UNITED STATES 		 SECURITIES AND EXCHANGE COMMISSION 			 Washington, D.C. 20549 				 FORM 10-K 	 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF 		 THE SECURITIES EXCHANGE ACT OF 1934 		For the Fiscal Year ended January 3, 1998 		 Commission File No. 0-5680 			 BURKE MILLS, INC. 	 (Exact name of registrant as specified in its charter) 	(I.R.S. Employer Identification No.) 56-0506342 State or other jurisdiction of incorporation or organization: 			 North Carolina 	 191 Sterling Street, N.W. 	 Valdese, North Carolina 28690 (Address of principal executive offices) (Zip Code) 	Registrant's telephone number, including area code: 			 828 874-6341 Securities registered pursuant to Section 12(g) of the Act: 	Common Stock No Par Value (Stated Value of $0.66 Per Share) 			 (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) 									 Indicate by check mark if a 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 the 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant (computed by reference to the average bid and asked price on February 17, 1998) was $3,228,394. The number of shares outstanding of the registrant's only class of common stock as of February 28, 1998 is 2,741,168 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's proxy statement, which is to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference in Part III of this report. 				 PART I ITEM 1 - BUSINESS (a) General Development of Business. The general development of the business of Burke Mills, Inc., (the Company), during the fiscal year ended January 3, 1998 was to position the Company for future growth. The Company concentrated on improving efficiencies and reducing cost, while maintaining its existing products and its existing markets. In the fourth quarter, the Company's joint venture, Fytek, S.A. de C.V., began operations. Fytek will provide twisted filament yarns to the Company as well as to the Mexican, Central American and South American markets. Fytek will also sell and distribute the Company's yarns in these markets. During the year, the Company also consolidated its relations with a major yarn producer, which can provide a consistent supply of lower cost yarns and participate with the Company on yarn development projects. Also, the Company found a successor for its president who retired during the year. 							 (b) Financial Information about Industry Segments - The Company had only one industry segment during the fiscal year ended January 3, 1998. (c) Narrative Description of Business - The Company is engaged in twisting, texturing, winding, dyeing, processing and selling of filament, novelty and spun yarns and in the dyeing and processing of these yarns for others on a commission basis. 	 The principal markets served by the Company are upholstery and industrial uses through the knitting and weaving industry. The Company's products are sold in highly competitive markets primarily throughout the United States. Competitiveness of the Company's products is based on price, service and product quality. Many of the Company's competitors are divisions or segments of larger, diversified firms with greater financial resources than those of the Company. The methods of distributions of the Company's products consist of the efforts of the Company's sales force which makes contact with existing and prospective customers. The Company markets its products throughout the United States and Canada, with the bulk of business being primarily in the eastern United States, through two salesmen employed directly by the Company on salary and a number of commissioned sales agents working on various accounts. The Company also has begun to market its products in Mexico, Central America and South America through its joint venture, Fytek, S.A. de C.V. The dollar amount of backlog of unshipped orders as of January 3, 1998 was $4,098,000 and as of December 28, 1996 was $4,834,000. Generally, all orders in backlog at the end of a year are shipped the following year. The backlog has been calculated by the Company's normal practice of including orders which are deliverable over various periods and which may be changed or canceled in the future. The most important raw materials used by the Company are unprocessed raw yarn, dyes and chemicals. The Company believes that its sources of supply for these materials are adequate for its needs and that it is not substantially dependent upon any one supplier. With respect to the practices of the Company relating to working capital items, the Company generally carries enough inventory for approximately 48 days. On average, the Company turns its inventory approximately 6 to 8 times each year. The Company has been able to meet its delivery schedules and has been able to enjoy a ready supply of raw materials from suppliers. For the fiscal year ended January 3, 1998, approximately 4.3% of the Company's sales were from dyeing and processing of yarn for customers who supplied the yarn. The Company does not allow customers the right to return merchandise except where the merchandise is defective. The Company rarely allows payment terms to its customers beyond sixty (60) days, and the Company has experienced no significant problems in collecting its accounts receivable. The Company believes that industry practices are very similar to that of the Company in regard to these matters. Substantially all of the Company's manufacturing operations are run by electrical energy purchased from local utility companies and its premises are heated with oil and gas. The Company has not experienced any shortages in electricity, oil or gas during the fiscal year. The Company has made no arrangements for alternate sources of energy. While energy related difficulties are not expected to prevent the Company from achieving desired production levels, energy shortages of extended duration could have an adverse impact on the Company's operations. The Company has established a recycling program for its major waste items: yarn, cardboard, plastic tubes and cleaning fluid. The Company has made various changes in its plant that regulates discharge of materials into the environment. The Company believes its manufacturing operations are in compliance with all presently applicable federal, state and local legislative and administrative regulations concerning environmental protection; and, although it cannot predict the effect that future changes in such regulations may have, particularly as such changes may require capital expenditures or affect earnings, it does not believe that any competitor subject to the same or similar regulations will gain any significant and competitive advantages as a result of any such changes. Compliance by the Company during the fiscal year ended January 3, 1998 with federal, state and local environmental protection laws had no material effect on capital expenditures, earnings or the competitive position of the Company. 