FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D. C. 2O549


(Mark One)

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

            For the fiscal year ended    December 26, 1998
                                         ----------------------

                                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 0-7166



                             DOUGHTIE'S FOODS, INC.
            (Exact name of Registrant as specified in its charter)


          VIRGINIA                                              54-0903892
(State or other jurisdiction of                             (I.R.S. employer
 incorporation or organization)                          identification number)


                 2410 WESLEY STREET, PORTSMOUTH, VIRGINIA 23707
                    (Address of principal executive offices)


Registrant's telephone number, including area code:  (757) 393-6007


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


                     COMMON STOCK, PAR VALUE $1.00
                            (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.

                                                   X    Yes          No
                                                -------      -------


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

                                                                -------

Aggregate market value of voting stock held by  non-affiliates of the registrant
as of February 26, 1999 (See Note, Item 5, for explanation of calculation):

                                                          $ 8,383,784
                                                        ----------------


Indicate  the number of shares of Common  Stock  outstanding  as of February 26,
1999:

                                                             1,495,023
                                                       -----------------


                   DOCUMENTS INCORPORATED BY REFERENCE

     None.

<PAGE>

PART I.
-------

ITEM 1.   BUSINESS
------------------

General
-------

         Doughtie's  Foods, Inc. (the "Company") was incorporated in Virginia in
November 1971 to engage in the sale and  distribution  of a wide variety of meat
and seafood products and other food items. Many of the meat and seafood products
sold by the Company were historically manufactured, processed or produced by it,
while  other  food  items  sold  by the  Company,  such as  fruits,  vegetables,
condiments, and seasonings, have always been purchased by the Company from other
sources. Since completion of the sale in February 1997 of certain assets related
to the Company' s manufacture of barbecue and chili products and the sale of the
deli-meats  business  in  April  1997(see  below:  Material  Transactions),  the
Company's  business  has  consisted  solely of  distributing  food  products  to
commercial and institutional  customers,  including  supermarkets,  restaurants,
cafeterias, independent food distributors,  schools, hospitals, and other public
and  private  facilities.  The  Company's  marketing  area  covers the  central,
northern, and eastern portions of Virginia, as well as Maryland, Washington, DC,
portions of North Carolina, and small areas of Delaware. Although the Company is
no  longer  engaged  in the  manufacture  of  food  products,  it  continues  to
distribute  its  traditional  "Doughtie's"  label  products  pursuant to product
supply agreements with the respective buyers of the manufacturing business. (See
below PART I, ITEM 1, BUSINESS, Products and Services.)

Recent Developments
-------------------

         In January  1999,  the  Company  announced  that in response to certain
recent inquiries by outside third parties, the Board of Directors of the Company
had engaged the  investment  banking firm of Mann,  Armistead & Epperson,  Ltd.,
Richmond, Virginia, for the purpose of attempting to maximize shareholder value,
and had  directed  Mann,  Armistead  & Epperson,  Ltd. to examine the  Company's
options, including the possible sale of the Company.

         On February 8, 1999, the Company and SYSCO Corporation (SYSCO) signed a
Letter of Intent whereby a subsidiary of SYSCO and the Company will merge. Under
the Letter of Intent, the stockholders of the Company will receive $17 per share
in cash or shares of SYSCO common stock  subject to  adjustments  under  certain
circumstances.  Consummation  of the merger is subject to,  among other  things,
negotiation  of a definitive  Merger  Agreement  and  approval by the  Company's
shareholders.

Material Transactions
---------------------

         In  February  1997,  the Company  sold the assets of its  manufacturing
division's  barbecue  and chili  business  for  approximately  $840,000 in cash.
Barbecue and chili sales accounted for less than 5% of  consolidated  1996 sales
volume. The net pretax gain on the sale was approximately $50,000.

         In April  1997,  the  Company  sold  the  assets  of its  manufacturing
division's deli meats business for approximately $486,000. The terms of the sale
were a  $286,000  cash down  payment  with the  $200,000  balance in the form of
secured note. Deli meat sales  accounted for less than 5% of  consolidated  1996
sales volume. The net pretax gain on the sale was approximately  $140,000.  Upon
completion  of the sales in February and April of 1997,  the Company  ceased its
manufacturing operations.

         In September 1995, the Company sold  substantially all of the assets of
its Home Food Service  operation  (the "Home Food  Service") to Value Added Food
Services,  Inc., a Maryland corporation  ("VAFS"),  and ceased operations in the
consumer  portion  of its  business  due to  unprofitability.  Vernon W.  Mules,
Chairman  of  the  Board  of  the  Company,  and  his  wife  are  the  principal
stockholders of VAFS. All finance  receivables,  inventory,  delivery equipment,
processing  equipment and office  equipment  were sold. The total sale price was
$1,154,000  with a $115,000  cash down payment and the balance of  $1,039,000 in
the form of a secured note,  which was paid in full in November 1996. The assets
were sold  primarily at net book value,  except for finance  receivables,  which
were  discounted  by ten  percent.  The net pretax  loss on the sale,  including
abandoned assets and other write-offs, was approximately $96,000.

         In August 1994, the Company  entered into a joint venture with Loetitia
Adam-St. James and Chris L. St. James (collectively,  the "St. James"),  trading
as Thunder Bay Gourmet  Foods,  who  manufactured  and sold a line of  specialty
gourmet food  products  (the  "Thunder Bay Line").  Under the terms of the joint
venture  agreement,  (i) the Company and the St. James formed TWB Gourmet Foods,
Inc., a Virginia corporation("TWB"),  (ii) TWB acquired substantially all of the
assets of Thunder Bay  Gourmet  Foods,  and (iii) the St.  James and TWB entered
into a license agreement  granting TWB a perpetual,  exclusive license and right
to manufacture,  sell,  market,  advertise,  promote and exploit the Thunder Bay
Line, and to use the related  trademarks,  including  "Thunder Bay,"  worldwide.
Until  September  1996,  the Company  owned seventy  percent of the  outstanding
capital stock of TWB, and the remaining  thirty  percent of TWB was owned by the
St. James,  who managed the  business.  During the fourth  quarter of 1995,  the
Company  determined  to exit the  gourmet  foods  business  as TWB had  incurred
substantial net operating losses since its inception.  Accordingly,  the Company
incurred a $763,000  pretax charge in the fourth  quarter to reduce the carrying
value of TWB's fixed assets and  inventories to estimated net  realizable  value
and to provide for other costs to exit this business.  On September 6, 1996, the
Company  sold  certain  assets  of TWB  and  discontinued  manufacturing  of the
associated gourmet food products. The terms of the sale were a $30,000 cash down
payment,  $20,000 assigned accounts receivable and $137,000 of free trade credit
from  the  buyer  for a total  sale  price  of  $187,000.  No  gain or loss  was
recognized  as a result  of this  sales  transaction.  In  conjunction  with the
transaction,  the St.  James  surrendered  their  stock in TWB and are no longer
affiliated with TWB, which is now wholly owned by the Company.

         On August 28, 1996,  the Company  merged its  Dutterer's  of Manchester
Corporation  subsidiary  into TWB Gourmet Foods,  Inc. The purpose of the merger
was to simplify corporate structure.

Products and Services
---------------------

         The Company maintains  distribution  centers in Portsmouth and Norfolk,
Virginia,  from which it handles the Company's commercial and institutional food
sales. The Company offers to its customers a broad range of food items including
meat  products,  frozen,  refrigerated,  canned,  and dry items in the  seafood,
fruit,  vegetable,  and other lines. Most items needed by such customers for the
operation of their business are offered by the Company, including eggs, produce,
staples such as flour and sugar,  restaurant  supplies,  and a limited amount of
cooking and processing equipment. Availability of such items is generally good.

         The Company  has no material  long-term  contract  with  respect to the
supply of any of such items, except (i) pursuant to the Product Supply Agreement
dated as of February 28, 1997,  between the Company and The  Smithfield  Ham and
Products Company,  Incorporated  ("Smithfield"),  the Company agreed to purchase
from Smithfield its  requirements of barbecue and chili products for a period of
five years and (ii) pursuant to the Product Supply  Agreement  dated as of April
14, 1997,  between the Company and Coddle Roasted Meats,  Inc.  ("Coddle"),  the
Company agreed to purchase from Coddle's its requirements of  delicatessen-style
meat  products for a period of five years.  Many of these  products are packaged
and marketed  under the  registered  trade name and service  mark  "Doughtie's."
Registration  covering  this mark remains in force twenty years from the date of
registration and may be renewed for periods of twenty years.

         Sales of products are made through a system of advance salespersons who
take orders for subsequent  delivery.  A fleet of approximately 36 trucks and 10
trailers is employed in the  delivery  phase of the  wholesale  operations.  The
Company  experiences  increased  sales to  customers  in resort  areas and parks
during the summer months as a result of increased patronage of these businesses.
The decline in sales to such  customers  during the winter  months is  partially
offset by sales to schools.

         Prior  to  the  sale  of the  manufacturing  division,  the  Portsmouth
facility was also involved in the manufacture of pork and beef barbecue, hot dog
sauce,  meat  loaf,  chili  and  other  cooked  meat  products.   The  Company's
subsidiary,  TWB, also  manufactured  and sold a line of specialty  gourmet food
products  until that portion of the business  was sold in September  1996.  (See
above PART I, Item 1, BUSINESS, Material Transactions.)

Customers
---------

         During 1998, 1997 and 1996, the Company recorded sales under a contract
with the Department of Defense aggregating approximately 13.2%, 15.8% and 11.5%,
respectively,  of net sales. The current contract with the Department of Defense
expires in February 2000. The Company had receivables from one of its commercial
customers  representing 12.5% and 13.1% of trade accounts receivable at December
26, 1998 and December 27, 1997, respectively.

Competition
-----------

         The Company's commercial and institutional food distribution operations
face substantial  competition from other food distributors in the region.  There
are many  companies  engaged in one or more of the same areas of the industry as
the Company,  some of which are national  companies having greater resources and
sales than the  Company.  There are also a large  number of  regional  and local
companies  that  compete  with  the  Company.  Within  these  areas  of the food
industry,  competition  is based  primarily  upon  price,  service,  and product
quality.  The Company believes it is reasonably  competitive with respect to all
of these factors.

Backlog
-------

         Due to the nature of its business, the Company does not have a material
amount of backlog at any given time.

Regulation
----------

         The Company is subject to various  statutes,  such as the Federal Food,
Drug and Cosmetic Act, the Consumer Product Safety Act, the Occupational  Safety
and Health Act,  and  various  consumer  credit  acts,  regulating  ingredients,
packaging, general working conditions for employees, vehicles, credit, and other
matters.  The Company has not  experienced  any unusual  difficulty in complying
with such regulations.

         Although  the  Company  has  never  experienced  a fuel  shortage,  its
operations  could be adversely  affected if  sufficient  quantities of diesel or
other fuels could not be obtained due to shortages or for other reasons.

         The Company has not  experienced  any unusual  difficulty  in complying
with environmental regulations at any of its facilities. The Portsmouth facility
is subject to open air burning  restrictions  which require  refuse to be hauled
off the premises rather than burned.

