FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                  FOR THE QUARTERLY PERIOD ENDED March 31,June 30, 2007

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                           FOR THE TRANSITION FROM TO

                          Commission File Number 0-5680

                                BURKE MILLS, INC.
             (Exact name of registrant as specified in its charter)
                    IRS EMPLOYER IDENTIFICATION (56-0506342)
                                 NORTH CAROLINA
         (State or other jurisdiction of incorporation or organization]

                            191 Sterling Street, N.W.
                          Valdese, North Carolina 28690
               (Address of principal executive offices) (Zip Code)

                                 (828) 874-6341
              (Registrant's telephone number, including area code)

                                   No Changes

             (Former name, former address and former fiscal year, if
                           changed since last report)


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 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 Rule 12b-2 of the  Exchange  Act.  (check
one):

Large accelerated filer_____filer        Accelerated filer_____filer      Non-accelerated  __X__X
                       -----                    -----                -----

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12-b-2 of the Exchange Act). Yes    ___ No _X__X
                                     ---   ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date. As of May 3,August 2, 2007 there were
2,741,168 outstanding shares of the issuer's only class of common stock.




Page 1






                                TABLE OF CONTENTS

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

PART  I   --  FINANCIAL INFORMATION

   Item 1  -  Financial Statements

                Condensed Balance Sheets                           3
                    March 31,June 30, 2007 (Unaudited) and
                    December 30, 2006

                Condensed Statements of Operations and             4
                    Retained EarningsEarnings(Deficit)
                    Thirteen Weeks and Twenty-Six Weeks
                      Ended March 31,June 30, 2007 and AprilJuly 1, 2006

                Statements of Cash Flows                           5
                    ThirteenTwenty-Six Weeks Ended March 31,June 30, 2007
                      and AprilJuly 1, 2006

                Notes to Condensed Financial Statements            6
- ---------------------------------------------------------

   Item 2  -   Management's Discussion and Analysis of
               Financial Condition and Results of Operations       10
- ---------------------------------------------------------

   Item 3  -   Quantitative and Qualitative Disclosures About
               Market Risk                                         1415
- ---------------------------------------------------------

   Item 4  -   Controls and Procedures                             1415

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

Part II  --   OTHER INFORMATION

   Item 1  -  Legal Proceedings                                    1517

   Item 1A -  Risk Factors                                         1517

   Item 2  -  Unregistered Sales of Equity Securities and
                Use of Proceeds                                    1517

   Item 3  -  Defaults Upon Senior Securities                      1517

   Item 4  -  Submission of Matters to a Vote of Security
              Holders                                              1517

   Item 5  -  Other Information                                    1517

   Item 6  -  Exhibits                                             1517
- ---------------------------------------------------------

