##### 



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

FORM 10-K

|                   |  |                                                                                         
|------------------ |  | ----------------------------------------------------------------------------------------
|(BOX WITH AN X)    |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934    
|                  
|(EMPTY BALLOT BOX) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended July 28, 2001

Commission file number: 1-8578

McRAE INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)

|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 56-0706710                          
|                        
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

400 North Main Street, Mount Gilead, North Carolina 27306
(Address of Principal Executive Offices)

Registrants telephone number, including area code: (910) 439-6147

Securities Registered Pursuant to Section 12(b) of the Act:

|                                   |                                           |                        
|---------------------------------- | ----------------------------------------- | -----------------------
|Title of each class                | Name of each exchange on which registered
|Class A Common Stock, $1 Par Value |                                           | American Stock Exchange
|                                  
|Class B Common Stock, $1 Par Value |                                           | American Stock Exchange

Securities Registered Pursuant to Section 12 (g) of the Act: None

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 the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes (BOX WITH AN X)   No (EMPTY BALLOT BOX)

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 of this Form 10-K.  (BOX WITH AN X)

The aggregate market value of shares of the Registrants $1 par value
Class A and Class B Common Stock held by non-affiliates as of October
22, 2001 was approximately $4,947,000 and $1,220,000, respectively.
On October 22, 2001, 1,861,817 Class A shares and 906,682 Class B shares of the Registrants Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders meeting
to be held on December 20, 2001 are incorporated by reference into
Part III.

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Part I

ITEM 1. BUSINESS

The Registrant is a Delaware corporation organized in 1983 and is the
successor to a North Carolina corporation organized in 1959. The
Registrants principal lines of business are: manufacturing and
selling bar code reading and related printing devices; manufacturing
and selling military combat boots, western and work boots; and
selling, leasing, and servicing office equipment. The Registrants
commercial printing and packaging business was discontinued during
fiscal 2001. Additional financial information about these lines of
business can be found in Note 17 to the financial statements.

Bar Code Operations

The bar code unit manufactures and sells bar code reading and
printing devices and other items related to optical data collection,
including licensing and selling computer software through Compsee,
Inc. (Compsee), a 99% owned subsidiary. Compsee markets, sells, and
services its products directly through sales centers located
throughout the United States. Compsee also sells its products
worldwide; however, net revenues from foreign sales are negligible
when compared to the Registrants consolidated net revenues.

Compsee designs and manufactures QuickReader and QuickLink bar code
readers. Principal materials used in Compsees assembly operations
consist of various electrical and electronic components that are
readily available from a number of sources. Compsees portable bar
code scanner equipment includes the APEX II which was introduced in
fiscal 1996 and the APEX III which was introduced in fiscal 2001.
These products were well received in the market and provided 13%, 10%
and 11% of Compsee sales for fiscal 2001, 2000, 1999, respectively. A
companion product, the APEX II cradle, which facilitates data
transfer and provides battery-recharging capabilities, was added to
the product line in fiscal 1997. Compsees wedge product line was
upgraded in fiscal 1998 with the introduction of the Turbowedge line
of bar code wedge readers. These products offer several new features
and were well received in the market. During fiscal 2000 Compsee
purchased an enterprise integration software program that enhances
and facilitates mobile bar code applications. This software provides
specific competitive advantages for Compsees wireless products.
During the last half of fiscal 2001, Compsee introduced the APEX III
portable data collector. This product provides batch and wireless
data collection capability. The APEX IV portable data collection unit
is expected to be introduced to the market in fiscal 2002. This unit
is a more rugged, pistol grip version of the APEX III product. The
markets in which this business unit operates are generally highly
competitive. The Registrant is not aware of any reliable statistics
that would enable the Registrant to determine the relative position
of Compsee or its products within the industry. Competition in the
industry is principally based on product features, customer service,
and price. The major competitors in the industry include PSC,
Unitech, and Handheld Products.

Net revenues derived from this unit in fiscal 2001, 2000, and 1999
were 22%, 29%, and 31% of the Registrants consolidated net revenues,
respectively. QuickReader, QuickLink, and Turbowedge bar code readers
developed and marketed by Compsee accounted for 11%, 11%, and 12% of
Compsees net revenues for fiscal 2001, 2000, and 1999, respectively,
and for 3% of the Registrants consolidated net revenues during each
of the last three fiscal years. There was no significant backlog of
firm orders for this unit at July 28, 2001.

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Footwear Manufacturing

The Registrants footwear manufacturing operations include the
manufacture and sale of military combat boots. The Registrant has
manufactured Direct Molded Sole military combat boots for the United
States Government (the Government) since 1966. On April 30, 1996, the
Registrant acquired American West Trading Company (American West),
which manufactures western boots, work boots, military dress oxfords,
and military safety boots.

Whenever the Government determines a need for producing combat boots
because of the number of new recruits entering the services, and the
need to replenish its inventory to replace worn out boots, the
Government solicits contracts from U. S. boot manufacturers. The
solicitation process typically includes the evaluation by the
Government of written technical and cost proposals. The Government
awards contracts on negotiated per pair contract prices based on
estimated allowable costs as projected for the subsequent fiscal year
plus a reasonable profit margin. This profit margin is subject to the
Governments determination that the prices are fair and
reasonable. All recent Government contracts for military boots
have been awarded to four manufacturers including the Registrant. The
Registrant is currently in the fifth year of the most recent contract
awarded by the Government in April 1997 (the Contract). The Contract
provides for a base year and four one-year extensions which may be
exercised by the Government at its sole discretion for the purchase
of additional option quantities of military combat boots. The current
and final option period will expire in April 2002. The Government
continues to evaluate a new military combat boot construction that is
not compatible with the Registrants current manufacturing process
that could require future military combat boot purchases to meet the
new boot construction specification. While the Registrant is
positioned to accommodate any military combat boot specification
changes, there can be no assurances that the Registrant would be
successful in any solicitation of another contract with the
Government upon termination of the current Contract.

In September 2001, the Government notified the Registrant to increase
its production levels of military combat boots as a result of the
deployment of troops in the war on terrorism. The increased
production levels represent an approximate 60% increase over the
quantities normally purchased by the Government under the Contract.

No one company dominates the Government military boot industry. The
Registrants major competitors in the military boot market include
Wellco, Inc., Belleville Shoe Manufacturing Company, and Altama Delta
Corporation. Price, quality, manufacturing efficiency, and delivery
are the areas emphasized by the Registrant to strengthen its
competitive position. The Registrant also sells boots to civilian
and other military customers including other countries. Military boot
sales under the Government contract were $11.7 million, $7.2 million,
and $6.9 million, for fiscal 2001, 2000, and 1999, respectively.
Sales of military boots to foreign countries were $4.6 million, $4.7
million, and $76,000 for the past three fiscal years, respectively.
Approximately 89% of foreign country sales for fiscal 2001 were to
Israel.

The Registrants contracts with the Government are subject to partial
or complete termination under certain specified circumstances
including, but not limited to, the following: for the convenience of
the Government, for the lack of funding, and for the Registrants
actual or anticipated failure to perform its contractual obligations.
If a contract is partially or completely terminated for its
convenience, the Government may negotiate a settlement with the
Registrant to cover costs already incurred. The Registrant has never
had a contract either partially or completely terminated.

3



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Leather and synthetic rubber, currently available from one source,
are the principal material components used in the boot manufacturing
process. Pursuant to Government contracts for military combat boots,
all materials used in manufacturing these boots must be and are
produced in the United States and must be certified as conforming to
military specifications.

The Registrant has a technical assistance agreement with Ro-Search,
Inc., a subsidiary of Wellco, Inc., a competitor to whom the
Registrant pays a fee for each pair of Direct Molded Sole boots it
produces.

American West designs, manufactures, sells, and distributes western
and work boots for men and women who wear boots for work and everyday
activities, including casual wear. American West utilizes seasoned
and highly respected independent sales representatives to market and
sell its boots nationwide to major retail discount stores, regional
specialty chain stores, and major western boot distributors. The
boots are marketed primarily under the retailers private label and
under the American West Trading Company brand.

On June 29, 2001, American West acquired the Dingo brand name and
certain inventory from Lucchese, Inc., a wholly owned subsidiary of
Arena Brands, Inc. The Dingo footwear line provides a lifestyle
product to supplement American Wests western boot products. Also, in
early October 2001, American West purchased the Dan Post brand name
and certain inventory from Lucchese, Inc. The Dan Post brand is a
high quality, traditional western product and is well recognized by
both retailers and consumers. This addition to the product mix allows
the Registrant to compete in the hand crafted boot market segment.

In addition to the western and work boot product lines, American West
began producing two styles of military footwear (military dress
oxfords and military safety shoes) in fiscal 1997 and continues to
bid on future welt construction military solicitations to
supplement the western boot product lines. Sales of military footwear
(excluding Direct Molded Sole boots) amounted to $520,000, $734,000,
and $575,000 in fiscal 2001, 2000, and 1999, respectively.

During fiscal 2000, American West expanded its western boot product
line with imported children boots from India and China. In addition,
American West imports ladies cement construction western boots from
Mexico. Net revenues from these imported products amounted to
approximately $632,000 and $107,000 for fiscal 2001 and fiscal 2000,
respectively.

American West consolidated its manufacturing operation in fiscal 1997
by combining all manufacturing operations at the Waverly, Tennessee
facility. The Dresden, Tennessee location continues to provide
storage, warehouse, and shipping functions. The upper parts of
boots produced at American West are constructed from leather and/or
synthetic material and the sole and heels consist of either leather,
rubber and/or rubber-plastic blended material. All raw materials
necessary for manufacturing the boots are readily available from
several suppliers, both domestic and abroad.

