<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(X)      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

FOR THE QUARTER ENDED MAY 1, 1999

                                       OR

( )      Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from _____________________ to _______________________


COMMISSION FILE NUMBER 1-8578


                              MCRAE INDUSTRIES, INC
             (Exact name of registrant as specified in its charter)

              DELAWARE                                 56-0706710
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)

                              400 NORTH MAIN STREET
                        MT. GILEAD, NORTH CAROLINA 27306
                    (Address of principal executive offices)

                         TELEPHONE NUMBER (910)439-6147
              (Registrant's telephone number, including area code)


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 periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

Common Stock, $l Par Value--Class A 1,857,774 shares as of June 9, 1999.
Common Stock, $1 Par Value--Class B 910,725 shares as of June 9, 1999.



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<PAGE>   2


                     MCRAE INDUSTRIES, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                              Page No.
                                                                              --------

<S>      <C>      <C>                                                            <C>
                          PART 1. FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  Condensed Consolidated Balance Sheet                           3-4

                  Condensed Consolidated Statement of Operations                 5

                  Condensed Consolidated Statement of Cash Flows                 6

                  Notes to Condensed Consolidated Financial Statements           7



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS                           8-13
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                   MARKET RISK                                                   12

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                       12

ITEM 2.  CHANGES IN SECURITIES                                                   12

ITEM 3.  DEFAULT UPON SENIOR SECURITIES                                          12

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                   12

ITEM 5.  OTHER INFORMATION                                                       12

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                        13

         SIGNATURES                                                              13
</TABLE>



                                       2
<PAGE>   3


PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                     MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                     ASSETS
                 (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                May 1, 1999,     August 1, 1998
                                                 (Unaudited)         (Note)
                                                -----------      --------------
<S>                                             <C>              <C>
ASSETS

Current assets:

 Cash and cash equivalents                          $ 3,688          $ 5,766

 Securities                                              63               63

 Accounts and notes receivable, net                   7,902            9,468

 Inventories                                         15,156           11,468

 Net investment in capitalized leases                   759              786

 Prepaid expenses and other current assets              222              242
                                                    -------          -------

   Total current assets                              27,790           27,793
                                                    -------          -------


Property, plant and equipment, net                    5,666            6,360
                                                    -------          -------

Other assets:

 Receivables, related entities                        1,017              965

 Net investment in capitalized leases                 2,585            1,939

 Notes receivable                                       537              998

 Real estate held for investment                        496              494

 Goodwill                                               559              589

 Other                                                1,652            1,319
                                                    -------          -------

   Total other assets                                 6,846            6,304
                                                    -------          -------

                                                    $40,302          $40,457
                                                    =======          =======
</TABLE>


            See notes to condensed consolidated financial statements

                                       3
<PAGE>   4


                     MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                 (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                     May 1, 1999      August 1, 1998
                                                    (Unaudited)            (Note)
                                                    ------------      --------------
<S>                                                 <C>               <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

 Notes payable, banks - current portion                    271              271

 Accounts payable                                        3,163            2,024

 Accrued employee benefits                                 435              550

 Deferred revenues                                       1,232            1,536

 Accrued payroll and payroll taxes                         578              561

 Income taxes                                               96              821

 Other                                                     613              622
                                                       -------          -------

   Total current liabilities                             6,388            6,385
                                                       -------          -------


Notes payable, banks, net of current portion             5,387            5,594

Minority interest                                          705              694

Shareholders' equity:
 Common stock:
  Class A, $1 par; Authorized 5,000,000
    shares; Issued and outstanding, 1,857,759            1,858            1,820
    and 1,819,728, shares, respectively
  Class B, $1 par; Authorized 2,500,000
    shares; Issued and outstanding, 910,740
    and 948,771 shares, respectively                       911              949

 Additional paid-in capital                                791              791

 Retained earnings                                      24,262           24,224
                                                       -------          -------

    Total shareholders' equity                          27,822           27,784
                                                       -------          -------

                                                       $40,302          $40,457
                                                       =======          =======
</TABLE>


NOTE - The condensed consolidated balance sheet at August 1, 1998 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.


