustee or in a
              similar   capacity,   was  indebted  to  the   Registrant  or  its
              subsidiaries in an amount exceeding $60,000.

                                     PART IV

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

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

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

                                                                            Page
                                                                          Number
--------------------------------------------------------------------------------
The following consolidated financial statements of Wellco
Enterprises,  Inc. are in the Registrant's 2000 Annual Report
to Shareholders  which is integrated into Part II of this Form
10-K immediately after page 5
--------------------------------------------------------------------------------
Consolidated Balance Sheet-at July 1, 2000  and July 3, 1999             11-12*
--------------------------------------------------------------------------------
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the years ended July 1, 2000, July 3,
1999 and June 27, 1998                                                       10*
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flowsfor the years ended
July 1, 2000, July 3, 1999 and June 27, 1998                              13-14*
--------------------------------------------------------------------------------
Consolidated  Statements of Stockholders'  Equity for the years
ended July 1, 2000, July 3, 1999 and June 27, 1998                           15*
--------------------------------------------------------------------------------
Independent Auditors' Report                                                 33*
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements                                16-32*
--------------------------------------------------------------------------------

* Page number in the 2000 Annual Report to Shareholders integrated in Part II of
this Form 10-K.

2. Financial Statement Schedules


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


                                       -7-
<PAGE>


3. Exhibits
-----------
Exhibit                                                                     Page
Number      Description                                                   Number
--------------------------------------------------------------------------------
  3         Articles of Incorporation and By-Laws                           (a)
--------------------------------------------------------------------------------
  10        Material Contracts:
--------------------------------------------------------------------------------
            A. Bonus Arrangement*                                           (b)
--------------------------------------------------------------------------------
            B. 1996 Stock Option Plan for Key Employees of
               Wellco Enterprises, Inc.*                                    (c)
--------------------------------------------------------------------------------
            C. 1997 Stock Option Plan for Key Employees of
               Wellco Enterprises, Inc.*                                    (d)
--------------------------------------------------------------------------------
            D. 1997 Stock Option Plan for Non-Employee Directors of
               Wellco Enterprises, Inc.*                                    (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*                                   11-15
--------------------------------------------------------------------------------
  21        Subsidiaries of Registrant                                       16
--------------------------------------------------------------------------------

* Management Compensation Arrangement/Plan.

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

     Exhibit 3    $40.00
     Exhibit 10 A.  2.00
     Exhibit 10 B.  3.00
     Exhibit 10 C.  3.00
     Exhibit 10 D.  3.00
     Exhibit 10 E.  3.00
     Exhibit 10 F.  3.00
     Exhibit 10 G.  3.00
     (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 will be filed as Exhibit  A to the Proxy  Statement  to be
              dated October 13, 2000, and is incorporated herein by reference.
     (g)      Exhibit will be filed as Exhibit  B to the Proxy  Statement  to be
              dated October 13, 2000, and is incorporated herein by reference.

                                       -8-
<PAGE>


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

There were no reports on Form 8-K for the three months ended July 1, 2000.





                                       -9-
<PAGE>




                                   SIGNATURES

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

WELLCO ENTERPRISES, INC.

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

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

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


Date: September 29, 2000

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

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

/s/ David Lutz                                /s/ James T. Emerson
--------------------------------------------------------------------------------
David Lutz, Director                          James T. Emerson, Director
--------------------------------------------------------------------------------

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



Date: September 29, 2000

                                      -10-
<PAGE>




                                                                      EXHIBIT 10
                                                                      ----------
                            WELLCO ENTERPRISES, INC.

 EMPLOYMENT AGREEMENT WITH CHAIRMAN OF THE BOARD OF WELLCO'S BOARD OF DIRECTORS



The following five pages in this Form 10-K is the complete Employment  Agreement
with the Chairman of the Board of Directors of the registrant. The agreement was
approved by the Board of  Directors  on July 12, 2000 and signed by the Chairman
of the Board, Horace Auberry.




                                      -11-
<PAGE>






STATE OF NORTH CAROLINA

COUNTY OF HAYWOOD
                                                                       AGREEMENT

         THIS AGREEMENT,  is made and entered into this 12th day of July,  2000,
by and between HORACE AUBERRY,  a citizen and resident of Haywood County,  North
Carolina (hereinafter referred to as "Auberry"), and WELLCO ENTERPRISES, INC., a
corporation organized and existing under the laws of the State of North Carolina
with its principal place of business in the Town of Waynesville, Haywood County,
North Carolina (hereinafter referred to as "Wellco");

                                   WITNESSETH:
         WHEREAS,  Auberry is now serving  and since 1964 has served  Wellco and
its subsidiary corporations in important capacities, most notably as Chairman of
Wellco's Board of Directors since 1968; and
         WHEREAS, Wellco desires to assure itself of the continuing availability
of Auberry on the terms set forth in this Agreement;