The western and work boot markets are highly competitive. The
Registrant is not aware of any reliable statistics that would enable
it to determine its relevant position within the industry; however,
it believes it has established a solid position in the market for all
price ranges.

American West coordinates its manufacturing and inventory according
to the seasonality of its business, which tends to have higher sales
occurring generally in the fall and winter months. American West
contributed $9.4 million, $7.9 million, and $6.4 million of net
revenues for fiscal 2001, 2000, and 1999, respectively.

4



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The Registrants backlog of firm orders for military combat boots at
July 28, 2001 and July 29, 2000 totaled approximately $3 million (all
of which is expected to be filled during the current fiscal year) and
$8.6 million, respectively. The backlog of firm orders for western
and work boots at July 28, 2001 and July 29, 2000 totaled
approximately $1,358,000 (all of which is expected to be filled
during the current year) and $436,000, respectively.

Net revenues derived from the military combat boot segment in fiscal
2001, 2000, and 1999 were 29%, 21%, and 15%, respectively, of the
Registrants consolidated net revenues.

Net revenues derived from the western and work boot segment in fiscal
2001, 2000, and 1999 were 16%, 14%, and 13%, respectively, of the
Registrants consolidated net revenues.

Office Products

McRae Office Solutions, Inc. (Office Solutions), formerly McRae
Graphics, Inc., a wholly owned subsidiary, is a non-exclusive
distributor of Toshiba photocopier and facsimile machines in North
Carolina and parts of Virginia and South Carolina. Office Solutions
operates seven district sales offices throughout the state of North
Carolina. Office Solutions is also the sole distributor in North
Carolina of RISO digital duplicators. Machines, components, and
certain supplies sold by Office Solutions during fiscal 2001 are
generally available only from Toshiba and RISO.

McRae Office Solutions purchased the rights to a software package
designed to scan, store, and provide easy retrieval of various
document types in fiscal 2000. During fiscal 2001 the software was
reformatted to conform with current technology. This product is
expected to be part of the product mix in fiscal 2002.

The office products business is generally highly competitive, with
price and service being the dominant factors. The Registrant is not
aware of any reliable statistics that would indicate its relative
position within this industry in the geographical area in which it
competes.

Net revenues derived from the office products segment during fiscal
2001, 2000, and 1999 were 33%, 36%, and 41%, respectively, of the
Registrants consolidated net revenues. There was no significant
backlog of firm orders for these segments.

Other Businesses

The Registrants Financing and Leasing Division manages the
Registrants short-term investments and marketable securities. This
division is also engaged in equipment leasing and the financing of
receivables for other businesses and individuals.

Foreign Sales

It is not practicable for the Registrant to calculate the amounts of
revenues derived from domestic and foreign customers. The only
business that experiences significant foreign sales is the military
boot business. Sales of military boots to foreign countries were $4.6
million (27.4% of total military boot sales), $4.7 million (37.9%)
and $76,000 (1.0%) for the past three fiscal years, respectively.
Approximately 89% of foreign military boot sales for fiscal 2001 were
to Israel.

5



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Other Investment Interests

The Registrant has an investment in the outstanding Common Stock of
American Mortgage and Investment Company (AMIC). AMIC is located in
Charleston, South Carolina and is engaged in real estate development
and sales, primarily lots for single family dwellings, in the coastal
region of South Carolina. D. Gary McRae, President of the
Registrant, is President of AMIC. The Registrant also owns 100% of
the outstanding 20% cumulative convertible preferred stock of AMIC.
The investment in this preferred stock was written down to zero by
the Registrant during fiscal 1990. Write downs in subsequent periods
totaling approximately $273,000 have been made on the Registrants
books to reduce notes and accounts receivable due from AMIC in order
to reflect the Registrants equity in AMIC. AMIC has been operating
under Chapter X of the United States Bankruptcy Act since 1974.

Environmental Matters

The Registrant is subject to various laws and regulations concerning
environmental matters and employee safety and health. The Registrant
has been able to comply with such laws and regulations with no
material adverse effect on its business. In the opinion of
management, the Registrant is not in violation of any environmental
laws or regulations that would have a material adverse effect on the
financial condition of the Registrant.

Employment

As of July 28, 2001, the Registrant employed approximately 506
persons in all divisions and subsidiaries. None of the Registrants
employees are represented by collective bargaining or a labor union.
The Registrant considers its relationship with its employees to be
good.

Financial Information about Operating Segments

Financial information for the past three fiscal years with respect to
the Registrants operating segments are incorporated herein by
reference to Note 17 to the consolidated financial statements
included in this Report.

Research and Development

Research and development costs related to future products amounted to
$496,000, $538,000, and $524,000 for fiscal 2001, 2000, and 1999,
respectively.

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ITEM 2. PROPERTIES

The following table describes the location, principal use, and
approximate size of the principal facilities of the Registrant and
its subsidiaries, all of which are owned by the Registrant and/or its
subsidiaries.

|                                          |  |                                                  |  |                   
|----------------------------------------- |  | ------------------------------------------------ |  | ------------------
|Location                                  |  | Principal Use                                    |  | Size              
|                                          |  |                                                  |  |                   
|400 North Main Street
Mt. Gilead, N.C     |  | Corporate headquarters,
manufacturing, and sales |  | 71,000 square feet
|                                         
|Highway 109 North
Mt. Gilead, N.C         |  | Footwear manufacturing                           |  | 57,600 square feet
|                                         
|2500 Port Malabar Blvd.
Palm Bay, Florida |  | Compsee bar code sales office                    |  | 5,250 square feet 
|                                         
|Highway 109 North
Mt. Gilead, N.C         |  | Footwear warehouse                               |  | 3,500 square feet 
|                                         
|Highway 109
Richmond County, N.C          |  | Footwear storage                                 |  | 11,200 square feet
|                                         
|Highway 24-27
Troy, N.C                   |  | Footwear manufacturing and
warehousing           |  | 35,000 square feet
|                                         
|Highway 109 North
Mt. Gilead, N.C         |  | Footwear storage                                 |  | 4,800 square feet 
|                                         
|601 E. Railroad Street
Waverly, TN        |  | Footwear manufacturing                           |  | 71,520 square feet
|                                         
|100 Hillcrest Street
Dresden, TN          |  | Footwear storage and warehouse                   |  | 5,000 square feet 

In addition to these principal locations, the Registrant and its
subsidiaries lease other offices throughout the United States. The
Registrant also owned approximately 500 acres of undeveloped land on
July 28, 2001 that is being held for investment purposes.

The Waverly, Tennessee and Dresden, Tennessee facilities are
encumbered by a deed of trust in favor of The Fidelity Bank to secure
a loan in the amount of approximately $5,000,000.

ITEM 3. LEGAL PROCEEDINGS

While the Registrant and its subsidiaries are engaged in litigation
from time to time in the ordinary course of business incidental to
their respective operations, management does not believe that any
such litigation is likely to have a material adverse effect on the
Registrants consolidated financial position or operations.

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

None.

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PART II

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

Each of the Registrants classes of Common Stock is traded on the
American Stock Exchange (ticker symbol MRI-A and MRI-B). As of
October 22, 2001, there were approximately 418 record holders of the
Registrants Class A Common Stock and approximately 388 record
holders of the Class B Common Stock. High and low stock prices and
dividends declared per share for the last two fiscal years were:

CLASS A COMMON STOCK:

|        |  |             |      |             |  |             |      |           |  |     |     |          |  |   |      |  |  |   |      |  |  |   |     | 
|------- |  | ----------- | ---- | ----------- |  | ----------- | ---- | --------- |  | --- | --- | -------- |  | - | ---- |  |  | - | ---- |  |  | - | --- | 
|        |  | Fiscal 2001 |      | Fiscal 2000
|        |  |             |      |            
|        |  | Sales Price |      | Cash        |  | Sales Price |      | Cash     
|        |  |             |      | Dividends   |  |             |      | Dividends
|Quarter |  | High        |      | Low         |  | Declared    |      | High      |  | Low |     | Declared
|        |  |             |      |             |  |             |      |           |  |     |     |         
|First   |  | $           | 5.63 |             |  | $           | 4.75 |           |  | $   | .09 |          |  | $ | 6.13 |  |  | $ | 4.94 |  |  | $ | .09 | 
|       
|Second  |  |             | 5.38 |             |  |             | 4.88 |           |  |     | .09 |          |  |   | 5.63 |  |  |   | 4.75 |  |  |   | 09  | 
|       
|Third   |  |             | 5.24 |             |  |             | 3.95 |           |  |     | .05 |          |  |   | 5.75 |  |  |   | 4.94 |  |  |   | 09  | 
|       
|Fourth  |  |             | 4.25 |             |  |             | 3.85 |           |  |     | .05 |          |  |   | 6.38 |  |  |   | 4.13 |  |  |   | 09  | 

CLASS B COMMON STOCK:

|        |  |             |      |             |  |      |      |     |  |   |      |  |  |   |      | 
|------- |  | ----------- | ---- | ----------- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|        |  | Fiscal 2001 |      | Fiscal 2000
|        |  |             |      |            
|        |  | Sales Price |      | Sales Price
|        |  |             |      |            
|Quarter |  | High        |      | Low         |  | High |      | Low
|        |  |             |      |             |  |      |      |    
|First   |  | $           | 5.75 |             |  | $    | 5.00 |     |  | $ | 5.88 |  |  | $ | 5.38 | 
|       
|Second  |  |             | 5.38 |             |  |      | 5.13 |     |  |   | 5.38 |  |  |   | 5.13 | 
|       
|Third   |  |             | 5.30 |             |  |      | 4.10 |     |  |   | 5.63 |  |  |   | 5.00 | 
|       
|Fourth  |  |             | 4.25 |             |  |      | 3.90 |     |  |   | 6.50 |  |  |   | 4.13 | 