Employees
---------

         As of December 26, 1998, the Company had  approximately  211 employees.
Approximately  33 of these  employees  working at the Company's  Portsmouth  and
Norfolk facilities are members of the Bakery, Confectionery and Tobacco Workers'
International Union, AFL-CIO, under a contract which expires in November, 2001.


Executive Officers
------------------

         STEVEN C. HOUFEK,  50, is the Company's  President and Chief  Executive
Officer.  Mr. Houfek has been President of the Company since August 1992 and was
named Chief  Executive  Officer in May 1994.  Prior to May 1992, Mr. Houfek held
various  management  positions  with  the  Company,   including  Executive  Vice
President from May 1987 to August 1992.

         VERNON W.  MULES,  69, is  Chairman  of the Board of  Directors  of the
Company.  Prior to May 1994, Mr. Mules served as the Company's  Chief  Executive
Officer.

         MARION S.  WHITFIELD,  JR., 53, has served as Senior Vice  President of
the Company since May 1987. He served as Vice  President of the Company from May
1983 until May 1987.

         MICHAEL S.  LAROCK,  35,  joined the Company in  November  1994 and has
served as the  Company's  Treasurer  and  Secretary  since that  time.  Prior to
November  1994,  Mr.  LaRock  was an  accountant  with Price  Waterhouse  LLP in
Norfolk, Virginia.

         THOMAS G. BROWN,  55, has served as Vice  President - Purchasing  since
February 1994. Prior to that time, he was Director of Purchasing.

         WILLIAM E.  MOODY,  JR.,  49,  has been Vice  President  - Sales  since
February 1994. Prior to that time, he was Sales Manager.

         JERRY D. NIXON,  42, was elected Vice  President - Government  Contract
Operations,  in February  1996.  Mr. Nixon served as Vice President - Operations
from  February  1994 until  February  1996.  Prior to that time,  Mr.  Nixon was
Operations Manager.

         WILLIAM G.  RATLIFF,  43, was elected Vice  President -  Operations  in
February 1996. Since joining the Company in October 1994, Mr. Ratliff served
as Project Manager.  Prior to October 1994, Mr. Ratliff was a United States Navy
Supply Corps Officer.

         ROBERT F. HORTON, 31, was elected Vice President - Business Development
in  February  1996.  Mr.  Horton served as a district  sales  manager  since
October 1995. Prior to that time, he was Program Accounts Manager.

ITEM 2.   PROPERTIES
--------------------

         The principal  facilities of the Company and its  subsidiary are listed
below.  Except as noted,  all are fully utilized by the Company and are adequate
for the Company's purposes and needs.

         (a) The Company owns  approximately  10.2 acres of land in  Portsmouth,
Virginia,  on which are located a building complex,  including cooler,  freezer,
and dry storage  warehousing,  complete truck docking facilities,  a garage, and
the Company's principal executive offices. The Company's three loans are secured
by a lien on this property.

         (b) The Company's  wholly-owned  subsidiary,  TWB Gourmet Foods,  Inc.,
owns  approximately  4.5  acres of land in  Manchester,  Maryland,  on which are
located a 20,000  square foot packing  house with a stock yard and sewage plant.
An adjacent 45-acre farm is also owned by the Subsidiary. In December, 1991, the
Company transferred the operations of its Manchester facility to its Portsmouth,
Virginia  plant.  The  Company's  three  loans  are  secured  by a lien  on this
property.

         (c) The Company  leases  approximately  15,000 square feet of warehouse
space in Portsmouth, Virginia. This property is leased on a month to month basis
with monthly rental payments of $2,275.

         (d) The Company  leases  approximately  36,800  square feet of freezer,
cooler, warehouse and office space in a warehouse building in Norfolk, Virginia,
under a lease  which calls for monthly  rental  payments of $20,000.  This lease
expires in February 2000.

ITEM 3.   LEGAL PROCEEDINGS
---------------------------

     None.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------

     None.

PART II.
--------

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS
-----------------------------------------------------------

Market and Price Information
----------------------------

         The Company's common stock,  $1.00 par value (the "Common  Stock"),  is
traded on the Nasdaq Stock Market. The following table provides the high and low
bid  quotations  with  respect  to shares of the  Common  Stock for the  periods
indicated,  as reported by the Dow Jones Historical Stock Quote Reporter Service
and Nasdaq.  These amounts have been adjusted  retroactively  to reflect the 50%
stock split paid on January 12, 1998, to  stockholders of record on December 12,
1997.

                             First Quarter     Second Quarter
                             --------------    --------------
                             High      Low     High      Low
                             -----    -----    -----    -----

               1997          3.583    2.667    3.667    2.500
               1998          8.750    6.125    8.500    7.125

                             Third Quarter     Fourth Quarter
                             --------------    --------------
                             High      Low     High      Low
                             -----    -----    -----    -----

               1997          5.083    3.583    7.500    4.500
               1998          7.875    4.875    8.250    6.000


         The  foregoing  quotations  of high and low bid  prices,  as  adjusted,
represent  prices between dealers and do not include retail mark-up,  mark-down,
or  commissions.  They do not necessarily  represent  actual  transactions.  The
highest bid on each day is reported.

Number of Stockholders
----------------------

         As of February  26, 1999,  there were 232 record  holders of the Common
Stock.

Dividends
---------

         The cash  dividends  declared  per common  share by quarter for the two
most recent fiscal years are summarized below.  These amounts have been adjusted
retroactively  to  reflect  the 50% stock  split paid on January  12,  1998,  to
stockholders of record on December 12, 1997.

                                    1998              1997
                                  ------            ------

         First Quarter            $ .03             $ .027
         Second Quarter             .03               .027
         Third Quarter              .03               .027
         Fourth Quarter             .03               .026
                                  ------            ------
                  Total           $ .12             $ .107
                                  ------            ------
                                  ------            ------


         Management  presently  expects to  continue  declaring  quarterly  cash
dividends if it proves  possible to do so and if the merger with a subsidiary of
SYSCO is not consummated (PART I, ITEM 1, Recent Developments).

NOTE: The aggregate market value of voting stock held by 216  non-affiliates  of
the  registrant as of February 26, 1999,  shown on the cover page was calculated
as  follows:  The  number  of  shares  beneficially  owned by the  officers  and
directors  of the  Company as a group or by members of the  Doughtie  family was
subtracted from 1,495,023,  the total number of shares outstanding on that date.
The resulting  figure was then multiplied by $ 14.50, the average of the bid and
asked prices of the Company's  stock in the Nasdaq SmallCap Market on that date.
The  foregoing  calculation  should not be deemed an  admission  that any of the
officers  and  directors  of the Company or any of the  members of the  Doughtie
family are "affiliates."

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

<TABLE>
<CAPTION>

                         1998           1997           1996           1995           1994
<S>                  <C>            <C>            <C>            <C>            <C>
Net sales            $ 87,194,488   $ 85,233,420   $ 80,632,688   $ 76,585,835   $ 73,368,742


Net income (loss)    $  1,196,657   $    947,498   $    927,820   $ (1,212,284)  $    364,073

Weighted average 
 number of shares 
 outstanding:
   Basic                1,495,023      1,496,085      1,500,468      1,511,652      1,516,845
   Diluted              1,496,298      1,496,085      1,500,468      1,511,652      1,516,845


Net earnings (loss) 
 per share:
   Basic             $        .80   $        .63   $        .62   $       (.80)  $        .24
   Diluted           $        .80   $        .63   $        .62   $       (.80)  $        .24

Cash dividends per
 share               $        .12   $        .11   $        .11   $        .11   $        .11

Total assets         $ 15,222,817   $ 16,444,817   $ 15,932,286   $ 16,086,077   $ 16,797,863

Long-term debt, less
 current portion     $    683,334   $  2,737,910   $  5,065,000   $  6,688,334   $  5,031,667

Total stockholders'
 equity              $  9,853,617   $  8,836,363   $  8,054,907   $  7,303,060   $  8,700,431

Stockholders' equity
 per share           $       6.59   $       5.91   $       5.38   $       4.86   $       5.75
</TABLE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------------------


Results of Operations
---------------------

     Net sales of the Company  increased 2.3% in 1998. For the 1998 fiscal year,
the Company  reported net sales of $87.2 million  compared to net sales of $85.2
million in 1997.  Sales under a contract  with the United  States  Department of
Defense  decreased  from $13.5 million in 1997 to $11.5  million in 1998,  which
represented 15.8% and 13.2% of the Company's consolidated revenue, respectively.
The volume increases from multi-unit  accounts more than offset the reduction in
sales to the Department of Defense.  There were no significant  price changes in
1998.

     Net sales of the Company  increased 5.7% in 1997. For the 1997 fiscal year,
the Company  reported net sales of $85.2 million  compared to net sales of $80.6
million in 1996.  Sales under a contract  with the United  States  Department of
Defense  increased  from $9.3  million in 1996 to $13.5  million in 1997,  which
represented 11.5% and 15.8% of the Company's consolidated revenue, respectively.
Additional  volume  increases  resulted from new  multi-unit  accounts  obtained
during the third  quarter.  These  increases were offset by a reduction in sales
caused by the sales of the  Company's  manufacturing  operations.  Manufacturing
operations  represented  less  than  2%  and  8% of  sales  in  1997  and  1996,
respectively.

     The  Company's  gross profit  margin  (gross  profit as a percentage of net
sales)  decreased  slightly from 16.5% in 1997 to 16.2% in 1998.  The decline is
due to the 1997 disposition of the  manufacturing  division,  which had a higher
markup.  The Company's gross profit margin increased from 16.3% in 1996 to 16.5%
in 1997.

     The Company's selling, general and administrative expenses,  expressed as a
percentage  of net sales,  decreased  to 13.8% in 1998 from  14.5% in 1997.  The
Company's  selling,  general  and  administrative   expenses,   expressed  as  a
percentage of net sales, decreased slightly to 14.5% in 1997 from 14.8% in 1996.

     During  1997,  the Company  experienced  an  increase in accounts  past due
greater than 60 days from  approximately  10.6% to 20.8% of accounts  receivable
and an increase in accounts  written off which led to an increase of $468,000 in
bad debt  expense for 1997 as compared to 1996 and an increase in the  allowance
for doubtful accounts at December 27, 1997.  Management  attributed the increase
in past due accounts to inadequate collection efforts and financial difficulties
experienced by several  customers.  Management  made  administrative  changes to
address the collection issue,  including  appointment of a new credit manager in
March 1998.  During 1998, the Company's  collections  have improved and accounts
past due greater  than 60 days have  decreased to 15.2%.  In addition,  accounts
written off have  decreased  from  $387,000  in 1997 to  $149,000 in 1998.  As a
result of improved  customer  credit  quality during the fourth quarter of 1998,
including collection of amounts previously  considered  doubtful,  the allowance
for  doubtful  accounts  was  reduced to  $360,000  as  compared  to $628,000 at
December  27,  1997 and bad debt  expense for the year ended  December  26, 1998
decreased $790,000, as compared to 1997.

     The decline in selling,  general and administrative expense as a percentage
of sales in both 1998 and 1997 also  reflects  the  increase in sales  without a
corresponding increase in expenses.