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 no longer used. The contamination was reported to the North Carolina Department of Health, Environment and Natural Resources (DHENR). DHENR required a Comprehensive Site Assessment that has been completed. The Company's outside engineering firm has conducted testing and will prepare a Corrective Action Plan for submission to DHENR. The Company has identified remediation issues and is moving toward a solution of natural attenuation. The Company believes it has made an adequate provision to earnings in 1997 to cover any future cost. On, February 19, 1998, the Company had 287 employees. The Company's yarn division is its only division. During the fiscal year ended January 3, 1998, sales to CMI Industries, Inc. exceeded ten percent of the Company's revenue for that year. The loss of the customer would have a material adverse effect on the Company in the short run; and, the Company believes that it would be able to replace the business within a reasonable time. The Company owns 49.8% of the stock and 50% of the voting control of Fytek, S.A. de C.V. (Fytek), a Mexican corporation with its principal place of business in Monterey, Mexico. The other shareholder in Fytek is Fibras Quimicas, S.A., a Mexican Corporation. The purpose of Fytek is the manufacture and marketing of yarns. The Company will acquire yarn from Fytek and use Fytek to market and distribute its dyed yarn in Mexico, Central America and South America. Fytek began production in the fourth quarter of 1997. (d) Financial Information about Foreign and Domestic Operations and Export Sales - The Company had sales to Brazil, Canada and Mexico during 1997, which accounted for approximately 6% of total net sales. During 1996 and 1995 the Company had sales to Canada and Mexico which were less than 5% and 3%, respectively. ITEM 2. PROPERTIES The executive offices and manufacturing plant of the Company are located at Valdese, North Carolina, which is 75 miles northwest of Charlotte, North Carolina, and 60 miles east of Asheville, North Carolina. The main plant and executive offices are located on a sixteen-acre tract of land owned by the Company. Eleven acres of this tract are encumbered by a first priority lien deed of trust held by First Union National Bank of North Carolina. The main plant building used by the Company contains approximately 308,928 square feet. The Company also owns an auxiliary building containing 36,600 square feet located adjacent to its main plant. This latter building is currently used for warehousing yarn and as a distribution center. The plant buildings are steel and brick structures protected by automatic sprinkler systems. The various departments, with the exception of the production dyehouse, are heated, cooled and humidified. The Company considers all its properties and manufacturing equipment to be in a good state of repair, well maintained and adequate for its present needs. The Company utilizes substantially all of the space in its main plant for its offices, machinery and equipment, storage and shipping and receiving areas. The Company utilizes about half of the space in the auxiliary building and plans to utilize all of this building for warehouse and distribution purposes in the near future. The approximate maximum capacity in pounds per year of the Company's machinery and equipment, based upon operating the machinery and equipment seven (7) days per week fifty (50) weeks per year, and the approximate percentage of utilization thereof during the fiscal year ended January 3, 1998 are as follows: 				 Pounds/Year 1997 	Department Capacity Utilization (1)Twisting Machines 1,300,000 79% 	Winding Machines 20,000,000 46% 	Texturing Machines 4,835,000 59% 	Dyeing Equipment 20,000,000 65% (1)Represents the average capacity for the year, as machines were moved 	to the Company's joint venture during 1997. ITEM 3. LEGAL PROCEEDINGS The Company is not a party and its property is not subject to any material pending legal proceedings other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED 	STOCKHOLDER MATTERS (a) The principal United States (or other) market on which the Company's common stock is being traded is the United States over-the-counter market. The range of high and low bid quotations for the Company's common stock for each quarterly period during the past two fiscal years ended January 3, 1998 (as obtained from the NASDAQ Stock Market, Inc., in Washington, DC) is as follows: 		Quarter Ending High Bid Low Bid 		 1996 		March 31 $3.50 $2.625 		June 30 $3.00 $2.00 		September 30 $4.00 $2.25 		December 31 $4.00 $2.875 		 1997 		March 31 $3.50 $2.625 		June 30 $3.375 $2.50 		September 30 $3.375 $2.375 		December 31 $3.50 $2.50 Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. (b) As of February 19, 1998 there were 452 holders of the common stock of the Company. (c) The Company has declared no dividends on its common stock during the past two years. ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth on the following page, for the five years ended January 3, 1998 have been derived from the audited financial statements of the Company. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements and related notes thereto and other financial information included therein. ITEM 6. SELECTED FINANCIAL DATA 	(in thousands except per share data) 						 Years Ended 				 Jan. 3 Dec. 28 Dec. 30 Dec. 31 Jan. 1 1998 1996 1995 1994 1994 SELECTED INCOME STATEMENT DATA Net Sales $41,156 $40,649 $34,148 $36,194 $26,835 Cost of Sales 36,765 36,887 30,666 30,928 24,292 Gross Profit $ 4,391 $ 3,762 $ 3,482 $ 5,266 $ 2,543 Income before Income Taxes $ 1,059 $ 869 $ 1,156 $ 3,376 $ 690 Income Taxes 433 284 212 867 316 Net Income $ 626 $ 585 $ 944 $ 2,509 $ 374 Per Share (Note A) Net income $ .23 $ .21 $ .34 $ .92 $ .14 Cash dividends declared 	Per common share None None None None None Weighted average number of common shares outstanding 2,741 2,741 2,741 2,741 2,741 SELECTED CASH FLOW DATA Capital expenditures $ 1,343 $ 1,025 $ 6,372 $ 1,541 $ 1,374 Depreciation $ 1,600 $ 1,508 $ 1,052 $ 1,006 $ 903 Cash provided by operating activities $ 3,646 $ 1,527 $ 2,004 $ 2,186 $ 985 				 Jan. 3 Dec. 28 Dec. 30 Dec. 31 Jan. 1 				 1998 1996 1995 1994 1994 			 < C> SELECTED BALANCE SHEET DATA Current assets $11,785 $ 9,905 $ 7,641 $ 8,814 $ 7,382 Current liabilities 3,378 1,738 2,171 2,944 2,923 Working capital $ 8,407 $ 8,167 $ 5,470 $ 5,870 $ 4,459 Current ratio 3.49 5.70 3.52 2.99 2.53 Total assets $24,348 $22,554 $20,769 $16,621 $14,655 Long-term debt $ 5,313 $ 6,000 $ 4,964 $ 995 $ 1,645 Deferred income taxes $ 2,218 $ 2,003 $ 1,406 $ 1,399 $ 1,312 Shareholders' equity $13,440 $12,813 $12,228 $11,284 $ 8,775 (A) Income per share has been computed based on the weighted average number of common shares outstanding during each period. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 	AND RESULTS OF OPERATIONS The following table sets forth selected operating data of the Company as percentages of net sales for the periods indicated. 				 					