The Registrant has no policy with respect to payment of dividends,
but expects to continue paying regular cash dividends on its Class A
Common Stock. Dividends paid on Class B Common Stock, if any, must
also be paid on Class A Common Stock in an equal amount. No dividends
were paid on Class B Common Stock during the prior three fiscal
years. There can be no assurance as to future dividends on either
class of Common Stock, as the payment of any dividends is dependent
on future actions of the Board of Directors, earnings, capital
requirements, and financial condition of the Registrant.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following Selected Consolidated Financial Data of the Registrant
presented below for each of the five years in the period indicated
has been derived from the Registrants audited and consolidated
financial statements. The Selected Consolidated Financial Data should
be read in conjunction with the Consolidated Financial Statements and
Notes thereto, Managements Discussion and Analysis of Financial
Conditions and Results of Operations, and the other financial data
included elsewhere herein.

|                                                                  |  |         |            |         |  |         |            |        |  |        |            |   |  |   |            |  |  |   |            | 
|----------------------------------------------------------------- |  | ------- | ---------- | ------- |  | ------- | ---------- | ------ |  | ------ | ---------- | - |  | - | ---------- |  |  | - | ---------- | 
|Fiscal Years Ended                                                |  | 7-28-01 |            | 7-29-00 |  | 7-31-99 |            | 8-1-98 |  | 8-2-97
|                                                                  |  |         |            |         |  |         |            |        |  |       
|Income Statement Data:                                            |  |         |            |         |  |         |            |        |  |        |            |   |  |   |            |  |  |   |            | 
|                                                                 
|Net revenues                                                      |  | $       | 57,145,000 |         |  | $       | 57,141,000 |        |  | $      | 48,289,000 |   |  | $ | 57,151,000 |  |  | $ | 56,397,000 | 
|                                                                 
|Net (loss) earnings
from continuing
operations                    |  |         | (571,000   | )       |  |         | 1,502,000  |        |  |        | 815,000    |   |  |   | 2,192,000  |  |  |   | 2,312,000  | 
|                                                                 
|Net (loss) earnings
from discontinued
operations                  |  |         | (126,000   | )       |  |         | (145,000   | )      |  |        | (33,000    | ) |  |   | 73,000     |  |  |   | 27,000     | 
|                                                                 
|Net (loss) earnings                                               |  |         | (697,000   | )       |  |         | 1,357,000  |        |  |        | 782,000    |   |  |   | 2,265,000  |  |  |   | 2,339,000  | 
|                                                                 
|Net (loss) earnings,
from continuing
operations per
common share: |  |         | (0.21      | )       |  |         | 0.54       |        |  |        | 0.29       |   |  |   | 0.79       |  |  |   | 0.84       | 
|                                                                  |  |         |            |         |  |         |            |        |  |        |            |   |  |   |            |  |  |   |           
|                                                                 
|Balance Sheet Data:                                               |  |         |            |         |  |         |            |        |  |        |            |   |  |   |            |  |  |   |            | 
|                                                                 
|Total assets                                                      |  | $       | 38,977,000 |         |  | $       | 42,697,000 |        |  | $      | 39,951,000 |   |  | $ | 40,457,000 |  |  | $ | 39,725,000 | 
|                                                                 
|Long-term liabilities                                             |  |         | 4,598,000  |         |  |         | 5,057,000  |        |  |        | 5,280,000  |   |  |   | 5,594,000  |  |  |   | 5,854,000  | 
|                                                                 
|Working capital                                                   |  |         | 21,202,000 |         |  |         | 22,520,000 |        |  |        | 20,962,000 |   |  |   | 21,408,000 |  |  |   | 18,412,000 | 
|                                                                 
|Shareholders equity                                              |  |         | 27,371,000 |         |  |         | 28,589,000 |        |  |        | 27,901,000 |   |  |   | 27,784,000 |  |  |   | 26,174,000 | 
|                                                                 
|Weighted average
number of common
shares outstanding(a)           |  |         | 2,768,499  |         |  |         | 2,768,499  |        |  |        | 2,768,499  |   |  |   | 2,768,499  |  |  |   | 2,761,825  | 
|                                                                 
|Cash dividends
declared per common
share(b)                       |  | $       | 0.28       |         |  | $       | 0.36       |        |  | $      | 0.36       |   |  | $ | 0.36       |  |  | $ | 0.36       | 
|                                                                  |  |         |            |         |  |         |            |        |  |        |            |   |  |   |            |  |  |   |           



---

|(a) |  | Includes both Class A and Class B Common Stock  
|--- |  | ------------------------------------------------
|   
|(b) |  | Dividends were paid only on Class A Common Stock

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

DESCRIPTION OF BUSINESS SEGMENTS

The Registrant has four primary business units: the bar code unit
operates under the name Compsee, Inc. (Compsee); the office products unit
operates under the name McRae Office Solutions, Inc. (Office Solutions);
the military boot unit operates under the name McRae Footwear and the
western and work boot unit operates under the name American West Trading
Company (American West). The commercial printing unit, which was
discontinued in fiscal 2001, operated under the name Rae-Print, Inc.
(Rae-Print). The Company also operates other smaller businesses.

A summary of the net revenues; gross profits; selling, general and
administrative expenses; and operating profits of the major business
units for fiscal years 1999 through 2001 is presented in the following
chart. Certain reclassifications have been made to the prior year amounts
to conform with the current year presentation. In particular, the prior
year amounts have been adjusted to reflect the discontinuance of the
commercial printing unit in fiscal 2001.

|             |                    |  |                        |        |                |  |             |        |                         |  |      |        |      |  |      |       |    |  |  |      |  |  |  |     |  |  |  |     |  |  |  |     | 
|------------ | ------------------ |  | ---------------------- | ------ | -------------- |  | ----------- | ------ | ----------------------- |  | ---- | ------ | ---- |  | ---- | ----- | -- |  |  | ---- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|             |                    |  | Fiscal Year            |        | Percent change |  | Fiscal Year
|             |                    |  | 2001                   |        | 2000           |  | 1999        |        | over prior period       |  | 2001 |        | 2000 |  | 1999
|             |                    |  | Dollars (In thousands) |        | 2001           |  | 2000        |        | Percent of Net Revenues
|             |                    |  |                        |        |                |  |             |        |                        
|Net Revenues |                    |  |                        |        |                |  |             |        |                         |  |      |        |      |  |      |       |    |  |  |      |  |  |  |     |  |  |  |     |  |  |  |    
|            
|             | Bar Code           |  | $                      | 12,454 |                |  | $           | 16,422 |                         |  | $    | 14,695 |      |  |      | (24.2 | )  |  |  | 11.8 |  |  |  | 22  |  |  |  | 29  |  |  |  | 31  | 
|            
|             | Office Products    |  |                        | 18,640 |                |  |             | 20,678 |                         |  |      | 19,846 |      |  |      | (9.9  | )  |  |  | 4.2  |  |  |  | 33  |  |  |  | 36  |  |  |  | 41  | 
|            
|             | Military Boots     |  |                        | 16,792 |                |  |             | 12,395 |                         |  |      | 7,365  |      |  |      | 35.5  |    |  |  | 68.3 |  |  |  | 29  |  |  |  | 21  |  |  |  | 15  | 
|            
|             | Western/Work Boots |  |                        | 9,371  |                |  |             | 7,866  |                         |  |      | 6,402  |      |  |      | 19.1  |    |  |  | 22.9 |  |  |  | 16  |  |  |  | 14  |  |  |  | 13  | 
|            
|             | Eliminations/other |  |                        | (112   | )              |  |             | (220   | )                       |  |      | (19    | )    |  | NM   |       | NM |  |  | 0    |  |  |  | 0   |  |  |  | 0   | 
|             |                    |  |                        |        |                |  |             |        |                         |  |      |        |      |  |      |       |    |  |  |      |  |  |  |     |  |  |  |     |  |  |  |    
|             | Consolidated       |  | $                      | 57,145 |                |  | $           | 57,141 |                         |  | $    | 48,289 |      |  |      | 0.0   |    |  |  | 18.3 |  |  |  | 100 |  |  |  | 100 |  |  |  | 100 | 

|                   |  |   |        |   |  |   |        |   |  |   |        |   |  |    |       |    |  |  |      |   |  |                         |    |  |  |  |    |  |  |  |    | 
|------------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | -- | ----- | -- |  |  | ---- | - |  | ----------------------- | -- |  |  |  | -- |  |  |  | -- | 
|                   |  |   |        |   |  |   |        |   |  |   |        |   |  |    |       |    |  |  |      |   |  | Gross Profit Percentage
|                   |  |   |        |   |  |   |        |   |  |   |        |   |  |    |       |    |  |  |      |   |  |                        
|Gross Profit       |  |   |        |   |  |   |        |   |  |   |        |   |  |    |       |    |  |  |      |   |  |                        
|Bar Code           |  | $ | 3,668  |   |  | $ | 5,319  |   |  | $ | 5,233  |   |  |    | (31.0 | )  |  |  | 1.6  |   |  |                         | 29 |  |  |  | 32 |  |  |  | 36 | 
|                  
|Office Products    |  |   | 3,492  |   |  |   | 5,726  |   |  |   | 6,129  |   |  |    | (39.0 | )  |  |  | (6.6 | ) |  |                         | 19 |  |  |  | 28 |  |  |  | 31 | 
|                  
|Military Boots     |  |   | 4,034  |   |  |   | 2,786  |   |  |   | 1,663  |   |  |    | 44.8  |    |  |  | 67.5 |   |  |                         | 24 |  |  |  | 22 |  |  |  | 23 | 
|                  
|Western/Work Boots |  |   | 1,715  |   |  |   | 1,106  |   |  |   | 703    |   |  |    | 55.1  |    |  |  | 57.3 |   |  |                         | 18 |  |  |  | 14 |  |  |  | 11 | 
|                  
|Eliminations/other |  |   | (27    | ) |  |   | (74    | ) |  |   | (80    | ) |  | NM |       | NM |  |  | 0    |   |  |                         | 0  |  |  |  | 0  | 
|                   |  |   |        |   |  |   |        |   |  |   |        |   |  |    |       |    |  |  |      |   |  |                         |    |  |  |  |    |  |  |  |    | 
|Consolidated       |  | $ | 12,882 |   |  | $ | 14,863 |   |  | $ | 13,648 |   |  |    | (13.3 | )  |  |  | 8.9  |   |  |                         | 23 |  |  |  | 26 |  |  |  | 28 | 