     Interest  expense  was  $162,000  in 1998  compared to $242,000 in 1997 and
$469,000 in 1996.  Decreased average borrowing levels and lower average interest
rates were the cause of the lower  expense in 1998 and 1997.  As the interest on
the  Company's  debt is both London  Interbank  Offered  Rate  (LIBOR) and prime
related,  interest expense will increase or decrease in subsequent periods based
on fluctuations in these rates and the borrowing levels of the Company.

     Income tax expense was $747,000 for 1998 compared to expense of $566,000 in
1997 and income tax benefit of $202,000  for 1996.  During the fiscal year ended
December 28, 1996, the Company eliminated the valuation allowance related to the
net  operating  losses of a  subsidiary  as a result of  utilization  of the net
operating loss carryforward becoming more likely than not.

     During 1994 and 1995,  the Company  owned 70% of TWB  Gourmet  Foods,  Inc.
(TWB). TWB was not included in the Company's  consolidated  returns for 1994 and
1995, and the  realization of the net operating loss (NOL)  carryforward  of TWB
was not  considered to be a likely  occurrence.  On August 28, 1996, the Company
acquired the remaining 30% of TWB's stock and  simultaneously  merged Dutterer's
of Manchester,  its wholly-owned subsidiary,  into TWB. TWB, as the wholly-owned
surviving entity of the merger,  was included in the Company's 1996 consolidated
tax return.

     As a  result  of the  transaction  and  inclusion  of TWB in the  Company's
consolidated tax return during 1996, the Company utilized approximately $600,000
of the TWB net operating loss (NOL).  Accordingly,  management concluded that it
was now "more likely than not" that the remaining  net  operating  loss would be
utilized  and did not  provide a reserve  for the  balance of the  deferred  tax
asset.  In 1997,  the  Company  utilized an  additional  $284,000 of the TWB NOL
carryforward. The remaining $248,000 was utilized in 1998.

     The Company  reported net income of  $1,197,000  or $0.80 per share in 1998
compared to $947,000 or $0.63 per share for 1997 and $928,000 or $0.62 per share
for 1996.

Effects of Inflation
--------------------

     Over the past three  years,  the  effects  of  inflation  on the  Company's
operations have been negligible, averaging less than 4% per year.

Liquidity
---------

     The Company uses a number of liquidity  indicators for internal  evaluation
purposes. Certain of these indicators are set forth below as of the close of the
past three fiscal years:


                                    1998           1997          1996
                                    ----           ----          ----

Total debt to total debt plus
 stockholders' equity                .11            .27           .41

Current assets to current
 liabilities                        2.68           2.81          4.36

Inventory turnover
 (cost of goods sold
 to ending inventory)              15.79          15.23         15.00

      The  decrease in total debt to total debt plus  stockholders'  equity from
1996 to 1997 relates to the sales of the manufacturing operations,  the proceeds
of which were used to reduce  long-term  debt. The decrease from .27 at December
27, 1997 to .11 at December 26, 1998 was due to improved  financial  results and
decreased accounts  receivable,  which enabled the Company to continue to reduce
its long-term debt.

      The ratio of  current  assets  to  current  liabilities  from 1997 to 1998
remained  relatively  unchanged.  The  decrease  in  current  assets to  current
liabilities  in 1997 was a result of an  increase  in  accounts  payable  due to
changes in terms with vendors.

     The inventory  turnover rate  increased from 15.00 in 1996 to 15.23 in 1997
and  15.79 in 1998,  as a result of  increased  sales  and  management  focus on
inventory levels, due primarily to warehouse constraints.

     The Company supplements its cash requirements by borrowing against existing
credit lines.  As of December 26, 1998,  and February 27, 1999,  the Company had
borrowing   capacity  under  its  credit  line  of  $6,400,000  and  $6,100,000,
respectively.

Capital Resources
-----------------

     The  Company's  debt  financing  at December  26,  1998,  consisted  of the
following:

1. A  $7,500,000  revolving  bank note at LIBOR  plus  1.50%.  The LIBOR rate at
December  26,  1998 was  5.63%.  The note is due three  years  after the  annual
renewal date,  currently July, 2001,  subject to annual renewal.  As of December
26, 1998, the Company had no borrowings against this credit line.

2. A $2,000,000 Industrial Revenue Bond from a bank for the purpose of expanding
the Company's plant and office  facilities in Portsmouth,  Virginia at an annual
interest  rate of 91.50% of prime.  As of December  26,  1998,  the  outstanding
balance was $467,000.

3. A $1,750,000 bank term loan at LIBOR plus 1.50%.  The loan is to be repaid in
quarterly  installments of $100,000 plus interest through January 1, 2001. As of
December 26, 1998, the outstanding balance was $750,000.  The funds were used to
finance the increased  inventory and accounts  receivable  required to service a
one-year  contract  awarded to the Company in January 1996 by the United  States
Department of Defense to furnish food items to various  military  installations.
The contract contains three yearly renewal options and was renewed for 1999. The
current  contract  expires in February  2000.  The United  States  Department of
Defense had estimated annual sales volume to be approximately $19 million.
Actual sales volume for fiscal 1998 was $11.5 million.

     The loan agreements  associated with the Company's long-term debt financing
contain restrictive  covenants including a minimum amount of tangible net worth,
a  minimum  working  capital  ratio  and a maximum  debt to  equity  ratio.  All
requirements were met for 1998 and 1997.

     While the Company does not anticipate  any other  material  increase in its
capital  requirements  in the near future,  such an increase,  if it occurs,  is
likely to be met through additional long-term debt financing.

Year 2000 Compliance
---------------------

     Many  computer  systems,  programs,  components,  and other  hardware  with
embedded  microcontrollers  currently record years in a two-digit  format.  Such
systems, if not modified, will be unable to recognize properly dates beyond 1999
-- the  so-called  "Year  2000  Problem."  The  Company  relies on its  computer
systems, applications and devices in operating and monitoring various aspects of
its business.  The Company also relies,  directly and indirectly,  on systems of
customers,  suppliers,  and financial institutions.  Management has divided this
issue into three sections:  its own computer systems,  its own embedded systems,
and the computer systems of third party suppliers and customers.

     With respect to the Company's  computer  systems,  Management  believes all
critical  hardware  and third party  software to be "Year 2000  Compliant."  The
Company's  custom  software has been  modified.  Testing of the computer  system
began in 1998 and should be completed by March 31, 1999. Management believes its
computer  systems  will be "Year  2000  Compliant"  at that  time.  The  Company
estimates  the total cost of modifying  its  computers  and software to be about
$50,000,  with about $30,000  having been expensed in 1998. The Company has been
funding  and  expects  to  continue  to fund the costs of Year  2000  compliance
through operating cash flows.

     The Company uses several  time-sensitive  non-computer systems. The Company
has completed an inventory of these systems and related  components.  Based upon
information  received from suppliers,  Management  believes that all significant
non-computer  equipment is compliant.  The Company is accepting no new equipment
of any type that does not meet standards of compliance for the Year 2000.

     The Company  relies on the computer  systems of third party  suppliers  and
customers. While the Company is querying major suppliers and customers regarding
their readiness for the Year 2000,  Management  cannot guarantee the accuracy of
the  representations.   The  Company  expects  to  have  contacted  all  of  its
significant  suppliers and customers by March 31, 1999,  and will  summarize and
review the responses and follow up with  suppliers' and customers'  assessments.
The Company  purchases its inventory from numerous vendors and believes that the
failure of a limited  number of  suppliers to be Year 2000  Compliant  would not
materially  affect the  Company's  operations  given the  number of  alternative
suppliers.  The Company has also considered the possibility of one or more major
customers being temporarily unable to meet its financial  obligations because of
the Year 2000 Problem and believes that the Company's  existing  lines of credit
are  sufficient to compensate  for such  potential  temporary  shortfall in cash
flow.

     There are numerous  uncertainties  relating to addressing Year 2000 issues,
including the actual cost and effort of implementing  corrective  measures,  the
degree to which outside  parties  appropriately  address their Year 2000 issues,
and other factors,  some of which are beyond the Company's  control,  and all of
which may cause results to be different from those currently  anticipated by the
Company.  Doughtie's has developed  contingency plans to cover minor failure due
to supplier or customer problems.  Management believes that the internal systems
will work  properly  due to the  extensive  analysis  and testing  that has been
completed.  Testing of internal systems has indicated only minor problems, which
appear to be cosmetic  only and are  expected to be  corrected  before March 31,
1999.

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

         The Private  Securities  Litigation Reform Act of 1995 provides a "safe
harbor" for forward-  looking  statements.  This Form 10-K, the Company's Annual
Report  to  Shareholders,  any Form 10-Q or any Form 8-K of the  Company  or any
other written or oral statements made by or on behalf of the Company may include
forward-looking  statements  which  reflect  the  Company's  current  views with
respect to future events and financial performance.  Forward-looking  statements
are inherently  subject to the  uncertainties  of future events,  so that actual
results could differ  materially from  expectations  which are stated or implied
in, or could be inferred from such forward-looking  statements.  Among the kinds
of  uncertainties  that can affect and should be considered  in  evaluating  the
Company's  forward-looking  statements  are  uncertainties  related to  economic
conditions,  government and regulatory policies, customer plans and commitments,
changes in the capital  markets  affecting the Company's  capital  structure and
cost  of  capital,  and  the  Company's  competitive  environment.  Readers  are
therefore   cautioned  not  to  place  undue  reliance  on  any  forward-looking
statement, which speaks only as of the date such statement is made.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company has not conducted transactions, established commitments, or
entered into relationships  requiring disclosure beyond those provided elsewhere
in this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

                                                                           Page
                                                                           ----
Financial Statements

   Report of Independent Accountants
   Consolidated Balance Sheets at December 26, 1998 and
     December 27, 1997
   Consolidated Statements of Income for the three years ended
     December 26, 1998
   Consolidated Statements of Stockholders' Equity for the three
     years ended December 26, 1998
   Consolidated Statements of Cash Flows for the three years ended
     December 26, 1998
   Notes to Consolidated Financial Statements

   Financial Statement Schedule

       Schedule II - Consolidated Valuation and Qualifying Accounts

All  other  schedules  are  omitted  as  the  required   information  is  either
immaterial,   inapplicable  or  is  presented  in  the  consolidated   financial
statements and related notes thereto.

Separate financial  statements and supplemental  schedules of the registrant are
omitted because there are no restricted net assets of subsidiaries as defined in
Rules 4-08 and 12-04 of Regulation S-X.