Relationship to Total Revenue 			 For the Year Ended Period to Period 			 Jan. 3 Dec. 28 Dec. 30 Increase (Decrease) 			 1998 1996 1995 1996-1997 1995-1996 Net Sales 100.0% 100.0% 100.0% 1.2% 9.0% Cost of Sales 89.3 90.7 89.8 ( 0.3) 20.3 Gross profit margin 10.7 9.3 10.2 16.7 8.0 Selling, general, administrative and factoring expenses 6.9 6.3 6.2 11.9 19.2 Operating earnings 3.8 3.0 4.0 26.6 (9.4) 							 Other income 0.4 0.3 0.2 35.8 67.5 					 Other expenses (1.7) (1.2) (0.8) 37.5 75.6 Income before income taxes 2.5 2.1 3.4 21.8 (24.8) Income taxes 1.0 0.7 0.6 52.3 33.8 Net income 1.5% 1.4% 2.8% 7.0% (38.0%) 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				(Continued) Results of Operations 1997 Compared to 1996 Net Sales Net sales for the 1997 year aggregated $41.1 million, representing an increase of $ .5 million, as compared to net sales volume of $40.6 million recorded by the Company for 1996. Net sales dollars increased by 1.2% and total pounds shipped increased by 3.5% over those of 1996. Full yarn sales dollars increased 2.8% and full yarn pounds shipped increased by 4.6%. Sales from commission yarn sales (the dyeing and processing of customer owned yarns) decreased in both dollars and pounds by 25.3% and 30.0%, respectively, in 1997 compared with 1996. Cost of Sales and Gross Margin Although net sales increased by 1.2%, and the sales mix changed to a larger portion of full yarn sales, cost of sales actually declined by $122,000. Material cost declined by $321,000, or 1.3%, mainly as a result of a lower unit cost of yarns and an improvement in reworks. Total labor cost increased by 2.1% mainly as a result of an annual wage increase. Manufacturing overhead declined by 0.8% mainly as a result of improvements in reworks. Inasmuch as net sales for 1997 as compared to 1996, increased by 1.2%, while cost of sales decreased by 0.3%, the 1997 gross margin increased to 10.7% as compared to 9.3% recorded in 1996. Selling, General and Administrative Expenses Selling, general and administrative expenses for 1997 aggregated $2.7 million, as compared to $2.3 million in 1996. During the fourth quarter of 1997, the Company recorded $157,000 for the severance arrangements for its retiring president. The Company also experienced $63,000 in recruiting costs for its new president. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				(Continued) Results of Operations (continued) 1997 compared to 1996 (continued) Factor's Charges Factor's charges for 1997 aggregated $183,000, or 0.4%, of net sales, as compared to $194,000, or 0.5%, of net sales. The ratio of sales made to factored accounts versus non-factored accounts was slightly lower in 1997. Operating Margins As a result of the discussion above with respect to the 1997 increase in sales with an increase in gross profit percentage, coupled with an increase in selling, general, and administrative expenses, the Company reported operating earnings of $1.6 million in 1997, compared to $1.2 million in 1996. Interest Income Interest income for 1997 was $152,000 as compared to $36,000 for 1996. The increase in interest income was the result of improved cash flow, which allowed the Company to maintain a higher average investment of cash. The 1997 and 1996 interest income was primarily interest earned on short-term cash equivalents held in the Company's bank. Interest Expense Interest expense for 1997 was $503,000 as compared to $495,000 in 1996. The Company's average long-term debt did not change during the year. The increase in interest expense resulted primarily from a 53-week fiscal year in 1997 compared to a 52-week fiscal year in 1996. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				 (Continued) Results of Operations (continued) 1997 Compared to 1996 (continued) Loss on Disposal of Assets In 1997 the Company incurred a loss of $177,000 on disposal of assets, as compared to a gain on disposal of assets or $94,000 in 1996. During the fourth quarter, the Company wrote off $154,000 for software which it abandoned and $15,000 for the original undepreciated installation cost for the twisting machines sent to Fytek, S.A. de C.V., its joint venture company. Income Before Provision for Income Taxes Income before provision for income taxes for 1997 was $1,059,000, compared to $869,000 in 1996. The 1997 increase of $190,000 was the result of an increase in operating earnings, discussed above, and an increase in interest income, which was partially offset by a loss on disposed of assets. Provision for Income Taxes Provision for income taxes for 1997 was $433,000, compared to $284,000 in 1996. The increase in the provision for income taxes was primarily due to higher taxable income in 1997. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				 (Continued) Results of Operations 1996 Compared to 1995 Net Sales Net sales for the 1996 year aggregated $40.6 million, representing an increase of $6.5 million, as compared to net sales volume of $34.1 million recorded by the Company for 1995. Net sales dollars increased by 19.0% and total pounds shipped increased by 33.9% over those of 1995. Full yarn sales dollars increased 38.5% and full yarn pounds shipped increased by 52.4%. Sales from commission yarn sales (the dyeing and processing of customer owned yarns) decreased in both dollars and pounds by 36.3% and 34.1%, respectively, in 1996 compared with 1995. Cost of Sales and Gross Margin Cost of sales that aggregated $36.9 million for 1996 increased by $6.2 million, or 20.3%, as compared to 1995. Material cost increased by $5.4 million, or 29.1%, as a result of the increase in full yarn sales of 38.5%. Labor costs increased by 0.3% and manufacturing overhead increased by 13.4%, primarily as a result of continuing costs incurred for the time and overhead spent in the new technology undertaken by the Company in 1995. Inasmuch as net sales for 1996 as compared to 1995 increased by 19.0%, while costs of sales increased by 20.3%, the 1996 gross margin decreased to 9.3% as compared to 10.2% recorded in 1995. Selling, General and Administrative Expenses Selling, general and administrative expenses for 1996 aggregated $2.3 million, as compared to $1.9 million in 1995, representing for each year 5.7% of net sales. Factor's Charges Factor's charges for 1996 aggregated $194,000, or 0.5% of net sales, as compared to $178,000 in 1995, representing a like 0.5% of net sales in 1995. The ratio of sales made to factored accounts versus non-factored accounts for 1996 remained approximately the same as 1995. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				 (Continued) Results of Operations (continued) 1996 Compared to 1995 (continued) Operating Margins As a result of the discussion above with respect to the 1996 increase in net sales with the reduction in gross profit percentage, coupled with the almost identical percentage to net sales of selling, general and administrative expenses, the Company reported operating earnings of $1.2 million in 1996, compared to operating earnings of $1.4 million in 1995. Interest Income Interest income for 1996 was $36,000 as compared to $68,000 in 1995. The 1996 interest income was primarily interest earned on short-term cash equivalents held in the Company's bank. Interest Expense Interest expense for the year ended December 28, 1996 increased to $495,000 as compared to $282,000 in 1995. Interest expense for 1996 and 1995 resulted primarily from interest on the Company's long-term debt. The increase resulted from additional long-term debt incurred to fund the acquisition of property. Income Before Provision for Income Taxes Income before provision for income taxes for 1996 was $869,000, as compared to $1,156,000 for 1995. The 1996 decrease of $287,000 resulted from the reduction in gross profit margin, increased selling, general and administrative expenses and interest costs. Provision for Income Taxes The increase in 1996 income taxes on pre-tax income of $869,000, compared with income taxes on pre-tax income of $1,156,000 in 1995, arose from the over accrual of 1994 income taxes resulting in a reduction of 1995 income taxes and by a 1995 upward adjustment of alternative minimum taxes available. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				 (Continued) Results of Operations 1997 - 1994 Sales Analysis The table below sets forth an analysis of sales volume for the period 1994 to 1997, inclusive. The table below discloses that full yarn sales prices decreased from the high of $3.60 per pound in 1995 to $3.24 in 1997. Unit prices for commission sales increased from $1.60 in 1994 to $1.87 in 1997. The decrease in full yarn average sales prices is a result of a shift from vertical dyeing and winding yarn on cones to horizontal dyeing and direct shipping which began in 1996. The Company expects in the future a larger portion of its sales will be from horizontal dyeing and direct shipping of yarn. 					 % of Sales $ 			 % of Pounds of Per 			 Net Sales Yarn Sold Pound 1997: Yarn sales 96% 93% $3.24 Commission sales 4 7 1.87 Total 100 100 1996: Yarn sales 94% 89% $3.29 Commission sales 6 11 1.74 Total 100 100 1995: Yarn sales 88% 79% $3.60 Commission sales 12 21 1.82 Total 100 100 1994: Yarn sales 83% 69% $3.58 Commission sales 17 31 1.60 Total 100 100 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				 (Continued) Liquidity and Capital Resources: The Company sells a substantial portion of its accounts receivable to a commercial factor so that the factor assumes the credit risk for these accounts and effects the collection of the receivables. As of January 3, 1998, the Company had $3,328,000 due from its factor, of which $2,840,000 matured on January 21, 1998. The Company has a line of credit loan from its bank under which the Company may borrow the lesser of $2,000,000 and the borrowing base (as defined). Credit balances due the Company under its factoring contract have been assigned to the bank as collateral for loans under this line of credit. The Company had inventories of $3,006,000 as of January 3, 1998. The Company's average inventories aggregated approximately $3,234,000 for 1997, representing approximately 48 days inventory on hand. The Company's inventories turn approximately 6 to 8 times each year. The Company's working capital increased by approximately $240,000 at January 3, 1998 from that of December 28, 1996, primarily as a result of 1997 earnings, and an increase in accounts receivables. The working capital of the Company and its line of credit with its bank are deemed adequate for the operational needs of the Company. The following table sets forth the Company's working capital and working capital ratios as of the close of the last three years: 			 1997 1996 1995 Working Capital $8,406,985 $8,166,976 $5,469,831 Working Capital Ratio 3.5 to 1 5.7 to 1 3.5 to 1 As a measure of current liquidity, the Company's quick position (cash, cash equivalents and receivables over current liabilities) discloses the following at January 3, 1998 and December 28, 1996: 				 January 3 December 28 				 1998 1996 Cash, cash equivalents 	 and receivables $8,077,841 $5,355,639 	Current liabilities 3,377,686 1,737,646 	Excess of quick assets 	 over current 	 liabilities $4,700,155 $3,617,993 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				 (Continued) Liquidity and Capital Resources: (Continued) The aggregate long-term debt at January 3, 1998 and December 28, 1996 was $6,000,000. In order to finance the acquisition of new property, plant and equipment of $6,371,819 in 1995, and $1,024,598 in 1996, the Company incurred a long-term debt of $6,000,000, as more fully described in Note 7 of Notes to Financial Statements. Pursuant to an agreement with its bank, the obligation has no principal maturities until February 1998. Thereafter, principal payments of $62,500 will be payable monthly for 96 consecutive months. The Company's long-term debt to equity ratios aggregated 39.5% at January 3, 1998, 46.8% at December 28, 1996 and 40.6% at December 30, 1995. Capital budget expenditures approved for 1998 aggregate $3,500,000. The Company plans to finance its capital needs from cash provided from operations and bank financing. Environmental Matters 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 no longer used. The contamination was reported to the North Carolina Department of Health, Environment and Natural Resources (DHENR). DHENR required a Comprehensive Site Assessment that has been completed. The Company's outside engineering firm has conducted testing and will prepare a Corrective Action Plan for submission to DHENR. The Company has identified remediation issues and is moving toward a solution of natural attenuation. The Company believes it has made an adequate provision to earnings in 1997 to cover any future cost. Inflation The Company does not believe that operations for the periods discussed have been significantly affected by inflation. Further, the Company's performance in maintaining control over elements of overhead, in conjunction with the infusion of state of the art dyeing technology, have enabled it to remain competitive with its competition. 	 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 			 AND RESULTS OF OPERATIONS 				(Continued) 7A. Quantitative and Qualitative Disclosures about Market Risk Under its loan agreement dated March 29, 1996 with First Union National Bank of North Carolina, providing for a term loan of $6,000,000 and a line of credit facility of $2,000,000, the effective rate of interest being paid by the Company on its term loan is 8.06% per annum. The interest rate is in effect a fixed rate because in a fixed rate hedge contract between the Company and the bank, the bank converted its floating rate into a fixed rate. Under the fixed rate hedge contract, the Company pays the bank 8.06% per annum for the term of the loan. The floating rate (LIBOR PLUS 1.9%) that the Company pays the bank is equal to the floating rate that the bank's capital markets will pay to the Company under the agreement. Whether LIBOR rates rise or fall over the life of the loan agreement, the Company pays the bank a fixed rate of 8.06%, thereby resulting in a fixed rate loan. Other than the foregoing arrangement with First Union National Bank, the Company has not entered into any instruments resulting in market risk to the Company for trading purposes or for purposes other than trading purposes. 			 