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, 2006

                          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 if the registrant is a well-know seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes     No   X .
   ----   -----

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 of Section 15(d) of the Act.
Yes     No   X .
   ----   -----

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.. ( )

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rul 12b-2 of the Exchange Act: Large
accelerated file ( ) Accelerated filer ( ) Non-accelerated filer (X)

Indicated by check mark whether the registrant is a shell company (as defined in
 Rule 12b-2 of the Act):  Yes      No  X   .

As of August 31, 2006, 1,270,746 common shares were outstanding, and the
aggregate market value of the common shares (based upon the closing price of
these shares on the American Stock Exchange on August 31, 2006) of Wellco
Enterprises, Inc. held by nonaffiliates was approximately $5,700,000.

Documents incorporated by reference:
         Definitive Proxy Statement, to be dated October 13, 2006, in PART IV.
         Form 8-K, dated April 25, 2006, Part IV (Commission File No 001-05555
         06 776827)
         Form 8-K, dated March 17, 2006, Part IV (Commission File No 001-05555
         06 694859)
         Definitive Proxy Statement, dated October 17, 2003, in PART IV.
         (Commission File No 001-05555 03 960316)



<PAGE>




         Definitive Proxy Statement, dated October 17, 1997, in PART IV.
         (Commission File No 001-05555 97 698354)
         Definitive Proxy Statement, dated October 18, 1996, in PART IV.
         (Commission File No 001-05555 96 646538)
         Form 10-K for the Fiscal Year Ended July 1, 2004, in PART IV.
         (Commission File No 001-05555 04 1057733)
         Form 10-K for the Fiscal Year Ended July 1, 2000, in PART IV.
         (Commission File No 001-05555 00 734911)

                                     PART I
                                     ------

Item 1. Business.
----------------

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

Footnote 15 to the Consolidated  Financial Statements contains information about
revenues by similar  sources and by geographic  areas.  The majority of revenues
($38,528,000  in 2006 and  $44,249,000  in 2005)  were  from  sales to the U. S.
government,  primarily the Defense  Supply  Center  Philadelphia  (DSCP),  under
contracts  for the supply of boots used by the U. S. Armed  Forces.  The loss of
this customer would have a material adverse effect on the Company.

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

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

Net income for the 2006 fiscal year was $746,000 ($0.58 diluted income per
share) compared to net income of $1,907,000 ($1.47 diluted income per share) for
the 2005 fiscal year.

Compared to the prior year, total revenues in the current year decreased by
$6,445,000. The primary reason for the decrease was a 15% reduction of total
pairs of boots shipped to the U.S. government. Gross profit for the current
period was 8.2% of revenues as compared to gross profit of10.4% for the prior
period. This decrease in gross profit as a percentage of revenues is primarily
due to a higher per unit manufacturing costs associated with lower production
levels and the decrease of $787,000 in reimbursement of revenues from the Puerto
Rican government grant.

More information about these, and other events affecting Wellco's 2006 and 2005
operating results, are contained in the Management's Discussion and Analysis of
Results of Operations and Financial Condition section of the Company's 2006
Annual Report to Shareholders which is incorporated in Part II of this Form
10-K.

                                       -1-

<PAGE>



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

The Company competes on U. S. government contracts with several other companies,
none of which dominates the industry.  Bidding on contracts is very competitive.
U. S. footwear  manufacturers  have been adversely affected by sales of footwear
made  in  low  labor  cost  countries.   This  has  significantly  affected  the
competition  for contracts to supply boots to U. S. Armed  Forces,  which by law
must be made in the  United  States.  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. Most of our current
boot  contracts  contain  additional  option  periods to purchase  boots and the
options are exercisable at the government's discretion.

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

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

Government contracts are subject to partial or complete termination under the
following circumstances:
         (1)      Convenience of the Government. The government's contracting
                  officer has the authority to partially or completely terminate
                  a contract for the convenience of the government only when it
                  is in the government's interest to terminate. The contracting
                  officer is responsible for negotiating a settlement with the
                  contractor.

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

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

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

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

                                       -2-

<PAGE>



will continue to  be a significant factor in our growth and development.

Of the total amount spent on research and development, a significant portion is
for personnel costs of mold engineers, rubber technicians, chemists, pattern
engineers and management, all of whom have many responsibilities in addition to
research and development. The Company estimates that the total cost of research
and development, the majority of which is company sponsored, for fiscal years
2006, 2005 and 2004 is $83,000, $78,000 and $101,000.

The Company's backlog of all sales, not including license fees and rentals, as
of September 22, 2006 was approximately $6,700,000 compared to $17,300,000 at
August 31, 2005. The Company estimates that substantially all of the current
year backlog will be shipped in the 2007 fiscal year. The current year's backlog
decreased because the Department of Defense has stated that they are in an
over-inventoried position on some products related to boots. Thus, DOD orders
have decreased.

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

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

The Company employed an average of 719 persons during the 2006 fiscal year.

Item 1A. Risk Factors.
---------------------

The Company's business, operations, and financial condition are subject to
various risks. Some of these risks are described below. This section does not
describe all risks that may be applicable to the Company, the Company's
industry, or the Company's business, and it is intended only as a summary of
certain material risk factors.

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

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

Most boot contracts are for multi-year periods. Therefore, a bidder not
receiving an award from a significant solicitation could be adversely affected
up to five years. In addition, current boot contracts contain options for
additional pairs that are exercisable at the sole discretion of the government.
The Company's business may be adversely affected by periodic difficulties in
obtaining raw materials and other items needed for the production of its

                                       -3-

<PAGE>



products, the effects of quality deviations in raw materials and fluctuations in
prices of such materials.

We rely on our manufacturing facility in Aguadilla, Puerto Rico and our
warehousing center in Waynesville, North Carolina. Any natural disaster or other
serious disruption at either of these facilities due to fire, hurricane, flood,
terrorist attack or any other cause could impair our ability to meet deliveries
and adequately supply our customers with products and adversely affect our
operating results.

Some of our operations use substances  regulated under various  federal,  state,
local and  international  environmental  and  pollution  laws,  including  those
relating to the  storage,  use,  discharge,  disposal and labeling of, and human
exposure to,  hazardous  and toxic  materials.  We could incur costs,  fines and
civil or criminal  sanctions,  third party  property  damage or personal  injury
claims,  if we were to violate or become  liable under any  environmental  laws.
There can be no assurance that violations of  environmental  laws or regulations
have not  occurred  in the past and will not occur in the  future as a result of
our inability to obtain permits, human error, equipment failure or other causes,
and any such violations could harm our business and financial condition.

Since the Company's first source of liquidity is cash from operations, a
decrease in sales of the Company's products would reduce this source of
liquidity and result in increased use of the bank line of credit. The bank line
of credit of $7,500,000 will expire on December 31, 2006 and will then be
subject to renewal at the discretion of the bank. Historically, the bank has
always renewed the line of credit. Under conditions of substantial reduction in
operations, with little basis for projecting a reversal of such reduction, it is
possible that the bank would cancel or not renew the line of credit. Events that
would cause a substantial reduction in operations include, but are not limited
to, cancellation of existing government contracts or receiving government
contracts that do not provide enough revenues to provide adequate liquidity.

The Estate of James T. Emerson owns 57% of our stock. The Estate of James T.
Emerson can direct our affairs and significantly influence the election or
removal of our directors and the outcome of all matters submitted to a vote of
our stockholders. The interest of our principal stockholder may conflict with
interests of other stockholders. This concentration of ownership may harm the
market price of our common stock.

Our success depends in part on our ability to retain key executives and to
attract and retain additional qualified management personnel who have experience
both in defense contracting and small public companies. Competition for such
personnel is strong in the footwear industry and we may not be successful in
attracting or retaining the personnel we require. We expect to effectively
compete in this area by offering competitive financial packages that include
incentive-based compensation.

Item 1B.  Unresolved Staff Comments.  (None)
-------   -------------------------

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

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

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

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

There are no material  pending legal  proceedings,  other than ordinary  routine
litigation incidental to the Company's business, to which the Company or any of

                                       -4-

<PAGE>



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 2006.











                                       -5-

<PAGE>



















                                    WELLCO(R)
                                ENTERPRISES, INC.
                                  ANNUAL REPORT
                                      2006







<PAGE>








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

                                                Fiscal Year Ended

                             July 1,    July 2,   July 3,   June 28,   June 29,
                                2006      2005       2004       2003       2002
--------------------------------------------------------------------------------

Revenues                    $ 44,022  $ 50,467   $ 45,693   $ 24,833   $ 19,981
--------------------------------------------------------------------------------

Net Income                       746     1,907      2,448        823        683
--------------------------------------------------------------------------------

Basic Earnings per Share        0.59      1.51       2.04       0.70       0.58
--------------------------------------------------------------------------------

Diluted Earnings per Share      0.58      1.47       1.97       0.68       0.56
--------------------------------------------------------------------------------

Cash Dividends Declared
per Share of Common Stock       0.60      0.60       0.45       0.40       0.40
--------------------------------------------------------------------------------

Total Assets at Year End      18,150    20,804     22,919     15,310     12,929
--------------------------------------------------------------------------------

Long-Term Liabilities at
Year End                    $  2,054  $  2,462   $  2,112   $  1,972   $  1,328
--------------------------------------------------------------------------------



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



Independent Auditors
Dixon Hughes PLLC
Asheville, N.C.

Annual Meeting
November 14, 2006
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>




To:      Our Valued Shareholders:

         For fiscal year 2006, your Company had net income of $746,000
equivalent to basic earnings per share of $0.59 (diluted $0.58) from revenues of
$44,022,000. This compares with net income of $1,907,000 in the 2005 fiscal
year, from revenues of $50,467,000. Management Discussion and Analysis section
of the 2006 Annual Report will provide additional comparative information
pertaining to the reasons for the changes occurring between fiscal years 2006
and 2005 results
..
         Although revenues were lower in fiscal 2006 when compared to fiscal
2005, revenues for fiscal 2006 were strong when compared to fiscal years 2002,
2003, 2004. As discussed in 2005 Annual Report, manufacturing inefficiency
issues from 2005 also continued through the first three quarters of fiscal year
2006.
          Late in the third quarter of fiscal year 2006, I was named by your
Board of Directors as President and Chief Executive Officer. Since that time, we
have worked tirelessly to build a management team that I believe is highly
skilled and ready to face the challenges that lie ahead.

         The Company's boot manufacturing is performed by a wholly-owned
subsidiary located in Aguadilla, Puerto Rico. The challenges this operation has
been faced with that were alluded to in the prior year's 2005 Annual Report
continued throughout the fiscal 2006 year. Although progress aimed at improving
operations in Puerto Rico has been slow to materialize, your new management team
made significant inroads toward operational improvements within the fourth
quarter of fiscal year 2006. During the fourth quarter the new management team
worked diligently on reducing costs related to overhead expense, improved many
processes related to manufacturing methods, significantly reduced labor content
on many select operations, intertwined automation with multiple operations,
along with improvement in material consumption levels at operations in Puerto
Rico.
         The success of all of the above resulted in gross margin improvement to
16% in the fourth quarter of 2006, up from the prior three quarters' average
gross margin of 6%. Your management remains very focused on continued process
improvements aimed at further improving our gross margin throughout fiscal year
2007 and beyond.

         On July 7, 2006, your Company was awarded a new option for Temperate
Weather boots known as Option III. The minimum pairs awarded were 10,000 pairs
with a maximum pair opportunity of 227,000 pairs. The Company received delivery
orders against this option for 15,000 pairs during the first quarter of fiscal
year 2007. Your Company is near the completion of the third and final year of
the Hot Weather boot contract. During September 2006, we were notified of two
orders totaling 60,000 pairs of the Hot Weather boot that will be shipped during
the second and third quarters of fiscal year 2007.