<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ---------------------------------

To the Board of Directors and Stockholders of Doughtie's Foods, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
Doughtie's  Foods,  Inc. and its  subsidiaries at December 26, 1998 and December
27, 1997,  and the results of their  operations and their cash flows for each of
the three fiscal years in the period ended December 26, 1998, in conformity with
generally accepted  accounting  principles.  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 of these  statements  in  accordance  with  generally  accepted  auditing
standards which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP

Virginia Beach, Virginia
February 10, 1999


<PAGE>



<TABLE>

DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------------------
<CAPTION>
                                                      December 26, December 27,
                                                         1998         1997
<S>                                                   <C>          <C>
               ASSETS

Current assets:
   Cash and cash equivalents                          $    16,706  $    26,929
   Accounts receivable, net                             7,651,940    8,566,995
   Inventories                                          4,625,780    4,669,291
   Deferred income taxes                                  175,179      372,220
   Prepaid expenses and other current assets              109,042       68,166
                                                      -----------  -----------

     Total current assets                              12,578,647   13,703,601
                                                      -----------  -----------

Property, plant and equipment - at cost:
   Land                                                   280,827      280,827
   Buildings                                            3,608,055    3,608,055
   Delivery equipment                                     251,980      169,195
   Plant and refrigeration equipment                    1,648,195    1,590,626
   Office equipment                                       505,698      491,078
                                                      -----------  -----------
                                                        6,294,755    6,139,781
   Less - accumulated depreciation                      3,762,874    3,513,216
                                                      -----------  -----------

                                                        2,531,881    2,626,565
                                                      -----------  -----------

Other assets                                              112,289      114,651
                                                      -----------  -----------
                                                      $15,222,817  $16,444,817
                                                      -----------  -----------
                                                      -----------  -----------

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt                  $   533,333  $   533,333
   Accounts payable                                     3,375,081    3,198,641
   Income taxes payable                                   468,061      891,657
   Accrued salaries, commissions and bonuses              259,873      182,965
   Other accrued liabilities                               49,518       63,948
                                                      -----------  -----------

     Total current liabilities                          4,685,866    4,870,544

Long-term debt - less current portion                     683,334    2,737,910
                                                      -----------  -----------

     Total liabilities                                  5,369,200    7,608,454
                                                      -----------  -----------

Stockholders' equity:
   Common stock - $1 par value; authorized 4,000,000 shares at December 26, 1998
     and 2,000,000 at December 27, 1997; issued and outstanding 1,495,023 shares
     at December 26, 1998 and December 27, 1997         1,495,023    1,495,023
   Additional paid-in capital                           2,807,037    2,807,037
   Retained earnings                                    5,551,557    4,534,303
                                                      -----------  -----------

     Total stockholders' equity                         9,853,617    8,836,363
                                                      -----------  -----------

                                                      $15,222,817  $16,444,817
                                                      -----------  -----------
                                                      -----------  -----------

Commitments (Note 8)

                See notes to consolidated financial statements.
</TABLE>
<PAGE>

<TABLE>

DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------------
<CAPTION>
                                         Year   ended   Year  ended  Year  ended
                                        December 26, December 27, December 28,
                                           1998          1997          1996
<S>                                     <C>           <C>           <C>
Net sales                               $ 87,194,488  $ 85,233,420  $ 80,632,688
Cost of sales                             73,043,280    71,133,101    67,481,372
                                        ------------  ------------  ------------

Gross profit                              14,151,208    14,100,319    13,151,316
                                        ------------  ------------  ------------

Selling, general and administrative
  expenses                                12,045,931    12,344,934    11,956,604
Interest expense                             162,087       241,696       468,652
                                        ------------  ------------  ------------

                                          12,208,018    12,586,630    12,425,256
                                        ------------  ------------  ------------

Income before income taxes                 1,943,190     1,513,689       726,060
Income tax expense (benefit)                 746,533       566,191      (201,760)
                                        ------------  ------------  ------------

Net income                              $  1,196,657  $    947,498  $    927,820
                                        ------------  ------------  ------------
                                        ------------  ------------  ------------


Earnings per share:
  Basic                                 $        .80  $        .63  $        .62
                                        ------------  ------------  ------------
                                        ------------  ------------  ------------

  Diluted                               $        .80  $        .63  $        .62
                                        ------------  ------------  ------------
                                        ------------  ------------  ------------


Weighted average shares
  outstanding - basic                      1,495,023     1,496,085     1,500,468

Dilutive effect of stock options               1,275             -             -
                                        ------------  ------------  ------------

Weighted average shares outstanding -
  including dilutive potential shares      1,496,298     1,496,085     1,500,468
                                        ------------  ------------  ------------
                                        ------------  ------------  ------------

                See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>

DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<CAPTION>
                                            Additional
                                 Common       Paid-in     Retained
                                  Stock       Capital     Earnings      Total

<S>                            <C>          <C>          <C>          <C>
Balances at December 30, 1995  $ 1,503,791  $ 2,820,629  $ 2,978,640  $ 7,303,060

Cash dividends ($.11 per share)          -            -     (160,072)    (160,072)

Net income for the year ended
 December 28, 1996                       -            -      927,820      927,820

Acquisition of treasury stock,
  at cost - 6,713 shares            (6,713)      (9,188)           -      (15,901)
                               -----------  -----------  -----------  -----------

Balances at December 28, 1996    1,497,078    2,811,441    3,746,388    8,054,907

Cash dividends ($.11 per share)          -            -     (159,583)    (159,583)

Net income for the year ended
  December 27, 1997                      -            -      947,498      947,498

Acquisition of treasury stock,
  at cost - 2,055 shares            (2,055)      (4,404)           -       (6,459)
                               -----------  -----------  -----------  -----------

Balances at December 27, 1997    1,495,023    2,807,037    4,534,303    8,836,363

Cash dividends ($.12 per share)          -            -     (179,403)    (179,403)

Net income for the year ended
 December 26, 1998                       -            -    1,196,657    1,196,657
                               -----------  -----------   ----------  -----------

Balances at December 26, 1998  $ 1,495,023  $ 2,807,037  $ 5,551,557  $ 9,853,617
                               -----------  -----------  -----------  -----------
                               -----------  -----------  -----------  -----------

                See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>

DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------
<CAPTION>

                                           Year ended   Year ended   Year ended
                                           December 26, December 27, December 28,
                                              1998         1997         1996
<S>                                        <C>          <C>          <C>
Cash flows from operating activities:
   Net income                              $ 1,196,657  $  947,498   $  927,820
   Adjustments to reconcile net income
    to net cash provided by operations:
     Depreciation                              309,097     274,686      469,445
     Deferred income taxes                     197,041      14,051     (242,863)
     Provision for doubtful accounts          (120,000)    674,000      206,413
     Loss (gain) on sale of property,
       plant and equipment                      (2,264)      5,932      (99,129)
   (Increase) decrease in assets:
     Accounts receivable                     1,035,055  (2,316,339)  (1,369,210)
     Inventories                                43,511    (171,592)     351,405
     Prepaid expenses and other current
       assets                                  (40,876)     22,876      155,637
     Other assets                                2,362     (23,094)     741,612
   Increase (decrease) in liabilities:
     Accounts payable                          176,440   1,567,527       84,007
     Income taxes payable                     (423,596)    444,882      446,775
     Accrued salaries, commissions and
       bonuses                                  76,908      42,348       63,911
     Accrued employee group insurance                -           -     (174,026)
     Other accrued liabilities                 (14,430)      3,408      (53,040)
                                           ----------- -----------  -----------

                                             2,435,905   1,486,183    1,508,757
                                           ----------- -----------  -----------

Cash flows from investing activities:
   Additions to property, plant and
     equipment                                (246,102)   (266,544)    (250,782)
   Proceeds from sale of property, plant
     and equipment                              33,953     927,735          700
                                           ----------- -----------  -----------

                                              (212,149)    661,191     (250,082)
                                           ----------- -----------  -----------

Cash flows from financing activities:
   Long-term borrowings                              -           -    2,150,000
   Reductions of long-term debt             (2,054,576) (2,327,090)  (3,373,334)
   Cash dividends                             (179,403)   (159,583)    (160,072)
   Acquisition of treasury stock                     -      (6,459)     (15,901)
                                           ----------- -----------  -----------

                                            (2,233,979) (2,493,132)  (1,399,307)
                                           ----------- -----------  -----------

Net decrease in cash and cash equivalents      (10,223)   (345,758)    (140,632)
Cash and cash equivalents at beginning
  of year                                       26,929     372,687      513,319
                                           ----------- -----------  -----------

Cash and cash equivalents at end of year   $    16,706 $    26,929  $   372,687
                                           ----------- -----------  -----------
                                           ----------- -----------  -----------

                See notes to consolidated financial statements.
</TABLE>
<PAGE>

DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

Note 1 - Summary of Significant Accounting Policies

Principles of consolidation - The consolidated  financial statements include the
accounts of Doughtie's Foods, Inc. (the Company) and its wholly-owned subsidiary
in 1998 and 1997 (and its majority-owned and wholly-owned subsidiaries in 1996).
All material  intercompany  accounts and  transactions  have been  eliminated in
consolidation.  The consolidated group operates in one segment and is engaged in
the  processing,  manufacturing  (1997 and 1996 only) and wholesaling of a broad
line of meat products and other food items.

Use of estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Cash  equivalents - The Company  considers  all highly  liquid debt  instruments
purchased  with  an  original  maturity  of  three  months  or  less  to be cash
equivalents.

Allowance  for  doubtful  accounts - The Company and its  subsidiaries  maintain
allowances  for  doubtful  accounts  based  on  an  analysis  of  previous  loss
experience and current conditions.

Inventories - Inventories,  consisting principally of raw materials and finished
food  products,  are stated at the lower of last-in,  first-out  (LIFO) cost, or
market value.

Property,  plant and  equipment - Property,  plant and  equipment  are stated at
cost.  Accelerated  methods are used to provide for  depreciation  on all assets
other than buildings. The straight-line method is used for buildings.

The estimated useful asset lives used in computing depreciation are as follows:

            Buildings                                      8 to 40 years
            Delivery equipment                             3 to 7 years
            Plant and refrigeration equipment              3 to 7 years
            Office equipment                               3 to 7 years
            Leasehold improvements                         1 to 7 years

The cost and accumulated  depreciation  applicable to assets retired or sold are
removed from the respective accounts,  and gains and losses thereon are included
in income.

Accounts  payable - At December 26, 1998 and  December  27, 1997,  approximately
$1,247,000 and $1,414,000,  respectively,  of outstanding checks are included in
accounts payable.

Fair  value  of  financial   instruments  -  The  carrying  value  of  financial
instruments  including  cash  and cash  equivalents,  net  accounts  receivable,
accounts payable, accrued liabilities and long-term debt approximated fair value
at December 26, 1998 and December 27, 1997.

Income taxes - The Company files a consolidated federal income tax return. Prior
to the  acquisition  of the minority  interest  during 1996,  one subsidiary was
required to file a separate return.

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards No. 109 (FAS 109),  "Accounting  for Income  Taxes," which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities and their  respective tax bases. The provision for income
taxes is based on taxes currently payable and the changes in deferred tax assets
and liabilities.

Earnings per share - Earnings per share (EPS) are based on the weighted  average
number of  shares  outstanding.  The  Company  adopted  Statement  of  Financial
Accounting  Standards No. 128 (FAS 128),  "Earnings per Share" during 1997.  The
statement  replaces  the  presentation  of primary and fully  diluted EPS with a
presentation  of basic and diluted EPS. For the Company,  there is no difference
between the calculation of basic and primary EPS. The Company had no potentially
dilutive  securities  at December 27, 1997 or December 28, 1996. At December 26,
1998,  diluted  earnings per share  includes  the  dilutive  effect of the stock
options issued in 1998.