COLE, SAMSEL & BERNSTEIN LLC 			 Certified Public Accountants 305 Madison Avenue 72 Essex Street New York, NY 10165 Lodi, NJ 07644 (212) 972-9600 (201) 368-9300 FAX: (212) 972-9605 FAX: (201) 368-9069 	 Item 8 - Financial Statements Independent Auditors' Report To the Board of Directors of Burke Mills, Inc. 	We have audited the accompanying balance sheets of Burke Mills, Inc. as of January 3, 1998 and December 28, 1996, and the related statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended January 3, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 	 	We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 	 	In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burke Mills, Inc. as of January 3, 1998 and December 28, 1996, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 1998, in conformity with generally accepted accounting principles. 		 			 					 /s Cole, Samel & Bernstein LLC 					 Cole, Samsel & Bernstein LLC 					 Certified Public Accountants Lodi, New Jersey January 30, 1998 					BALANCE SHEETS 						January 3 December 28 						 1998 1996 				 ASSETS Current assets Cash and cash equivalents $ 4,306,540 $ 2,157,428 Accounts receivable 3,771,301 3,198,211 Inventories 3,006,298 3,450,805 Prepaid expenses and other current assets 38,832 94,028 Prepaid and refundable income taxes - 129,340 Deferred income taxes 661,700 874,810 	Total current assets 11,784,671 9,904,622 Equity investment in affiliate 177,728 5,993 Property, plant & equipment - at cost 26,350,679 26,194,241 Less: accumulated depreciation 14,158,330 13,550,436 Property, plant and equipment - net 12,192,349 12,643,805 Oher assets Deferred charges 193,316 - 					 $24,348,064 $22,554,420 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 687,500 $ - Accounts payable 2,081,237 1,436,054 Accrued salaries and wages 191,128 129,952 Other liabilities and accrued expenses 417,821 171,640 	Total current liabilities 3,377,686 1,737,646 Long-term debt 5,312,500 6,000,000 Deferred income taxes 2,218,300 2,003,300 	Total liabilities 10,908,486 9,740,946 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 8,519,058 7,892,954 	Total shareholders' equity 13,439,578 12,813,474 					 $24,348,064 $22,554,420 [FN] See notes to financial statements. 				 STATEMENTS OF OPERATIONS 						Years Ended 				 January 3 December 28 December 30 				 1998 1996 1995 Net sales $41,155,629 $40,648,920 $34,148,493 Costs and expenses Cost of sales 36,764,917 36,887,077 30,666,567 Selling, general and administrative expenses 2,651,031 2,337,450 1,945,951 Factor's charges 183,072 194,427 177,901 Total costs and expenses 39,599,020 39,418,954 32,790,419 Operating earnings 1,556,609 1,229,966 1,358,074 Other income Interest income 151,996 35,567 67,966 Gain on disposal of property assets - 93,940 - Other, net 4,068 4,891 12,275 	Total other income 156,064 134,398 80,241 Other expenses Interest expense 503,306 495,009 281,752 Loss on disposal of property assets 177,234 -- 112 	Total other expenses 680,540 495,009 281,864 			 Income before income taxes and equity in net earnings of affiliate 1,032,133 869,355 1,156,451 Equity in net earnings of affiliate 26,500 -- -- 				 1,058,633 869,355 1,156,451 Provision for income taxes 432,529 283,954 212,210 Net income $ 626,104 $ 585,401 $ 944,241 Net earnings per share $ .23 $ .21 $ .34 Weighted average common Shares outstanding 2,741,168 2,741,168 2,741,168 [FN] See notes to financial statements. 		STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 		 FOR THE THREE YEARS ENDED JANARY 3, 1998 			 Common stock no 			 par value stated 			 value $.66 per share 			 5,000,000 shares 			 authorized Total 				 Shares Paid-in Retained Shareholders' 				 Issued Amount Capital Earnings Equity Balance at December 31, 1994 2,741,168 $1,809,171 $3,111,349 $6,363,312 $11,283,832 Net income for the year ended December 30, 1995 - - - 944,241 944,241 Balance at December 30, 1995 2,741,168 1,809,171 3,111,349 7,307,553 12,228,073 Net income for the year ended December 28, 1996 - - - 585,401 585,401 Balance at December 28, 1996 2,741,168 1,809,171 3,111,349 7,892,954 12,813,474 Net income for the year ended January 3, 1998 - - - 626,104 626,104 Balance at January 3, 1998 2,741,168 $1,809,171 $3,111,349 $8,519,058 $13,439,578 [FN] See notes to financial statements. 				STATEMENTS OF CASH FLOWS 						 Years Ended 					 January 3 December 28 December 30 					 1998 1996 1995 Cash flows from operating activities: Net income $ 626,104 $ 585,401 $ 944,241 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,599,662 1,508,423 1,051,529 (Gain) loss on sales of plant and equipment, including loss on disposals 177,234 (93,940) 112 Deferred income taxes 428,110 302,390 2,800 Changes in assets and liabilities: Accounts receivable (573,090) (224,110) 318,055 Inventories 444,507 (580,866) 54,255 Prepaid expenses, taxes & other current assets 184,536 159,145 (194,561) Other non-current assets (193,316) (5,993) - Accounts payable 645,183 (72,422) 595,200 Income taxes payable - - (581,267) Accrued salaries & wages 61,176 6,315 (247,036) Other liabilities and accrued expenses 246,181 (57,472) 60,554 	Total adjustments 3,020,183 941,470 1,059,641 Net cash provided by operating activities 3,646,287 1,526,871 2,003,882 Cash flows from investing activities: Acquisition of property, plant and equipment (1,343,090) (1,024,598) (6,371,819) Proceeds from sales of plant and equipment 17,650 - - Investment in affiliate (171,735) - - Net cash (used) by investing activities (1,497,175) (1,024,598) (6,371,819) Cash flows from financing activities: Proceeds from long-term bank note - 1,670,663 4,180,957 Principal payments of long-term debt - (850,341) (812,176) Net cash provided by financing activities - 820,322 3,368,781 Net increase (decrease) in cash and cash equivalents 2,149,112 1,322,595 (999,156) Cash & cash equivalents at beginning of year 2,157,428 834,833 1,833,989 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,306,540 $2,157,428 $ 834,833 See notes to financial statements. 			 