                                      -2-

<PAGE>

         Recently, your Company has submitted a bid for a new Hot Weather boot
solicitation with anticipated award in late calendar year 2006 or early 2007.
The minimum pairs for this contract are 83,045 pairs with a maximum pair
opportunity of 444,968 pairs per base year and four option years. Government
bidding is very competitive and your Company cannot predict its being awarded or
not being awarded a contract from any solicitation. As mentioned above, we have
recently implemented many new cost reductions to enable us to remain competitive
in the bidding process.

         Your Company also submitted a bid for a new solicitation for a boot
known as the Intermediate Cold Weather Boot. This particular boot will have a
minimum 60,000 pairs with a maximum of 90,000 pairs per base year and four
option years available. Your Company has also submitted a bid for a boot known
as the Flight Deck Safety Boot. This product is a new item for Wellco in the bid
process. The contract calls for minimum 37,782 pairs with maximum potential of
88,842 pairs in the base year with four option years.

         Our DOD contracts are multi-year indefinite order quantity contracts.
Each contract provides for a minimum number of pairs to be procured by the DOD,
along with a maximum number of pairs that may be purchased by the DOD through
issuance of delivery orders against that particular contract. While the
multi-year feature of any contract provides for a certain number of years of
delivery solely at the government's discretion, the indefinite quantity feature
is often a variable that makes it extremely difficult to project actual levels
of sustainable boot sales and deliveries for any given year.

         For several years, the Company has also sold its various products
through the commercial channel of distribution. The Company offers military
specification products, as well as an assortment of products designed at
servicing the military and law enforcement tactical end users that offer lighter
weight and added levels of comfort. The Company has historically sold its
products into the commercial channel via e-commerce and telemarketing
methodologies. Although this effort has been marginally successful, the Company
is looking to bring on line a sales representative force to better promote the
Company product by taking the Company's products and technology direct to the
retail distributors. This will create a greater brand awareness to current and
potential accounts at a higher level of involvement than previously
communicated. The sales representatives will all be paid on a commission basis.
The Company is interviewing representatives based on their experience in the
target marketplace. The Company expects to be selling via the new methodology by
the start of the third quarter of fiscal 2007.

         Going into fiscal year 2007, we have a lower than normal level of
backlog for DOD orders. The DOD has stated that it is their feeling they are in
an over-inventoried position on some products related to boots. With a new Hot
Weather contract due to be awarded by late 2006 or early 2007, we are feeling
optimistic about returning to higher levels of production within that period of
time.

                                      -3-

<PAGE>

         In conclusion, fiscal year 2006 was a year of ongoing challenges. Our
associates have responded to many of those challenges in a highly constructive
manner. The associates of your Company are focused to handle the challenges in
the future and are very dedicated and committed to making Wellco a more
efficient company in the months ahead. Your Company as a whole is focused on
long-term value creation by expanding our products and broadening our customer
base while reducing manufacturing costs. We are dedicated to building value for
our shareholders.



-----------------------------------
Lee Ferguson
Chief Executive Officer and President








                                      -4-

<PAGE>












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

RESULTS OF OPERATIONS

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

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

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

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

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

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

              The Company has recorded a valuation allowance for part of its
              deferred tax assets. The valuation allowance is based on an
              evaluation of the uncertainty of future taxable income from
              certain jurisdictions. An adjustment could be required if
              circumstances and events cause the Company to change these
              estimates.

                                      -5-

<PAGE>


Comparing the Fiscal Year ended July 1, 2006 to the Fiscal Year ended July 2,
-----------------------------------------------------------------------------
2005:
----

                                    OVERVIEW
                                    --------
The most significant events occurring during fiscal year ended July 1, 2006
(current period) compared to the fiscal year ended July 2, 2005 (prior period)
are:

         1. 15% decrease in total pairs of boots sold under contracts with the
            U.S. Department of Defense (DOD).

         2. In the current period, the Company received $787,000 less than the
            prior period as reimbursement from the Government of Puerto Rico for
            part of the compensation paid to certain employees. These payments
            are recorded as revenues in the period received.

Comparative results for these two periods is as follows:

--------------------------------------------------------------------------------
                               Fiscal Year    Fiscal Year
                                Ended July     Ended July    Change  % of Change
(Amounts in thousands)             1, 2006        2, 2005
--------------------------------------------------------------------------------
Revenues                           $44,022        $50,467   $(6,445)      (13)%
--------------------------------------------------------------------------------
Cost of Sales and Services          40,400         45,232    (4,832)      (11)%
--------------------------------------------------------------------------------
Gross Profit                         3,622          5,235    (1,613)      (31)%
--------------------------------------------------------------------------------
General and Administrative
Expenses                             2,716          2,717        (1)        -
--------------------------------------------------------------------------------
Grant Income                           174            135        39        29%
--------------------------------------------------------------------------------
Operating Income                     1,080          2,653    (1,573)      (59)%
--------------------------------------------------------------------------------
Net Interest Expense                   264            253        11         4%
--------------------------------------------------------------------------------
Income Taxes                            70            493      (423)      (86)%
--------------------------------------------------------------------------------
Net Income                            $746         $1,907   $(1,161)      (61)%
--------------------------------------------------------------------------------

For the current period, the Company had a net income of $746,000 from revenues
of $44,022,000 compared to a net income of $1,907,000 from revenues of
$50,467,000.

The Company's primary customer is the Defense Supply Center Philadelphia (DSCP),
the Department of Defense agency with which the Company contracts for the
manufacture of boots used by U. S. Armed Forces personnel. Revenues decreased by
$6,445,000. The primary reason for the decrease was a 15% reduction of total
pairs of boots shipped to the U.S. government. During the prior year, the
Company was awarded and completed an exigency contract for 110,000 pairs of the
Temperate Weather Army Combat Boot (TW). Comparing fiscal years 2006 and 2005,
pairs shipped of the TW boot decreased 55,000 pairs because fiscal year 2005
included the exigency contract. Also, pairs sold of the Hot Weather boot (HW)
deceased 88,000 pairs during fiscal year 2006 when compared to the prior period
due to DSCP reducing inventories of certain boots. However, DSCP increased their
purchases of the Extreme Cold Weather boot by 56,000 pairs.

                                      -6-

<PAGE>

The majority of the Company's boot manufacturing operations occur at the factory
of a wholly-owned subsidiary located in Puerto Rico. The Company's Puerto Rico
subsidiary participates in a Puerto Rico government program under which certain
portions of wages paid to new employees in training are reimbursed to that
subsidiary. In the current period, the Company received from the Government of
Puerto Rico $598,000 under this program. This is $787,000 less than the
$1,385,000 received during the prior year. The Company's policy is to recognize
the reimbursements as revenue in the period that it is received, and not when
the related compensation is paid.

Gross profit for the current period was $3,622,000 or 8.2% of revenues as
compared to gross profit of $5,235,000 or 10.4% for the prior period. This
decrease in gross profit as a percentage of revenues is primarily due to a
higher per unit manufacturing costs associated with lower production levels and
the decrease of $787,000 in reimbursement of wages from the Puerto Rican
government mentioned above.

In early August 2005, the only U.S. supplier of a DOD required component had a
significant quality problem. The Company's rate of boot production was reduced
due to the limited supply of this component. After the supplier resolved his
quality problem the rate of production continued to be impaired as it took that
supplier several weeks to reestablish full production. The supplier agreed to
reimburse the Company certain excess manufacturing costs and the current period
costs have been reduced by the amount invoiced for these excess costs. However,
some of the excess costs could not be recouped from the supplier and this
decreased the gross profit percentage for the current period.

From time to time, the Company receives grants from the government of Puerto
Rico, primarily related to the expansion of manufacturing operations. Grant
income represents the straight-line recognition of grants over the grant period,
with grant income first recognized in the period in which it is received. Fiscal
years 2006 and 2005 reflect recognition of income from a new grant covering the
fiscal years 2004 through 2008. The fiscal year 2004 amount represents the last
recognition of a grant issued in 1999. See Footnote 17 to Consolidated Financial
Statements.

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

The income tax rate (the percent of Provision for Income Taxes to the Income
Before Income Taxes) for the 2006 fiscal year was 9% compared to 21% for the
prior fiscal year. Income earned by the Company's Puerto Rico subsidiary, which
is exempt from Puerto Rico income tax is currently partially exempt from U. S.
income taxes. Fiscal year 2006 is the last year in which this subsidiary has an
exemption from U. S. income taxes. In addition, for the current period, the
Company has reversed part of a previously recorded valuation allowance on
deferred tax assets that are now likely to be realized. See Footnote 11 to the
Consolidated Financial statements.


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

Comparative results for these two periods are as follows:

--------------------------------------------------------------------------------

                                Fiscal Year    Fiscal Year
                                Ended July     Ended July    Change  % of Change
(Amounts in thousands)             2, 2005        3, 2004
--------------------------------------------------------------------------------
Revenues                          $ 50,467      $  45,693  $  4,774         10%
--------------------------------------------------------------------------------
Cost of Sales and
Services                            45,232         39,438     5,794         15%
--------------------------------------------------------------------------------

                                      -7-

<PAGE>

Gross Profit                         5,235          6,255    (1,020)       (16)%
--------------------------------------------------------------------------------
General and
Administrative Expenses              2,717          3,009      (292)       (10)%
--------------------------------------------------------------------------------
Grant Income                           135             80        55         69%
--------------------------------------------------------------------------------
Operating Income                     2,653          3,326      (673)       (20)%
--------------------------------------------------------------------------------
Net Interest Expense                   253            196        57         29%
--------------------------------------------------------------------------------
Income Taxes                           493            682      (189)       (28)%
--------------------------------------------------------------------------------
Net Income                        $  1,907       $  2,448   $  (541)       (22)%
--------------------------------------------------------------------------------



<PAGE>


In late March 2003, DSCP exercised its surge option clause under contracts to
manufacture the Hot Weather (HW) boot. Surge orders ended in early fiscal year
2005, and the pairs of HW boots shipped in 2005 was 256,000 compared to 514,000
pairs in fiscal year 2004.

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

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

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

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

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

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

                                      -8-


<PAGE>



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

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

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

In early February 2006, Department of Defense extended the delivery dates for
two boot orders under its contracts. The original delivery dates for boot
shipments in April through June 2006 were extended to May through August 2006.
The Company was informed the Army's current usage of boots was lower than the
rate projected when the orders were issued. This was only an extension of the
shipping date and no orders were cancelled. Subsequently, the DOD provided the
Company with additional specific information about the significant reduction in
year-to-year comparative boot usage.

During the three months of June, July and August 2006, DOD has issued much
smaller orders for HW and TW boots. The Company has substantially completed
production on these orders during the first quarter of fiscal year 2007, which
will end September 30, 2006. Due to limited DOD orders, Wellco will ship
approximately 50,000 pairs of boots to Defense Department for the first quarter
of 2007compared to 92,000 pairs shipped the first quarter 2006.

 During the month of September 2006, DOD issued orders for 60,000 pairs of HW
boots and 5,000 pairs of TW boots. Approximately 50,000 pairs of these orders
will be shipped during the second fiscal quarter of 2007 compared to 119,000
pairs shipped during the second quarter of 2006. The reduction in boot
production will have a negative effect on margins for the first and second
quarters of 2007.

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

         On September 23, 2005, the Defense Department exercised the second and
         final option year under the Company's Hot Weather boot contract. The
         second option year is for the period October 2005 through September
         2006. For the second option year, the minimum pairs are 41,000 and the
         maximum is 256,000. Pairs ordered to date under the second option year
         are 169,000.