Stock split - On November 25, 1997, the Board of Directors  declared a 50% stock
split  payable on January 12, 1998,  to  stockholders  of record on December 12,
1997.  All  references in the  consolidated  financial  statements  referring to
shares, share prices and per share amounts have been adjusted  retroactively for
the 50% stock split.

Concentrations  of credit risk and significant  customers - One of the Company's
commercial  customers represents 12.5% and 13.1% of trade accounts receivable at
December 26, 1998 and December 27,  1997,  respectively.  During 1998,  1997 and
1996,  the Company had sales under a contract with the United States  Department
of Defense which aggregated approximately 13.2%, 15.8% and 11.5%,  respectively,
of net sales. This contract expires in February 2000.

New accounting standard - In June 1998, the Financial Accounting Standards Board
issued  FAS  No.  133,  ACCOUNTING  FOR  DERIIVATIVE   INSTRUMENTS  AND  HEDGING
ACTIVITIES.  This statement  establishes  accounting and reporting standards for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts, and for hedging activities.  The Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. This Statement is
not  currently  applicable  to the Company,  since the Company does not have any
derivative instruments and is not involved in hedging activities.

Reclassifications - Certain prior year amounts have been reclassified to conform
with the current year presentation.

Note 2 - Accounts Receivable

Accounts receivable are net of allowances for doubtful accounts as follows:

                                     December 26,   December 27,
                                        1998           1997

Trade accounts receivable            $8,011,565      $9,195,367
Allowances for doubtful accounts       (359,625)       (628,372)
                                     ----------      ----------
                                     $7,651,940      $8,566,995
                                     ----------      ----------
                                     ----------      ----------

Earnings for the year and the quarter ended December 26, 1998 include a $180,000
increase  to income  after  income  taxes or $.12 per basic  and  diluted  share
related to improved  customer  credit quality during the fourth quarter of 1998,
including collection of certain accounts previously considered doubtful.

Note 3 - Inventories

Inventories used in determining cost of sales are as follows:

                                                          Raw       Finished
                                             Total     materials    products

December 30, 1995                          $4,849,104  $1,163,240   $3,685,864
December 28, 1996                          $4,497,699  $  549,161   $3,948,538
December 27, 1997                          $4,669,291           -   $4,669,291
December 26, 1998                          $4,625,780           -   $4,625,780



The differences between first-in, first-out (FIFO) and LIFO inventory values are
as follows:

                      December 26, December 27, December 28, December 30,
                         1998         1997         1996         1995

FIFO cost             $5,342,882   $5,419,163   $5,517,080   $5,680,063
LIFO reserves           (717,102)    (749,872)  (1,019,381)    (830,959)
                      -----------  ----------   ----------   ----------

LIFO cost             $4,625,780   $4,669,291   $4,497,699   $4,849,104
                      ----------   ----------   ----------   ----------
                      ----------   ----------   ----------   ----------

The $32,770  change in LIFO reserves in 1998  increased net income and basic and
diluted earnings per share by approximately $20,200 and $.01, respectively.  The
$269,509  change in LIFO  reserves  in 1997  increased  net income and basic and
diluted earnings per share by approximately $166,000 and $.11, respectively. The
$188,422  change in LIFO  reserves  in 1996  decreased  net income and basic and
diluted earnings per share by approximately $121,000 and $.08, respectively.

Note 4 - Long-term Debt

Long-term debt consists of the following:

                                                       December 26, December 27,
                                                          1998         1997

Long-term revolving bank note                          $        -   $1,521,243
Bank term loan                                            750,000    1,150,000
Industrial Revenue Bond                                   466,667      600,000
                                                       ----------   ----------

                                                        1,216,667    3,271,243
Less - current portion                                    533,333      533,333
                                                       ----------   ----------

Long-term debt - less current portion                  $  683,334   $2,737,910
                                                       ----------   ----------
                                                       ----------   ----------

Principal payments are due as follows:  1999 -  $533,333, 2000 - $483,333, and
2001 - $200,001.

The Company has a $7,500,000  revolving bank note at LIBOR plus 1.50%. The LIBOR
rate at  December  26,  1998 was 5.63%.  The note is due three  years  after the
annual renewal date,  currently July 2001, subject to annual renewal. The amount
available  under this line is limited to the sum of 85% of  qualifying  accounts
and notes  receivable  and 20% of qualifying  inventory on hand. The Company had
$6,400,000 of borrowing  capacity  available on this credit line at December 26,
1998.

The  Company  has a bank term loan at LIBOR plus  1.50%.  The loan is payable in
quarterly installments of $100,000 plus interest through January 1, 2001.

The Company has a $2,000,000 Industrial Revenue Bond from a bank for the purpose
of expanding its plant and office  facilities  in  Portsmouth,  Virginia,  at an
interest rate of 91.5% of prime. The prime rate at December 26, 1998, was 7.75%.
The bond is payable in monthly  installments  of $11,111 plus  interest  through
July 1, 2001 with a final  payment  of the  outstanding  balance  due on July 1,
2001.

Cash paid for interest totaled  $162,087,  $241,696,  and $468,652 in 1998, 1997
and 1996, respectively.

Each of the three loans is  collateralized by all accounts and notes receivable,
inventories,   contract  rights  and  property,   plant  and  equipment  of  the
consolidated  group.  These  loan  agreements  contain   restrictive   covenants
including a minimum  amount of tangible  net worth,  a minimum  working  capital
ratio, and a maximum debt to equity ratio. All requirements were met for 1998.

Note 5 - Retirement Plans

The Company has a retirement savings and 401(k) plan which covers  substantially
all  full-time  employees  except  those  covered  by  a  collective  bargaining
agreement.  The  Company  makes  contributions  to the plan  based on 50% of the
participants'  contributions,  which  can  range  from 1% to 6% of  their  total
compensation.  In addition to the matched  contribution,  participants  may make
additional  unmatched  contributions  of up to 9%  of  their  compensation.  The
Company may also make discretionary  contributions to the plan. Contributions to
the  retirement  savings and 401(k) plan for 1998,  1997 and 1996 were  $75,765,
$79,955 and $91,517, respectively.

Note 6 - Income Taxes

The  provision  for income  taxes is based on taxes  currently  payable  and the
changes in deferred tax assets and liabilities.

The components of income tax expense (benefit) are as follows:

                                 1998         1997         1996

Current federal               $ 498,949    $ 459,623    $  52,109
Current state                    50,543       92,517      (11,006)
Deferred federal                163,591        2,386     (201,635)
Deferred state                   33,450       11,665      (41,228)
                              ---------    ---------    ---------

                              $ 746,533    $ 566,191    $(201,760)
                              ---------    ---------    ---------
                              ---------    ---------    ---------

The effective income tax rates vary from the statutory U.S. federal income tax
rate as follows:
<TABLE>
<CAPTION>
                               1998               1997                1996
                         ----------------   ----------------   -----------------
                                  Percent            Percent             Percent
                                   of                 of                   of
                         Dollar   pretax    Dollar   pretax    Dollar     pretax
                         amount   income    amount   income    amount     income
                         ------   ------    ------   ------    ------    -------
<S>                     <C>        <C>     <C>        <C>    <C>           <C>
Federal income taxes
  computed at statutory
  rates                 $660,685   34.0%   $514,654   34.0%  $ 246,860     34.0%

State income taxes, net
  of federal income tax
  benefit                 60,444    3.1      64,937    4.3      31,148      4.3

Fuel tax credit          (15,278)  (0.8)    (15,278)  (1.0)    (15,278)    (2.1)

Nondeductible merger
  expenses                25,996    1.3           -      -           -        -

Recognition of
  subsidiary operating
  loss                         -      -           -      -    (467,954)   (64.5)

Other                     14,686    0.8       1,878    0.1       3,464      0.5
                        --------   -----   --------   -----  ----------  --------
                        $746,533   38.4%   $566,191   37.4%  $(201,760)   (27.8)%
                        --------   -----   --------   -----  ----------  --------
                        --------   -----   --------   -----  ----------  --------
</TABLE>
Significant  components of the Company's deferred tax assets and liabilities are
as follows:

                                              December 26, December 27,
                                                  1998        1997

Simplified LIFO differences                    $  54,916    $ 57,425
Capitalized inventory cost                        25,836      24,687
Allowances for doubtful accounts                 137,700     240,604
Net operating loss of subsidiary                       -      94,996
                                               ---------    --------

Gross deferred tax asset                         218,452     417,712
Involuntary conversion                           (43,273)    (45,492)
                                               ---------    --------

Net deferred tax asset                         $ 175,179    $372,220
                                               ---------    --------
                                               ---------    --------

Cash paid (refunded) for income taxes totaled  $973,088,  $73,037 and $(185,033)
in 1998, 1997 and 1996, respectively.

Note 7 - Stock Incentive Plan

In 1998, the Company  adopted a Stock Incentive Plan. The Company has elected to
follow Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) in accounting for its employee stock options. In electing
to account  for its stock  options  under APB 25, the Company is required by FAS
No. 123,  "Accounting  for  Stock-Based  Compensation,"  to  disclose  pro forma
information  regarding  net income and  earnings per share as if the Company had
adopted FAS No. 123.

Under the Company's Stock Incentive Plan,  selected employees of the Company and
certain  directors may be granted options to purchase common stock. The exercise
price of the options  may not be less than 100% of the fair market  value of the
Company's  common  stock on the date of grant of such  options,  and the options
must be exercised  within ten years. A maximum of 112,500 shares of common stock
may be granted under this plan.  The options vest  immediately  upon a change of
ownership (Note 10) or one-half at the grant date and the remaining balance over
a two year period.

During 1998, the Company  issued 40,500  options to certain  employees and 1,600
options to certain  directors at a weighted average exercise price of $6.54. The
range of exercise  prices for options  issued during 1998 was $6.50 - $7.50.  At
December 26, 1998, all options were  outstanding  and 21,050 of the options were
vested at a weighted-average exercise price of $6.54.

The fair value of each stock option  granted in fiscal 1998 was estimated  using
the Black-Scholes  option model with the following weighted average assumptions:
dividend  yield of  1.83%,  expected  volatility  of  53.83%,  weighted  average
risk-free interest rate of 4.30% and an expected life of one and one half years.
The weighted  average fair value of options granted in fiscal 1998 is $1.73. Had
compensation  cost for the Company's stock options been determined  based on the
fair value at the grant dates for awards  consistent  with the  requirements  of
SFAS No. 123, the Company's pro forma net income would have decreased by $34,000
or $.02 per basic and diluted  share for the year ended  December 26,  1998.  No
options were granted in prior years.

Note 8 - Operating Leases

In January 1996, the Company  entered into a seven-year  full service  operating
lease covering  thirty-six  new trucks and ten new trailers.  The lease provides
for increases in rentals based on increases in the Consumer Price Index.

Minimum annual rentals under the aforementioned lease are set forth in the table
below.  These minimum rental commitments do not include contingent rentals which
are based on usage.