            See notes to condensed consolidated financial statements




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<PAGE>   5


                     MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                 (In thousands, except share and per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                            Three Months Ended                          Nine Months Ended
                                       May 1,                May 2,                May 1,                May 2,
                                        1999                  1998                  1999                  1998
                                    -----------           -----------           -----------           -----------
<S>                                 <C>                   <C>                   <C>                   <C>
Net revenues                        $    13,552           $    13,803           $    37,008           $    43,883

 Costs and expenses:

  Cost of revenues                        9,580                10,188                26,713                32,557

  Research & development                    123                    68                   418                   213

  Selling, general and
   administrative                         3,172                 2,921                 8,907                 8,621

  Other expense (income),
   net                                      (76)                 (116)                 (278)                 (427)

Interest expense                            108                   131                   328                   364
                                    -----------           -----------           -----------           -----------

Total costs and expenses                 12,907                13,192                36,088                41,328
                                    -----------           -----------           -----------           -----------
Earnings before income
  taxes and minority
  interest                                  645                   611                   920                 2,555

Provision for income taxes                  257                   240                   374                   998

Minority shareholder's
  interest in earnings
  of subsidiary                              (3)                    7                    11                    30
                                    -----------           -----------           -----------           -----------
Net earnings                        $       391           $       364           $       535           $     1,527
                                    ===========           ===========           ===========           ===========
Net earnings per common
  share                             $       .14           $       .13           $       .19           $       .55
                                    -----------           -----------           -----------           -----------
Weighted average number
 of common shares
 outstanding                          2,768,499             2,768,499             2,768,499             2,768,499
                                    -----------           -----------           -----------           -----------
</TABLE>

            See notes to condensed consolidated financial statements


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<PAGE>   6


                     MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                       Nine Months Ended
                                                  May 1, 1999       May 2, 1998
                                                  -----------       -----------
<S>                                               <C>               <C>
Net cash (used in) provided by operating
  activities                                        $  (974)          $   356
                                                    -------           -------

Cash flows from investing activities:

  Purchase of minority interest                           0              (220)

  Proceeds from sales of assets                           0               132

  Net advances to related parties                      (142)             (126)

  Payments from related parties                          90             1,856

  Capital expenditures                                 (446)           (1,459)

  Purchase of other assets                             (363)             (219)

  Advances of long-term receivables                      (6)             (280)

  Payments of long-term receivables                     467               489
                                                    -------           -------

Net cash (used in) provided by investing
  activities                                           (400)              173
                                                    -------           -------

Cash flows from financing activities:

  Principal repayments of notes payable                (207)             (976)

  Dividends paid                                       (497)             (491)
                                                    -------           -------

Net cash used in financing activities                  (704)           (1,467)
                                                    -------           -------

Net decrease in cash and cash
  equivalents                                        (2,078)             (938)

Cash and cash equivalents at beginning
  of period                                           5,766             5,473
                                                    -------           -------

Cash and cash equivalents at end of period          $ 3,688           $ 4,535
                                                    =======           =======
</TABLE>


            See notes to condensed consolidated financial statements


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<PAGE>   7


                     MCRAE INDUSTRIES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine months ended May 1, 1999 are
not necessarily indicative of the results that may be expected for the year
ending July 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the McRae Industries,
Inc. Annual Report on Form 10-K for the year ended August 1, 1998.

Certain reclassifications have been made to the prior year's financial
statements to conform with the current year's presentation.

NOTE B - INVENTORIES

An actual valuation of inventory under the LIFO method can be made only at the
end of each fiscal year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Because these are subject to
forces beyond management's control, interim calculations are subject to change
based on the final year-end LIFO inventory valuation.

The components of inventory consist of the following (in thousands):


<TABLE>
<CAPTION>
                         May 1, 1999         August 1, 1998
                         -----------         --------------
<S>                      <C>                 <C>
Raw materials            $ 2,639,000          $ 2,366,000
Work in process              514,000              413,000
Finished goods            12,003,000            8,689,000
                         -----------          -----------
                         $15,156,000          $11,468,000
                         ===========          ===========
</TABLE>


NOTE C - SUBSEQUENT EVENTS

On May 24, 1999, the Company declared a cash dividend of 9.0 cents per share on
its Class A Common Stock payable on June 25, 1999 to shareholders of record on
June 11, 1999.



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<PAGE>   8


MCRAE INDUSTRIES, INC. AND SUBSIDIARIES

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto, and
with the Company's Annual Report on Form 10-K for the fiscal year ended August
1, 1998, including the financial information and management's discussion and
analysis contained or incorporated by reference therein.

FINANCIAL CONDITION AND LIQUIDITY

For the period ending May 1, 1999, the Company's financial condition continued
to show elements of strength although cash and cash equivalents decreased by
approximately $2.1 million.