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Accounting period - The Company's fiscal year is the 52 or 53 week period ending the Saturday nearest to December 31. Fiscal years 1997, 1996 and 1995 ended on January 3, 1998, December 28, 1996 and December 30, 1995, respectively. The fiscal years ended December 28, 1996 and December 30, 1995 consisted of 52 weeks. The fiscal year ended January 3, 1998 consisted of 53 weeks. Statement of cash flows - For the purposes of the statements of cash flows, the Company considers cash and cash equivalents to include cash on hand, deposits in banks, interest bearing demand matured funds on deposit with factor, and all highly liquid debt instruments with a maturity of three months or less when purchased. Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market. Cost elements included in work in process and finished goods inventories are raw materials, direct labor and manufacturing overhead. Market is considered to be net realizable value. Property, plant and equipment - Property, plant and equipment are stated at cost. Depreciation and amortization of the property accounts are provided over the estimated useful lives of the assets. For financial reporting purposes, depreciation on plant and equipment is provided primarily at straight-line rates. For income tax purposes, depreciation has been provided at straight- line rates for all property, plant and equipment acquired prior to 1981 and the accelerated and modified accelerated cost recovery system for property assets acquired subsequent to December 31, 1980. The estimated useful lives used for computing depreciation for financial reporting purposes are generally: 	Buildings and improvements 5 - 45 years 	Plant machinery and equipment 5 - 17 years 	Office equipment 5 - 10 years 	Automotive equipment 3 - 5 years 	Computer equipment 3 - 5 years Earnings per share - Earnings per share are based on the net income divided by the weighted average number of common shares outstanding during the respective periods. Use of Estimates in Preparing Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTES TO FINANCIAL STATEMENTS NOTE 2 - SEGMENTS OF BUSINESS ENTERPRISE The Company is engaged in twisting, texturing, winding, dyeing, processing and selling of filament, novelty and spun yarns and in the dyeing and processing of these yarns for others on a commission basis. With respect to its operations, the Company's products and its services for others on a commission basis are sold and/or performed for customers primarily located in the territorial limits of the United States. The Company did have sales to customers in Mexico, during the three fiscal years ended January 3, 1998, which amounted to 1.7% in 1997, 4.2% in 1996 and 0.5% in 1995. Sales to customers in Canada in 1997, 1996 and 1995 aggregated 3.9%, 2.8% and 1.2%, respectively. Additionally, the Company had sales to Brazil in 1997 which amount to 0.2% Other than sales to Mexico, Canada and Brazil, as discussed above, the Company had no other sales in foreign markets during the three year period ended January 3, 1998. For the three-year period ended January 3, 1998, the Company has operated within a single industry segment with classes of similar products. The principal markets served by the Company are upholstery and industrial uses through the knitting and weaving industry. In connection with sales to major customers, only one customer has exceeded 10% of the Company's sales during each of the three years ended January 3, 1998. One other customer has exceeded 10% in 1996, and a third customer has exceeded 10% of aggregate sales in 1995. For the purpose of this determination, sales to groups of companies under common control have been combined and accounted for as sales to individual companies. The following table gives information with respect to these three customers: 	 						 % of 	 1997 Amount Net Sales 	Customer 1 $5,737,000 14.0 	Customer 2 * 	Customer 3 * 						 % of 	 1996 Amount Net Sales 	Customer 1 $5,387,000 13.3 	Customer 2 4,074,000 10.0 	Customer 3 * 						 						 % of 	 1995 Amount Net Sales 	Customer 1 $3,706,000 10.9 	Customer 2 * 	Customer 3 3,534,000 10.3 *Less than 10% 			 NOTES TO FINANCIAL STATEMENTS 	 NOTE 3 - ACCOUNTS RECEIVABLE Accounts receivable comprise the following: 				 January 3 December 28 				 1998 1996 	Due from factor on 	 regular factoring 	 account $3,327,680 $3,032,655 	Non-factored accounts receivable 443,621 165,556 Total $3,771,301 $3,198,211 	 Pursuant to a factoring agreement, the Company sells substantial portions of its accounts receivable to a commercial factor without recourse, up to maximum credit limits established by the factor for individual accounts. Amounts invoiced to customers on accounts receivable factored in excess of the established maximum credit limits are sold to the factor with recourse in the event of nonpayment by customers. The Company pays a service charge to its factor to cover credit checking, assumption of credit risk, record keeping and similar services. In addition, if the Company takes advances from its factor prior to the average maturity of the receivables sold (as defined), it is required to pay interest to the factor on these advances. The Company incurred no interest costs during the 1997 year, inasmuch as it borrowed no funds from its factor during that year. In connection with such advances from its factor for 1996 and 1995, the Company incurred interest costs of only $5,442 in 1996 and $4,929 in 1995. The Company's factor is collateralized by the accounts receivable sold to the factor. No interest in inventory, other than returned goods, has been granted to the factor under the factoring contract. 			NOTES TO FINANCIAL STATEMENTS NOTE 4 - INVENTORIES Inventories are summarized as follows: 				 January 3, December 28, 				 1998 1996 	Finished & in process $1,813,018 $2,191,957 	Raw materials 716,520 709,099 	Dyes & chemicals 336,957 394,335 	Other 139,803 155,414 	 Total $3,006,298 $3,450,805 NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Major classifications of property, plant and equipment are as follows: 			 January 3, 1998 December 28, 1996 					 Accumulated Accumulated 				 Cost Depreciation Cost Depreciation Land $ 78,032 $ - $ 78,032 $ - Land improvements 136,504 77,709 136,504 73,954 Building & improvements 6,337,114 4,056,293 6,204,501 3,910,833 Plant machinery & equipment 18,694,009 9,448,212 18,447,105 8,973,505 Office equipment 964,974 493,257 1,205,764 488,245 Automotive equipment 140,046 82,859 122,335 103,899 Total $26,350,679 $14,158,330 $26,194,241 $13,550,436 NOTE 6 - LINE OF CREDIT LOAN Pursuant to a loan agreement dated March 29, 1996, the Company secured a line of credit facility from its bank wherein it may borrow, repay and re-borrow amounts from the line of credit facility for short-term working capital needs. The aggregate principal amount outstanding at any time under this loan may not exceed the lesser of $2,000,000 and the borrowing base (as defined). Interest on this loan facility is at a rate that varies with the Libor Rate and is payable on the last day of each month. The line of credit loan has an initial maturity of April 30, 1997, unless extended by the bank in its sole discretion. The company extended the line of credit loan to