         On August 2, 2006, the Company submitted a proposal for the new Hot
         Weather boot solicitation. The solicitation is for an indefinite
         quantity contract with a base year and four one-year option periods.
         DSCP has 180 days to award the contract and intends to make five
         awards, of which three will be restricted to contractors who meet the
         criteria for being a small business, and two contracts will be awarded
         without the small business restriction. The Company is not a small
         business. Bidding on government solicitations is very competitive, and
         the Company cannot confidently predict its success in receiving a
         contract award from any solicitation. If the Company does not receive a
         contract from this solicitation, future operating results and liquidity
         will be adversely affected.

                                      -9-

<PAGE>


         On July 7, 2006, the Defense Department exercised the third option year
         under the Company's Temperate Weather boot contract. For the third
         option year, the minimum pairs are 10,000 and the maximum are 227,000.
         Pairs ordered to date under the third option year are 15,000.This
         contract has one more option year outstanding. The exercise of any
         contract option is the unilateral decision of the Defense Department.

         On April 13, 2006, the Company received a Department of Defense
         contract to supply the U.S. Army with Extreme Cold Weather boots. This
         contract is for a one year period, with four one year options which are
         exercisable at the government's discretion. The base year is for a
         minimum of 5,000 pairs and a maximum of 29,000 pairs.

The Company also submitted a bid for a new solicitation for a boot known as the
Intermediate Cold Weather Boot. This particular boot will have a minimum 60,000
pairs with a maximum of 90,000 pairs per base year and four option years
available. The Company has also submitted a bid for a boot known as the Flight
Deck Safety Boot. This product is a new item for Wellco in the bid process. The
contract calls for minimum 37,782 pairs with maximum potential of 88,842 pairs
in the base year with four option years.

The majority of the Company's boots manufacturing operations occur at the
factory of a wholly owned subsidiary located in Puerto Rico. The Company is
participating in a Puerto Rican government program under which it is reimbursed
for part of the compensation paid to certain employees in training. As of July
1, 2006, $808,000 has been filed for, but has not been received or recorded as
revenues, reimbursement under this program. The government of Puerto Rico
recently suspended new contracts for this program. The Company understands that
this suspension will not affect its collection of the $808,000. In the past
three fiscal years, the Company has received and recorded as revenues a total of
$2,300,000 under this program.

In December 2005, the Company was one of two contract awardees for the
development of the US Army Modular Boot System. This award was the result of the
Company's response to the Modular Boot System solicitation that required
submission of data and product demonstration models illustrating the Company's
concept of the modular boot system.

This contract provides the development of a Modular Boot System for the U. S.
military. Presently, the Department of Defense buys four different boot styles
to meet the varied climatic conditions encountered by military personnel. The
contract's goal is to develop a functional boot system to provide comfort in a
temperature range of -60(0)F to 120(0)F. If successful, the new Modular Boot
System would replace many, if not all, of the current boot styles.

The Department of Defense placed its first order under this contract for 580
pairs of the Modular Boot System and the boots were shipped in March 2006.
Recent feedback from the Natick Contracting Division of the U.S. Army was very
positive on the testing of the first order of boots. Recently, DOD exercised the
second option to supply the development of the Modular Boot System. At the same
time, they issued an order for 450 pairs of the MBS for expanded testing. If the
Wellco Modular Boot System is successful through all phases of development and
testing, the contract provides for Wellco to manufacture 160,000 pairs of this
boot for issuance to military personnel. As with any contract, there is no
assurance that Wellco will be successful in development of the Army's Modular
Boot System.

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

                                      -10-

<PAGE>

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

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

A 1% increase in the assumed discount rate used to compute the Company's pension
benefit obligation would decrease the obligation at June 30, 2006 by
approximately $517,000. Conversely, a 1% decrease in the assumed discount rate
would increase the benefit obligation at June 30, 2006 by approximately
$621,000.

A 1% increase in the assumed discount rate used to compute the Company's retiree
health benefit obligation would decrease the benefit obligation at July 1, 2006
by approximately $22,000. Conversely, a 1% decrease in the assumed discount rate
would increase the benefit obligation at July 1, 2006 by approximately $26,000.

                         LIQUIDITY AND CAPITAL RESOURCES

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

                                            ( in thousands)
    -----------------------------------------------------------------
                                        2006        2005         2004
    -----------------------------------------------------------------
    Cash and Cash Equivalents            $44         $34          $58
    -----------------------------------------------------------------
    Unused Bank Line of Credit         6,875       5,780        3,220
    -----------------------------------------------------------------
    Total                             $6,919      $5,814       $3,278
    -----------------------------------------------------------------

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

                                                (in thousands)
    -------------------------------------------------------------------
    Cash provided by (used in):        2006         2005          2004
    -------------------------------------------------------------------
    Operating activities             $2,365       $3,976       $(1,384)
    -------------------------------------------------------------------
    Investing activities               (498)      (1,497)       (2,066)
    -------------------------------------------------------------------
    Financing activities             (1,857)      (2,503)        3,375
    -------------------------------------------------------------------
    Net increase (decrease) in
    cash and cash equivalents           $10        $(24)          $(75)
    -------------------------------------------------------------------

                                      -11-

<PAGE>


Operating Activities: In the 2006 fiscal year, cash provided by operations was
$2,365,000. Net income of $746,000, depreciation of $1,337,000 and a $2,246,000
decrease in inventories were the main operating sources of cash. The main uses
of operating cash were a decrease of $1,196,000 in accounts payable, a decrease
of $242,000 in accrued income taxes, a decrease of $257,000 in accrued
compensation and an increase of $354,000 in accounts receivable.

Investing Activities: For the 2006 fiscal year, purchases of machinery and other
equipment was $498,000.

Financing Activities: For the 2006 fiscal year, the Company's net cash used in
financing activity totaled $1,857,000. The use of financing activities were
$762,000 to pay quarterly dividend payments to stockholders and $1,095,000 was
used to repay the line of credit borrowings.

In 2005, cash provided by operations was $3,976,000. Net income of $1,907,000,
depreciation of $1,277,000 and $2,865,000 decrease in accounts receivable were
the main operating sources of cash. The main uses of operating cash were a
decrease of $747,000 in accounts payable, a decrease of $676,000 in accrued
income taxes, a decrease of $266,000 in accrued compensation and an increase of
$594,000 in inventory. $58,000 of cash from the beginning of the fiscal year
along with $317,000 from stock option exercises and cash provided by operations,
provided the cash for purchases of equipment of $1,497,000, the payment of cash
dividends of $760,000 and $2,060,000 was used to repay the line of credit
borrowings.

In 2004, cash used by operations was $1,384,000. Net income of $2,448,000 and
depreciation of $1,100,000 was far short of providing the cash needs for an
increase of $2,620,000 in accounts receivable and $4,062,000 in inventory. The
increase in accounts receivable and inventory was primarily caused by surge and
the new ICB contract. $133,000 of cash from the beginning of the fiscal year,
along with $3,190,000 of borrowings from the line of credit and $730,000 from
stock option exercises, provided the cash for purchases of equipment of
$2,066,000 and the payment of cash dividends of $545,000.

The following table shows aggregated information about contractual obligations
as of July 1, 2006:

                                            Payments Due by Period
      --------------------------------------------------------------------------
                             Total  Less Than 1                            After
                                           Year   1-3 Years  4-5 Years   5 Years
      --------------------------------------------------------------------------

      Long -Term Debt     $300,000           -         -      $300,000       -
      --------------------------------------------------------------------------
      Building Lease       841,000     $271,000    $570,000       -          -
      --------------------------------------------------------------------------
      Total             $1,141,000     $271,000    $570,000   $300,000       -
      --------------------------------------------------------------------------


During fiscal year 2006, the Company had the following material cash payments
for interest of $258,000, pension plans contributions of $371,000 and income
taxes paid of $186,000. For fiscal year 2007, the Company expects future cash
requirements for these disclosed items to approximate the historical amounts
paid during the previous year.

The Company has a commitment to purchase certain equipment of $350,000 during
the first half of fiscal year 2007. Other than this, Wellco does not know of any
other demands, commitments, uncertainties, or trends that will result in or that
are reasonably likely to result in its liquidity increasing or decreasing in any
material way.

                                      -12-

<PAGE>


The bank line of credit of $7,500,000 will expire on December 31, 2006 and will
then be subject to renewal at the discretion of the bank. Historically, the bank
has always renewed the line of credit. Under conditions of substantial reduction
in operations, with little basis for projecting a reversal of such reduction, it
is possible that the bank would cancel or not renew the line of credit. Events
that would cause a substantial reduction in operations include, but are not
limited to, cancellation of existing government contracts or receiving
government contracts that do not provide enough revenues to provide adequate
liquidity.

At July 1, 2006, $6,875,000 of additional borrowings was available under the
bank line of credit and the Company was in compliance with the loan covenants on
that date.

Since the Company's first source of liquidity is cash from operations, a
decrease in sales of the Company's products would reduce this source of
liquidity and result in increased use of the bank line of credit. Based on
information available to date, the Company believes that operations will
continue to be a significant source of cash in fiscal year 2007.

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


          o       All amounts borrowed shall become due and immediately payable
                  upon demand of the bank.
          o       The bank's obligation to make advances under the note shall
                  terminate: if the bank makes a demand for payment; if a
                  default under any loan document occurs; or, in any event, on
                  December 31, 2006, unless the Note is extended by the bank
                  under terms satisfactory to the bank.

          o       All amounts borrowed shall become immediately payable if
                  Wellco commences or has commenced against it a bankruptcy or
                  insolvency proceeding, or in the event of default.

Events of default include:


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


           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

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

These factors include, but are not limited to, the receipt of contracts from the
U. S. government and the performance thereunder; the ability to control costs
under fixed price contracts; the cancellation of contracts; and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings, including Form 10-K for the year ended July 1, 2006. Those statements
include, but may not be limited to, all statements regarding intent, beliefs,
expectations, projections, forecasts, and plans of the Company and its
management. Actual results may differ materially from management expectations.
The Company assumes no obligation to update any forward-looking statements.

                                      -13-

<PAGE>





                            WELLCO ENTERPRISES, INC.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                           FOR THE FISCAL YEARS ENDED
                   JULY 1, 2006, JULY 2, 2005 AND July 3, 2004
                     (in thousands except per share amounts)

                                                JULY 1,     JULY 2,      JULY 3,
                                                   2006        2005         2004
                                               ---------------------------------
REVENUES (Notes  5 and 15) ................    $ 44,022    $ 50,467     $ 45,693
                                               --------     -------     --------

COSTS AND EXPENSES
     Cost of sales and services ...........      40,400      45,232       39,438
     General and administrative
     expenses .............................       2,716       2,717        3,009
                                               --------     -------     -------
     Total ................................      43,116      47,949       42,447
                                               --------     -------     --------

GRANT INCOME (Note 17) ....................         174         135           80
                                               --------     -------     --------

OPERATING INCOME ..........................       1,080       2,653        3,326

NET INTEREST EXPENSE ......................         264         253          196
                                               --------     -------     --------

INCOME BEFORE INCOME TAXES ................         816       2,400        3,130

PROVISION FOR INCOME TAXES
(Note 11) .................................          70         493          682
                                               --------     -------     --------

NET INCOME ................................         746       1,907        2,448

OTHER COMPREHENSIVE INCOME (LOSS)
(Note 9):
     Decrease (increase) in additional
     minimum pension liability ............         469        (157)         324
                                               --------    --------     --------

COMPREHENSIVE INCOME ......................    $  1,215    $  1,750     $  2,772
                                               =======     ========     ========

EARNINGS PER SHARE (Note 14):
     Basic earnings per share .............    $   0.59    $   1.51     $   2.04

     Diluted earnings per share ...........    $   0.58    $   1.47     $   1.97
                                               ========    ========     ========


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

See Notes to Consolidated Financial Statements.