                                     Trucks
                                       and
                                    Trailers

           1999                    $  527,724
           2000                       527,724
           2001                       527,724
           2002                       527,724
           2003                       263,862
                                   ----------
                                   $2,374,758
                                   ----------
                                   ----------

Total rent expense  charged to consolidated  operations in 1998,  1997, and 1996
was $1,251,975, $1,182,909 and $1,043,642, respectively. Rental expense in 1998,
1997 and 1996 included  contingent rentals of approximately  $437,489,  $380,681
and $396,191, respectively.

Note 9 - Sale of Assets

On August 28, 1996, the Company merged its Dutterer's of Manchester  Corporation
subsidiary  into TWB  Gourmet  Foods,  Inc. in order to  streamline  operations.
Simultaneously,  the Company acquired the remaining 30% interest in TWB from the
minority stockholder.

On September 6, 1996,  the Company sold certain  assets of TWB and  discontinued
manufacturing  of the associated  gourmet food  products.  The terms of the sale
were a $30,000 cash down  payment,  $20,000  assigned  accounts  receivable  and
$137,000 of free trade credit from the buyer for a total sale price of $187,000.
No gain or loss was recognized as a result of this sales transaction.

On  February  28,  1997,  the  Company  sold  the  assets  of its  manufacturing
division's  barbecue  and chili  business  for  approximately  $840,000 in cash.
Barbecue and chili sales accounted for less than 5% of  consolidated  1996 sales
volume. The net pretax gain on the sale was approximately $50,000.

On April 14, 1997, the Company sold the assets of its  manufacturing  division's
deli meats  business for  approximately  $486,000.  The terms of the sale were a
$286,000  cash down  payment  with the  $200,000  balance in the form of secured
notes to be paid prior to April 15,  1998.  Deli meat sales  accounted  for less
than 5% of consolidated  1996 sales volume.  The net pretax gain on the sale was
approximately $140,000.

Note 10 - Subsequent Event

On February 8, 1999, the Company and SYSCO  Corporation  (SYSCO) signed a Letter
of Intent whereby a subsidiary of SYSCO and the Company will merge (the Merger).
Under the Letter of Intent,  the stockholders of the Company will receive $17.00
per share in cash or shares of SYSCO common stock  subject to  adjustment  under
certain  circumstances.  In addition,  all options outstanding will become fully
vested and  exercisable  and shall be deemed  exercised as of the closing of the
Merger. Consummation of the Merger is subject
to,  among other  things,  negotiation  of a  definitive  Merger  Agreement  and
approval by the Company's stockholders.

Note 11 - Quarterly Financial Data (Unaudited)

The following is a summary of the results of operations by quarters:

                                                                      Basic and
                                                                        Diluted
                                               Gross         Net       Earnings
   Quarter                      Net Sales      Profit      Income     Per Share

1998
   First                       $19,308,576  $ 3,250,598  $  180,711   $    .12
   Second                       22,987,483    3,638,347     252,685        .17
   Third                        23,596,821    3,657,243     271,994        .18
   Fourth                       21,301,608    3,605,020     491,267        .33
                               -----------  -----------  ----------   --------
                               $87,194,488  $14,151,208  $1,196,657   $    .80
                               -----------  -----------  ----------   --------
                               -----------  -----------  ----------   --------

1997
   First                       $18,692,236  $ 3,182,477  $  143,543   $    .09
   Second                       21,683,108    3,587,253     341,622        .23
   Third                        24,172,942    3,720,523     329,462        .22
   Fourth                       20,685,134    3,610,066     132,871        .09
                               -----------  -----------  ----------   --------
                               $85,233,420  $14,100,319  $  947,498   $    .63
                               -----------  -----------  ----------    -------
                               -----------  -----------  ----------    -------

Unusual items affecting 1998 and 1997 net income in the above quarterly data are
discussed in Notes 2 and 9.

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------------------------------

     None.


PART III.
---------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

Directors
---------

         VERNON W. MULES is Chairman of the Board of the  Company.  He served as
the  Company's  Chief  Executive  Officer  between May 1986 and May 1994. He has
served as Chairman of the Board of  Directors  since  February  1982.  Mr. Mules
served as President of the Company from May 1973 until May 1986.  He is a member
of the Executive Committee of the Company's Board of Directors.

         STEVEN C. HOUFEK has been  President  of the Company  since August 1992
and has served as the Company's Chief Executive Officer since May 1994. From May
1987 until August 1992,  he served as Executive  Vice  President of the Company.
Between  November  1977 and May 1987,  Mr.  Houfek served the Company in various
management  capacities,  including Senior Vice President.  He is a member of the
Executive Committee of the Company's Board of Directors.

         MARION S. WHITFIELD,  JR. has been Senior Vice President of the Company
since May 1987.  He served as Vice  President of the Company from May 1983 until
May 1987.  He is a member of the Executive  Committee of the Company's  Board of
Directors.

         ADOLPHUS W. HAWKINS,  JR., an international  business  consultant,  was
Vice President of Scott & Stringfellow, Inc., an investment banking firm located
in  Richmond,  Virginia,  from July 1979 to August  1983.  He is a member of the
Compensation  Committee  and the  Audit  Committee  of the  Company's  Board  of
Directors and has been a Director of the Company since 1972.

         DONALD B. RATCLIFFE,  an architect,  has owned his own firm,  Donald B.
Ratcliffe, AIA, Associates, Inc., located in Baltimore, Maryland, since 1954. He
is a member of the Executive Committee, the Compensation Committee and the Audit
Committee of the Company's Board of Directors.

         JAMES  F.  CERZA,  JR.  has  served  as  Executive  Vice  President  of
Heilig-Meyers  Company, a Richmond,  Virginia-based  furniture  retailer,  since
August  1989.  From  November  1988 to August 1989,  he served as Regional  Vice
President,  Operations for the same company.  He is a member of the Compensation
Committee and the Audit Committee of the Company's Board of Directors.

         WILLIAM  R.  WADDELL  has been a  partner  in the law firm of  McGuire,
Woods,  Battle & Boothe,  L.L.P.,  since 1969 and Managing Partner of the firm's
office in  Norfolk,  Virginia,  since 1995.  He is a member of the  Compensation
Committee and the Audit Committee of the Company's Board of Directors.

Executive Officers
------------------
     With respect to information  concerning the Company's  executive  officers,
see PART I, ITEM 1, BUSINESS: Executive Officers.

Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  directors,  executive  officers,  and  persons  who own more than ten
percent of the Company's  Common Stock, to file with the Securities and Exchange
Commission  initial  reports of ownership and reports of changes in ownership of
the Company's  Common Stock and to provide copies of the reports to the Company.
Each of Thomas G. Brown, Robert F. Horton, Steven C. Houfek,  Michael S. LaRock,
William E. Moody, Jr., Jerry D. Nixon, William G. Ratliff,  Marion S. Whitfield,
Jr., James F. Cerza,  Jr.,  Adolphus W. Hawkins,  Jr., Donald B. Ratcliffe,  and
William R. Waddell, directors and/or officers of the Company, were granted stock
options under the 1998 Stock  Incentive Plan in the fiscal year ending  December
26,  1998,  which were not timely  reported on Form 3 or Form 4, as  applicable,
pursuant to the requirements of Section 16(a). Except as set forth above, to the
Company's  knowledge,  based  solely on a review of the  copies of such  reports
furnished to the Company and written  representations that no other reports were
required  to be filed  during  the fiscal  year ended  December  26,  1998,  the
Company's directors,  executive officers,  and stockholders  beneficially owning
more  than ten  percent  of the  Company's  Common  Stock  complied  with  their
respective Section 16(a) reporting requirements.


ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

   Summary Compensation Table

         The following summary compensation table presents information about the
compensation  paid by the Company  during its three most recent  fiscal years to
those individuals who were, as of the end of the last completed fiscal year, the
Company's  Chief  Executive  Officer and its four next  highest  paid  executive
officers.

<TABLE>
<CAPTION>


                                                              LONG-TERM
                                ANNUAL COMPENSATION(1)        COMPENSATION
                                --------------------------    ------------
                                                     Other                   All
                                                    Annual                   Other
NAME AND                                            Compen-   Securities     Compen-
PRINCIPAL                                           sation    Underlying     sation
POSITION                   Year   Salary($) Bonus($) ($)(3)   Options (#)(4) ($)(2)
-----------------------------------------------------------   ------------   --------
<S>                        <C>    <C>       <C>      <C>      <C>            <C>
Steven C. Houfek           1998   140,041   29,000   5,448    15,000         4,624
  President and Chief      1997   130,489   25,000   5,045       -0-         4,666
  Executive Officer        1996   125,597   20,000   4,583       -0-         3,914

Vernon W. Mules            1998   152,573   15,000     -0-       -0-         4,577
  Chairman of              1997   152,573      -0-     -0-       -0-         4,577
  the Board                1996   152,573      -0-     -0-       -0-         4,577

Marion S. Whitfield, Jr.   1998   112,523   20,000   2,173     3,000         3,891
  Senior Vice President    1997   107,175   15,000   2,069       -0-         3,637
                           1996   102,339   12,000   1,973       -0-         3,129

Thomas G. Brown            1998    86,289   17,000     -0-     3,000         3,009
 Vice President --         1997    79,764   14,000   1,623       -0-         2,802
  Purchasing               1996    70,822   12,000   3,053       -0-         2,396

Robert F. Horton           1998    84,114   19,000     -0-     7,500         2,883
  Vice President --        1997    67,270   12,000     -0-       -0-         2,168
  Business Development     1996    54,635    5,000     -0-       -0-         1,639

</TABLE>
(1)      While the five named individuals received perquisites or other personal
         benefits in the years shown, in accordance with Securities and Exchange
         Commission  regulations,  the value of these benefits are not indicated
         since  they  did  not  exceed  the  lesser  of  $50,000  or  10% of the
         individual's salary and bonus in any year.

(2)      The  amounts  shown in the column  captioned  "All Other  Compensation"
         consist entirely of the Company's matching  contributions to the 401(k)
         Plan for the benefit of the named  executive.  The 401(k)  Plan,  which
         became  effective as of July 1, 1992,  covers  virtually  all full-time
         employees  except those covered by a collective  bargaining  agreement.
         The  Company  makes  contributions  to  the  plan  based  on 50% of the
         participants'  contributions,  which can  range  from 1% to 6% of total
         compensation.   Participating   employees   may  also  make   unmatched
         contributions to the 401(k) Plan up to 15% of total compensation.

(3)      The amounts shown in the column captioned  "Other Annual  Compensation"
         consist entirely of amounts paid in lieu of accrued vacation.

(4)      The  amounts  shown  in the  column  captioned  "Securities  Underlying
         Options"  represent  the number of options for Common Stock  granted on
         January 9, 1998,  subject to shareholder  approval,  which approval was
         obtained  at the  annual  meeting  of  shareholders  on May  21,  1998,
         pursuant to the terms of the 1998 Stock Incentive Plan. One-half of the
         options granted to each officer were exercisable on September 22, 1998,
         one-quarter of such options were exercisable after January 9, 1999, and
         one-quarter  of such  options are  exercisable  after  January 9, 2000.
         However, all options shall vest and become immediately exercisable upon
         a change in control of the Company.