April 30, 1998. The Company had no borrowings on the line of credit loan during the year ended January 3, 1998. The following represents a summary of borrowings on the line of credit loan during 1996: 	 Balance at end of year $ NONE 	 Maximum outstanding during the year 1,195,000 	 Average outstanding during the year 435,000 	 Weighted average interest rate 7.7% 			NOTES TO FINANCIAL STATEMENTS NOTE 7 - LONG-TERM DEBT On March 29, 1996, the Company entered into a new loan agreement with its bank providing for a term loan of $6,000,000 and, as discussed in Note 6 above, a line of credit facility of $2,000,000 for ongoing, short-term working capital needs. The new term loan refinanced the two formerly existing term loans, and accordingly, all term obligations were consolidated into the one $6,000,000 obligation. This new loan is secured by (1) a first Deed of Trust on property and buildings located at the Company's manufacturing sites in North Carolina, (2) a first lien position on the new equipment and machinery installed at these manufacturing sites and (3) a first lien position on the existing machinery and equipment located at the Company's manufacturing sites. Under the new term loan agreement, interest only will be payable monthly until February 1998. Thereafter, principal maturities will be payable in the amount of $62,500 per month for ninety-six consecutive months plus interest at the fixed rate of 8.06%. In order to effect this fixed interest rate, the bank converted its interest rate cap into a fixed rate loan by entering into a fixed rate hedge contract with the Company. Under this fixed rate hedge contract, the Company will pay the bank 8.06% for the term of the contract. The floating rate (LIBOR plus 1.9%) that the Company will pay the bank will be equal to the floating rate that the bank's capital markets will pay to the Company. Whether LIBOR RATES rise or fall over the life of the loan agreement, the Company will continue to pay the bank a fixed rate of 8.06% for the life of the contract, thereby creating a fixed rate loan. Among other things, covenants include a debt service coverage ratio, a limit on annual property asset acquisitions exclusive of property acquired with the loan proceeds under this new loan agreement, the retirement or acquisition of the Company's capital stock in excess of a stated amount, the maintenance of a minimum tangible net worth which shall increase by a stated amount annually, a minimum quick ratio, and a maximum debt to tangible net worth ratio. The annual principal maturities of the long-term debt at January 3, 1998 are as follows: 	 Current portion $ 687,500 	 1999 $ 750,000 	 2000 750,000 	 2001 750,000 	 2002 750,000 	 Thereafter 2,312,500 5,312,500 									 						 $6,000,000 NOTES TO FINANCIAL STATEMENTS NOTE 8 - OTHER LIABILITIES AND ACCRUED EXPENSES Other liabilities and accrued expenses consist of the following: 				 January 3 December 28 					 1998 1996 	Employee 401k contributions $ 47,113 - 	Payroll taxes payable 109,063 44,716 	Utilities payable 132,165 90,669 	Accrued interest 21,493 12,125 	Accrued environmental cost 77,100 - 	Other 30,887 24,130 	 Total $417,821 $171,640 NOTE 9 - INCOME TAXES 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: 					 Jan. 3 Dec. 28 					 1998 1996 Deferred tax assets: Alternative minimum taxes paid $608,825 $ 608,825 Net operating loss carry-forward 12,190 246,100 Inventory capitalization 18,700 8,300 Business credits 11,585 11,585 Charitable contributions Carryover 10,400 - 					 $ 661,700 $ 874,810 Deferred tax liabilities: Accelerated depreciation for tax purposes $2,218,300 $2,003,300 Provision for taxes consist of: 						Year Ended 			 January 3 December 28 December 30 				 1998 1996 1995 Current: 	 Federal $ 4,419 $ - $120,978 	 State - - 88,432 Deferred 428,110 283,954 2,800 	 Total $432,529 $283,954 $212,210 	 		 NOTES TO FINANCIAL STATEMENTS NOTE 9 - INCOME TAXES (Continued) The provision for income taxes on historical income differs from the amounts computed by applying the applicable Federal statutory rates, due to the following: 				 January 3, December 28, December 30, 					 1998 1996 1995 Income before income taxes $1,058,633 $869,355 $1,156,451 Federal income taxes 34% 34% 34% Computed taxes at maximum statutory income tax rate 359,936 295,581 393,193 Increase (reduction) in taxes resulting from: State income taxes, net of Federal income tax benefit 56,051 44,468 60,205 Adjustment for deferred income taxes - (20,670) - Alternative minimum tax adjustment - (35,425) (174,883) Over-accrual of prior year 	 income taxes - - (59,336) Prior year tax examination and other 16,542 - (6,969) Provision for income taxes $ 432,529 $283,954 $ 212,210 NOTE 10 - INVESTMENT IN AFFILIATE AND RELATED TRANSACTIONS 	 The company owns 49.8% of Fytek, S.A. de C.V. (Fytek),a Mexican corporation. The company accounts for the ownership using the equity method. During 1997, the company had no sales to Fytek, but purchased $156,000 of yarn from Fytek. 			NOTES TO FINANCIAL STATEMENTS NOTE 11 - STATEMENTS OF CASH FLOWS FASB No. 95 requires that the following supplemental disclosures to the statements of cash flows be provided in related disclosures. Cash paid for interest was $494,000 in 1997, $515,000 in 1996 and $258,000 in 1995. Cash paid for income taxes aggregated $6,000 in 1996 and $1,081,000 in 1995. Taxes refunded in 1997 aggregated $125,000. NOTE 12 - RENTAL EXPENSES AND LEASE COMMITMENTS Rental expenses under all lease commitments for the three fiscal years ended January 3, 1998, aggregated $45,000, $40,000 and $46,000, respectively. Minimum lease commitments under terms of all non-cancelable leases, which consist only of leased equipment, are as follows as of January 3, 1998: 			 1998 $39,000 			 1999 23,000 			 2000 19,000 			 2001 19,000 			 2002 3,000 				 $103,000 NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED) 	 (in thousands of dollars except for per share amounts) 					Quarter 1997 First Second Third Fourth Net sales $10,060 $10,442 $ 9,874 $10,780 Cost of sales 9,061 9,393 8,797 9,514 Gross profit 999 1,049 1,077 1,266 Net income 143 181 230 72 Net income per common share $ .05 $ .07 $ .08 $ .03 1996 Net sales $ 9,905 $10,304 $10,225 $10,215 Cost of sales 9,215 9,519 9,122 9,031 Gross profit 690 785 1,103 1,184 Net income (loss) (40) 26 285 314 Net income (loss) per common share $ (.02) $ .01 $ .11 $ .11 1995 Net sales $ 9,545 $ 8,586 $ 7,385 $ 8,632 Cost of sales 8,364 7,488 7,127 7,687 Gross profit 1,181 1,098 258 945 Net income (loss) 396 369 (173) 352 Net income (loss) per common share $ .14 $ .14 $ (.06) $ .12 		 NOTES TO FINANCIAL STATEMENTS NOTE 14 - 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. The salary reduction percentage must equal an increment of 1%. The employer may make a matching contribution for each employee out of current net profits or accumulated net profits (as defined), in an amount the employer may from