|                                             |  |   |        |   |  |   |        |   |  |   |        |   |  |                            |      |    |  |  |       |   |  |  |    |  |  |  |    |  |  |  |    | 
|-------------------------------------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | -------------------------- | ---- | -- |  |  | ----- | - |  |  | -- |  |  |  | -- |  |  |  | -- | 
|                                             |  |   |        |   |  |   |        |   |  |   |        |   |  | Percentage of Net Revenues
|                                             |  |   |        |   |  |   |        |   |  |   |        |   |  |                           
|Selling, General and Administrative Expenses |  |   |        |   |  |   |        |   |  |   |        |   |  |                           
|Bar Code                                     |  | $ | 5,601  |   |  | $ | 5,525  |   |  | $ | 5,087  |   |  |                            | 1.4  |    |  |  | 8.6   |   |  |  | 45 |  |  |  | 34 |  |  |  | 35 | 
|                                            
|Office Products                              |  |   | 5,520  |   |  |   | 4,688  |   |  |   | 5,408  |   |  |                            | 17.7 |    |  |  | (13.3 | ) |  |  | 30 |  |  |  | 23 |  |  |  | 27 | 
|                                            
|Military Boots                               |  |   | 628    |   |  |   | 457    |   |  |   | 347    |   |  |                            | 37.4 |    |  |  | 31.7  |   |  |  | 4  |  |  |  | 4  |  |  |  | 5  | 
|                                            
|Western/Work Boots                           |  |   | 2,265  |   |  |   | 1,648  |   |  |   | 1,407  |   |  |                            | 37.4 |    |  |  | 17.1  |   |  |  | 24 |  |  |  | 21 |  |  |  | 22 | 
|                                            
|Eliminations/other                           |  |   | (84    | ) |  |   | (22    | ) |  |   | (8     | ) |  | NM                         |      | NM |  |  | 0     |   |  |  | 0  |  |  |  | 0  | 
|                                             |  |   |        |   |  |   |        |   |  |   |        |   |  |                            |      |    |  |  |       |   |  |  |    |  |  |  |    |  |  |  |    | 
|Consolidated                                 |  | $ | 13,930 |   |  | $ | 12,296 |   |  | $ | 12,241 |   |  |                            | 13.3 |    |  |  | .4    |   |  |  | 25 |  |  |  | 22 |  |  |  | 25 | 

|                        |  |   |        |   |  |   |       |   |  |   |       |   |  |    |        |    |  |                            |        |   |  |  |     |   |  |  |    |   |  |  |     |  
|----------------------- |  | - | ------ | - |  | - | ----- | - |  | - | ----- | - |  | -- | ------ | -- |  | -------------------------- | ------ | - |  |  | --- | - |  |  | -- | - |  |  | --- | -
|                        |  |   |        |   |  |   |       |   |  |   |       |   |  |    |        |    |  | Percentage of Net Revenues
|                        |  |   |        |   |  |   |       |   |  |   |       |   |  |    |        |    |  |                           
|Operating Profit (Loss) |  |   |        |   |  |   |       |   |  |   |       |   |  |    |        |    |  |                           
|Bar Code                |  | $ | (1,933 | ) |  | $ | (206  | ) |  | $ | 146   |   |  |    | (838.3 | )  |  |                            | (241.1 | ) |  |  | (16 | ) |  |  | (2 | ) |  |  | 1   |  
|                       
|Office Products         |  |   | (2,028 | ) |  |   | 1,038 |   |  |   | 721   |   |  |    | (295.4 | )  |  |                            | 44.0   |   |  |  | (11 | ) |  |  | 5  |   |  |  | 4   |  
|                       
|Military Boots          |  |   | 3,406  |   |  |   | 2,329 |   |  |   | 1,316 |   |  |    | 46.2   |    |  |                            | 77.0   |   |  |  | 20  |   |  |  | 18 |   |  |  | 18  |  
|                       
|Western/Work Boots      |  |   | (550   | ) |  |   | (542  | ) |  |   | (704  | ) |  |    | (1.5   | )  |  |                            | 23.0   |   |  |  | (6  | ) |  |  | (7 | ) |  |  | (11 | )
|                       
|Eliminations/other      |  |   | 57     |   |  |   | (52   | ) |  |   | (72   | ) |  | NM |        | NM |  |                            | 0      |   |  |  | 0   |   |  |  | 0  |  
|                        |  |   |        |   |  |   |       |   |  |   |       |   |  |    |        |    |  |                            |        |   |  |  |     |   |  |  |    |   |  |  |     |  
|Consolidated            |  | $ | (1,048 | ) |  | $ | 2,567 |   |  | $ | 1,407 |   |  |    | (140.8 | )  |  |                            | 82.4   |   |  |  | (2  | ) |  |  | 4  |   |  |  | 3   |  

10



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CONSOLIDATED RESULTS OF OPERATIONS, FISCAL 2001 COMPARED TO FISCAL 2000

Consolidated net revenues for fiscal 2001 amounted to $57.1 million and
were flat as compared to the consolidated net revenues for fiscal 2000.
The military combat boot business and the western and work boot business
posted increased net revenues of 35.5% and 19.1%, respectively, over the
net revenues reported for fiscal 2000. Net revenues for the bar code
business and office products business declined 24.2% and 9.9%,
respectively, as compared to the net revenues reported for fiscal 2000.

Consolidated gross profit fell from $14.9 million reported for fiscal 2000
to $12.9 million for fiscal 2001 and as a percentage of consolidated net
revenues from 26% to 23% for the same comparative fiscal periods. These
declines were primarily attributable to decreased product sales and
competitive price pressures in the higher margined bar code and office
products businesses and were partially offset by increased demand for
footwear products.

Consolidated selling, general and administrative (SG&A) expenses increased
by approximately $1.6 million, or 13.3%, from the $12.3 million reported
for fiscal 2000 to $13.9 million for fiscal 2001. The increase in SG&A
expenditures was primarily the result of higher personnel related costs;
advertising and promotional expenses; bad debt charges; and impaired
goodwill write-offs which were partially offset by lower professional
fees, business insurance costs, and general maintenance expenditures.

A consolidated operating loss of $1.0 million was reported for fiscal 2001
as compared to an operating profit of $2.6 million for fiscal 2000. The
decrease in operating profit resulted from lower gross margins and
increased SG&A costs.

The Registrants results of operations for fiscal 2001 and fiscal 2000
have been adjusted to reflect the discontinuance of the commercial
printing unit during fiscal 2001.

BAR CODE UNIT RESULTS OF OPERATIONS, FISCAL 2001 COMPARED TO FISCAL 2000

Compsee is a manufacturer and distributor of hi-tech bar code reading
and printing devices, other peripheral equipment, and supplies related to
optical data collection. Compsee is a global company and continues to
explore new markets throughout the United States and other parts of the
world.

Net revenues for fiscal 2001 amounted to $12.5 million, down 24.2% from
the $16.4 million reported for fiscal 2000. This decrease in net revenues
was primarily attributable to lower product demand resulting from a soft
economic climate, increased competition, and the delay in bringing the new
APEX III product to market. Gross profit declined from $5.3 million for
fiscal 2000 to $3.7 million for fiscal 2001 and as a percentage of net
revenues from 32% to 29%, respectively, for the same reporting periods.
The lower gross profit was the result of decreased sales, competitive
price pressure in the market, depressed software support business, and
write-offs for obsolete inventory. SG&A expenses were up slightly, from
$5.5 million for fiscal 2000 to $5.6 million for fiscal 2001. This
increase in SG&A costs was primarily attributable to bad debt write-offs,
impaired goodwill write-offs, and new product development charges.
Goodwill was considered impaired based on the carrying value of the
goodwill exceeding the undiscounted cash flows of products incorporating
the purchased technology. These increased SG&A costs were partially offset
by cost containment programs that decreased sales personnel related
expenses, advertising and promotional costs, and professional fees. Lower
sales and depressed margins coupled with increased SG&A expenses produced
a $1.9 million operating loss for fiscal 2001 as compared to an
approximate $206,000 loss for fiscal 2000.

11



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OFFICE PRODUCTS UNIT RESULTS OF OPERATIONS, FISCAL 2001 COMPARED TO FISCAL 2000

McRae Office Solutions distributes Toshiba photocopiers, Toshiba facsimile
machines, RISO digital printing equipment and provides related service and
supplies for these products throughout the state of North Carolina and
parts of Virginia and South Carolina.

Net revenues decreased 9.9%, down from the $20.7 million reported for
fiscal 2000 to $18.6 million reported for fiscal 2001. This decline in net
revenues was primarily attributable to lower commercial account sales that
resulted from a smaller, less experienced sales force; a procurement
freeze placed on North Carolina state contract purchases; and competitive
pressure in the county-wide educational system program. Gross profit
amounted to $3.5 million for fiscal 2001, down 39.0% from the $5.7 million
reported for fiscal 2000. As a percentage of net revenues, gross profit
fell from 28% to 19% for fiscal 2000 and 2001, respectively. The decline
in gross profit resulted from lower sales volume; a higher percentage of
lower margined county-wide educational system sales in the overall sales
mix; inventory write-offs; and increased loss contingencies related to
future costs associated with the county-wide educational system programs.
SG&A expenses increased by approximately $832,000 or 17.7% from fiscal
2000 to fiscal 2001 and was primarily attributable to sales and
administrative personnel costs; office and equipment rental expenditures;
advertising and promotional costs; and bad debt write-offs. Lower
professional fees provided a partial offset to the higher SG&A costs. The
decrease in net revenues, decline in gross profit, and higher SG&A costs
resulted in an operating loss of approximately $2.0 million for fiscal
2001 as compared to a $1.0 million operating profit for fiscal 2000.