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                          INDIVIDUAL GRANTS(1)                POTENTIAL REALIZABLE VALUE
                               -------------------------------------------    AT ASSUMED ANNUAL RATES OF
                                                       % OF TOTAL OPTIONS      STOCK PRICE APPRECIATION
                               NUMBER OF SECURITIES        GRANTED TO              FOR OPTION TERM (3)
                                UNDERLYING OPTIONS     EMPLOYEES IN FISCAL    --------------------------
NAME                              GRANTED (#)(2)              YEAR              5%($)          10%($)
----                           --------------------    -------------------    ----------    ------------
<S>                            <C>                     <C>                    <C>           <C>
Steven C. Houfek                      15,000                 37.0%              390,000         877,500
Vernon W. Mules                          -0-                  0.0%                  -0-             -0-
Marion S. Whitfield, Jr.               3,000                  7.4%               78,000         175,000
Thomas G. Brown                        3,000                  7.4%               78,000         175,000
Robert F. Horton                       7,500                 18.5%              195,000         438,750

</TABLE>

(1) All options  granted  expire  January 9, 2008 and are  exercisable at a base
price of $6.50.

(2) The  options  are  exercisable  with  respect  to the  underlying  shares as
follows:  50 percent on September 22, 1998; 25 percent after January 9, 1999 and
the remaining 25 percent after January 9, 2000.

(3) The potential  realizable value is calculated based on the fair market value
on the  date of  grant,  which is equal  to the  exercise  price of the  option,
assuming  that the  shares  appreciate  in  value  from the  option  grant  date
compounded  annually  until the end of the option term at the rate specified (5%
or 10%) and that the option is exercised  and sold on the last day of the option
term for the appreciated share price.  Potential  realizable value is net of the
option  exercise price.  The assumed rates of appreciation  are specified in the
rules and regulations of the SEC and do not represent the Company's  estimate or
projection of future prices of the shares.

<TABLE>
<CAPTION>

          AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

                                                              NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                                                             UNDERLYING UNEXERCISED       IN-THE-MONEY OPTIONS
                                 SHARES                      OPTIONS AT 12/26/98            AT 12/26/98 ($)(1)
                              ACQUIRED ON       VALUE       --------------------------  --------------------------
            NAME              EXERCISE (#)   REALIZED ($)   EXERCISABLE  UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE
            ----              ------------   ------------   -----------  -------------  -----------  -------------
<S>                           <C>            <C>            <C>          <C>            <C>          <C>
Steven C. Houfek                -0-              -0-              7,500          7,500        2,348          2,348
Vernon W. Mules                 -0-              -0-                -0-            -0-          -0-            -0-
Marion S. Whitfield, Jr.        -0-              -0-              1,500          1,500          470            470
Thomas G. Brown                 -0-              -0-              1,500          1,500          470            470
Robert F. Horton                -0-              -0-              3,750          3,750        1,174          1,174

</TABLE>

(1) Value  based on the  closing  price of a share of Common  Stock of $6.813 on
December 24, 1998, as reported on the Nasdaq SmallCap Market, minus the exercise
price, rounded to the nearest dollar.


Directors' Compensation

         Directors who are not officers of the Company are paid an annual salary
of $4,000, plus a fee of $500 per meeting attended, as well as reimbursement for
travel and lodging expenses incurred in connection with such attendance. Each of
the non-employee  directors was awarded 400 nonstatutory stock options under the
terms  of the  1998  Plan on May  21,  1998,  with  one-third  of  such  options
exercisable on May 22, 1998,  one-third of such options  exercisable on the date
of the second annual  meeting after May 21, 1998,  and one-third  exercisable on
the date of the third annual  meeting after May 21, 1998.  However,  all options
shall vest and become  immediately  exercisable  upon a change in control of the
Company.

Compensation Committee Interlocks and Insider Participation

         Mr.  Waddell,  a director  since 1996 and a member of the  Compensation
Committee,  is a partner  in the law firm of  McGuire,  Woods,  Battle & Boothe,
L.L.P.,  which has  served as counsel to the  Company on a regular  basis  since
1974.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT
-------------------------------------------------------------

                  VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS

         The following table sets forth  information as of March 19, 1999, as to
shares of Common  Stock  owned by (i) each  director of the  Company,  (ii) each
executive officer named in the Summary  Compensation  Table, (iii) all Directors
and officers as a group, and (iv) each person who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, together with
their respective percentages.

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------
                                     COMMON STOCK OF THE
                                     COMPANY BENEFICIALLY
                                      OWNED, DIRECTLY OR                          PERCENT
                                       INDIRECTLY, AS OF                            OF
       NAME                            MARCH 19, 1999(1)                           CLASS
-------------------------------------------------------------------------------------------
<S>                                       <C>                                     <C>
Vernon W. Mules                           134,889  (2)                             9.02
Steven C. Houfek                          706,314  (3)                            46.89
Marion S. Whitfield, Jr.                    6,450  (9)                                *
Adolphus W. Hawkins, Jr.                    1,448  (9)                                *
Donald B. Ratcliffe                           133  (9)                                *
James F. Cerza, Jr.                           766  (4), (9)                           *
William R. Waddell                          1,579  (9)                                *
Thomas G. Brown                             2,250  (9)                                *
Robert F. Horton                           12,979  (9)                                *

All officers and directors
  as a group (13 persons)                 866,976  (2), (3), (4), (9)             57.55

Voting Trust u/a
  dated June 17, 1986, as
  extended                                672,021  (5)                            44.95
Mary D. Houfek                            702,129  (6), (7)                       46.60
Elsie D. Waddell                          747,743  (6), (8)                       50.00
Barbara D. Horton                         675,870  (6), (10)                      45.21
Performance Food Group Company            110,750  (11)                            7.41

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

</TABLE>
         * Less than 1% of outstanding shares of Common Stock.

(1)      Unless otherwise indicated by footnote, each individual has sole voting
         power and sole  investment  power with  respect to the shares set forth
         opposite his name.

(2)      Includes  1,731 shares owned of record by Mr. Mules' wife,  the control
         of which shares Mr. Mules  disclaims.  Mr. Mules'  business  address is
         Doughtie's Foods, Inc., 2700 Lord Baltimore Drive, Baltimore, Maryland
         21244.

(3)      Includes 690,879 shares beneficially held by Mr. Houfek's wife, Mary D.
         Houfek, the control of which shares Mr. Houfek disclaims.  Ms. Houfek's
         beneficial  holdings  are set forth in the table and Notes 6 and 7. Mr.
         Houfek's  business  address is  Doughtie's  Foods,  Inc.,  2410  Wesley
         Street, Portsmouth, Virginia 23707.

(4)      Includes 633 shares owned of record by Mr. Cerza's wife, the control of
         which Mr. Cerza disclaims.

(5)      The shares are owned of record by Mary D. Houfek, Barbara D. Horton and
         Elsie D. Waddell as trustees of the trust (the "Voting  Trust"),  which
         was  created  under a voting  trust  agreement  among Ms.  Houfek,  Ms.
         Horton,  Ms.  Waddell,  and Mary H. Doughtie  dated June 17, 1986.  Ms.
         Houfek,  Ms. Horton and Ms. Waddell share voting and  investment  power
         with respect to these shares.  On February 23, 1995, the parties to the
         voting  trust  agreement  agreed to extend the term of the Voting Trust
         until  December  31,  2004.  The  Voting  Trust's  address is 103 South
         Dogwood Road, Virginia Beach, Virginia 23451.

(6)      Includes 672,021 shares held by Ms. Houfek,  Ms. Horton and Ms. Waddell
         as trustees of the Voting Trust. See Note 5 above.

(7)      Includes  14,673  shares held by Ms. Houfek as custodian for certain of
         her children and 15,435  shares and  exercisable  options  owned by Ms.
         Houfek's husband, the control of which shares Ms. Houfek disclaims. Ms.
         Houfek's  address is 103 South Dogwood Road,  Virginia Beach,  Virginia
         23451.  Ms.  Houfek  is the wife of  Steven C.  Houfek,  President  and
         director of the Company.

(8)      Ms. Waddell's address is 2777 Broad Bay Road, Virginia Beach,  Virginia
         23451.

(9)      Includes  shares  pursuant  to  options  exercisable  within 60 days as
         follows: Mr. Houfek--11,250; Mr. Whitfield--2,250; Mr.Hawkins--133; Mr.
         Ratcliffe--133; Mr. Cerza--133; Mr. Waddell, 133; Mr. Brown--2,250; and
         Mr. Horton--5,625.

(10)     Includes  3,849 shares  owned of record by Ms.  Horton's  husband,  the
         control of which Ms. Horton  disclaims.  Ms.  Horton's  address is 5200
         Lake Circle Drive, Portsmouth, Virginia 23703.

(11)     Performance Food Group Company's  address is 6800 Paragon Place,  Suite
         500,  Richmond,  Virginia  23230.  Information is based on Schedule 13D
         filed with the SEC on June 16, 1998.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

         Mr.  Waddell,  a director  since 1996,  is a partner in the law firm of
McGuire,  Woods,  Battle & Boothe,  L.L.P.,  which has  served as counsel to the
Company on a regular basis since 1974.


PART IV.
--------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K
-----------------------------------------------------------------

      (a)(1)
      Financial Statements (Included in Part II):
      -------------------------------------------

      See Item 8 in Part II.


      (a)(2)
      Financial Statement Schedules (Included in Part IV):
      ----------------------------------------------------

      See Item 8 in Part II


      (a)(3)
      List of Exhibits:
      -----------------

Exhibit
Number    Description
------    -----------
2(a)(1).  Articles of Merger (with attached Plan of Merger)  Merging  Dutterer's
          of Manchester  Corporation  (a Maryland  corporation)  and TWB Gourmet
          Foods,  Inc. (a Virginia  corporation),  filed with the Virginia State
          Corporation  Commission on August 28, 1996  (incorporated by reference
          to Exhibit 2(a)(1) to the Company's Annual Report on Form 10-K for the
          year ended December 28, 1996).

2(a)(2).  Articles of Merger Merging  Dutterer's of Manchester  Corporation Into
          TWB Gourmet Foods,  Inc.,  filed with the Maryland State Department of
          Assessments and Taxation on August 27, 1996 (incorporated by reference
          to Exhibit 2(a)(2) to the Company's Annual Report on Form 10-K for the
          year ended December 28, 1996).

3(a).     Articles of Incorporation of the Company (incorporated by reference to
          Exhibit 3(a) to the  Company's  Quarterly  Report on Form 10-Q for the
          quarter ended June 27, 1998).

3(b).     Bylaws of the Company  (incorporated  by  reference to Exhibit 3(b) to
          the Company's  Annual Report on Form 10-K for the year ended  December
          30, 1995).

4(a)(1).  Amended  and  Restated  Credit  Agreement  dated as of June 14,  1996,
          between  the  Company  and  Crestar  Bank  relating  to  a  $7,500,000
          revolving credit  commitment and a $1,750,000 term loan  (incorporated
          by reference to Exhibit  4(a)to the  Company's  Annual  Report on Form
          10-K for the year ended December 28, 1996).