                                      -14-

<PAGE>


                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                          JULY 1, 2006 AND JULY 2, 2005
                                 (in thousands)

                                     ASSETS


                                                           JULY 1,       JULY 2,
                                                              2006          2005
                                                           ---------------------
CURRENT ASSETS:
      Cash and cash equivalents ....................       $    44       $    34
      Receivables, net (Notes 3 and 7) .............         3,559         3,205
      Inventories (Notes 4 and 7) ..................         9,411        11,657
      Deferred taxes  (Note 11) ....................           184           266
      Prepaid expenses .............................           455           304
                                                           -------       -------
      Total ........................................        13,653        15,466
                                                           -------       -------

MACHINERY LEASED TO LICENSEES, net
      (Note 5) .....................................             5            11

PROPERTY, PLANT AND EQUIPMENT, net
      (Notes 6 and 7) ..............................         4,486         5,317

INTANGIBLE ASSETS:
      Intangible pension asset (Note 9) ............             6            10
                                                           -------       -------

TOTAL ..............................................       $18,150       $20,804
                                                           =======       =======





                            (continued on next page)

                                      -15-

<PAGE>

                            WELLCO ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                          JULY 1, 2006 AND JULY 2, 2005
                        (in thousands except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                          JULY 1,        JULY 2,
                                                             2006           2005
                                                          ----------------------

CURRENT LIABILITIES:
      Short-term borrowing from bank (Note 7) ......     $    625      $  1,720
      Accounts payable .............................        1,716         2,912
      Accrued compensation .........................          769         1,016
      Accrued liabilities (Note 8) .................          366           285
      Accrued income taxes (Note 11) ...............          407           649
                                                         --------      --------
          Total ....................................        3,883         6,582
                                                         --------      --------

LONG-TERM LIABILITIES:
      Pension obligation (Note 9) ..................        1,013         1,485
      Notes payable (Note 12) ......................          241           231
      Other accrued liabilites
      (Notes 9 and 10) .............................          363           425
      Deferred grant income (Note 17) ..............          206           124
      Deferred taxes  (Note 11) ....................          172           128
      Deferred revenues (Note 12) ..................           59            69

COMMITMENTS (Note 19)

STOCKHOLDERS' EQUITY (Notes 9
      and 13):
      Common stock, $1.00
          par value;
          shares authorized -
          2,000,000; shares issued
          and outstanding - 1,270,746 ..............        1,271         1,271
      Additional paid-in capital ...................        1,319         1,319
      Retained earnings ............................       10,630        10,646
      Accumulated other
      comprehensive loss ...........................       (1,007)       (1,476)
                                                         --------      --------
          Total ....................................       12,213        11,760
                                                         --------      --------

TOTAL ..............................................     $ 18,150      $ 20,804
                                                         ========      ========

See Notes to Consolidated Financial Statements.




                                      -16-

<PAGE>




                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                   JULY 1, 2006, JULY 2, 2005 AND July 3, 2004
                                 (in thousands)

                                                  JULY 1,     JULY 2,    JULY 3,
                                                     2006        2005       2004
                                                  ------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
      Net income ..............................   $   746    $ 1,907    $ 2,448
                                                  -------    -------    -------
      Adjustments to reconcile
      net income to net cash provided
      by (used in)operating activities:
          Depreciation and amortization .......     1,335      1,277      1,100
          Deferred income taxes ...............       126        131         (4)

          Grant monies received (Non-cash
          grant income) .......................        17        189        (80)
          Non-cash interest expense ...........        10          9          9
          Non-cash reduction in
          deferred revenues ...................       (10)        (9)        (9)
          (Increase) decrease in-
              Receivables .....................      (354)     2,865     (2,620)
              Inventories .....................     2,246       (594)    (4,062)
              Prepaid expenses ................      (151)       (60)        25
          Increase (decrease) in-
              Accounts payable ................    (1,196)      (747)       521
              Accrued compensation ............      (257)      (266)       564
              Other accrued liabilities .......        95        (50)       102
              Accrued income taxes ............      (242)      (676)       603
              Pension obligation ..............      --         --           19
                                                  -------    -------    -------
      Total adjustments .......................     1,619      2,069     (3,832)
                                                  -------    -------    -------
NET CASH PROVIDED BY (USED IN)
      OPERATING ACTIVITIES ....................     2,365      3,976     (1,384)
                                                  -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of equipment ..................      (498)    (1,497)    (2,066)
                                                  -------    -------    -------

NET CASH USED IN INVESTING ACTIVITIES .........      (498)    (1,497)    (2,066)
                                                  -------    -------    -------



                            (continued on next page)

                                      -17-

<PAGE>

                            WELLCO ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE FISCAL YEARS ENDED
                   JULY 1, 2006, JULY 2, 2005 AND July 3, 2004
                                 (in thousands)
                                                  JULY 1,     JULY 2,    JULY 3,
                                                     2006        2005       2004
                                                  ------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net advances (repayments) of line
      of credit borrowings ....................    (1,095)    (2,060)     3,190
      Cash dividends paid .....................      (762)      (760)      (545)
      Stock option exercise and tax benefit ...      --          317        730
                                                  -------    -------    -------
NET CASH PROVIDED BY (USED IN)
      FINANCING ACTIVITIES ....................    (1,857)    (2,503)     3,375
                                                  -------    -------    -------

NET INCREASE (DECREASE) IN CASH AND
      CASH EQUIVALENTS ........................        10        (24)       (75)

CASH AND CASH EQUIVALENTS AT
      BEGINNING OF YEAR .......................        34         58        133
                                                  -------    -------    -------

CASH AND CASH EQUIVALENTS AT
      END OF YEAR .............................   $    44    $    34    $    58
                                                  =======    =======    =======


SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid (received) for-
          Interest ............................   $   258    $   247    $   191
          Income taxes paid (refunded) ........       186        966        (22)

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

See Notes to Consolidated Financial Statements.



                                      -18-

<PAGE>



                            WELLCO ENTERPRISES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE FISCAL YEARS ENDED
                   JULY 1, 2006, JULY 2, 2005 AND July 3, 2004
                        (in thousands except share data)


                                                 JULY 1,    JULY 2,      JULY 3,
                                                    2006       2005         2004
                                                 -------------------------------
COMMON STOCK :
      Balance at beginning of year .........   $  1,271    $  1,245    $  1,186
      Stock option exercise (Note 13) ......       --            26          59
                                               --------    --------    --------
      Balance at  end of year ..............      1,271       1,271       1,245
                                               --------    --------    --------

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

RETAINED EARNINGS:
      Balance at beginning of year .........     10,646       9,499       7,596
      Net income ...........................        746       1,907       2,448
      Cash dividends (per share:
      2006 - $.60, 2005 - $.60,
      2004 - $.45) .........................       (762)       (760)       (545)
                                               --------    --------    --------
      Balance at end of year ...............     10,630      10,646       9,499
                                               --------    --------    --------

ACCUMULATED OTHER COMPREHENSIVE LOSS
      Additional minimum pension
      liability, net of tax (Note 9):
      Balance at beginning of year .........     (1,476)     (1,319)     (1,643)
      Change for the year ..................        469        (157)        324
                                               --------    --------    --------
      Balance at end of year ...............     (1,007)     (1,476)     (1,319)
                                               --------    --------    --------

TOTAL STOCKHOLDERS' EQUITY .................   $ 12,213    $ 11,760    $ 10,452
                                               ========    ========    ========

See Notes to Consolidated Financial Statements.


                                      -19-

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended July 1, 2006, July 2, 2005, and July 3, 2003

1. BUSINESS OPERATIONS:

    Substantially all of the Company's operating activity is from the sale of
    military and other rugged footwear, the sale of specialized machinery and
    materials for the manufacture of this type of footwear and the rendering of
    technical assistance and other services to licensees for the manufacture of
    this type of footwear. The majority of revenues ($38,528,000 in 2006,
    $44,249,000 in 2005, and $39,648,000 in 2004) were from sales to the U. S.
    government, primarily the Defense Supply Center Philadelphia (DSCP), under
    contracts for the supply of boots used by the U. S. Armed Forces. The loss
    of this customer would have a material adverse effect on the Company.

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

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


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

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

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

         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.

                                      -20-

<PAGE>



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

         Fair Value of Financial Instruments
             The carrying values of cash, receivables and accounts payable at
             July 1, 2006 and July 2, 2005 approximate fair value. The carrying
             value of the notes payable (see Note 12 to the Consolidated
             Financial Statements) is equal to the present value of estimated
             future cash flows using a discount rate commensurate with the
             uncertainties involved and thus approximates fair value.

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

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

         Research and Development Costs
             All research and development costs are expensed as incurred unless
             subject to reimbursement. The amount charged against income was
             approximately $83,000 in 2006, $78,000 in 2005 and $101,000 in
             2004.

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

                                      -21-

<PAGE>


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

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

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

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

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

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

         Impairment of Long-Lived Assets
             The Company reviews its long-lived assets, including intangible
             assets, for impairment whenever events or circumstances indicate
             that the carrying amount of an asset may not be recoverable. If the
             sum of the expected cash flows, undiscounted and without interest,
             is less than the carrying amount of the asset, an impairment loss
             is recognized as the amount by which the carrying amount of the
             asset exceeds its fair value.

         Self-Funded Group Health Insurance
             The cost of employee group health insurance is recorded in the
             period in which the health care costs are incurred including an
             estimate of the incurred but not reported claims. Third party
             administrator fees are recorded in the month to which they apply.
             The cost of stop loss insurance is recorded in the month to which

                                      -22-

<PAGE>

             it applies. The liability for incurred but not reported insurance
             claims is accrued and included in the Accounts Payable caption in
             the Consolidated Balance Sheets.

         Fiscal Year
             The Company's fiscal year ends on the Saturday closest to June
             30. Consequently, the 2006 and 2005 fiscal years contained 52 weeks
             each of operating results while the 2004 fiscal year contained 53
             weeks.

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

3. RECEIVABLES:

    The majority of receivables at July 1, 2006 and July 2, 2005 are from the U.
    S. Government. The Company's policy is to require either a confirmed
    irrevocable bank letter of credit or advance payment on significant orders
    from foreign customers. Allowances for doubtful accounts in 2006, 2005 and
    2004 are not significant.

4. INVENTORIES:

         The components of inventories are:

                                                      (in thousands)

                                                     2006          2005
                     --------------------------------------------------
                     Finished Goods              $  4,470      $  4,853
                     --------------------------------------------------
                     Work in Process                1,509         2,880
                     --------------------------------------------------
                     Raw Materials and Supplies     3,432         3,924
                     --------------------------------------------------
                     Total                       $  9,411      $ 11,657
                     --------------------------------------------------


5. MACHINERY LEASED TO LICENSEES:

    Accumulated depreciation netted against the cost of leased assets in the
    Consolidated Balance Sheets at July 1, 2006 and July 2, 2005 is $1,555,000
    and $1,549,000, respectively. Rental revenues for the fiscal years 2006,
    2005, and 2004 were $259,000, $291,000 and $279,000, respectively, and vary
    with lessees' production or shipments.