FOOTWEAR UNIT RESULTS OF OPERATIONS, FISCAL 2001 COMPARED TO FISCAL 2000

The footwear business unit manufactures and distributes military combat
boots, military dress shoes, military safety boots, western boots, and
work boots. The military footwear is primarily for the U. S. Government
and foreign governments while the western and work boot products are for
dress and casual wear for men and women. In addition, this business unit
imports western boots from several countries around the world primarily
for women and children.

Net revenues for the military combat boot business for fiscal 2001
amounted to approximately $16.8 million, an increase of 35.5% over the
$12.4 million reported for fiscal 2000. This increase in net revenues was
primarily attributable to higher boot requirements by the U. S.
Government. Demand for military boots by foreign governments remained
strong in fiscal 2001 as revenues remained consistent with fiscal 2000.
Gross profit increased 44.8%, up from the $2.8 million reported for fiscal
2000 to $4.0 million for fiscal 2001 and resulted primarily from the
increase in net revenues. As a percentage of net revenues, gross profit
increased from 22% for fiscal 2000 to 24% for fiscal 2001. This
improvement in gross profit percentage was attributable to lower per unit
costs associated with higher production levels. SG&A expenses grew from
$457,000 in fiscal 2000 to $628,000 for fiscal 2001 and resulted from
increased professional fees, employee benefit costs and higher corporate
allocations. The operating profit for fiscal 2001 amounted to $3.4
million, an increase of 46.2 % over the $2.3 million reported for fiscal
2000.

The Registrants military footwear business is currently operating in the
final year of the most recent contract (the Contract) awarded by the
United States Government (the Government) in April 1997. The Contract
provides for a base year and four one-year extensions that may be
exercised by the Government at its sole discretion for the purchase of
additional option quantities of military combat boots. While the
Government exercised the final years option, there was no indication of a
specified quantity of military combat boots to be purchased under this
option. In addition, the Government has indicated that it will switch to a
new type of military combat boot and has issued a solicitation

12



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##### 



for bids to which the Registrant has responded. While the Registrant has
positioned itself to manufacture the new type of military combat boots and
continues to manufacture boots for the Contract option, there are no
assurances that the Government will continue to order any boots under the
Contract option or that the Registrant will be successful in the
solicitation of the right to manufacture the new type of military boot.

In September 2001, the Government notified the Registrant to increase its
production levels of military combat boots as a result of the deployment
of U. S. troops on the war against terrorism. The increased production
levels represent an approximate 60% increase over the quantities normally
purchased by the Government under the Contract. This increase is expected
to have a favorable impact on the Registrants net revenues of an
additional $2 million to $4 million for fiscal 2002, or more if the
increased production levels are sustained throughout the remainder of
fiscal 2002.

Net revenues for the western and work boot business for fiscal 2001
amounted to approximately $9.4 million, an increase of $1.5 million or
19.1% over the amount reported for fiscal 2000. This growth in net
revenues is primarily attributable to increased market penetration by the
sales force and higher demand for imported western boots for women and
children. Gross profit climbed to $1.8 million for fiscal 2001, up 55.1%
from the $1.1 million for fiscal 2000 and as percentage of net revenues
was 18% for fiscal 2001 as compared to 14% for fiscal 2000. These
increases were primarily the result of higher net revenues, lower per unit
costs associated with higher production levels, and higher margins on
sales of imported products. SG&A expenses for fiscal 2001 amounted to $2.3
million, approximately $600,000 greater than the amount reported for
fiscal 2000. This increase in SG&A expenditures was primarily attributable
to additional personnel and related costs; higher advertising and
promotional outlays, bad debt write-offs, and larger professional fee
charges. The operating loss of $550,000 for fiscal 2001 was slightly
higher than the $542,000 operating loss for fiscal 2000 as SG&A expenses
outpaced the growth in net revenues and gross profit.

OTHER BUSINESS UNIT RESULTS OF OPERATIONS, FISCAL 2001 COMPARED TO FISCAL 2000

In August 2000, the Registrants management decided to phase out and
discontinue the operations of the printing and packaging business. Normal
operations of this unit ceased on April 28, 2001. Net revenues amounted to
approximately $2.0 million and the loss from operations amounted to
$41,000, net of income tax benefit. The loss on disposal amounted to
$85,000, net of income tax benefit. The remaining assets have an estimated
fair value of $200,000.

CONSOLIDATED RESULTS OF OPERATIONS, FISCAL 2000 COMPARED TO FISCAL 1999

Consolidated net revenues for fiscal 2000 amounted to $57.1 million, an
increase of 18.3% over the $48.3 million reported for fiscal 1999,
primarily attributable to the military combat boot business, the western
and work boot business, and the bar code business. These business units
posted net revenue increases of 68.3%, 22.9%, and 11.8%, respectively,
over the net revenues reported for fiscal 1999.

Consolidated gross profit as a percentage of net revenues declined from
the 28% reported for fiscal 1999 to 26% for fiscal 2000 and was primarily
the result of changes in consolidated and business unit product mix,
competitive price pressures in the market, and additional operating costs
associated with new bar code software products and services. The decrease
in gross profit percentage was partially offset by lower western boot
unit costs generated by larger production levels.

Selling, general and administrative (SG&A) expenses decreased as a
percentage of net revenues from 25% for fiscal 1999 to 22% for fiscal
2000. Lower sales salaries, sales commissions, and advertising and
promotional costs were partially offset by increases in

13



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##### 



sales travel expenses, group health insurance costs, professional fees,
and bad debt expense.

Consolidated operating profit increased 82.4% from the $1.4 million
reported for fiscal 1999 to the $2.6 million reported for fiscal 2000.
The increase in consolidated operating profit resulted from increased
revenues and lower SG&A expenditures. As a percentage of net revenues,
consolidated operating profit was 4%, as compared to 3% reported for
fiscal 1999.

The Registrants results of operations for fiscal 2000 and fiscal 1999
have been adjusted to reflect the discontinuance of the commercial
printing unit during 2001.

Bar Code Unit Results of Operations, Fiscal 2000 Compared to Fiscal 1999

Net revenues amounted to $16.4 million for fiscal 2000. This 11.8%
increase over the $14.7 million reported for fiscal 1999 was primarily the
result of higher demand for wireless system sales and Compsee
manufactured products. Gross profit as a percentage of net revenue
decreased from 36% for fiscal 1999 to 32% for fiscal 2000. This decline in
gross profit was primarily the result of continued price pressures in the
market and to additional costs associated with the acquisition and
development of software used primarily in wireless applications. SG&A
expenses increased by approximately $438,000, or 8.6%, over fiscal 1999 as
sales salaries and commissions, travel expenditures, group health
insurance costs, professional fees, and one-time costs associated with
the purchased software outpaced lower expenditures for advertising and
promotional materials. The lower gross profit margins coupled with the
increase in SG&A expenditures resulted in an operating loss of
approximately $206,000 as compared to an operating profit of approximately
$146,000 in fiscal 1999.

Office Products Unit Results of Operations, Fiscal 2000 Compared to Fiscal 1999

Net revenues amounted to $20.7 million in fiscal 2000, an increase of 4.2%
over the $19.8 million reported for fiscal 1999. This growth in revenue
primarily resulted from the continued strong demand for copier and
duplicating equipment by county-wide educational systems. Gross profit
decreased from $6.1 million for fiscal 1999 to $5.7 million for fiscal
2000 primarily because a greater percentage of the revenue mix comes from
low margin sales to county-wide school systems. SG&A expenses amounted to
$4.7 million, down 13.3% from the $5.4 million for fiscal 1999. This
decrease in costs was primarily the result of reduced sales salaries and
commissions associated with the commercial business, reduced training
costs, reduced advertising expenditures, and reduced use taxes, partially
offset by increased expenditures for telephone, group health insurance,
administrative salaries, and professional fees. The $300,000 increase in
operating profit from fiscal 1999 to fiscal 2000 was primarily the result
of higher net revenues and lower SG&A expenses.

Footwear Unit Results of Operations, Fiscal 2000 Compared to Fiscal 1999

Military combat boot net revenues for fiscal 2000 amounted to
approximately $12.4 million, an increase of 68.3% from the $7.4 million
reported for fiscal 1999. This increase in net revenues resulted primarily
from higher demand for military boots by foreign governments. Net revenues
associated with military combat boot sales to the Government increased by
approximately 12.6% from the level reported for fiscal 1999 as a result of
higher boot requirements by the Government. Gross profit as a percentage
of net revenues decreased by 1% from fiscal 1999 to fiscal 2000 and was
primarily attributable to higher manufacturing labor costs. SG&A expense
as a percentage of net revenues for fiscal 2000 was 4%, down 1% from
fiscal 1999. Increased employee benefit costs were responsible for the
increase in SG&A expenditures from $347,000 for fiscal 1999 to $457,000
for fiscal 2000.