SIGNATURES                                                         1517

EXHIBIT INDEX                                                      1618

EXHIBITS/CERTIFICATIONS                                            17-1919-21



Page 2









                   BURKE MILLS, INC. CONDENSED BALANCE SHEETS

March 31June 30 2007 December 30 2007(Unaudited) 2006 (Unaudited) ----------- ------------------- ASSETS Current Assets Cash and cash equivalents $ 17,353297,017 $ 55,816 Accounts receivable 2,766,5082,568,672 2,727,461 Inventories 2,014,0891,652,787 1,543,272 Prepaid expenses and other current assets 87,44590,061 30,371 ----------- ----------- Total Current Assets 4,885,3954,608,537 4,356,920 ----------- ----------- Property, plant & equipment - at cost 28,077,57228,115,310 28,041,676 Less: accumulated depreciation 25,127,63525,506,666 24,741,391 ----------- ----------- Property, plant and equipment- net 2,949,9372,608,644 3,300,285 ----------- ----------- Other Assets 16,575 16,575 ----------- ----------- Total Assets $ 7,851,9077,233,756 $ 7,673,780 =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 1,558,3661,337,933 $ 1,218,199 Line of Credit 705,1751,187,463 258,274 Accrued salaries and wages 121,031125,233 67,317 Other liabilities and accrued expenses 190,564153,909 132,778 ----------- ----------- Total Liabilities $ 2,575,1362,804,538 $ 1,676,568 ----------- ----------- Commitments and contingencies Shareholders' Equity Common stock, no par value (stated value, $.66) Authorized - 5,000,000 shares Issued and outstanding - 2,741,168 shares 1,809,171 1,809,171 Paid-in capital 3,111,349 3,111,349 Retained earnings 356,251earnings/(Deficit) (491,302) 1,076,692 ----------- ----------- Total Shareholders' Equity 5,276,7714,429,218 5,997,212 ----------- ----------- Total Liabilities & Shareholders' Equity $ 7,851,9077,233,756 $ 7,673,780 =========== ===========
The accompanying notes are an integral part of these condensed financial statements. Page 3 BURKE MILLS, INC. CONDENSEDINC.CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS EARNINGS(DEFICIT)(Unaudited)
Thirteen Weeks Ended ------------------------- March 31 AprilTwenty-six Weeks Ended ----------------------- ----------------------- June 30, July 1, June 30, July 1, 2007 2006 ----------- -----------2007 2006 ------- ------- ------- ------- Net sales $5,264,860 $ 6,368,746 Costs of sales 5,460,664 6,320,538Sales $5,138,546 $6,186,983 $10,403,406 $12,555,729 ----------- ----------- ------------ ------------ Cost of Sales 5,335,561 6,040,724 10,796,225 12,361,262 ----------- ----------- ------------ ------------ Gross (loss)/profit (195,804) 48,208(197,015) 146,259 (392,819) 194,467 Selling, general and administrative expenses 518,036 518,183633,023 532,509 1,151,059 1,050,692 Loss on disposal of property assets --0- -0- -0- 5,868 ----------- ----------- ------------ ------------ Operating loss (713,840) (475,843)(830,038) (386,250) (1,543,878) (862,093) ----------- ----------- ------------ ------------ Other Income Interest income 695 1,592Income 2,672 1,632 3,367 3,224 Other, net 65 545894 57 959 602 ----------- ----------- ----------- ------------ Total other income 760 2,1373,566 1,689 4,326 3,826 ----------- ----------- ----------- ------------ Other Expenses Interest expense 7,361 1,142Expense 21,081 2,554 28,442 3,696 ----------- ----------- ----------- ------------ Total other expenses 7,361 1,142expense 21,081 2,554 28,442 3,696 ----------- ----------- ----------- ------------ Net loss (720,441) (474,848)(847,553) (387,115) (1,567,994) (861,963) Retained earnings at beginning of period $ 356,251 $2,478,647 $ 1,076,692 $ 2,953,495 ----------- ----------- ------------ ------------ Retained earningsearnings/(Deficit) at end of period $ 356,251(491,302) $2,091,532 $ 2,478,647(491,302) $ 2,091,532 ========== =========== =========== ============ Basic and Diluted net loss per share $ (0.26)(0.31) $ (0.17)(0.14) $ (0.57) $ (0.31) =========== =========== ============ ============ Weighted average common shares outstanding 2,741,168 2,741,168 2,741,168 2,741,168 =========== =========== ============= ============
The accompanying notes are an integral part of these condensed financial statements. Page 4 BURKE MILLS, INC. STATEMENTS OF CASH FLOWS (Unaudited)
ThirteenTwenty-six Weeks Ended ----------------------- March 31 AprilJune 30 July 1 2007 2006 ---------- ---------- Cash flows from operating activities Net loss $(1,567,994) $ (720,441) $ (474,848)(861,963) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 386,244 406,419765,275 807,271 Allowance for bad debts - (2,420)170,000 6,747 Allowance for mark-down inventory - (9,969)81,000 (5,669) Loss on disposal of property assets - 5,8695,868 Changes in assets and liabilities: Accounts receivable (39,047) (621,265)(11,211) (677,191) Inventories (470,817) (172,982)190,515) (479,010) Prepaid expenses & other current assets (57,074) (59,470)(59,690) (51,727) Accounts payable 340,167 48,919119,734 677,899 Accrued salaries & wages 53,714 56,86957,916 84,821 Other liabilities and accrued expenses 57,786 63,12821,131 75,799 ---------- ----------- Total Adjustments 270,973 515,098953,640 444,808 ---------- ----------- Net cash (used in) provided by operating activities (449,468) 40,250(614,354) (417,155) ---------- ----------- Cash flows used in investing activities: Acquisition of property, plant and equipment (35,896) (10,138)(73,634) (60,308) ---------- ----------- Net cash used in investing activities (35,896) (10,138)(73,634) (60,308) ---------- ----------- Cash flows from financing activities: Net advances on line of credit 446,901 -0-929,189 290,048 ---------- ----------- Net cash provided by financing activities 446,901 -0-929,189 290,048 ---------- ----------- Net increase (decrease) in cash and cash equivalents (38,463) 30,112241,201 (187,415) Cash and cash equivalents at beginning of year 55,816 425,812 ---------- ----------- CASH AND EQUIVALENTS AT END OF PERIOD $ 17,353297,017 $ 455,924238,397 ========== ===========