time to time deem advisable. Based on the Company's profit sharing formula, no provision was required for matching contributions in 1996 or 1997. A matching contribution of $94,176 was made for 1995. NOTE 15 - CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risk consist principally of occasional temporary cash investments and amounts due from the factor on receivables sold to the factor on a non-recourse basis. The receivables sold to the factor during a month generally have a maturity date on the 21st to the 30th of the following month. At January 3, 1998, the Company had $3,328,000 due from its factor of which $2,840,000 matured on January 21, 1998. Upon maturity, the funds are automatically transferred by the factor to the Company's bank. NOTE 16 - OTHER COMMITMENTS a) The Company entered into a supply agreement, dated November 23, 1996, with its joint venture company, Fytek, S.A. de C.V. to purchase twisted yarns. The Company agrees to purchase approximately $1,800,000 of twisted yarn annually for the five years beginning on the startup date of the operation. b)The Company entered into a supply agreement, dated November 19, 1996, with Fibras Quimicas, S.A. to purchase yarn. The Company agrees to purchase yarn based on the schedule below, beginning February 1, 1997, for a five year period. 		Year 1 Approximately $2,600,000 		Year 2 Approximately $6,400,000 		Year 3 Approximately $7,100,000 		Year 4 Approximately $7,700,000 		Year 5 Approximately $7,700,000 			NOTES TO FINANCIAL STATEMENTS Note 16 - Other Commitments (continued) c) 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 no longer used. The contamination was reported to the North Carolina Department of Health, Environment and Natural Resources (DHENR). DHENR required a Comprehensive Site Assessment that has been completed. The Company's outside engineering firm has conducted testing and will prepare a Corrective Action Plan for submission to DHENR. The Company has identified remediation issues and is moving toward a solution of natural attenuation. The Company believes it has made an adequate provision to earnings in 1997 to cover any future cost. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 	 ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in nor disagreements with accountants on accounting and financial disclosure during the Company's two most recent fiscal years or during any subsequent interim period. The current accounting firm for the Company, Cole, Samsel & Bernstein LLC of New York, New York, and Lodi, New Jersey, has served as accountants for the Company during the last two fiscal years. 				 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required for Part III of this report (Items 10-13) is incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A, involving the election of directors, which is expected to be filed not later than 120 days after the end of the fiscal year covered by this report. 				 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report. 	(a) 1. Report of Independent Certified Public Accountants. The following financial statements of Burke Mills, Inc. and the related auditors' report required to be included in Part II Item 8, are listed below: 		Auditors' report 		Balance sheets 		 January 3, 1998 		 December 28, 1996 			 		Statements of operations 		 Year ended January 3, 1998 		 Year ended December 28, 1996 		 Year ended December 30, 1995 		Statements of changes in shareholders' equity 		 Year ended January 3, 1998 		 Year ended December 28, 1996 		 Year ended December 30, 1995 		Statements of cash flows 		 Year ended January 3, 1998 		 Year ended December 28, 1996 		 Year ended December 30, 1995 		 Notes to financial statements 	Financial statement schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements or the notes thereto. 	(a)2. The exhibits required by Item 601 of Regulation S-K and paragraph (c) of Item 14 are the articles of incorporation and by-laws of the Company which are incorporated herein by reference from the Amendment on Form 8 to the annual report on Form 10-K of the Company for the fiscal year ended January 2, 1982 previously filed with the Commission. The exhibit required by Item 601(c) of Regulation SK, Financial Data Schedule, is set forth on page 39 of this report. 	(b) During the last quarter of the period covered by this report no report on Form 8-K was filed. 	(c) See sub-Item (a)2 above. 	(d) Not applicable. 			 Financial Data Schedule 		 Pursuant to Item 601(c) of Regulation S-K THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED 	FROM THE FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT ON FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 3, 1998. NUMBER ITEM DESCRIPTION AMOUNT 					 5-02(1) cash & cash items $ 4,306,540 5-02(2) marketable securities 0 5-02(3)(a)(1) notes & accounts receivable-trade 3,771,301 5-02(4) allowances for doubtful accounts 0 5-02(6) inventory 3,006,298 5-02(9) total current assets 11,784,671 5-02(13) property, plant & equipment 26,350,679 5-02(14) accumulated depreciation 14,158,330 5-02(18) total assets 24,348,064 5-02(21) total current liabilities 3,377,686 5-02(22) bonds, mortgages & similar debt 5,312,500 5-02(28) preferred stock - mandatory redemption 0 5-02(29) preferred stock - no mandatory redemption 0 5-02(30) common stock 1,809,171 5-02(31) other stockholders' equity 11,630,407 5-02(32) total liabilities & stockholders' equity 24,348,064 5-03(b)1(a) net sales of tangible products 41,155,629 5-03(b)1 total revenues 41,155,629 5-03(b)2(a) cost of tangible goods sold 36,764,917 5-03(b)2 total costs & expenses applicable 		 to sales and revenues 36,764,917 5-03(b)3 other costs & expenses 0 5-03(b)5 provision for doubtful accounts & notes 0 5-03(b)(8) interest & amortization of debt discount 503,306 5-03(b)(10) income before taxes & other items 1,058,633 5-03(b)(11) income tax expense 432,529 5-03(b)(14) income/loss continuing operations 626,104 5-03(b)(15) discontinued operations 0 5-03(b)(17) extraordinary items 0 5-03(b)(18) cumulative effect - changes in accounting 		 principles 0 5-03(b)(19) net income or loss 626,104 5-03(b)(20) earnings per share - primary $.23 5-03(b)(20) earnings per share - fully diluted $.23 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. Date: March 27, 1998 BURKE MILLS, INC. 			 By: /s Humayun N. Shaikh 						 Humayun N. Shaikh, 				 	 Chairman of the Board 						 (Principal Executive Officer) 			 					 By: /s Thomas I. Nail 					 Thomas I. Nail 					 Vice President of Finance 					 (Principal Financial Officer) 					 (Principal Accounting Officer) 	Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 27, 1998 By: /s Humayun N. Shaikh 					 Humayun N. Shaikh, Director Date: March 27, 1998 By: /s Richard F. Whisenant 					 Richard F. Whisenant, Director Date: March 27, 1998 By: /s Robert P. Huntley 					 Robert P. Huntley, Director Date: March 27, 1998 By: /s William T. Dunn 					 William T. Dunn, Director