6. PROPERTY, PLANT AND EQUIPMENT:

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

                                      -23-

<PAGE>


                                                    (in thousands)

                                          2006      2005   Estimated Useful Life
              ------------------------------------------------------------------
              Land                     $  107     $  107              N/A
              ------------------------------------------------------------------
              Buildings                 1,439      1,439            40-45 Years
              ------------------------------------------------------------------
              Machinery & Equipment    11,239     10,846             2-20 Years
              ------------------------------------------------------------------
              Furniture & Fixtures      1,121       1059             2-10 years
              ------------------------------------------------------------------
              Leasehold Improvements      823        809              *
              ------------------------------------------------------------------
              Total Cost             $ 14,729   $ 14,260
              ------------------------------------------------------------------
              Total Accumulated
              Depreciation and
              Amortization           $ 10,243   $ 8,943
              ------------------------------------------------------------------
                  *Leasehold improvements are amortized using the straight-line
                   method over the shorter of the estimated useful lives of
                   the improvements or the period of the respective leases.

7. LINES OF CREDIT:

    The Company maintains a $7,500,000 bank line of credit. The line, which
    expires on December 31, 2006, can be renewed annually at the bank's
    discretion. At July 1, 2006, borrowings on this line of credit were $625,000
    with $6,875,000 available in additional borrowings.

    Interest is at the London Interbank Offered Rate (LIBOR) plus 2.25 points or
    7.52% at July 1, 2006. 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, 2006. The
    covenants are subject to review at the end of each fiscal quarter. This line
    of credit is secured by a blanket lien on all machinery and equipment,
    receivables and inventory.

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

8. ACCRUED LIABILITIES:

         The components of accrued liabilities are:
                                                        (in thousands)

                                                   2006         2005
          ----------------------------------------------------------
          Interest Expense                      $     2      $     2
          ----------------------------------------------------------
          Accrued Lease Payments                     56           56
          ----------------------------------------------------------
          Deferred Revenues (Note 18)               169            -
          -----------------------------------------------------------
          Deferred Grant Revenues (Note 17)          -            65
          -----------------------------------------------------------

                                      -24-

<PAGE>

          Accrued Payroll Taxes                      99          122
          ----------------------------------------------------------
          Accrued Property Taxes                     40           40
          ----------------------------------------------------------
          Total                                 $   366      $   285
          ----------------------------------------------------------

9. EMPLOYEE BENEFIT PLANS:

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

                                                        (in thousands)
-----------------------------------------------------------------------------
                                                     2006      2005      2004
-----------------------------------------------------------------------------
Benefits Earned for Service in the Current Year  $    186  $    146  $    129
-----------------------------------------------------------------------------
Interest on the Projected Benefit Obligation          317       348       355
-----------------------------------------------------------------------------
Expected Return on Plan Assets                      (325)     (312)     (297)
-----------------------------------------------------------------------------
Amortization of: Unrecognized Net Pension
Obligation at July 1, 1987; Cost of Benefit
Changes Since That Date; and Gains and Losses
Against Actuarial  Assumptions                         94        61       116
-----------------------------------------------------------------------------
Pension Expense                                  $    272  $    243  $    303
-----------------------------------------------------------------------------

    Below are various analyses and other information relating to the Company's
    pension liability, assets and expense as of July 2006 and July 2005, (all
    amounts are in thousands except for those indicated as percent):
    ---------------------------------------------------------------------
    Change in Benefit Obligation:                       2006         2005
    ---------------------------------------------------------------------
    Benefit Obligation at Beginning of Year         $  6,595     $  5,817
    ---------------------------------------------------------------------
    Current Year Service Cost                            186          146
    ---------------------------------------------------------------------
    Interest Cost on Projected Liability                 317          348
    ---------------------------------------------------------------------
    Benefit Payments                                    (532)        (529)
    ---------------------------------------------------------------------
    Actuarial (Gain)Loss                                (814)         813
    ---------------------------------------------------------------------
    Benefit Obligation at End of Year               $  5,752     $  6,595
    ---------------------------------------------------------------------

                                      -25-

<PAGE>

    Change in Plan Assets:                              2006         2005
    ---------------------------------------------------------------------
    Fair Value of Plan Assets at Beginning of Year  $  4,842     $  4,704
    ---------------------------------------------------------------------
    Company Contributions                                371          284
    ---------------------------------------------------------------------
    Actual Return on Plan Assets                         421          383
    ---------------------------------------------------------------------
    Benefit Payments                                    (532)        (529)
    ---------------------------------------------------------------------
    Fair Value of Plan Assets at End of Year        $  5,102     $  4,842
    ---------------------------------------------------------------------


    Reconciliation of Funded Status:                    2006         2005
    ---------------------------------------------------------------------
    Funded Status                                   $   (650)    $ (1,752)
    ---------------------------------------------------------------------
    Unrecognized Actuarial Loss                        1,007        2,008
    ---------------------------------------------------------------------
    Unrecognized Prior Service Cost                        6           10
    ---------------------------------------------------------------------
    Net Amount Recognized                           $    363      $   266
    ---------------------------------------------------------------------


    Amounts Recognized in the Consolidated Balance
    Sheets:                                             2006         2005
    ---------------------------------------------------------------------
    Intangible Pension Asset                        $      6        $  10
    ---------------------------------------------------------------------
    Accumulated Other Comprehensive Loss               1,007        1,476
    ---------------------------------------------------------------------


    Accrued Pension Liability:
    ---------------------------------------------------------------------
      Prepaid Benefit Cost                               617          521
    ---------------------------------------------------------------------
      Accrued Benefit Cost                              (254)        (256)
    ---------------------------------------------------------------------
      Additional Minimum Pension Liability            (1,013)      (1,485)
    ---------------------------------------------------------------------
    Net Amount Recognized in Financial Statements   $    363      $   266
    ---------------------------------------------------------------------


    Accumulated Benefit Obligation in Excess of Plan
    Assets:                                             2006         2005
    ---------------------------------------------------------------------
    Projected Benefit Obligation                    $  5,752      $ 6,595
    ---------------------------------------------------------------------
    Accumulated Benefit Obligation                     5,343        6,062
    ---------------------------------------------------------------------
    Fair Value of Plan Assets                       $  5,102      $ 4,842
    ---------------------------------------------------------------------

                                      -26-

<PAGE>



                                                        2006         2005
    ---------------------------------------------------------------------
    Increase (Decrease) in Minimum Liability
    Included in Other Comprehensive Income          $   (469)     $   157
    ---------------------------------------------------------------------


    Weighted-average assumptions used to determine
    benefit obligations:                                2006         2005
    ---------------------------------------------------------------------
    Assumed Discount Rate                              6.00%        5.00%
    ---------------------------------------------------------------------
    Rate of Compensation Increase, For the Pay
    Related Benefit Plan                               4.50%        5.50%
    ---------------------------------------------------------------------


    Weighted-average assumptions used to determine
    net periodic benefit cost:                          2006         2005
    ---------------------------------------------------------------------
    Assumed Discount Rate                              5.00%        6.25%
    ---------------------------------------------------------------------
    Expected Long-Term Rate of Return on Plan Assets   6.75%        6.75%
    ---------------------------------------------------------------------
    Rate of Compensation Increase, For the Pay
    Related Benefit Plan                               4.50%        5.50%
    ---------------------------------------------------------------------



    PLAN ASSETS:

    Pension plan's weighted-average asset allocations
    by asset category:                                  2006         2005
    ---------------------------------------------------------------------
    Equity Securities                                    45%          45%
    ---------------------------------------------------------------------
    Debt Securities                                       5%           5%
    ---------------------------------------------------------------------
    Real Estate                                           0%           0%
    ---------------------------------------------------------------------
    Other                                                50%          50%
    ---------------------------------------------------------------------
    Total                                               100%         100%
    ---------------------------------------------------------------------

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

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

                                      -27-

<PAGE>



    CASH FLOWS:

    Contributions

    Contributions to the pension plan for fiscal year 2007 are expected to be
    $380,000.


    Estimated Future Benefit Payments (In thousands)      Amount
    ------------------------------------------------------------
    2007                                                 $   459
    ------------------------------------------------------------
    2008                                                     455
    ------------------------------------------------------------
    2009                                                     447
    ------------------------------------------------------------
    2010                                                     436
    ------------------------------------------------------------
    2011                                                     482
    ------------------------------------------------------------
    2012-2016                                              2,159
    ------------------------------------------------------------

    At June 2006, one of the pension plans has a benefit obligation ($2,395,000)
    that is greater than its plan assets ($2,325,000) resulting in the
    additional liability of $70,683 and at June 2005, the plan had a benefit
    obligation ($2,696,000) that was greater than its plan assets ($2,180,000)
    resulting in the additional liability of $1,037,000. At June 2006, the other
    pension plan has a benefit obligation ($3,357,000) that is greater than its
    plan assets ($2,777,000) resulting in the additional liability of $580,324
    and at June 2005, this plan had a benefit obligation ($3,367,000) that is
    greater than its plan assets ($2,663,000) resulting in the additional
    liability of $448,000.

     A 1% increase in the assumed discount rate would decrease the benefit
    obligation at June 2006 by $517,000. Conversely, a 1% decrease in the
    assumed discount rate would increase the benefit obligation at June 2006 by
    $621,000.

     The Consolidated  Statements of Operations and  Comprehensive  Income shows
     the amount included in Other Comprehensive Income (Loss) that resulted from
     recording the additional  minimum pension liability which represents the
     portion of the pension  liability that has not yet been charged  against
     operations.  A valuation  allowance  is recorded for the  deferred  tax
     asset ($342,000) that arises from the cumulative Other Comprehensive Income
     (Loss). In addition,  the Company provides retirement benefits to certain
     employees through deferred compensation contracts and the unfunded
     liability associated with these contracts was $61,000 at July 1, 2006 and
     $71,000 at July 2, 2005.

     Benefit measurements for the pension plan is June 30.

10. RETIREE HEALTH BENEFITS:

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

    Employees of the North Carolina plant who meet certain criteria and retire
    early (age 62-64) or become disabled, receive for themselves, but not for
    their dependents, the same health insurance benefits received by active
    employees. All benefits terminate when the employee becomes eligible to

                                      -28-


    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 accompanying Statements
    of Operations and Comprehensive Income was:
                                                       (in thousands)
                                                   2006     2005     2004
         ----------------------------------------------------------------
         Benefits Earned for Current Service      $  24    $  35    $  36
         ----------------------------------------------------------------
         Interest Cost on Accumulated Liability      17       19       24
         ----------------------------------------------------------------
         Amortization of the July 4, 1993 Liability   4        4        4
         ----------------------------------------------------------------
         Change in Actuarial Assumptions            (97)      -       -
         ----------------------------------------------------------------
         Total Cost                               $ (52)   $  58    $  64
         ----------------------------------------------------------------

    An analysis of the total liability for the last two fiscal years, including
    a reconciliation of the liability in the Consolidated Balance Sheets at July
    1, 2006 and July 2, 2005 is as follows:

                                                   (in thousands)
                                                   2006     2005
    ------------------------------------------------------------
    Total Obligation at Beginning of Year         $ 383    $ 295
    ------------------------------------------------------------
    Liability for Current Service                    24       35
    ------------------------------------------------------------
    Interest on Liability                            17       19
    ------------------------------------------------------------
    Benefit Payments                                 -        -
    ------------------------------------------------------------
    Actuarial (Gain) Loss                          (122)      34
    ------------------------------------------------------------
    Total Obligation at End of Year                 302      383
    ------------------------------------------------------------
    Less Unamortized Liability at July 4, 1993      (33)     (37)
    ------------------------------------------------------------
    Unrecognized Loss                                33        8
    ------------------------------------------------------------
    Liability Recognized in the Consolidated
    Balance Sheets                                $ 302    $ 354
    ------------------------------------------------------------

    The assumed health care cost trend rate used to project expected future cost
    was 8% in 2006 and remaining at 8% thereafter and 12% in 2005, gradually
    decreasing to 6% by 2010 and remaining at 6% thereafter. The assumed
    discount rate used to determine the accumulated liability was 6% for 2006
    and 5% for 2005.