The Company's operating activities used $974,000 of cash for the nine month
period ending May 1, 1999. Net income from operations, adjusted for non-cash
items provided approximately $1.7 million of cash. Accounts receivable and notes
receivable decreased by almost $1.6 million as the collections on credit
accounts exceeded the addition of new receivables for the nine month period.
Increased inventory levels resulting from lower consolidated sales for the
reporting period and the replacement of depleted inventory levels from heavy
fourth quarter fiscal 1998 office products sales used almost $3.7 million of
cash. Net investment in capitalized leases by the office products unit used
approximately $619,000 of cash as the office products unit continues to target
sales to county-wide school systems. Accounts payable increased by approximately
$1.1 million primarily as the result of the timing of payments for inventory for
the office product unit. Deferred revenues associated with the office product
unit decreased by almost $304,000 as new sales are increasingly financed through
external sources. Income tax payments for the last quarter of fiscal 1998 and
current year estimated payments used approximately $725,000 of cash.

Capital expenditures were $446,000, which were primarily for new product molds
for the bar code unit, vehicles and rental equipment for the office products
unit, and production equipment for the footwear unit. The office products unit
used $150,000 of cash to purchase a small equipment dealer. Annual premiums for
officer split dollar life insurance policies used approximately $211,000 of cash
for the reporting period. Payments from long-term receivables associated with
the finance and leasing unit provided $461,000 of cash.

Dividend payments for the nine month period amounted to $497,000. Long-term debt
principal payments used $207,000 of cash.

The Company currently has two lines of credit with a bank totaling $2.75
million, all of which was available at May 1, 1999. It is Management's opinion
that future cash flows from operations, currently available cash and cash
equivalents, and unused lines of credit will be sufficient to meet the Company's
future working capital, capital expenditure, and debt repayment requirements.

Beginning in late July or early August, 1998, the Company began receiving
correspondence from several customers of its bar code unit advising that they
had received letters from the attorneys from the Lemelson Foundation asserting
that the use of some bar code reading equipment may infringe one or more U.S.
patents controlled by the Lemelson Foundation, and further advising the Company
that the customer expected to be indemnified for any patent infringement
liability it incurred based on the use of bar code equipment purchased from the
Company. It is the Company's position that it has a license under all of the



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<PAGE>   9


Lemelson patents in question, and the Company has advised its customers and the
attorneys for the Lemelson Foundation accordingly. At this time, the Company is
not a party to any litigation or other proceeding with respect to infringement
of the Lemelson patents, and to date, there has been no charge that a specific
piece of the Company's bar code reading equipment infringes a particular
Lemelson patent.

THIRD QUARTER FISCAL 1999 COMPARED TO THIRD QUARTER FISCAL 1998

Consolidated net revenues for the third quarter of fiscal 1999 amounted to
approximately $13.6 million, down 2% from the consolidated net revenues recorded
for the third quarter of fiscal 1998. Business unit results were mixed. The
office products and the commercial printing units posted net revenue gains of
16% and 26%, respectively, for the current quarter as compared to the same
quarter of fiscal 1998. These increases were primarily the results of strong
sales to county-wide educational systems and increased demand for printed
packaging material. The bar code and footwear units contributed lower net
revenues for the comparative quarters, down 7% and 21%, respectively.
Competitive pressures in the bar code industry, lower requirements of military
combat boots by the U.S. Government, and continued weakness in the demand for
western and work boots were the primary reasons for the decreased comparative
third quarter results for the bar code and footwear units.

The one-year option period of the U.S. Government (Government) contract covering
military combat boots ended in April 1999. The Government exercised the second
one-year option period to purchase additional military combat boots at a higher
level than was provided by the expired contract option. This higher level of
business is expected to increase the revenues derived from sales of military
combat boots for the fourth quarter of fiscal 1999. The improvement in western
and work boot revenues as a result of the introduction of new styles of western
and work boots to the market is not expected to have an appreciable positive
impact until the first or second quarter of fiscal 2000. The foregoing
statements are forward-looking statements and are subject to the risk and
uncertainties described below. There can be no assurances that the Company will
receive the anticipated orders of military combat boots from the Government or
that the new styles of western and work boots will have the anticipated effect
on revenues.

Consolidated gross profit as a percent of net revenues increased from 26% for
the third quarter of fiscal 1998 to 29% for the third quarter of fiscal 1999.
This increase is primarily a result of higher margin bar code and office
equipment products accounting for a greater portion of the Company's
consolidated net revenues. The office products unit contributed a higher third
quarter comparative gross profit as a percent of net revenues primarily
attributable to a $163,000 cost adjustment related to supplies previously
shipped with equipment for several county-wide educational cost per copy
programs.

Research and development costs related to the bar code business amounted to
approximately $123,000 for the third quarter of fiscal 1999 as compared to
$68,000 for the same quarter of fiscal 1998.