14



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##### 



Western and work boot net revenues for fiscal 2000 were up 22.9% over net
revenues for fiscal 1999 primarily attributable to the success of the
sales and marketing strategies implemented during the last half of fiscal
1999. One facet of that strategy was to develop and deploy a team of
experienced, independent sales representatives to cover areas of the
market that had significant growth potential. Gross profit as a percentage
of net revenues for fiscal 2000 was 14%, a 3% improvement over the 11% for
fiscal 1999. This increase in gross profit percentage was primarily the
result of higher production levels providing lower per unit costs. SG&A
expenses for fiscal 2000 amounted to $1.6 million, an increase of
approximately 17.1% over the level reported for fiscal 1999 and was
primarily the result of higher sales commissions and bad debt charges. As
a percentage of net revenues, SG&A expenditures decreased from 22% for
fiscal 1999 to 21% for fiscal 2000. The operating loss for fiscal 2000
showed a 23.0% improvement over the operating loss for fiscal 1999 and was
primarily attributable to increased boot sales and improved gross margin
levels.

Other Business Unit Results of Operations, Fiscal 2000 Compared to Fiscal 1999

Net revenues for the printing and packaging business decreased by
approximately $100,000 for fiscal 2000, down 2.9% from fiscal 1999
primarily the result of competitive pressure in the market. Gross profit
for fiscal 2000 was down 93.5% from fiscal 1999 primarily attributable to
labor inefficiencies, equipment downtime and repair costs, and higher
group health insurance expenditures. SG&A expenses amounted to $225,000,
down 1.3% from the SG&A expense level for fiscal 1999 resulting from lower
corporate charges and professional fees. The operating loss increased from
$73,000 for fiscal 1999 to $215,000 for fiscal 2000 primarily as a result
of lower gross margin.

During the first quarter of fiscal 2001, the Registrants management
decided to phase out and discontinue the operations of this business
during fiscal year 2001.

FINANCIAL CONDITION

The Registrants financial condition at July 28, 2001 continued to be
strong as cash and cash equivalents amounted to approximately $7.3
million. Working capital amounted to $21.2 million with a current ratio of
4.1 to 1.

Operating activities generated approximately $2.8 million of cash.
Earnings from operations, adjusted for depreciation and amortization,
provided approximately $852,000 of positive cash flow. The decrease in
trade accounts receivable contributed approximately $1.4 million of cash
as the timing of collection of open accounts for the bar code and military
business outpaced sales and the funding of large county-wide educational
system sales before year-end. The western boot business partially offset
the trade accounts receivable reduction by approximately $400,000 as
collection on higher fourth quarter sales were made after year-end.
Inventory reductions accounted for approximately $2.5 million of cash and
were primarily attributable to heavy fourth quarter sales to county-wide
educational systems and the asset disposal related to the printing and
packaging business. The decrease in inventory was partially offset by an
inventory buildup in the western boot business as a result of increased
demand for western boot products and the purchase of inventory related to
the Dingo brand. Net investment in capitalized leases provided
approximately $603,000 of cash as a result of using third party financing
to fund a larger percentage of the office products business sales. The
decrease in accounts payable used approximately $1.1 million of cash
primarily attributable to the elimination of VEST quantity deficiencies
under the Contract with the Government. Contract contingency reserves
increased by $224,000 to cover future service and supply costs associated
with the county-wide education system cost per copy program. Income tax
liabilities decreased by approximately $1.4 million as result of the
current years operating loss and the payment of the final installment of
fiscal 2000 tax liability and first quarter estimated tax amounts.

15



---



##### 



Investing activities used approximately $1.9 million of cash. Capital
expenditures amounted to approximately $1.3 million primarily for rental
equipment for the county-wide education cost per copy program, various
manufacturing equipment, computer equipment, and office machines. Other
asset purchases used $333,000 of cash and related primarily to the
purchase of the Dingo brand name. The purchase of 5% of the bar code
business (Compsee) common stock from the minority shareholder used
approximately $605,000 of cash.

Quarterly dividend payments and principal payments on long-term debt used
approximately $521,000 and $298,000 of cash, respectively.

The Registrants primary sources of liquidity at July 28, 2001 consisted
of cash, cash equivalents, and short-term investments totaling
approximately $7.3 million, and $2.75 million of availability at year-end
in two lines of credit. It is managements opinion that the cash on hand,
cash generated from operations, and the current credit facilities will be
sufficient to meet the Registrants capital requirements for fiscal 2002,
including the purchase the Dan Post brand name and certain inventory
amounting to approximately $2.6 million.

INFLATION

The Registrant does not believe inflation has had a material impact on
sales or operating results for the periods covered in this discussion.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued and established the accounting and
reporting standards for derivative instruments and hedging activities.
SFAS No. 133 became effective for the Registrant for the fiscal year
beginning July 30, 2000, as amended by SFAS No. 137 and SFAS No. 138.
Currently, the Registrant is not involved in any derivative or hedging
activities.

In June 2001, SFAS No. 141, Business Combinations was issued and
established the accounting and reporting for business combinations. SFAS
No. 141 is effective for the Registrant for periods after June 30, 2001.
The Registrant is in compliance with this reporting requirement.

In June 2001, SFAS No. 142, Goodwill and Other Intangible Assets was
issued and established the accounting and reporting for acquired goodwill
and other intangible assets. SFAS No. 142 is effective for the Registrant
for periods beginning after December 15, 2001. The Registrant is
evaluating the effects of this pronouncement on recorded goodwill and
trade names.

In 1999, SAB 101 Revenue Recognition in Financial Statements was
released by the SEC to provide additional guidance in interpreting revenue
recognition under generally accepted accounting principals. SAB 101 was
effective for the Registrant no later than the fourth quarter of fiscal
year 2001. This SAB had no effect on the Registrants revenue recognition
procedures.

16



---



##### 



FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report includes certain
forward-looking statements as such term is defined in Section 27A of the
Securities Act and Section 21E of the Exchange Act. These forward-looking
statements involve certain risks and uncertainties, including but not
limited to acquisitions, additional financing requirements, development of
new products and services, the effect of competitive products and pricing,
risks unique to selling goods to the Government (including the impact of
the war on terrorism and termination of the Contract), and the effect of
general economic conditions, that could cause actual results to differ
materially from those in such forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Registrant is exposed to the impact of interest rate changes due to
its aggregate $2.75 million lines of credit and a term loan through its
wholly owned subsidiary, American West Trading Company. As of July 28,
2001, there was no outstanding indebtedness under the lines of credit and
$4.8 million was outstanding on the term loan. The Registrant does not buy
or sell derivative financial instruments for trading purposes. Borrowings
under the Registrants credit facilities described above bear interest at
rates based upon the Prime Rate or the Prime Rate less a margin of
one-half percent offered by the applicable lender. The Registrant has not
entered into any swap agreements or engaged in any other hedging
activities with respect to this variable rate indebtedness. A 10% increase
in the interest rates under the Registrants credit facilities would
increase annual interest expense by approximately $35,000 (assuming the
Registrants aggregate borrowings under the credit facilities averaged
$4.7 million during a fiscal year).

17



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##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following documents are filed as part of this report:

|   |  |                                                                                                                      |  |      |       | 
|-- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|   |  |                                                                                                                      |  | Page
|   |  |                                                                                                                      |  |     
|1. |  | Independent Auditors Report                                                                                         |  |      | 19    | 
|  
|2. |  | McRae Industries, Inc. and Subsidiaries Consolidated Financial Statements:                                           |  |      |       | 
|  
|   |  | Consolidated Balance Sheets as of July 28, 2001 and July 29, 2000.                                                   |  |      | 20-21 | 
|  
|   |  | Consolidated Statements of Operations for the Years Ended July 28, 2001,
July 29, 2000, and July 31, 1999.           |  |      | 22    | 
|  
|   |  | Consolidated Statements of Shareholders Equity for the Years Ended
July 28, 2001, July 29, 2000, and July 31, 1999. |  |      | 23    | 
|  
|   |  | Consolidated Statements of Cash Flows for the Years Ended July 28, 2001,
July 29, 2000, and July 31, 1999.           |  |      | 24    | 
|  
|   |  | Notes to Consolidated Financial Statements                                                                           |  |      | 25-37 | 
|  
|3. |  | Financial Statement Schedule:                                                                                        |  |      |       | 
|  
|   |  | Schedule II                                                                                                          |  |      | 38    | 
|  

| |  |                                                                                                                                                                                  |  |  |  | 
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
| |  | Schedules other than those listed above have been omitted
because they are not applicable or the required information is
shown in the financial statements or the notes thereto. |  |  |  | 

18



---



##### 



Gleiberman Spears Shepherd & Menaker, P. A.

Independent Auditors Report

To the Board of Directors
and Shareholders of
McRae Industries, Inc.
Mount Gilead, North Carolina

We have audited the accompanying consolidated balance sheets of McRae
Industries, Inc. and subsidiaries as of July 28, 2001, and July 29,
2000, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in
the period ended July 28, 2001, and the financial statement schedule
listed under Item 8. These financial statements and schedule are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule based
on our audits.

We conducted our audits in accordance with United States generally
accepted auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements and schedule are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements and schedule. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of McRae Industries, Inc. and subsidiaries as of July 28,
2001, and July 29, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended July
28, 2001, in conformity with United States generally accepted
accounting principles. Further, in our opinion, the financial
statement schedule referred to above presents fairly, in all material
respects, the information stated therein, when considered in relation
to the financial statements taken as a whole.

/s/ Gleiberman Spears Shepherd & Menaker, P.A.