The accompanying notes are an integral part of these condensed financial statements. Page 5 BURKE MILLS, INC. ItemINC.Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTSFINANCIALSTATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION - ------------------------------- The-------------------------------The accompanying unaudited condensed financial statements of Burke Mills, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all necessary adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteentwenty-six week period ended March 31,June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 29, 2007. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 30, 2006. NOTE 2 - CASH AND CASH EQUIVALENTS - ---------------------------------- For----------------------------------For the purposes of the statements of cash flows, the Company considers cash on hand, deposits in banks, interest bearing demand matured funds, and all highly liquid debt instruments with a maturity of three months or less when purchased as cash and cash equivalents. FASB No. 95 requires that the following supplemental disclosures to the statements of cash flows be provided in related disclosures. Cash paid for interest for the thirteentwenty-six weeks ended March 31,June 30, 2007 and AprilJuly 1, 2006 was approximately $7,400$28,400 and $1,100$3,700 respectively. The Company had no cash payments for income taxes during the thirteentwenty-six weeks ended March 31,June 30, 2007 and AprilJuly 1, 2006. NOTE 3 - OPERATIONS OF THE COMPANY - ---------------------------------- The Company has experienced substantial operating losses over the last several years, has a retained earnings deficit as of the end of the second quarter of this year, and has been required to use a substantial amount of existing cash resources to fund its operations. The Company has taken significant steps to reduce its operating expenses. Reductions and retirement in management and staff personnel, layoffs of line workers, and other salary reductions have been effected which management expects will save the Company approximately $84,000 each month. The balance of the Company's line of credit has been paid down since June 30, 2007 from approximately $1,187,000 to just under $762,000 on August 8, 2007. Management of the Company believes that existing cash and cash equivalents will be sufficient to fund operations of the Company for at least 12 months from the date of this report. Management continues to work to increase sales with new customer relationships and expanded relationships with existing customers and to continue cost reductions. The Company is engaged in dyeing, texturing, winding, processing and selling of polyester, novelty, cotton, nylon, rayon and spun yarns, and in the dyeing and processing of these yarns for others on a commission basis. The Company's fiscal year is the 52 or 53 week period ending on the Saturday nearest to December 31. Its fiscal quarters also end on the Saturday nearest to the end of the calendar quarter. Revenue Recognition. Sales terms are FOB Burke Mills, Inc. Revenues are recognized at the time of shipment. Cost of Sales. All manufacturing, quality control, inbound freight, receiving, inspection, purchasing, planning, warehousing of raw, in process and finished inventory, outbound freight and internal transfer costs are included in the cost of sales. Selling, Page 6 BURKE MILLS, INC.Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 3 - OPERATIONS OF THE COMPANY (continued) - --------------------------------------Selling,general and administrative. Includes costThese expenses include costs related to the selling process, accounting, information services, and corporate offices. NOTE 4 - USE OF ESTIMATES - ------------------------- The-------------------------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 that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates are the liability for self-funded health claims, inventory markdowns, and the provision for bad debts. Page 6 BURKE MILLS, INC. Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 5 - ACCOUNTS RECEIVABLE - ----------------------------- Accounts receivable are comprised of the following:
March 31June 30 December 30 2007 2006 ----------- ----------- Accounts receivable $ 2,797,000 $ 2,757,000$2,769,000 $2,757,000 Allowance for doubtful accounts (30,000)(200,000) (30,000) ----------- ----------- Total $2,767,000 $ 2,727,000$2,569,000 $2,727,000 =========== =========== ===========
NOTE 6 - INVENTORIES - -------------------- InventoriesNOTE 6 - INVENTORIES - --------------------Inventories are summarized as follows:
March 31June 30 December 30 2007 2006 ----------- ----------- Finished & in process $ 863,000722,000 $ 703,000 Raw materials 861,000724,000 541,000 Dyes & chemicals 213,000202,000 208,000 Other 86,00095,000 100,000 Mark-down allowance (9,000)(90,000) (9,000) ----------- ----------- Total $ 2,014,000$1,653,000 $1,543,000 =========== ===========
NOTE 7 - LINE OF CREDIT - ------------------------ The------------------------The Company has entered into an Accounts Receivable Inventory Financing Agreement (the "Financing Agreement") with the CIT Group/ Commercial Services, Inc. ("CIT"). In addition, the Company signed a Letter of Credit Agreement (the "LOC Agreement") with CIT. Under the terms of the Financing Agreement, CIT may, at its sole discretion, advance up to $5,000,000 to the Company as follows: (a) revolving credit advances in amounts up to 85 percent of the net amount of eligible accounts receivable; (b) revolving credit advances in amounts up to 60 percent of the value of eligible inventory. Advances against eligible inventory will not exceed the lesser of $2,000,000 and the advances made by CIT against accounts receivable. With regard to the LOC Agreement, the Financing Agreement provides that CIT will assist the Company in opening letters of credit or guarantee the payment and performance of such letters of credit up to an aggregate face amount not exceeding $500,000 at any one time outstanding. Page 7 BURKE MILLS, INC.Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) The Company has granted to CIT a security interest in its accounts receivable; monies, securities and other property held in transit to CIT; present and future deposits held by CIT; all rights of the Company in future accounts receivable; the Company's inventory; the Company's equipment (defined to be all machinery, equipment, rolling stock, furnishings and fixtures and all additions, substitutions or employmentsreplacements thereof); all proceeds and products of any defined collateral; and other customary definitions of collateral related to accounts receivable, inventory and equipment. The Company is obligated to pay interest to CIT on the average of net balances owed monthly at one percent above the prime rate announced by JP Morgan Chase Bank in New York, NY. Interest is calculated on a 360 day year. In addition, the Company paid CIT an initial facility fee of $25,000 and will pay CIT $1,000 per month as a "collateral management fee." The Company had debt under its line of credit at March 31,June 30, 2007 of $705,000$1,187,000 and the unused line of credit was approximately $2,869,000. Page 7 BURKE MILLS, INC. Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)$1,727,000. NOTE 8 - INCOME TAXES - --------------------- The---------------------The Company uses the liability method as required by FASB Statement 109 "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws. The items that comprise deferred tax assets and liabilities are as follows:
March 31June 30 December 30 2007 2006 ----------- -------------------- --------- Deferred tax assets: Alternative minimum taxes paid $ 349,000 $ 349,000 Net operating loss carryover 1,929,0002,036,000 1,701,000 Charitable contributions carryover 1,000 1,000 State tax credits 41,000 41,000 Bad debts -0-77,000 12,000 Inventory 7,00036,000 5,000 ----------- --------------------- ---------- Total gross deferred tax assets 2,327,0002,540,000 2,109,000 Valuation Allowance (2,036,000)(2,387,000) (1,751,000) ----------- --------------------- ---------- Net deferred tax assets $ 291,000153,000 $ 358,000 ----------- --------------------- ---------- Deferred tax liabilities: Accelerated depreciation for tax purposes 291,000153,000 358,000 ----------- --------------------- ---------- Net deferred tax liability $ -0- $ -0- =========== ===================== ==========
The net operating loss carryforward from the prior year is approximately $4,196,000 which expires in various amounts starting 2022-2025. NOTE 9 - EMPLOYEE BENEFIT PLAN - ------------------------------ The Company is a participating employer in the Burke Mills, Inc., Savings and Retirement Plan and Trust that has been qualified under Section 401(k) of the Internal Revenue Code. This plan allows eligible employees to contribute a salary reduction amount of not less than 1% nor greater than 25% of the employee's salary but not to exceed dollar limits set by law. The employer may make a discretionary contribution for each employee out of current net profits or accumulated net profits in an amount the employer may from time to time deem advisable. No provision was made for a discretionary contribution for the periods ended March 31,June 30, 2007 and AprilJuly 1, 2006. Page 8 BURKE MILLS, INC.Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 10 - CONCENTRATIONS OF CREDIT RISK - --------------------------------------- Financial instruments that potentially subject the Company to concentration of credit risk consist principally of occasional temporary cash investments and accounts receivable. At the end of the quarter, two customers represented approximately 19%25% of total accounts receivable. Two customers also represented approximately 25% of total accounts receivable at the year ended December 30, 2006. Page 8 BURKE MILLS, INC. Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 11 - COMMITMENTS - --------------------- During 1996 in connection with a bank loan to the Company secured by real estate, the Company had a Phase I Environmental Site Assessment conducted on its property. The assessment indicated the presence of a contaminant in the groundwater under the Company's property. The contaminant was a solvent used by the Company in the past but is no longer used. The contamination was reported to the North Carolina Department of Environment and Natural Resources (DENR). DENR required a Comprehensive Site Assessment that has been completed. The Company's outside engineering firm conducted testing and prepared a Corrective Action Plan that was submitted to DENR. The Company has identified remediation issues and continues to move toward a solution of natural attenuation. The cost of monitoring is approximately $11,000 per year. SELF-INSURANCE - The Company provides health benefits to its employees under a self-insured health plan. Claims are paid by the Company up to an individual and an aggregated limit of $55,000 and approximately $959,000 respectively. Claims in excess of these limits are covered by a third-party insurance contract. ExpenseExpenses is recorded on a monthly basis for actual claims experience. Page 9 BURKE MILLS, INC. Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 12 - INVESTMENT IN AFFILIATE AND RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------- The Company and its joint venture partner, Akra, voted on March 26, 2004 to close their joint venture, Fytek. The joint venture operated on a scaled down basis through mid-August 2004. In 2005 and 2006, the Company and its joint venture partner continued liquidation of Fytek. The Company received approximately $325,000 of cash distributions through year end 2005. In the fourth quarter of 2006, the Company sold its shares in Fytek to Akra for $15,000. Akra will maintain the financial records of Fytek for five years, as required by Mexican tax laws. The Company paid its Chairman and Chief Executive Officer, who is also the Company's majority shareholder, a base salary of $52,500$105,000 for the quarterssix months ended March 31,June 30, 2007 and AprilJuly 1, 2006. The Company also reimbursed this officer