Selling, general and administrative (SG&A) for the third quarter of fiscal 1999
were $250,000 higher than the amount reported for the third quarter of fiscal
1998. This increase was primarily attributable to higher sales salaries and
commissions, training expenses, and professional fees. Lower expenditures for
administrative salaries and telephone costs provided a partial offset to the
quarterly SG&A expenses.



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<PAGE>   10


FIRST NINE MONTHS FISCAL 1999 COMPARED TO FIRST NINE MONTHS FISCAL 1998

Consolidated net revenues for the first nine months of fiscal 1999 amounted to
$37.0 million, a decrease of $6.9 million as compared to the same period of
fiscal 1998. The footwear and bar code units net revenues were down $8.1 million
and $1.4 million, respectively, for the comparative periods. The footwear unit's
decrease in net revenues is attributable to reduced requirements for military
combat boots purchased by the U.S. Government and continued weakness in the
demand for western and work boots. These decreases in net revenues were
partially offset by increased nine month comparative net revenues of $2.2
million and $0.3 million for the office products and commercial printing units,
respectively, and were primarily the result of heavy demand for office equipment
and printed material.

Consolidated gross profit for the comparative nine month periods decreased
almost $1.0 million primarily as a result of lower net revenues. Gross profit as
a percent of net revenues increased from 26% for the 1998 fiscal period to 28%
for the current fiscal period as revenues from higher margin bar code and office
products accounted for a greater portion of the Company's consolidated net
revenues. Competitive price pressures in the bar code market and higher per unit
production costs in the footwear unit continued to depress margins.

The bar code business incurred expenses of $418,000 on new product development
in the nine months of fiscal 1999 as compared to $213,000 for the same period of
fiscal 1998.

Selling, general and administrative expenses as a percent of consolidated net
revenues for the first nine months of fiscal 1999 and fiscal 1998 were 24.1% and
19.6%, respectively. Total SG&A expenses increased by approximately $286,000 for
the current fiscal reporting period as compared to the same reporting period for
fiscal 1998. Increased expenditures for sales salaries and commissions,
professional fees, health insurance costs, and sales training expenses were
partially offset by reduced administrative salary cost, business insurance, and
employee benefits.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, Statement of Financial Accounting Standard (SFAS) No. 128,
"Earnings Per Share", was issued. SFAS No. 128 requires disclosures of "basic"
and "diluted" earnings per share where potential common stock may be issued in
the future. SFAS No. 128 is effective for the Registrant for periods ending
after December 15, 1997. Since the Registrant has no dilutive instruments, only
basic earnings per share information is disclosed.

Also, in February 1997, SFAS No. 129, "Disclosures of Capital Structure", was
issued. SFAS No. 129 requires information about capital structure to be
disclosed in three separate categories - information about securities,
liquidation preference of preferred stock, and redeemable stock. SFAS No. 129 is
effective for the Registrant's fiscal periods ending after December 15, 1997.
The Registrant is in compliance with this reporting requirement.

In June 1997, Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", was issued. SFAS No. 130 requires disclosures of
comprehensive income (which is defined as "the change in equity during a period
excluding changes resulting from investments by stockholders and distributions
to stockholders") and its components. SFAS No. 130 is effective for the
Registrant beginning with the fiscal year ending July 31, 1999, and has been
adopted. Comprehensive income is not different from net income, as there are no
items of other comprehensive income at May 1, 1999, August 1, 1998, and May 2,
1998



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<PAGE>   11


Also, in June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", was issued. SFAS No. 131 redefines how operating
segments are determined and requires disclosures of certain descriptive
information about a company's operating segments. SFAS No. 131 will be effective
for the Registrant for the fiscal year ending July 31, 1999. Management is
evaluating the effect of SFAS No. 131 on the Registrant's future disclosures.

YEAR 2000 ISSUES

Many computers and software programs were designed to accommodate only two-digit
date fields to represent a given year (e.g. "98" represents 1998). It is
possible that such systems will not be able to accurately process data
containing information related to the calendar year 2000 or later. The "year
2000 issue" has the potential to affect the Registrant through the failure to
process business transactions both at the Registrant and between the Registrant
and its business partners. In addition, claims to cover costs associated with
the issue may be asserted against insurance contracts in which the Registrant
participates.

In April 1998, the Registrant designated "a year 2000 team" consisting of the
chief executive officer, the principal financial and accounting officer and the
manager of information systems. A Year 2000 (Y2K) Plan was developed,
communicated to the board of directors and senior management, and implemented.
The Y2K plan is designed to (i) assess compliance of internally used computer
hardware and software programs; (ii) determine compliance issues with
infra-structure systems such as telephone systems, production line equipment,
shipping systems, and facility heating and air conditioning equipment; (iii)
conduct Y2K compliance surveys with mission critical business partners to
include major customers and suppliers of goods and services; (iv) implement
appropriate testing procedures to measure actual compliance; and (v) develop and
institute contingency plans to mitigate any unforeseen Y2K issues.