October 16, 2001

Bank of America Plaza, Suite 2500
Charlotte, North Carolina 28280
Telephone 704-377-0220 Telefax 704-377-7612
Certified Public Accountants

19



---



##### 



CONSOLIDATED BALANCE SHEETSMcRae Industries, Inc. and Subsidiaries

|                                            |                                                                                                            |           |                      |              |         |            |            |            |         |            |            | 
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | --------- | -------------------- | ------------ | ------- | ---------- | ---------- | ---------- | ------- | ---------- | ---------- | 
|                                            |                                                                                                            |           |                      |              |         | July 28,   |            | July 29,  
|                                            |                                                                                                            |           |                      |              |         | 2001       |            | 2000      
|                                            |                                                                                                            |           |                      |              |         |            |            |           
|ASSETS                                      |                                                                                                            |           |                      |              |         |            |            |           
|                                           
|Current assets:                             |                                                                                                            |           |                      |              |         |            |            |           
|                                           
|                                            | Cash and cash equivalents                                                                                  |           | $                    | 7,341,000    |         |            | $          | 7,219,000  |        
|                                           
|                                            | Marketable securities (Note 2)                                                                             |           |                      | 5,000        |         |            |            | 61,000     |        
|                                           
|                                            | Accounts receivable, less allowances for
doubtful accounts of $273,000 and
$328,000, respectively (Note 6) |           |                      | 5,048,000    |         |            |            | 6,430,000  |        
|                                           
|                                            | Notes receivable, current portion                                                                         
|                                           
|                                            |                                                                                                            | Employees |                      |              | 311,000 |            |            |            | 50,000  |           
|                                           
|                                            |                                                                                                            | Other     |                      |              | 83,000  |            |            |            | 114,000 |           
|                                           
|                                            | Inventories (Notes 3 and 6)                                                                                |           |                      | 13,806,000   |         |            |            | 16,294,000 |        
|                                           
|                                            | Net investment in capitalized leases,
current portion (Note 4)                                             |           |                      | 567,000      |         |            |            | 595,000    |        
|                                           
|                                            | Income tax receivable (Note 8)                                                                             |           |                      | 881,000      |         |            |            |           |        
|                                           
|                                            | Prepaid expenses and other current assets                                                                  |           |                      | 60,000       |         |            |            | 82,000     |        
|                                            |                                                                                                            |           |                      |              |         |            |            |            |        
|                                            |                                                                                                            |           | Total current assets |              |         | 28,102,000 |            |            |         | 30,845,000 |           
|                                           
|Property and equipment, net (Notes 5 and 6) |                                                                                                            |           | 5,204,000            |              |         |            | 5,601,000  |           
|                                           
|Other assets:                               |                                                                                                            |           |                      |              |         |            |            |           
|                                           
|                                            | Notes and accounts receivable, related
entities (Notes 11 and 12)                                          |           |                      | 527,000      |         |            |            | 652,000    |        
|                                           
|                                            | Net investment in capitalized leases,
net of current portion (Note 4)                                      |           |                      | 960,000      |         |            |            | 1,533,000  |        
|                                           
|                                            | Notes receivable, net of current portion                                                                  
|                                           
|                                            |                                                                                                            | Employees |                      |              | 4,000   |            |            |            | 33,000  |           
|                                           
|                                            |                                                                                                            | Other     |                      |              | 199,000 |            |            |            | 273,000 |           
|                                           
|                                            | Real estate held for investment                                                                            |           |                      | 652,000      |         |            |            | 645,000    |        
|                                           
|                                            | Goodwill                                                                                                   |           |                      | 392,000      |         |            |            | 510,000    |        
|                                           
|                                            | Cash surrender value life insurance (Note 13)                                                              |           |                      | 2,041,000    |         |            |            | 1,830,000  |        
|                                           
|                                            | Other                                                                                                      |           |                      | 896,000      |         |            |            | 775,000    |        
|                                            |                                                                                                            |           |                      |              |         |            |            |            |        
|                                            |                                                                                                            |           | Total other assets   |              |         | 5,671,000  |            |            |         | 6,251,000  |           
|                                            |                                                                                                            |           |                      |              |         |            |            |            |        
|                                            |                                                                                                            |           |                      | Total assets |         | $          | 38,977,000 |            |         | $          | 42,697,000 | 
|                                            |                                                                                                            |           |                      |              |         |            |            |            |        

See notes to consolidated financial statements

20



---



##### 



CONSOLIDATED BALANCE SHEETSMcRae Industries, Inc. and Subsidiaries

|                                                      |                                                  |                                                                                                                          |                                            |            |           |            |            |            |           |            | 
|----------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | 
|                                                      |                                                  |                                                                                                                          |                                            |            | July 28,  |            | July 29,  
|                                                      |                                                  |                                                                                                                          |                                            |            | 2001      |            | 2000      
|                                                      |                                                  |                                                                                                                          |                                            |            |           |            |           
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                  |                                                                                                                          |                                            |            |           |            |            |           
|                                                     
|Current liabilities:                                  |                                                  |                                                                                                                          |                                            |            |           |            |            |           
|                                                     
|                                                      | Current portion of notes payable, banks (Note 6) |                                                                                                                          | $                                          | 407,000    |           |            |            | 247,000    |          
|                                                     
|                                                      | Accounts payable                                 |                                                                                                                          |                                            | 3,545,000  |           |            |            | 4,676,000  |          
|                                                     
|                                                      | Accrued employee benefits (Note 7)               |                                                                                                                          |                                            | 239,000    |           |            |            | 276,000    |          
|                                                     
|                                                      | Deferred revenues                                |                                                                                                                          |                                            | 983,000    |           |            |            | 1,039,000  |          
|                                                     
|                                                      | Accrued payroll and payroll taxes                |                                                                                                                          |                                            | 578,000    |           |            |            | 613,000    |          
|                                                     
|                                                      | Income taxes (Note 8)                            |                                                                                                                          |                                            |           |           |            |            | 478,000    |          
|                                                     
|                                                      | Contract contingencies                           |                                                                                                                          |                                            | 650,000    |           |            |            | 426,000    |          
|                                                     
|                                                      | Other                                            |                                                                                                                          |                                            | 498,000    |           |            |            | 570,000    |          
|                                                      |                                                  |                                                                                                                          |                                            |            |           |            |            |           
|                                                      |                                                  |                                                                                                                          | Total current liabilities                  |            | 6,900,000 |            |            |            | 8,325,000 |           
|                                                     
|Notes payable, banks, net of current portion (Note 6) |                                                  |                                                                                                                          | 4,598,000                                  |            |           |            | 5,057,000  |           
|                                                     
|Minority interest (Note 9)                            |                                                  |                                                                                                                          | 108,000                                    |            |           |            | 726,000    |           
|                                                     
|Commitments and contingencies (Note 9)                |                                                  |                                                                                                                          |                                            |            |           |            |            |           
|                                                     
|Shareholders
         equity: (Note 10)              |                                                  |                                                                                                                          |                                            |            |           |            |            |            |          
|                                                     
|                                                      | Common stock:                                    |                                                                                                                          |                                            |            |           |            |            |            |          
|                                                     
|                                                      |                                                  | Class A, $1 par value; authorized
5,000,000 shares; issued and outstanding,
1,861,817 and 1,859,692 shares, respectively |                                            | 1,862,000  |           |            |            | 1,860,000  |          
|                                                     
|                                                      |                                                  | Class B, $1 par value; authorized
2,500,000 shares; issued and outstanding,
906,682 and 908,807 shares, respectively     |                                            | 907,000    |           |            |            | 909,000    |          
|                                                     
|Additional paid-in capital                            |                                                  |                                                                                                                          | 791,000                                    |            |           |            | 791,000    |           
|                                                     
|Retained earnings                                     |                                                  |                                                                                                                          | 23,811,000                                 |            |           |            | 25,029,000 |           
|                                                      |                                                  |                                                                                                                          |                                            |            |           |            |            |           
|                                                      |                                                  | Total shareholders equity                                                                                               |                                            | 27,371,000 |           |            |            | 28,589,000 |          
|                                                      |                                                  |                                                                                                                          |                                            |            |           |            |            |           
|                                                      |                                                  |                                                                                                                          | Total liabilities and shareholders equity |            | $         | 38,977,000 |            |            | $         | 42,697,000 | 
|                                                      |                                                  |                                                                                                                          |                                            |            |           |            |            |           