for a portion of his office and travel expense. These payments totaled approximately $12,670$37,000 and $28,075,$28,000, for the quarterssix months ended March 31,June 30, 2007 and AprilJuly 1, 2006 respectively. NOTE 13 - ACCOUNTING FOR POSSIBLE IMPAIRMENT OF LONG-LIVED ASSETS - ------------------------------------------------------------------- Long-lived-------------------------------------------------------------------Long-lived assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of these assets and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. NOTE 14 - EARNINGS PER SHARE - ---------------------------- Earnings----------------------------Earnings per share are based on the net income divided by the weighted average number of common shares outstanding during the thirteentwenty-six week periods ended March 31,June 30, 2007, and AprilJuly 1, 2006. Page 9 BURKE MILLS, INC.Item 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 15 - NEW ACCOUNTING PRONOUNCEMENTS - ---------------------------------------In June 2006, the FASB issued Interpretation No.48, "Accounting for Uncertainty in Income Taxes' (FIN 48) which clarifies the accounting for uncertainty in incomes taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Any resulting cumulative effect of applying the provisions of FIN 48 upon adoption will be reported as an adjustment to beginning retained earnings in the period of adoption. The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of the adoption of FIN 48. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 is not expected to have a material impact on the Company's consolidated financial position or results of operations. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities", (SFAS No. 159) which gives companies the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is in the process of evaluation the impacts, if any, of adopting this pronouncement. BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE SUMMARY - ----------------- AlthoughThe Company has experienced substantial operating losses over the last several years, has a retained earnings deficit as of the end of the second quarter of this year, and has been required to use a substantial amount of existing cash resources to fund its operations. The Company has taken significant steps to reduce its operating expenses. Reductions and retirement in management and staff personnel, layoffs of line workers, and other salary reductions have been effected which management expects will save the Company approximately $84,000 each month. The balance of the Company's sales declined by 17.3% for the quarter, thereline of credit has been no major customer lost. The sales decline would have been greater ifpaid down since June 30, 2007 from approximately $1,187,000 to just under $762,000 on August 8, 2007. Management of the Company had not continuedbelieves that existing cash and cash equivalents will be sufficient to add new customers in 2006. Thefund operations of the Company for at least 12 months from the date of this report. Management continues to developwork to increase sales with new programs that could add customers, but there is no guarantee thatcustomer relationships and expanded relationships with existing customers business will notand to continue to decline. Also, the industry has an overcapacity for dyed yarns, causing very competitive pricing. Utility cost continues to be a challenge, as fuel oil and natural gas prices remain volatile, electricity prices are expected to increase 12% in July and water rates are expected to increase by 5% in July. Inventories increased as a result of a build up of imported yarns and a decline in demand. The inventory will be reduced in the second quarter.reductions. Page 10 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE SUMMARY (continued) - -----------------------------The Company lost a major customer on July 2, 2007, when Quaker Fabrics, Inc. announced they had suspended operations and would probably liquidate. Sales to Quaker were $1,776,000 in 2006 and $656,000 for the first six months of 2007. The allowance for bad debts has been increased in the second quarter by $170,000 to cover the potential loss of the Quaker receivable. It is not known if there will be any cash available to pay unsecured creditors after the liquidation. There continues to be an overcapacity for dyed yarns, causing very competitive pricing. Duke Energy, the Company's electricity provider, has announced a 12% increase in rates beginning July 1, 2007. The Town of Valdese has increased water rates by 5% beginning July 1, 2007. Results of Operations - 2007 Compared to 2006 - --------------------------------------------- The following discussion should be read in conjunction with the information set forth under the Financial Statements and Notes thereto included elsewhere in the 10-Q. The following table sets forth operating data of the Company as a percentage of net sales for the periods indicated below:
Thirteen Weeks Twenty-six Weeks Ended ---------------------- March 31 AprilEnded -------------------- ------------------- June 30, July 1, June 30, July 1, 2007 2006 ------ ------2007 2006 ----- ----- ----- ----- Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 103.7 99.2103.8 97.6 103.8 98.5 ------ ------ ------ ------ Gross Profit (loss) (3.7) 0.8(Loss) (3.8) 2.4 (3.8) 1.5 Selling, General, and Administrative Costs 9.9 8.312.3 8.6 11.1 8.4 ------ ------ ------ ------ Operating Loss (13.6) (7.5)(16.1) (6.2) (14.9) (6.9) Net Other (0.4) 0.1 (0.2) 0.0 ------ ------ Net Other Expense (0.1) (0.0) ------ ------ Net Loss (13.7) (7.5)(16.5)% (6.3)% (15.1)% (6.9)% ====== ====== ====== ======