4(a)(2).  First Amendment to Amended and Restated  Credit  Agreement dated as of
          September 30, 1996 between the Company and Crestar Bank  (incorporated
          by reference to Exhibit 4(a)(2) to the Company's Annual Report on Form
          10-K for the year ended December 27, 1997).

4(a)(3).  Second  Amendment to Amended and Restated Credit Agreement dated as of
          July 1, 1997  between the Company and Crestar  Bank  (incorporated  by
          reference to Exhibit  4(a)(3) to the  Company's  Annual Report on Form
          10-K for the year ended December 27, 1997).

4(b)(1).  Commercial  Note dated June 14, 1996,  made by the Company in favor of
          Crestar Bank in the principal  amount of $7,500,000  (incorporated  by
          reference to Exhibit  4(b)(1) to the  Company's  Annual Report on Form
          10-K for the year ended December 28, 1996).

4(b)(2).  Commercial  Note dated June 14, 1996,  made by the Company in favor of
          Crestar Bank in the principal  amount of $1,750,000  (incorporated  by
          reference to Exhibit  4(b)(2) to the  Company's  Annual Report on Form
          10-K for the year ended December 28, 1996).

9.        Voting Trust  Agreement  Dated June 17, 1986,  among Mary H. Doughtie,
          Mary D.  Houfek,  Barbara D. Horton and Elsie D.  Waddell,  as Amended
          (incorporated by reference to Exhibit 9 to the Company's Annual Report
          on Form 10-K for the year ended December 31, 1994).

10(a)(1). Agreement  dated  November 2, 1998 between the Company and the Bakery,
          Confectionery and Tobacco Workers' International Union, Local No. 66.

10(b)(1). Lease  Agreement Dated January 26, 1996,  Between Keen Leasing,  Inc.,
          Lessor,  and the Company,  Lessee,  relating to the leasing of certain
          trucks (incorporated by reference to Exhibit 10(b)(3) to the Company's
          Annual Report on Form 10-K for the year ended December 30, 1995).

10(c)(1). Security  Agreement  dated as of June 14, 1996, made by the Company to
          Crestar  Bank  granting a security  interest in  accounts,  inventory,
          equipment,  and general  intangibles  (incorporated  by  reference  to
          Exhibit  10(c)(1) to the Company's  Annual Report on Form 10-K for the
          year ended December 28, 1996).

10(c)(2). Security  Agreement  dated as of June 14, 1996,  made by Dutterer's of
          Manchester Corporation to Crestar Bank granting a security interest in
          a promissory  note dated  September 3, 1995,  made by Value Added Food
          Services,  Inc.,  payable to the order of the  holder in the  original
          principal  amount of $1,038,756  (incorporated by reference to Exhibit
          10(c)(2)  to the  Company's  Annual  Report  on Form 10-K for the year
          ended December 28, 1996).

10(c)(3). Guaranty  Agreement  dated as of June 14, 1996,  made by Dutterer's of
          Manchester  Corporation for the benefit of Crestar Bank  (incorporated
          by reference to Exhibit  10(c)(3) to the  Company's  Annual  Report on
          Form 10-K for the year ended December 28, 1996).

10(c)(4). Assignment  dated as of June 14, 1996,  made by the Company to Crestar
          Bank assigning as a security  interest the Company's rights to receive
          all monies under Contract  No.SP0300-967-D-2900 dated January 26, 1996
          between  the  Company  and the  United  States  Department  of Defense
          (incorporated by reference to Exhibit 10(c)(4) to the Company's Annual
          Report on Form 10-K for the year ended December 28, 1996).

10(c)(5). Credit  Line  Deed of Trust  dated as of June  14,  1996,  made by the
          Company for the benefit of Crestar Bank  relating to certain  property
          located  at 2410 and 2415  Wesley  Street and 149  Chautauqua  Avenue,
          Portsmouth,   Virginia,  securing  the  maximum  principal  amount  of
          $3,025,000  (incorporated  by  reference  to Exhibit  10(c)(5)  to the
          Company's  Annual Report on Form 10-K for the year ended  December 28,
          1996).

10(c)(6). Indemnity Deed of Trust dated as of June 12, 1996,  made by Dutterer's
          of Manchester  Corporation for the benefit of Crestar Bank relating to
          certain  property  located in Carroll County,  Maryland,  securing the
          maximum  principal amount of $1,200,000  (incorporated by reference to
          Exhibit  10(c)(6) to the Company's  Annual Report on Form 10-K for the
          year ended December 28, 1996).

10(d)(1). Asset  Purchase  Agreement  dated as of January  30,  1997,  among the
          Company,  The Smithfield Ham and Products  Company,  Incorporated (the
          "Buyer"),  The Smithfield Companies,  Inc., Vernon W. Mules, and Steve
          Houfek,  pursuant  to which  the  Company  agreed  to sell the  assets
          connected  with the  manufacture  of the Company's  barbecue and chili
          products  (incorporated  by  reference  to  Exhibit  10(e)(1)  to  the
          Company's  Annual Report on Form 10-K for the year ended  December 28,
          1996).

10(d)(2). Product Supply  Agreement  dated as of February 28, 1997,  between the
          Company and The  Smithfield  Ham and  Products  Company,  Incorporated
          ("Smithfield"),  pursuant to which the Company  agreed to purchase its
          requirements of barbecue and chili products for a period of five years
          (incorporated by reference to Exhibit 10(e)(2) to the Company's Annual
          Report on Form 10-K for the year ended December 28, 1996).

10(d)(3). Trademark License Agreement dated as of February 28, 1997, between the
          Company and The  Smithfield  Ham and  Products  Company,  Incorporated
          ("Smithfield"),  pursuant  to which the  Company  granted a license to
          Smithfield to use the  Company's  registered  Doughtie's  trademark in
          connection with the manufacture and sale of certain  barbecue,  chili,
          and related products (incorporated by reference to Exhibit 10(e)(3) to
          the Company's  Annual Report on Form 10-K for the year ended  December
          28, 1996).

10(e).    Asset  Purchase  Agreement  dated as of September 6, 1996 by and among
          Loetitia  Adam St. James and Chris L. St.  James,  TWB Gourmet  Foods,
          Inc. (TWB), CP Specialty Foods, Inc. (CP), and Doughtie's Foods, Inc.,
          pursuant  to which  TWB sold  certain  assets to CP  (incorporated  by
          reference to Exhibit 10(g)to the Company's  Annual Report on Form 10-K
          for the year ended December 28, 1996).

10(e)(1). Asset  Purchase  Agreement  dated  as of March  18,  1997,  among  the
          Company,  Bruce R. Biddle and Levis E. Cothran,  or their assigns (the
          "Buyer"),  Vernon W. Mules,  and Steve  Houfek,  pursuant to which the
          Company  agreed  to sell to the Buyer the  assets  connected  with the
          manufacture   of  the  Company's   delicatessen-style   meat  products
          (incorporated by reference to Exhibit 10(h)(1) to the Company's Annual
          Report on Form 10-K for the year ended December 27, 1997).

10(e)(2). Product  Supply  Agreement  dated as of April 14,  1997,  between  the
          Company and Coddle Roasted Meats, Inc.  ("Coddle"),  pursuant to which
          the Company  agreed to purchase  from  Coddle's  its  requirements  of
          delicatessen-style   meat   products   for  a  period  of  five  years
          (incorporated by reference to Exhibit 10(h)(2) to the Company's Annual
          Report on Form 10-K for the year ended December 27, 1997).

10(e)(3). Trademark  License  Agreement dated as of April 14, 1997,  between the
          Company and Coddle, pursuant to which the Company granted a license to
          Coddle  to  use  the  Company's  registered  Doughtie's  trademark  in
          connection with the manufacture and sale of certain delicatessen-style
          meat products  (incorporated  by reference to Exhibit  10(h)(3) to the
          Company's  Annual Report on Form 10-K for the year ended  December 27,
          1997).

10(f)     1998 Stock Incentive Plan  (incorporated by reference to Exhibit 99 of
          the Company's  Registration Statement on Form S-8 (File No. 333-56951)
          effective June 16, 1998).

21        List of Subsidiaries

23        Consent of Independent Accountants

27        Financial Data Schedule

b)
Reports on Form 8-K:
--------------------

     The  Company  filed no reports  on Form 8-K during the last  quarter of the
Company's fiscal year ended December 26, 1998.


<PAGE>
<TABLE>
                    DOUGHTIE'S FOODS, INC. AND SUBSIDIARIES
          SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------------------------------------------
<CAPTION>

-----------------------------------------------------------------------------------
Column A                             Column B   Column C     Column D     Column E
-----------------------------------------------------------------------------------

                                     Balance at Charged to                Balance at
                                     beginning  costs and    Deductions   end of
Description                          of period  expenses       (A)        period

Valuation  account deducted 
  from asset to which it applies 
  - for doubtful trade receivables:
<S>                                  <C>        <C>          <C>          <C>
Year ended December 28, 1996         $ 333,308  $ 206,413    $ 198,243    $ 341,478

Year ended December 27, 1997         $ 341,478  $ 674,000    $ 387,106    $ 628,372

Year ended December 26, 1998         $ 628,372  $(120,000)   $ 148,747    $ 359,625


Valuation account deducted 
  from asset to which it applies 
  - for deferred tax asset:

Year ended December 28, 1996         $ 525,344  $(525,344)   $       -    $       -

Year ended December 27, 1997         $       -  $       -    $       -    $       -

Year ended December 26, 1998         $       -  $       -    $       -    $       -

(A)  Accounts written off during the year net of recoveries.
</TABLE>

<PAGE>
                                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.

                                          DOUGHTIE'S FOODS, INC.

Dated:   March 26, 1999                    /s/   STEVEN C. HOUFEK
                                          ------------------------
                                          Steven C. Houfek

                                          President and Chief
                                          Executive Officer

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

Dated:   March 26, 1999                    /s/   STEVEN C. HOUFEK
                                          ------------------------------
                                          Steven C. Houfek

                                          President, Chief Executive
                                          Officer and Director


Dated:   March 26, 1999                    /s/   MARION S. WHITFIELD, JR.
                                          ------------------------------
                                          Marion S. Whitfield, Jr.

                                          Senior Vice President and
                                          Director (Principal
                                          Financial and Accounting
                                          Officer)


Dated:   March 22, 1999                   /s/   VERNON W. MULES
                                          ------------------------------
                                          Vernon W. Mules

                                          Director

Dated:   March 23, 1999                   /s/   ADOLPHUS W. HAWKINS, JR.
                                          ------------------------------
                                          Adolphus W. Hawkins, Jr.

                                          Director

Dated:   March 23, 1999                   /s/   DONALD B. RATCLIFFE
                                          ------------------------------
                                          Donald B. Ratcliffe

                                          Director


Dated:   March 22, 1999                   /s/   JAMES F. CERZA, JR.
                                          ------------------------------
                                          James F. Cerza, Jr.

                                          Director

Dated:   March 25, 1999                   /s/   WILLIAM R. WADDELL
                                          ------------------------------
                                          William R. Waddell

                                          Director