    A 1% increase in the assumed health care cost trend rate would increase the
    benefit obligation at July 1, 2006 by $12,000.  Conversely, a 1% decrease in
    the assumed health care cost trend rate would decrease the benefit
    obligation at July 1, 2006 by $11,000.

    A 1% increase in the assumed discount rate would decrease the benefit
    obligation at July 1, 2006 by $22,000. Conversely, a 1% decrease in the

                                      -29-
<PAGE>

    assumed discount rate would increase the benefit obligation at July 1, 2006
    by $26,000.

    Benefit measurements for the plan is June 30, 2006 and June 30, 2005.

11. INCOME TAXES:

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

                                                          (in thousands)

                                                  2006      2005      2004
       -------------------------------------------------------------------
       Federal Provision:
       -------------------------------------------------------------------
         Currently Payable (Refundable)          $ (61)   $  354     $ 666
       -------------------------------------------------------------------
         Deferred                                  126       131       (4)
       -------------------------------------------------------------------
         Total Federal                              65       485       662
       -------------------------------------------------------------------
       State Provision Currently Payable             5         8        20
       -------------------------------------------------------------------
       Total Provision                           $  70    $  493     $ 682
       -------------------------------------------------------------------

    A reconciliation of the effective income tax rate for the 2006, 2005 and
    2004 fiscal years is as follows:

                                                  2006      2005      2004
    ----------------------------------------------------------------------
    Statutory Federal Income Tax Rate              34%       34%       34%
    ----------------------------------------------------------------------
    Current Period Income of Puerto Rico
    Subsidiary Substantially Exempt From
    Puerto Rican and Federal Income Taxes         (23)%     (13)%      (5)%
    ----------------------------------------------------------------------
    Deferred Tax Valuation Allowance
    (Reversal of Previously Recorded
    Valuation Allowance)                           (3)%      (2)%      (9)%
    ----------------------------------------------------------------------
    State Taxes, Net of Federal Tax Benefit         1%        -         1%
    ----------------------------------------------------------------------
    Other                                           -         1%        1%
    ----------------------------------------------------------------------
    Effective Income Tax Rate                       9%       20%       22%
    ----------------------------------------------------------------------

    Income earned in Puerto Rico by the Company's Puerto Rican wholly-owned
    subsidiary was 90% exempt from Puerto Rican income tax through 2000.
    Effective July 1, 2000, the Company received a new multi-year tax exemption
    grant that provided for a flat income tax rate of 2% and eliminated the
    withholding tax (5%) on dividends paid. Income earned in Puerto Rico by this
    subsidiary has not been subject to United States federal income tax. The
    Small Business Job Protection Act (Act) terminated the federal tax credit on
    this income subject to a phase out for existing companies, for

                                      -30-

<PAGE>

    tax years beginning after December 31, 1996. Under the phase out, the
    Company received a full credit through fiscal year 2002. For fiscal years
    2003 through 2006, the credit is limited, and will be completely eliminated
    starting with the 2007 fiscal year.

    The accumulated undistributed earnings ($2,848,000) through July 1, 2000 of
    this subsidiary are subject to the 5% Puerto Rican withholding tax when
    remitted to the parent Company as dividends. Accrued tax liabilities have
    been provided for the withholding tax reasonably expected to be paid in the
    future.

    Significant components of the Company's deferred tax assets and liabilities
    as of the end of fiscal 2006 and 2005 are as follows:

                                                              (in thousands)

      Deferred Tax Assets:                                   2006        2005
      -----------------------------------------------------------------------
      Tax Effect of Pension Liability Charged Against
      Equity                                              $   342     $   502
      -----------------------------------------------------------------------
      Employee Compensation Charged Against Financial
      Statement Income, Not Yet Deducted From Taxable
      Income                                                  210         286
      -----------------------------------------------------------------------
      Additional Costs Inventoried for Tax Purposes            51          98
      -----------------------------------------------------------------------
      State NOL Carryforward                                   53          49
      -----------------------------------------------------------------------
      Alternative Minimum Tax Credit                          102         102
      -----------------------------------------------------------------------
      Other                                                   382         391
      -----------------------------------------------------------------------
      Deferred Tax Assets Before Valuation Allowance        1,140       1,428
      -----------------------------------------------------------------------
      Valuation Allowance                                    (956)     (1,162)
      -----------------------------------------------------------------------
      Total Deferred Tax Assets                               184         266
      -----------------------------------------------------------------------
      Deferred Tax Liabilities:
      -----------------------------------------------------------------------
      Depreciation and Prepaid Pension Costs Deducted
      From Taxable Income Not Yet Charged Against
      Financial Statement Income                              172         128
      -----------------------------------------------------------------------
      Net Deferred Tax Assets                             $    12     $   138
      -----------------------------------------------------------------------
    Deferred tax assets have been reduced by a valuation allowance because it is
    more likely than not that certain of these assets will not be used to reduce
    future tax payments.

    The Company has state operating loss carryforwards of approximately
    $770,000, which begin to expire in 2015, available to reduce future state
    taxable income.

12. NOTES PAYABLE:

    As part of an agreement with a customer for which the Company provides
    certain technology and equipment, in April, 2001 that customer loaned the
    Company $300,000. The loan agreement provides for quarterly interest
    payments at an annual rate of 3% with the $300,000 principal due in April
    2011. Because this interest rate is less than the market rate, the Company
    recorded the note payable discounted at a market rate of 8% ($196,000), and
    is recording interest expense at this rate. The difference between interest

                                      -31-

<PAGE>

    at the 8% and 3% rates ($104,000) was recorded as deferred service income,
    which is being recognized over the 10-year life of the loan agreement. The
    Company attributed the difference between the stated 3% rate and the market
    rate of 8% as part of its compensation for technology and equipment provided
    to the customer. The Consolidated Statements of Operations and Comprehensive
    Income for the fiscal years 2006, 2005 and 2004 include service fee income
    of $10,000, $9,000 and $9,000, respectively, and interest expense of
    $19,000, $18,000 and $17,000, respectively. The Consolidated Balance Sheets
    at July 1, 2006 and at July 2, 2005 includes $241,000 and $231,000,
    respectively, for this note, and $59,000 and $69,000, respectively, as
    deferred service income.

13. STOCK OPTIONS:

    Effective July 3, 2005, the Company adopted Statement of Financial
    Accounting Standards No. 123R (revised 2004), "Share-Based Payment," ("SFAS
    No. 123R") which was issued by the FASB in December 2004. SFAS No. 123R
    revises SFAS No. 123 "Accounting for Stock Based Compensation," and
    supersedes APB No. 25, "Accounting for Stock Issued to Employees," (APB No.
    25) and its related interpretations. SFAS No.123R requires recognition of
    the cost of employee services received in exchange for an award of equity
    instruments in the financial statements over the period the employee is
    required to perform the services in exchange for the award (presumptively
    the vesting period). SFAS No. 123R also requires measurement of the cost of
    employee services received in exchange for an award based on the grant-date
    fair value of the award. SFAS No. 123R also amends SFAS No. 95 "Statement of
    Cash Flows," to require that excess tax benefits be reported as financing
    cash inflows, rather than as a reduction of taxes paid, which is included
    within operating cash flows.

    The Company adopted SFAS No. 123R using the modified prospective application
    as permitted under SFAS No. 123R. Accordingly, prior period amounts have not
    been restated. Under this application, the Company is required to record
    compensation expense for all awards granted after the date of adoption and
    for the unvested portion of previously granted awards that remain
    outstanding at the date of adoption. As of the date of adoption, the Company
    had no unvested previously granted awards and has not granted any awards
    after July 2, 2005. There have been no options exercised during the fiscal
    year ending July 1, 2006. Therefore, the new standard has had no impact on
    the consolidated statements of operations and cash flows, or earnings per
    share of the Company during the fiscal year ended July 1, 2006. There is no
    unrecognized compensation cost related to non-vested share-based
    compensation arrangements granted under all of the Company's stock benefit
    plans.

    Prior to the adoption of SFAS No. 123R, the Company used the intrinsic value
    method as prescribed by APB No. 25 and thus recognized no compensation
    expense for options granted with exercise prices equal to the fair market
    value of the Company's common stock on the date of grant.

    The Company anticipates providing for future exercises from authorized but
    unissued shares and not through purchases of its own stock.

    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 were met. During fiscal year 2005, 6,000 of the 50,000
    shares were exercised and the remaining 44,000 shares expired on June 30,
    2006.

                                      -32-

<PAGE>


    The 1999 Stock Option Plan for Key Employees (1999 Employee Plan) and the
    1999 Stock Option Plan for Non-Employee Directors (1999 Director Plan)
    provide for granting options to purchase 90,000 shares and 21,000 shares,
    respectively. As of July 1, 2006 options had been granted for 65,000 shares
    under the 1999 Employee Plan and 11,000 shares under the 1999 Director Plan.
    The plan terminated on June 30, 2004 and no options could be granted after
    June 30, 2004.

    The1997 Stock Option Plan for Key Employees (1997 Employee Plan) and the
    1997 Stock Option Plan for Non-Employee Directors (1997 Director Plan)
    provide for granting options to purchase 99,000 shares and 16,000 shares,
    respectively. As of July 1, 2006 options had been granted for 84,000 shares
    under the 1999 Employee Plan and 10,000 shares under the 1999 Director Plan.
    The plan terminated on June 30, 2002 and no options could be granted after
    June 30, 2002.

    Under all of the above Plans, option price is the market price on the date
    granted, and options have a life of 10 years from the date granted. As of
    July 1, 2006, all granted options are exercisable. Transactions involving
    these Plans for the last fiscal year is summarized below:
                                                          Weighted-
                                              Weighted-    Average
                                              Average     Remaining    Aggregate
                                  No. of      Exercise   Contractual   Intrinsic
               Option Shares:     Shares      Price        Term            Value
    ---------------------------------------------------------------------------
    Outstanding at July 2, 2005  111,500         $9.29
    ----------------------------------------------------------------------------
    Expired                      (59,000)        $8.08
    ----------------------------------------------------------------------------
    Outstanding at July 1, 2006   52,500        $10.65   1.9 years     $130,480
    ----------------------------------------------------------------------------

    Exercisable at July 1, 2006   52,500        $10.65   1.9 years     $130,480
    ----------------------------------------------------------------------------

     The intrinsic  value of options  exercised  during fiscal 2005 and 2004 was
     approximately $206,000 and $317,000, respectively. The approximate fair
     value of shares vested during the 2005 and 2004 fiscal years was $23,000
     per fiscal year.