THIRTEEN WEEKS ENDED June 30, 2007 COMPARED TO THIRTEEN WEEKS ENDED July 1, 2006 Net Sales - --------- Net sales for the firstsecond quarter decreased by 17.3%17% to $5,265,000$5,139,000 compared to $6,369,000$6,187,000 for the firstsecond quarter of 2006. The loss of Quaker will have an adverse affect on sales in the second half of the year. Cost of Sales and Gross Margin - ------------------------------ Since the Company began diversifying into other fibers, its non-polyester volume has increased. These fibers have a longer dyeing and drying cycle time and require winding after dyeing. Page 11 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED June 30, 2007 COMPARED TO THIRTEEN WEEKS ENDED July 1, 2006 Cost of Sales and Gross Margin (continued) - ------------------------------ Small lot orders have increased, while orders for larger lots have declined. The Company's small dye machines are at capacity while the larger dye machines are under utilized. Cost of goods sold decreased by $705,000 or 11.7%. Cost of materials decreased by $699,000 or 20.2%, as a result of lower sales and a change in sales mix. Direct labor cost decreased by $30,000 or 9.2% as a result of lower sales. Overhead cost decreased by $169,000 or 7.2% as a result of lower sales. Although most expense categories decreased, natural gas cost increased by 5% as a result of higher prices. Also, water cost increased by 16.3% as a result of a 5% rate increase and sales mix. As a result of a decrease in sales of 17% and a decrease in cost of sales of 11.7%, the Company experienced a gross loss of 3.8%. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses increased by $101,000 or 18.9% partly due to an increase in the allowance for bad debts of $170,000 for Quaker. Provision (Credit) for Income Taxes - ------------------------------------ There was no provision or credit provided for income taxes for the quarter. See Note 8. TWENTY-SIX WEEKS ENDED June 30, 2007 COMPARED TO TWENTY-SIX WEEKS ENDED July 1, 2006 Net Sales - --------- Net sales for the second quarter decreased by 17.1% to $10,403,000 compared to $12,556,000 for 2006. Although, net sales decreased by 17.3%17.1%, pounds shipped decreased by 11.1%15.1% due to a change in sales mix. During the second quarter of 2006, the Company added commission (the dyeing and processing of customer owned yarn) customers and changed the sales mix significantly. Commission pounds shipped in the first six months of 2007 was 30%were 29% of total pounds shipped compared to only 5%15% in the first quartersix months of 2006. The average sales price for commission sales will beis lower as there is no yarn cost in the sales price. Cost of Sales and Gross Margin - ------------------------------ Since the Company began diversifying into other fibers, its non-polyester volume has increased. These fibers have a longer dyeing and drying cycle time and require winding after dyeing. Cost of goods sold decreased by $860,000 or 13.6%. Cost of materials decreased by $845,000 or 22.4%, as a result of lower sales and a change in sales mix to a greater portion of commission sales. Direct labor cost increased by $12,000 or 4.4% as a result of a change in sales mix that requires more winding of the yarn and longer dye cycles. Page 11 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cost of Sales and Gross Margin (continued) - ------------------------------------------ Overhead cost increased by $33,000 or 1.5% primarily as a result of the following: a. Electricity increased by $18,000 or 8.5% primarily due to a change in the product mix. Duke Energy, the Company's supplier of electricity has notified the Company that there will be a rate increase of 12% effective July 1, 2007. b. Natural gas and fuel oil cost increased by $23,000 or 5.9%. c. Water cost increased by $18,000 or 20.10% due to a rate increase of 5% in July 2006 and increased usage due to the change in sales mix. Small lot orders have increased, while orders for larger lots have declined. The Company's small dye machines are at capacity while the larger dye machines are under utilized. Page 12 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TWENTY-SIX WEEKS ENDED June 30, 2007 COMPARED TO TWENTY-SIX WEEKS ENDED July 1, 2006 Cost of Sales and Gross Margin (continued) - ------------------------------ Cost of goods sold decreased by $1,565,000 or 12.7%. Cost of materials decreased by $1,544,000 or 21.4%, as a result of lower sales and a change in sales mix. Direct labor cost decreased by $18,000 or 3.0% as a result of lower sales volume. Overhead cost decreased by $135,000 or 3.0% primarily as a result of lower sales volume. Although most expense categories decreased, natural gas cost increased by 5.5% as a result of higher prices. Also, water cost increased by 18.3% as a result of a 5% rate increase and sales mix. As a result of a decrease in net sales of 17.3%17.1% and a decrease in cost of sales of 13.6%12.7%, the Company experienced a gross loss of 3.7%3.8%. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses remain approximately the same.increased by $100,000 or 9.6% mostly due to an increase in allowance for bad debts of $170,000 for Quaker. Provision (Credit) for Income Taxes - ------------------------------------ There was no provision or credit provided for income taxes for the quarter.first six months of 2006. See Note 8. Critical Accounting Policies and Estimates - ------------------------------------------ The preparation of financial statements, in accordance with accounting principles generally accepted in the United States, requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses recognized and incurred during the reporting period then ended. In addition, estimates affect the determination of contingent assets and liabilities and their related disclosure. The Company bases its estimates on a number of factors, including historical information and other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates in the event there are changes in related conditions or assumptions. The development and selection of the disclosed estimates have been discussed with the Audit Committee of the Board of Directors. The following accounting policies are deemed to be critical, as they require accounting estimates to be made based upon matters that are highly uncertain at the time such estimates are made. Page 12 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates (continued) - ------------------------------------------------------ The Company is self-funded for its employee health claims. The health claims are paid by the Company after review by the Company's third party administrator. The Company's liability for health claims includes claims that the Company estimates have been incurred, but not yet presented to the administrator. A historical basis and a current analysis is used to establish the amount. The Company reviews its inventory and when necessary establishes a markdown allowance for obsolete and slow moving items. The markdown allowance is determined by aging the inventory, reviewing the inventory with the salesmen, and determining a salvage value. Page 13 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TWENTY-SIX WEEKS ENDED June 30, 2007 COMPARED TO TWENTY-SIX WEEKS ENDED July 1, 2006 Critical Accounting Policies and Estimates (continued) - ------------------------------------------ The Company records a valuation allowance to reduce its deferred tax assets to the amount that it estimates is more likely than not to be realized. As of March 31,June 30, 2007 and December 30, 2006, the Company recorded a valuation allowance that reduced its net deferred tax asstsassets to zero. Liquidity and Capital Resources - ------------------------------- In the first quartersix months of 2007 and 2006, the Company financed its operations with funds generated from operations and its line of credit. The Company's ability to generate cash from operating activities is subject to the level of net sales. As discussed earlier, the Company continues to expand into other fibers and add customers.fibers. As set forth in the Statement of Cash Flows, funds used in operating activities were approximately $449,000.$614,000. The funds used reflect the net loss and the increase in inventory. The Company has used approximately $36,000$74,000 for capital expenditures in the first quartertwo quarters of 2007 compared to $10,000$60,000 in 2006. Planned capital expenditures for 2007 are approximately $100,000. The Company's line of credit provided approximately $447,000 in$929,000 for the first quartersix months of 2007. The Company had debt under its line of credit of $705,000$1,187,000 and availability of $2,869,000$1,727,000 at March 31,June 30, 2007. The Company's working capital decreased by $370,000$876,000 primarily as a result of the net loss.
March 31June 30 December 30 2007 2006 ----------- --------------------- ------------ Working Capital $ 2,310,000 $ 2,680,000$1,804,000 $2,680,000 Working Capital Ratio 1.901.64 to 1 2.60 to 1
As a measure of current liquidity, the Company's quick position (cash, cash equivalents and receivables over current liabilities) disclosed the following at March 31,June 30, 2007:
March 31, 2007 -------------- Cash, cash equivalents and receivables........... $2,784,000 Current liabilities.............................. 2,575,000 ---------- Excess of quick assets over current liabilities... $ 209,000 ========== Quick Ratio 1.08June 30, 2007 -------------- Cash, cash equivalents and receivables........... $2,866,000 Current liabilities.............................. 2,805,000 ---------- Excess of quick assets over current liabilities... $ 61,000 ========== Quick Ratio 1.02 to 1
Page 1314 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements - -------------------------- Certain statements in this Management's Discussion and Analysis of Financial condition and Results of Operations, and other sections of this report, contain forward-looking statements within the meaning of federal securities laws about the Company's financial condition and results of operations that are based on management's current expectations, beliefs, assumptions, estimates and projections about the markets in which the Company operates. Words such as "expects", anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's judgment only as of the date hereof. The Company undertakes no obligations to update publicly any of these forward-looking statements to reflect new information, future events or otherwise. Factors that may cause actual outcome and results to differ materially from those expressed in, or implied by, these forward-looking statements include, but are not necessarily limited to, availability, sourcing and pricing of raw materials, pressures on sales prices due to competition and economic conditions, reliance on and financial viability of significant customers, technological advancements, employee relations, changes in construction spending and capital equipment expenditures (including those related to unforeseen acquisition opportunities), the timely completion of construction and expansion projects planned or in process, continued availability of financial resources through financing arrangements and operations, negotiations of new or modifications of existing contracts for asset management and for property and equipment construction and acquisition, regulations governing tax laws, other governmental and authoritative bodies, policies and legislation, and proceeds received from the sale of assets held for disposal. In addition to these representative factors, forward-looking statements could be impacted by general domestic and international economic and industry conditions in the markets where the Company competes; such as, changes in currency exchange rates, interest and inflation rates, recession and other economic and political factors over which the Company has no control. Item 3 - Quantitative and Qualitative Disclosures about Market Risk - -------------------------------------------------------------------- The Company has not purchased any instruments or entered into any arrangements resulting in market risk to the Company for trading purposes or for purposes other than trading purposes. Item 4 - Controls and Procedures - --------------------------------- As of the end of the fiscal quarter covered by this report, the Company's management, with the participation of the Company's chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedure.procedures. The term "disclosure controls and procedures" means the controls and other procedures of the Company that are designed to insure that information required to be disclosed by the Company in its reports to the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported, within the time period specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to insure that information required to be disclosed by the Company in the reports that it files or submits to the SEC under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its chief executive officer and its chief financial officer as appropriate, to allow timely decisions regarding required disclosure. Page 1415 BURKE MILLS, INC. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 4 - Controls and Procedures (continued) - --------------------------------- Based upon that evaluation, the Company's management, with the participation of the Company's chief executive officer and chief financial officer, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries, of which the Company has none) required to be included in the reports filed with the SEC by the Company. There has been no significant change in the Company's internal controls over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Page 16 BURKE MILLS, INC. PART II - OTHER INFORMATION Item 1 - Legal Proceedings. No report required. Item 1A- Risk Factors. No report required. Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds. No report required. Item 3 - Defaults Upon Senior Securities. No report required. Item 4 - Submission of Matters to a Vote of Security Holders. No matter has beenMatters were submitted to a vote of security holders duringof the period covered by this report.Company at the Company's annual meeting of shareholders held May 15, 2007. Proxies for such meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934; there was no solicitation in opposition to management's nominees listed in the proxy statement; and, all of such nominees were elected. The matters voted upon were (a) election of chairman and secretary of the meeting and waiver of the reading of the minutes of the previous shareholders meeting; and 2,493,906 proxy votes were cast in favor thereof; (b) election of directors. The voting for directors was as follows:
Director Votes For Votes Withheld - ------------------ --------- --------------- Humayun N. Shaikh 2,480,069 13,837 Thomas I. Nail 2,491,369 2,537 Robert P. Huntley 2,492,969 937 William T. Dunn 2,492,969 937 Robert T. King 2,492,969 937 Richard F. Byers 2,491,369 2,537 Aehsun Shaikh 2,480,069 13,837
Item 5 - Other Information. No report required. Item 6 - Exhibits. (a) The exhibits required by Item 601 of Regulation SK are specified on the Exhibit Index and are attached to this report or incorporated by reference from prior filings. BURKE MILLS, INC. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BURKE MILLS, INC. Date: May 14,August 10, 2007 By:/s/Humayun N. Shaikh ------------------------ Humayun N. Shaikh, Chairman of the Board (Principal Executive Officer) Date: May 14,August 10, 2007 By:/s/Thomas I. Nail ----------------------- Thomas I. Nail President and COO (Principal Financial Officer) Page 1517 EXHIBIT INDEX Exhibit Number Description 3(i) Articles of Incorporation - incorporated by reference as a part of a registration statement on Form S-1 filed with the Securities and Exchange Commission in 1969. 3(ii) By-Laws - incorporated by reference as a part of a registration statement on Form S-1 filed with the Securities and Exchange Commission in 1969. 31 Rule 13a-14(a) Certifications 32 Section 1350 Certifications Page 1618 EXHIBIT 31 RULE 13(a)-14(a) CERTIFICATIONS CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Humayun N. Shaikh, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Burke Mills, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 control over financial reporting that occurred during the registrant's most recent 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(s) 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 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 (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: May 14,August 10, 2007 /s/Humayun N. Shaikh --------------------------- Humayun N. Shaikh Chairman and CEO (Principal Executive Officer) Page 1719 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Thomas I. Nail, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Burke Mills, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) 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 control over financial reporting that occurred during the registrant's most recent 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(s) 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 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 (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: May 14,August 10, 2007 /s/Thomas I. Nail --------------------------- Thomas I. Nail President and COO (Principal Financial Officer) Page 1820 EXHIBIT 32 SECTION 1350 CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S. CODE SECTION 1350 The undersigned Chief Executive Officer of Burke Mills, Inc., (the "Issuer") hereby certifies that the foregoing periodic report containing financial statements of the Issuer fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) and that the information contained in the foregoing report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: May 14,August 10, 2007 /s/Humayun N. Shaikh --------------------------- Humayun N. Shaikh Chairman and CEO CERTIFICATION PURSUANT TO 18 U.S. CODE SECTION 1350 The undersigned Chief Financial Officer of Burke Mills, Inc., (the "Issuer") hereby certifies that the foregoing periodic report containing financial statements of the Issuer fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC 78m or 78o(d)) and that the information contained in the foregoing report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: May 14,August 10, 2007 /s/Thomas I. Nail --------------------------- Thomas I. Nail President and COO (Chief Financial Officer) Page 1921