         NOW,  THEREFORE,  in  consideration  of the  services to be rendered to
Wellco and its  subsidiary  corporations  by Auberry  hereunder,  and in further
consideration of the several  agreements to be kept and performed by the parties
hereto as hereinafter set forth, the parties hereto do hereby contract and agree
with each other as follows:

         1. Auberry will  continue in the  full-time  employment of Wellco until
December  31,  2000 or for such later  period of time as Wellco and  Auberry may
hereafter  agree. His base  compensation  effective July 1, 2000 shall be at the
annual rate of  $159,952.00,  plus any  profit-sharing  to be earned during said
year.

         2. Commencing January 1, 2001,  Auberry will continue  employment until
June 30, 2005 devoting  approximately  50% of his working time and receiving 50%
of his full-time salary with full fringe, insurance and other benefits available
to other  similar  executives  of Wellco or with working  time and  compensation
percentages  as  mutually  agreed  from time to time  between  the  Company  and
Auberry.

         3. At all  times  while  Auberry  is  working  as a full- or  part-time
employee and otherwise  receives  remuneration in accordance with the provisions
of this  Agreement,  Auberry  agrees  that he will (i) serve as  Chairman of the
Board of Directors or member of said Board of Directors  for such period of time
as he may be elected to either or both of said  positions  by Wellco's  Board of
Directors or  stockholders  respectively  and (ii)  represent  Wellco on various
industry  organizations  (e.g.,  Footwear  Industry of America,  AAMA, etc.) and
including  service on any  governmental  advisory  committees on which he may be
requested to serve by the Company.

     4.  Wellco  hereby  grants to Auberry  the option to  purchase up to 50,000
shares of the Company's common stock at an exercise price of $9.125 per share as

                                      -12-
<PAGE>

and when said  stock  options  become  vested  in favor of  Auberry  based  upon
Wellco's  earnings  per  share  for it's  2000-2001  fiscal  years  through  its
2004-2005 fiscal years, as follows.

            ====================================================================
            EARNINGS PER SHARE                             NO. OF SHARES
            FOR FISCAL YEAR                               VESTED ANNUALLY
            --------------------------------------------------------------------
                 $1.50                                         10,000
            --------------------------------------------------------------------
                 $2.00                                         20,000
            --------------------------------------------------------------------
                 $2.50                                         30,000
            --------------------------------------------------------------------
                 $3.00                                         40,000
            --------------------------------------------------------------------
            More than $3.00                                    50,000
            ====================================================================

     Any portion of the 50,000  shares  not  vested at the end of the  Company's
2004-2005   fiscal  year  in  accordance  with  the  foregoing   schedule  shall
nevertheless become vested at that time.

         In no event  shall  Auberry be granted  more than a total of  50,000.00
shares pursuant to said stock option program.  The right to exercise this option
with  respect  to the  shares  vesting in any  particular  year shall  expire on
earlier of (i) the fifth anniversary of the date of such vesting or (ii) one (1)
year after Auberry's separation from employment  hereunder.  The option shall be
subject to adjustment,  anti-dilution and other provisions relating to corporate
reorganizations  and capital events as are  applicable to stock options  granted
under Wellco's general employee stock option programs.

         5. During the term of this Agreement,  Auberry shall receive annually a
cash bonus equal to 2.5% of  Wellco's  consolidated  net income  after taxes and
after all  bonuses,  as  determined  and  certified  annually by Wellco's  Chief
Financial  Officer.  For any fiscal  year  during  said term in which  Auberry's
profit-sharing  as stated above is below  $25,000.00 or above  $150,000.00,  the
Compensation Committee will review and possibly recommend to the Company's Board
of Directors an adjusted amount of said profit-sharing.

         6. Wellco will continue group health insurance  benefits to Auberry and
his  dependent  while he is engaged in  full-time  employment  hereunder.  After
termination of Auberry's full-time employment hereunder and during the remaining
period of this  Agreement,  Wellco will pay or  reimburse to Auberry the cost of
his Medicare Supplement ("Part B") insurance.