    The following table summarizes information concerning options issued,
    options available for future issuance and approval of plans by security
    holders at July 1, 2006:

                                      -33-


<PAGE>

                               (A) (B) (C)
    ----------------------------------------------------------------------------

                                                            Number of
                                                            Securities
                            Number of                       Remaining Available
                            Securities to                   for Future Issuance
                            be issued      Weighted-        Under Equity
                            Upon           Average          Compensation Plans
                            Exercise of    Exercise Price   (Excluding
                            Outstanding    of Outstanding   Securities Reflected
    Plan Category           Options        Options          in Column (A))
    ----------------------------------------------------------------------------
    Equity Compensation
    Plans Approved by
    Security Holders        52,500         $10.65                   -
    ----------------------------------------------------------------------------
    Equity Compensation
    Plans Not Approved
    by Security Holders       -               -                     -
    ----------------------------------------------------------------------------
    Total                   52,500         $10.65                   -
    ----------------------------------------------------------------------------

    The following illustrates the effect on net income available to common
    stockholders if the Company had applied the fair value recognition
    provisions of SFAS No. 123 to the 2005 and 2004 fiscal years ( in
    thousands, except per share data):

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


14. EARNINGS PER SHARE:

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

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

                                      -34-

<PAGE>

                                              For the Fiscal Year Ended 7/1/06
                                            Net Income    Shares       Per-Share
                                           (Numerator) (Denominator)     Amount
     ---------------------------------------------------------------------------
     Basic EPS Available to Shareholders     $746,000   1,270,746        $ 0.59
     ---------------------------------------------------------------------------
     Effect of Dilutive Stock-based
     Compensation Arrangements                              6,858
     ---------------------------------------------------------------------------
     Diluted EPS Available to Shareholders   $746,000   1,277,604        $ 0.58
     ---------------------------------------------------------------------------

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

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


15. SEGMENT AND REVENUE INFORMATION:

    The Company operates in one reportable segment. SFAS 131 requires disclosure
    of financial and descriptive information about reportable operating
    segments, revenues by products or services, and revenues and assets by
    geographic areas. Substantially all of the Company's operating activity is
    from the sale of military and other rugged footwear, the sale of specialized
    machinery and materials for the manufacture of this type of footwear and the
    rendering of technical assistance and other services to licensees for the
    manufacture of this type of footwear. The Company identifies segments based
    on the Company's organization under one management group. The Company's
    operations are managed as one unit and resources are allocated without
    regard to separate functions.

         Information about the Company's revenues is as follows:

                                      -35-
<PAGE>

                                                          (in thousands)
                                                   2006       2005         2004
    ----------------------------------------------------------------------------
    Sales of Footwear and Related Items        $ 43,088   $ 49,530     $ 44,327
    ----------------------------------------------------------------------------
    Revenues from Licensees                         934        937        1,366
    ----------------------------------------------------------------------------
    Total Revenues by Major Product Group      $ 44,022   $ 50,467     $ 45,693
    ----------------------------------------------------------------------------

    ----------------------------------------------------------------------------
    Revenues from U. S. Customers              $ 42,850   $ 49,108     $ 45,344
    ----------------------------------------------------------------------------
    Revenues from International Customers         1,172      1,359          349
    ----------------------------------------------------------------------------
    Total Revenues by Geographic Region        $ 44,022   $ 50,467     $ 45,693
    ----------------------------------------------------------------------------

    ----------------------------------------------------------------------------

    Location of Major International Customers:
    ----------------------------------------------------------------------------
    Latin America                                $  152   $    116     $    153
    ----------------------------------------------------------------------------
    Canada                                            6         -            14
    ----------------------------------------------------------------------------
    Asia/Pacific                                    160         40          171
    ----------------------------------------------------------------------------
    Mexico / Spain                                  833        137            2
    ----------------------------------------------------------------------------
    United Kingdom/Europe/South Africa               21      1,066            9
    ----------------------------------------------------------------------------

    ----------------------------------------------------------------------------

    Major Customer- U. S. Government           $ 38,528   $ 44,249     $ 39,648
    ----------------------------------------------------------------------------

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

16. GOVERNMENT BOOT CONTRACT REVENUES:

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

17. GRANT MONEY RECEIVED:

    During fiscal year 2005, the Company received $323,000 from the government
    of Puerto Rico and another $171,000 during fiscal year 2006 under a Special
    Incentives Contract related to creating new job opportunities in its boot
    manufacturing operations in Puerto Rico. The grant is for a five year period
    (fiscal years 2004 through 2008) and requires the Company to maintain a
    certain level of employment in Puerto Rico over the grant period. If this
    requirement is not met, the Company may be required to refund a pro-rata

                                      -36-

<PAGE>

    portion of the total grant. The grant is for a maximum of $526,000 and
    monies are disbursed based upon certain expenditures made by the Company.
    The Company's policy is to recognize grant monies pro-rata over the five
    year grant period, with grant income first recognized in the period in which
    it is received. The Consolidated Statements of Operations and Comprehensive
    Income for the fiscal year 2006 recognized $174,000 as grant income
    including $80,000 that related to grant periods prior to fiscal year 2006.
    The Consolidated Statements of Operations and Comprehensive Income for the
    fiscal year 2005 recognized $135,000 as grant income including $70,000 that
    related to grant periods prior to fiscal year 2005.

    Under a grant issued in 1999, the remaining $80,000 of deferred grant income
    was recognized in the Consolidated Statements of Operations and
    Comprehensive Income for the fiscal year 2004.

18. DEFERRED REVENUES:

    In December 2005, the Company received a contract for approximately $930,000
    to supply machinery and assistance for the upgrade of boot manufacturing
    machinery to a factory in a foreign country. The deliveries began during the
    third quarter of 2006 fiscal year and will continue until the end of
    calendar year 2007. The customer paid a $200,000 deposit in January 2006 and
    this amount was recorded as a deferred revenue. The Consolidated Balance
    Sheet at July 1, 2006 included the unearned revenue from this contract of
    $169,000 in accrued liabilities (See Note 8).

19. COMMITMENTS:

    The Company has a non-cancelable operating lease with a Puerto Rican
    governmental agency for its manufacturing facility. The term of the lease is
    for ten years, beginning July 1, 1999 with monthly payments that commenced
    on January 1, 2000. Total lease payments for the period July 2, 2006 through
    June 30, 2009 are $841,000. Lease payments for each of the Company's three
    fiscal years ending after July 1, 2006 are: $271,000, $280,000 and $290,000.
    Lease expense for the Company's current Puerto Rican facility in the 2006
    fiscal year was $261,000. The Company leased more square footage during
    fiscal year 2006. Lease expense for fiscal year 2005 was $216,000 and fiscal
    year 2004 was $142,500.

20. PUERTO RICAN GOVERNMENT REFUND:

    The majority of the Company's boot manufacturing operations occur at the
    factory of a wholly-owned subsidiary located in Puerto Rico. The Company is
    participating in a Puerto Rican government program to assist manufacturers
    in the training of new or expanded work force under which the Company is
    reimbursed for part of the compensation paid to certain employees. The
    Consolidated Statements of Operations for fiscal years 2006, 2005 and 2004
    include $598,000, $1,385,000 and $321,000 respectively, as revenues from
    this program.

    The Company has filed a reimbursement claim for an additional $808,000 for
    compensation paid employees and expensed through July 1, 2006. The Company's
    policy is to recognize reimbursement as a revenue in the period that they
    are received.

                                      -37-


<PAGE>





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheets of Wellco
Enterprises, Inc. and subsidiaries (the "Company") as of July 1, 2006 and July
2, 2005, and the related consolidated statements of operations and comprehensive
income, stockholders' equity, and cash flows for each of the three years in the
period ended July 1, 2006. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. We were not
engaged to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
July 1, 2006 and July 2, 2005 and the results of their operations and their cash
flows for each of the three years in the period ended July 1, 2006 in conformity
with accounting principles generally accepted in the United States of America.


DIXON HUGHES PLLC

Asheville, North Carolina
September 28, 2006

                                      -38-





<PAGE>







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

                                            Fiscal Year 2006 Quarters

                                       First    Second    Third    Fourth
-------------------------------------------------------------------------
Market Price Per Share-
-------------------------------------------------------------------------
High                                  $13.97    $12.56   $13.20    $13.45
-------------------------------------------------------------------------
Low                                   $10.15    $11.30   $11.95    $11.45
-------------------------------------------------------------------------
Per Share Cash Dividend Declared       $0.15     $0.15    $0.15     $0.15
-------------------------------------------------------------------------

                                            Fiscal Year 2005 Quarters

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


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,
2006 was 176.




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

                                      -39-



<PAGE>


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


                                            Fiscal Year 2006 Quarters

                                       First    Second    Third    Fourth
-------------------------------------------------------------------------
Revenues                             $ 8,318   $11,041   $13,395  $11,268
-------------------------------------------------------------------------
Cost of Sales and Services             8,402    10,127    12,389    9,482
-------------------------------------------------------------------------
Net Income (Loss)                       (646)      225       162    1,005
-------------------------------------------------------------------------
Basic Earnings (Loss) Per Share        (0.51)     0.18      0.13     0.79
-------------------------------------------------------------------------
Fully Diluted Earnings (Loss)
Per Share                             $(0.51)  $  0.17    $ 0.13   $ 0.79
-------------------------------------------------------------------------

                                            Fiscal Year 2005 Quarters

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

                                      -40-

<PAGE>



Officers and Directors
LEE FERGUSON
Chief Executive Officer and President

GEORGE HENSON
Chairman, Board of Directors

ROLF KAUFMAN
Vice Chairman of the Board

FRED K. WEBB, Jr.
Vice President

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

TAMMY FRANCIS
Treasurer, Assistant Secretary and Controller

Neil Streeter
Vice President of Sales

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

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

R. DAVID KEMPER President of KemperStrategy, Inc.

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

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

                                      -41-

<PAGE>



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

The information called for by the following items is in the Company's 2006
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                                       39
Item 6.          Consolidated Selected Financial Data                       1
Item 7.          Management's Discussion and Analysis
                 of Results of Operations
                 and Financial Condition                                  5-13
Item 8.          Consolidated Financial Statements
                 and Supplementary Data                              14-37, 40

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

We are exposed to interest rate changes primarily as a result of our line of
credit which we use to maintain liquidity and to fund capital expenditures and
expansion. Our market risk exposure with respect to this debt is to changes in
LIBOR. Our line of credit provides for interest on outstanding borrowings at
rates tied to LIBOR. A 1% increase in interest rates on our current average
borrowings would have had approximately $ 31,500 impact on income before income
taxes. We do not enter into derivative or interest rate transactions for
speculative purposes.

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

Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure.  (None)
--------------------

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

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the reports that
are filed or submitted under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports that are filed under the Exchange Act is
accumulated and communicated to management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure. Under the supervision of and with the
participation of management, including the chief executive officer and chief
financial officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures as of July 1, 2006, and
based on its evaluation, our chief executive officer and chief financial officer
have concluded that these controls and procedures are effective.


                                       -6-

<PAGE>



(b) Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting
that occurred during the fourth quarter ended July 1, 2006 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.



                                    PART III
                                    --------

Responsive information called for by the following Items 10, 11, 12. 13 and 14,
except for certain information about executive officers provided and the
Registrant's Code of Ethics presented below, will be filed not later than 120
days after the close of the fiscal year with the Securities and Exchange
Commission in a Proxy Statement dated October 13, 2006, 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 will contain information disclosing delinquent filings of
two Form 3 filers. Lee Ferguson was elected President and Chief Executive
Officer and appointed a Director effective March 20, 2006 and he failed to file
a Form 3 on a timely basis. Neil Streeter was elected Vice President of Sales on
April 18, 2006 and he failed to file a Form 3 on a timely basis.

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


Name                               Age      Office
Lee Ferguson                        55      President and Chief Executive
                                            Officer
George Henson                       63      Chairman, Board of Directors
Rolf Kaufman                        76      Vice Chairman, Board of Directors
Neil Streeter                       44      Vice President of Sales
Fred K. Webb, Jr.                   46      Vice President
Richard A. Wood, Jr.                69      Secretary
Tammy Francis, CPA                  47      Controller, Treasurer and
                                            Assistant Secretary

Effective  March 20,  2006,  Lee  Ferguson was  appointed  as  President,  Chief
Executive  Officer,  and a Director of the Company.  Mr. Ferguson is 55 years of
age. Mr.  Ferguson served as President of the Armor and Defense Group of Arotech
Company, Inc., in Auburn, AL, from June, 2005 until December, 2005. He served as
Chief Operating Officer of Specialty  Defense Systems in Dunmore,  PA from June,
2002 to June 2005. Mr. Ferguson served as President and Chief Operating  Officer
of BIKE Athletic Company, in Knoxville, TN, from August, 1994 to June, 2002.