The Registrant has reviewed virtually all of its internally used computer
hardware and software for year 2000 compliance. Non-compliant hardware has
either been replaced, scheduled for replacement, or placed in non-mission
critical functions. The critical computerized business systems utilized by the
Registrant are primarily based on software products licensed from third parties
that specialize in software development. These software vendors indicate that
their products will be made compliant on a timely basis. In addition to
purchased software, there are some program applications that have been developed
internally. These programs are being assessed and those deemed to be critical to
the business will be modified or replaced.

While the Registrant believes that its computer hardware, licensed software, and
internally generated software critical to its business will be compliant on a
timely basis, there can be no assurance that every such product will be
compliant on a timely basis and there can be no assurance that there will be no
material disruption to the Registrant's business if such products are not
compliant. The Registrant believes that the actual expenses involved in making
the internal processing systems year 2000 compliant will not be material when
completed.

The Registrant continues to survey its mission critical business partners. As of
May 1, 1999, a significant number of business partners had responded to being
confident that they were currently Y2K compliant or will be before January 1,
2000. Letters have been sent to those business partners who have not responded
requesting their Y2K compliance response before June 30, 1999. Contingency plans
will be developed to mitigate any disruption to business activities associated
with those business partners that do not respond. These contingency plans are
targeted for completion by September 30, 1999. The costs associated with this
phase of the plan are being expensed as incurred and are not expected to be
material. Because the Registrant relies on the business activities of its




                                       11
<PAGE>   12


many business partners to be year 2000 compliant, there can be no assurance that
there will not be a material disruption to the Registrant's business or an
increase in the cost of doing business.

The Registrant is utilizing the remainder of 1999 to continue its evaluation
efforts regarding all phases of year 2000 compliance. Pertinent contingency
plans are being developed based on substantive determination that year 2000
non-compliance situations exist which could be disruptive and costly to the
Registrant's business activities in the year 2000 and beyond.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Form 10-Q includes certain
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements involve certain risks
and uncertainties, including but not limited to acquisitions, additional
financing requirements, development of new products and services, the effect of
competitive products and pricing, acceptance of new footwear products in the
market place, risks unique to selling goods to the Government (including
termination of the Contract, failure to exercise the next option period under
the Contract or reducing purchases), and the effect of general economic
conditions, that could cause actual results to differ materially from those in
such forward-looking statements.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes due to its
aggregate $2.75 million lines of credit and a term loan through its wholly owned
subsidiary, American West Trading Company. As of May 1, 1999, there was no
outstanding indebtedness under the lines of credit and $5.4 million was
outstanding on the term loan. The Company does not buy or sell derivative
financial instruments for trading purposes. Borrowings under the Company's
credit facilities described above bear interest at rates based upon the "Prime
Rate" offered by the applicable lender less one-half percent. The Company has
not entered into any swap agreements or engaged in any other hedging activities
with respect to this variable rate indebtedness. An increase of 1% in the
current interest rate under the Company's credit facilities would increase
annual interest expense by approximately $60,000 (assuming the Company's
aggregate borrowings under the credit facilities averaged $6.0 million during a
fiscal year).


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to Item 3 of the Company's Annual Report to Shareholders on
Form 10-K for the fiscal year ended August 1, 1998.

ITEMS 2, 3, 4, AND 5.

These items are not applicable and have been omitted.



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<PAGE>   13


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits


    Exhibit 27    Financial Data Schedule. (Filed in electronic format only.
                  Pursuant to Rule 402 of Regulations S-T, this schedule shall
                  not be deemed filed for purposes of Section 11 of the
                  Securities Act of 1933 or Section 18 of the Securities
                  Exchange Act of 1934.)

(b) No reports on Form 8-K were filed during the quarter ended May 1, 1999.




SIGNATURES

Pursuant to the requirements 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.


                                    MCRAE INDUSTRIES, INC.
                                         (Registrant)



  DATE: June 15, 1999               By: /s/D. Gary McRae
       --------------                  ----------------------------------------
                                        D. Gary McRae
                                        President and CEO
                                        (Principal Executive Officer)




  DATE: June 15, 1999               By: /s/Marvin G. Kiser, Sr.
       --------------                  ----------------------------------------
                                        Marvin G. Kiser, Sr.
                                        (Principal Accounting Officer)


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