         7.  Auberry  will not during  the term of this  Agreement  directly  or
indirectly  engage in the footwear  industry in the United States or any foreign
country,  either  as  an  employee,  agent,  consultant,   officer,  independent
contractor, sole proprietor, partner, stockholder, contractor or otherwise, with
any firm,  partnership  or  corporation  other than Wellco and/or its subsidiary
corporations,  without prior written approval of Wellco.  Auberry further agrees
that he will not, without prior written approval of Wellco,  reveal to or advise
any third  person,  firm or  corporation  in the  United  States or any  foreign
country  concerning  any of the special  methods or processes  of  manufacturing

                                      -13-
<PAGE>

footwear employed by Wellco and its subsidiary  corporations or by its licensees
or the licensees of any of its subsidiary  corporations.  Auberry further agrees
that if, during the time of this Agreement,  he shall conceive of or develop any
new or improved  machine,  method,  process or  invention  for the  manufacture,
distribution or sale of footwear,  Auberry will disclose to Wellco all pertinent
information  within his  possession  concerning  such new or  improved  machine,
method,  process or invention  and shall,  upon request by Wellco,  transfer and
assign to Wellco all rights thereto to the end that Wellco shall thereafter have
the sole right to use, make and sell or otherwise develop and exploit in any way
which it shall deem best and in any country or territory  whatsoever such new or
improved machine,  method,  process or invention.  In consideration of Auberry's
undertaking  herein Wellco will pay Auberry  annually 7 1/2% of Wellco's royalty
income received by Wellco from licensees during the period  hereinafter  defined
resulting from any products  manufactured and sold by Wellco licensees embodying
patentable  inventions and U.S.  government Value  Engineering  Change Proposals
("VECP's") developed by Auberry and 7 1/2% of 3% annually of the dollar value of
sales by Wellco itself utilizing such inventions or VECP's. This royalty payment
shall expressly include the "universal boot," polyurethane/rubber injection boot
and the  polyurethane  blast  protective boot in process of patenting by Auberry
for the  benefit  of Wellco and all VECP's  presently  outstanding  on behalf of
Wellco with the  federal  government.  Future  patentable  inventions  or VEPC's
developed  by Auberry and used by Wellco  shall be  specifically  identified  in
writing by Auberry  and Wellco in order for  Auberry to be  entitled  to receive
such payments hereunder.

         The royalty  payments  shall be  calculated  quarterly as of the end of
each of Wellco's  fiscal  quarters  and payable  within 45 days after the end of
each fiscal quarter.  The royalty provided  hereunder shall be paid with respect
to a  particular  patentable  invention  or  VECP,  for a period  of five  years
beginning  from the  date of the  first  bona  fide  sale to a third  party of a
product by Wellco or by a licensee embodying the particular patentable invention
or VECP. Wellco shall provide Auberry with a quarterly  accounting  breakdown of
transactions  generating  royalties,  and shall keep  records  sufficient  for a
determination to be made of the amount of royalty due hereunder. Auberry and his
representatives  shall have the right to review  Wellco's  books and  records to
verify the  computation  of royalties  payable under this Agreement upon written
request.

         8.  Any  controversy  or  claim  arising  out of or  relating  to  this
Agreement,  its  interpretation  or the  breach  thereof,  shall be  settled  by
arbitration in  Waynesville,  North  Carolina,  in accordance with the rules and
under the procedures of the American Arbitration  Association,  and the award of
the arbitrator rendered therein shall be binding upon both parties.

         9. The rights and  obligations of Wellco under this Agreement shall  be
binding upon Wellco, its successors and assigns,  including, but not limited to,
any person, firm or corporation or other business entity into which it may be in
any  manner  merged  or  consolidated  or to which it may at any time  hereafter
transfer all or substantially all of its assets. The obligations of Auberry, and
the rights of Auberry  under  Section 7 hereunder  shall  survive,  and shall be
binding upon and inure to the benefit of the  executors  and heirs of Auberry in
the event of his death during the term of this Agreement.  Otherwise, the rights
of Auberry hereunder shall not be assignable by Auberry during the term hereof.

                                      -14-
<PAGE>


         10. Except as above provided, this Agreement shall terminate at the end
of Wellco's fiscal year ending in 2005;  further provided,  however,  that if by
subsequent  Agreement between Auberry and Wellco Auberry's full-time  employment
continues  beyond  December 31, 2000 the  termination  of this  Agreement  shall
instead occur five years after Auberry ceases full-time employment with Wellco.

         11. This Agreement  shall be governed by the laws of the State of North
Carolina.  Any  amendment to this  Agreement  shall be in writing in order to be
enforceable  against  the other party  hereto.  IN WITNESS  WHEREOF,  Wellco has
caused this  Agreement  to be executed in duplicate  originals in its  corporate
name and its corporate seal affixed by its duly authorized  officers pursuant to
the authority duly given by its Board of Directors, and Auberry has hereunto set
his hand and seal, all as of the day and year first above written.

                                                        WELLCO ENTERPRISES, INC.

/s/ Horace Auberry                                      /s/ David Lutz
-------------------------                               ------------------------
 Horace Auberry                                         David Lutz, President



                                              Attest:
                                              /s/ Tammy Francis
                                              ----------------------------------
                                              Tammy Francis, Assistant Secretary




                                      -15-
<PAGE>