Effective  February 15, 2006, Mr. Henson was elected as Chairman of the Board of
Directors. Also, Mr. Henson was elected as a director at the November 15, 2005

                                       -7-

<PAGE>



Annual Stockholders meeting. From 1999 until 2000, he was Operations Senior Vice
President at Blue Ridge Paper  Products,  Inc. From 2000 until his retirement in
2002, he was President and Chief Executive Officer of Blue Ridge Paper Products,
Inc.  From 1969 through  1999,  he was  employed  with  Weyerhaeuser  Company in
various engineering and corporate management positions.

Mr. Streeter was elected to Vice President of Sales in April 2006. He has been
an employee with the Company since August 2003. From 1999 until August 2003, he
was a North American sales manager for Kockner Desma, in Achim, Germany.

Mr. Webb has been a director since 1996 and an employee with the Company since
August 1998. In November 2005, Mr. Webb was elected to Vice President. In
February 1999, Mr. Webb was elected Vice President of Marketing.

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

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

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

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

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

Since the beginning of the 2006 fiscal year, no executive officer of the
Registrant or member of his immediate family or record or beneficial owner of
more than 5% of the Company's stock has had any transaction or series of similar
transactions with the Registrant or any of its subsidiaries exceeding $60,000,
and there are no currently proposed transactions exceeding $60,000.

Since the beginning of the 2006 fiscal year, no -
         (1)      executive officer of the Registrant or member of his immediate
                  family,
         (2)      corporation or organization of which any such person is an
                  executive officer, partner, owner or 10% or more beneficial
                  owner, or
         (3)      trust or other estate in which any such person has a
                  substantial interest or as to which such person serves as
                  trustee or in a similar capacity, was indebted to the
                  Registrant or its subsidiaries in an amount exceeding $60,000.

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





                                       -8-

<PAGE>



                                     PART IV
                                     -------

Item 15.  Exhibits and  Financial Statement Schedules.
-------   -------------------------------------------

(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 2006 Annual Report
to Shareholders which is integrated into Part II of this
Form 10-K immediately after page 5
--------------------------------------------------------------------------------
Consolidated Balance Sheets  - at July 1, 2006  and July 2, 2005          15-16*
--------------------------------------------------------------------------------
Consolidated Statements of Operations and Comprehensive Income -
for the years ended July 1, 2006, July 2, 2005 and  July 3, 2004             14*
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows - for the years ended
July 1, 2006, July 2, 2005 and July 3, 2004                               17-18*
--------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity - for the years
ended July 1, 2006, July 2, 2005 and July 3, 2004                            19*
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm                      38*
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements                                20-37*
--------------------------------------------------------------------------------

* Page number in the 2006 Annual Report to Shareholders included in Part II of
this Form 10-K.


2. Financial Statement Schedules


                                                                           Page
                                                                         Number
--------------------------------------------------------------------------------
Schedule II       Valuation and Qualifying Accounts                         22
--------------------------------------------------------------------------------
All other schedules are omitted because they are not applicable or not required.


3. Exhibits

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


                                       -9-

<PAGE>



Exhibit                                                                    Page
Number           Description                                             Number
--------------------------------------------------------------------------------
                 A. 1996 Stock Option Plan for Key Employees
                 of Wellco Enterprises, Inc.*                               (a)
--------------------------------------------------------------------------------
                 B. 1997 Stock Option Plan for Key Employees
                 of Wellco Enterprises, Inc.*                               (b)
--------------------------------------------------------------------------------
                 C. 1997 Stock Option Plan for Non-Employee
                 Directors of Wellco Enterprises, Inc.*                     (c)
--------------------------------------------------------------------------------
                 D. 1999 Stock Option Plan for Key Employees
                 of Wellco Enterprises, Inc.*                               (d)
--------------------------------------------------------------------------------
                 E. 1999 Stock Option Plan for Non-Employee
                 Directors of Wellco Enterprises, Inc.*                     (e)
--------------------------------------------------------------------------------
                 F.  Exhibit was filed in Part IV of Form 10-K
                 for the fiscal year ended July 3, 2004 and is
                 incorporated herein by reference.                          (f)
--------------------------------------------------------------------------------
                 G.  Resignation Agreement and Release of Claims*           (h)
--------------------------------------------------------------------------------
                 H.  Employment Agreement*                                  (I)
--------------------------------------------------------------------------------
       14        Code of Conduct and Ethics                                 (g)
--------------------------------------------------------------------------------
       21        Subsidiaries of Registrant                                 14
--------------------------------------------------------------------------------
       23        Consent of Expert                                          15
--------------------------------------------------------------------------------
       31        Certifications of the Chief Executive Officer
                 and Chief Financial Officer under Section 302
                 of the Sarbanes-Oxley Act of 2002, filed herewith.    16 - 19
--------------------------------------------------------------------------------
       32        Certifications of the Chief Executive Officer
                 and Chief Financial Officer under Section 906
                 of the Sarbanes-Oxley Act of 2002, filed herewith.     20 -21
--------------------------------------------------------------------------------


* 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.

         (a)      Exhibit was filed as Exhibit A to the Proxy Statement dated
                  October 18, 1996, and is incorporated herein by reference.
         (b)      Exhibit was filed as Exhibit A to the Proxy Statement dated
                  October 17, 1997, and is incorporated herein by reference.
         (C)      Exhibit was filed as Exhibit B to the Proxy Statement dated
                  October 17, 1997, and is incorporated herein by reference.
         (d)      Exhibit was filed as Exhibit A to the Proxy Statement dated
                  October 13, 2000, and is incorporated herein by reference.
         (e)      Exhibit was filed as Exhibit B to the Proxy Statement dated
                  October 13, 2000, and is incorporated herein by reference.

                                      -10-

<PAGE>



         (f)      Exhibit was filed in Part IV of Form 10-K for the fiscal year
                  ended July 3, 2004, and is incorporated herein by reference.
         (g)      Exhibit was filed in Part IV of Form 10-K for the fiscal year
                  ended July 3, 2004, and is incorporated herein by reference.
         (h)      Exhibit was filed in Form 8-K dated April 25, 2006, and is
                  incorporated herein by reference.
         (i)      Exhibit was filed in Form 8-K dated March 17, 2006, and is
                  incorporated herein by reference.






                                      -11-

<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/ Lee Ferguson
By: Lee Ferguson, Chief Executive Officer, President
(Chief Executive Officer)


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


Date: September 28, 2006

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/ George Henson                                         /s/ Rolf Kaufman
George Henson, Director                                   Rolf Kaufman, Director


/s/ Lee Ferguson                                  /s/ Claude Abernethy, Jr.
Lee Ferguson, Director                            Claude Abernethy, Jr. Director


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



Date: September 28, 2006









                                      -12-

<PAGE>






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheets of Wellco
Enterprises, Inc. and subsidiaries (the "Company") as of July 1, 2006 and July
2, 2005 and the related consolidated statements of operations and comprehensive
income, stockholders' equity, and cash flows for each of the three years in the
period ended July 1, 2006. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(2).These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements and schedule are free of material
misstatement. We were not engaged to perform an audit of the Company's internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
July 1, 2006 and July 2, 2005 and the results of their operations and their cash
flows for each of the three years in the period ended July 1, 2006 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole
presents fairly, in all material respects, the information set forth therein.





DIXON HUGHES PLLC

Asheville, North Carolina
September 28, 2006






                                      -13-

<PAGE>



                                                                     Exhibit 21
                            WELLCO ENTERPRISES, INC.
                         SUBSIDIARIES OF THE REGISTRANT


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









                                      -14-

<PAGE>



                                                                    Exhibit 23

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

We consent to the  incorporation by reference in the Registration  Statement No.
1-333-72824  of  Wellco  Enterprises,  Inc.  on  Form  S-8 of our  report  dated
September  28,  2006  appearing  in this  Annual  Report  on Form 10-K of Wellco
Enterprises, Inc. for the fiscal year ended July 1, 2006.



DIXON HUGHES PLLC

Asheville, North Carolina
September 28, 2006












                                      -15-

<PAGE>



                                                                     Exhibit 31
                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 1, 2006
              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
           18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002



I, Lee Ferguson, certify that:

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

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

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

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

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

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

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

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

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

                                      -16-

<PAGE>



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


Date: September 28, 2006

/s/ Lee Ferguson
By: Lee Ferguson, Chief Executive Officer and President
(Chief Executive Officer)








                                      -17-

<PAGE>




                                                                     Exhibit 31

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 1, 2006
              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
           18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Tammy Francis, certify that:

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

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

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

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

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

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

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

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

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal

                                      -18-

<PAGE>



                  control over financial reporting which are reasonably likely
                  to adversely affect the registrant's ability to record,
                  process, summarize and report financial information; and

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


Date: September 28, 2006

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




                                      -19-

<PAGE>




                                                                    Exhibit 32

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 1, 2006
              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
           18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEYACT OF 2002


I, Lee Ferguson, certify that:

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

2.       Attached to this certification is Form 10-K for the fiscal year ended
         July 1, 2006, a periodic report (the "periodic report") filed by the
         issuer with the Securities Exchange Commission pursuant to Section
         13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
         Act:), which contains financial statements.

3        I hereby certify, pursuant to 18 U.S.C.  Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
                  o        the periodic report containing the financial
                           statements fully complies with the requirements of
                           Section 13(a) or 15(d) of the Exchange Act, and
                  o        the information in the periodic report fairly
                           presents, in all material respects, the financial
                           condition and results of operations of the issuer for
                           the periods presented.


Date: September 28, 2006

/s/ Lee Ferguson
By: Lee Ferguson, Chief Executive Officer and President
(Chief Executive Officer)

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

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



                                      -20-

<PAGE>





                                                                    Exhibit 32

                            WELLCO ENTERPRISES, INC.
                FORM 10-K FOR THE FISCAL YEAR ENDED JULY 1, 2006
              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
           18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
                       OF THE SARBANES-OXLEY ACT OF 2002

I, Tammy Francis, certify that:

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

2.       Attached to this certification is Form 10-K for the fiscal year ended
         July 1, 2006, a periodic report (the "periodic report") filed by the
         issuer with the Securities Exchange Commission pursuant to Section
         13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
         Act:), which contains financial statements.

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

                  o        the periodic report containing the financial
                           statements fully complies with the requirements of
                           Section 13(a) or 15(d) of the Exchange Act, and
                  o        the information in the periodic report fairly
                           presents, in all material respects, the financial
                           condition and results of operations of the issuer for
                           the periods presented.

Date: September 28, 2006


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

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

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



                                      -21-

<PAGE>



                                                                    SCHEDULE II

             WELLCO ENTERPRISES, INC. AND WHOLLY-OWNED SUBSIDIARIES
    VALUATION ACCOUNTS FOR THE FISCAL YEARS ENDED July 1, 2006, JULY 2, 2005
                                AND JULY 3, 2004


                       Balance at    Additions
                     Beginning of   Charged to                   Balance at End
Description                  Year   Income (A)   Deductions(B)          of Year
Allowance for
Doubtful Accounts-
--------------------------------------------------------------------------------
2006                         $37         10           -                  $47
--------------------------------------------------------------------------------
2005                         $37         -            -                  $37
--------------------------------------------------------------------------------
2004                         $28         10           1                  $37
--------------------------------------------------------------------------------

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



                                      -22-

<PAGE>