See notes to consolidated financial statements

21



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##### 



CONSOLIDATED STATEMENTS OF OPERATIONSMcRae Industries, Inc. and Subsidiaries

|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |      |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------- | -------- | ------- | -------- | ---------- | ---- | - | - | ---------- | ---- | - | 
|For the Years Ended                                                                                                                                                |                                            | July 28,                                                                                  |            | July 29, |         | July 31,
|                                                                                                                                                                   |                                            | 2001                                                                                      |            | 2000     |         | 1999    
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |     
|Net revenues                                                                                                                                                       |                                            | $                                                                                         | 57,145,000 |          |         | $        | 57,141,000 |      |   | $ | 48,289,000 |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Cost of revenues                                                                                                                                                   |                                            |                                                                                           | 44,263,000 |          |         |          | 42,278,000 |      |   |   | 34,641,000 |     
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|Gross profit                                                                                                                                                       |                                            |                                                                                           | 12,882,000 |          |         |          | 14,863,000 |      |   |   | 13,648,000 |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Selling, general and
administrative expenses                                                                                                                       |                                            |                                                                                           | 13,930,000 |          |         |          | 12,296,000 |      |   |   | 12,241,000 |     
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|Operating profit (loss) from
continuing operations                                                                                                                 |                                            |                                                                                           | (1,048,000 | )        |         |          | 2,567,000  |      |   |   | 1,407,000  |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Other income, net                                                                                                                                                  |                                            |                                                                                           | 502,000    |          |         |          | 312,000    |      |   |   | 322,000    |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Interest expense (Note 6)                                                                                                                                          |                                            |                                                                                           | (413,000   | )        |         |          | (391,000   | )    |   |   | (420,000   | )   
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|Earnings (loss) from continuing
operations before income taxes
and minority interest                                                                               |                                            |                                                                                           | (959,000   | )        |         |          | 2,488,000  |      |   |   | 1,309,000  |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Provision (benefit) for
income taxes (Note 8)                                                                                                                      |                                            |                                                                                           | (375,000   | )        |         |          | 979,000    |      |   |   | 470,000    |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Minority interest (Note 9)                                                                                                                                         |                                            |                                                                                           | 13,000     |          |         |          | (7,000     | )    |   |   | (24,000    | )   
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|Net earnings (loss)
from continuing operations                                                                                                                     |                                            |                                                                                           | (571,000   | )        |         |          | 1,502,000  |      |   |   | 815,000    |     
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|Discontinued operations: (Note 15)
Loss from discontinued operations,
net of income tax benefits of $(19,000)
for 2001, $(93,000) for 2000, and
$(18,000) for 1999 |                                            |                                                                                           | (41,000    | )        |         |          | (145,000   | )    |   |   | (33,000    | )   
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   |                                            | Loss on disposal of business segment
net of income tax benefit of $39,000
for fiscal 2001 |            |          | (85,000 | )        |            |      |  |   |            |      |  | 
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|Net earnings (loss)                                                                                                                                                |                                            | $                                                                                         | (697,000   | )        |         | $        | 1,357,000  |      |   | $ | 782,000    |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Earnings (loss) per common share:                                                                                                                                  |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Earnings (loss) from continuing
operations |                                                                                           | $          | (.21     | )       |          | $          | .54  |   |   | $          | .29  |  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Loss from discontinued operations                                                                                                                                  |                                            |                                                                                           | (0.4       | )        |         |          | (.05       | )    |   |   | (.01       | )   
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Net earnings (loss)                        |                                                                                           | $          | (0.25    | )       |          | $          | 0.49 |   |   | $          | 0.28 |  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Weighted average number of
common shares outstanding                                                                                                               |                                            |                                                                                           | 2,768,499  |          |         |          | 2,768,499  |      |   |   | 2,768,499  |     
|                                                                                                                                                                   |                                            |                                                                                           |            |          |         |          |            |      |   |   |            |     

See notes to consolidated financial statements

22



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##### 



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
McRae Industries, Inc. and Subsidiaries

|                                              |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   |            |   | 
|--------------------------------------------- | ------------- |  | -------------------------- | ------ | ------- | - | ---------- | ------ | -------- |  | --------------- | ------- | -------- | - | ------- | ------- | - | - | ------- |  |  | - | ---------- | - | 
|                                              |               |  | Common Stock, $1 par value |        |         |   |           
|                                              |               |  | Class A                    |        | Class B |   | Additional |        | Retained
|                                              |               |  | Shares                     |        | Amount  |   | Shares     |        | Amount   |  | Paid-in Capital |         | Earnings
|                                              |               |  |                            |        |         |   |            |       
|Balance, August 1, 1998                       |               |  | 1,819,728                  |        |         | $ | 1,820,000  |        |          |  | 948,771         |         |          | $ | 949,000 |         |   | $ | 791,000 |  |  | $ | 24,224,000 |  
|                                             
|                                             
|                                             
|                                             
|Conversion of Class B to                      |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   |            |  
|                                             
|                                             
|                                             
|                                             
|                                              | Class A stock |  |                            | 38,046 |         |   |            | 38,000 |          |  |                 | (38,046 | )        |   |         | (38,000 | ) |   |         |  |  |   |            |   | 
|                                             
|                                             
|                                             
|                                             
|Cash dividend ($.36 per
Class A common stock) |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   | (665,000   | )
|                                             
|                                             
|                                             
|                                             
|Net earnings                                  |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   | 782,000    |  
|                                              |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   |            |  
|Balance, July 31, 1999                        |               |  | 1,857,774                  |        |         |   | 1,858,000  |        |          |  | 910,725         |         |          |   | 911,000 |         |   |   | 791,000 |  |  |   | 24,341,000 |  
|                                             
|                                             
|                                             
|                                             
|Conversion of Class B to
Class A stock        |               |  | 1,918                      |        |         |   | 2,000      |        |          |  | (1,918          | )       |          |   | (2,000  | )       |   |   |         |  |  |   |            |  
|                                             
|                                             
|                                             
|                                             
|Cash dividend ($.36 per
Class A common stock) |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   | (669,000   | )
|                                             
|                                             
|                                             
|                                             
|Net earnings                                  |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   | 1,357,000  |  
|                                              |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   |            |  
|Balance, July 29, 2000                        |               |  | 1,859,692                  |        |         |   | 1,860,000  |        |          |  | 908,807         |         |          |   | 909,000 |         |   |   | 791,000 |  |  |   | 25,029,000 |  
|                                             
|                                             
|                                             
|                                             
|Conversion of Class B to
Class A stock        |               |  | 2,125                      |        |         |   | 2,000      |        |          |  | (2,125          | )       |          |   | (2,000  | )       |   |   |         |  |  |   |            |  
|                                             
|                                             
|                                             
|                                             
|Cash dividend ($.28 per
Class A common stock) |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   | (521,000   | )
|                                             
|                                             
|                                             
|                                             
|Net loss                                      |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   | (697,000   | )
|                                              |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   |            |  
|Balance, July 28, 2001                        |               |  | 1,861,817                  |        |         | $ | 1,862,000  |        |          |  | 906,682         |         |          | $ | 907,000 |         |   | $ | 791,000 |  |  | $ | 23,811,000 |  
|                                              |               |  |                            |        |         |   |            |        |          |  |                 |         |          |   |         |         |   |   |         |  |  |   |            |  

See notes to consolidated financial statements

23



---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWSMcRae Industries, Inc. and Subsidiaries

|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |            |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------- | ---------- | ---------- | - | -------- | ---------- | ---------- | - | - | ---------- | ---------- | -
|For the Years Ended                                                                 |                                                                  | July 28, |            | July 29,   |   | July 31,
|                                                                                    |                                                                  | 2001     |            | 2000       |   | 1999    
|                                                                                    |                                                                  |          |            |            |   |          |           
|Cash Flows from Operating Activities:                                               |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Net earnings (loss)                                                                 |                                                                  | $        | (697,000   | )          |   | $        | 1,357,000  |            |   | $ | 782,000    |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Adjustments to reconcile net earnings
to net cash provided by operating activities: |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Depreciation and amortization                                    |          |            | 1,549,000  |   |          |            | 1,525,000  |   |   |            | 1,566,000  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Equity in net (income) loss of investee                          |          |            | (83,000    | ) |          |            | 40,000     |   |   |            | 29,000     |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Minority shareholders interest in earnings
(loss) of subsidiary |          |            | (13,000    | ) |          |            | 7,000      |   |   |            | 24,000     |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Loss (Gain) on sale of assets                                    |          |            | 39,000     |   |          |            | 59,000     |   |   |            | (7,000     | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Contract contingencies                                           |          |            | 224,000    |   |          |            | 426,000    |   |   |            |            |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Changes in operating assets and liabilities:                                        |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Accounts receivable                                              |          |            | 1,382,000  |   |          |            | 1,136,000  |   |   |            | 1,542,000  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Inventories                                                      |          |            | 2,487,000  |   |          |            | (2,833,000 | ) |   |            | (1,993,000 | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Net investment in capitalized leases                             |          |            | 603,000    |   |          |            | 948,000    |   |   |            | (351,000   | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Prepaid expenses and other current assets                        |          |            | 22,000     |   |          |            | 130,000    |   |   |            | 30,000     |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Accounts payable                                                 |          |            | (1,131,000 | ) |          |            | 2,087,000  |   |   |            | 565,000    |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Accrued employee benefits                                        |          |            | (37,000    | ) |          |            | 26,000     |   |   |            | (300,000   | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Deferred revenues                                                |          |            | (56,000    | ) |          |            | (299,000   | ) |   |            | (198,000   | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Accrued payroll and payroll taxes                                |          |            | (36,000    | ) |          |            | (23,000    | ) |   |            | 75,000     |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Income taxes                                                     |          |            | (1,359,000 | ) |          |            | 367,000    |   |   |            | (710,000   | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Other                                                            |          |            | (72,000    | ) |          |            | (258,000   | ) |   |            | 210,000    |  
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                    | Net cash provided by operating activities                        |          |            | 2,822,000  |   |          |            | 4,695,000  |   |   |            | 1,264,000  |  
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|Cash Flows from Investing Activities:                                               |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Proceeds from sale of property                                                      |                                                                  |          | 214,000    |            |   |          | 632,000    |            |   |   | 226,000    |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Proceeds from sale of short term investments                                        |                                                                  |          | 55,000     |            |   |          | 2,000      |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Purchase of land                                                                    |                                                                  |          | (16,000    | )          |   |          | (151,000   | )          |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Purchase of other assets                                                            |                                                                  |          | (333,000   | )          |   |          | (963,000   | )          |   |   | (322,000   | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Purchase of minority interest                                                       |                                                                  |          | (605,000   | )          |   |          |            |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Capital expenditures                                                                |                                                                  |          | (1,277,000 | )          |   |          | (1,367,000 | )          |   |   | (1,795,000 | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Advances to related parties                                                         |                                                                  |          | (206,000   | )          |   |          | (108,000   | )          |   |   | (66,000    | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Collections from related parties                                                    |                                                                  |          | 414,000    |            |   |          | 357,000    |            |   |   | 61,000     |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Advances on notes receivable                                                        |                                                                  |          | (300,000   | )          |   |          |            |            |   |   | (5,000     | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Collections on notes receivable                                                     |                                                                  |          | 173,000    |            |   |          | 361,000    |            |   |   | 531,000    |           
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                    | Net cash (used in) provided by investing activities              |          |            | (1,881,000 | ) |          |            | (1,237,000 | ) |   |            | (1,370,000 | )
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|Cash Flows from Financing Activities:                                               |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Principal repayments of long-term debt                                              |                                                                  |          | (298,000   | )          |   |          | (271,000   | )          |   |   | (290,000   | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Dividends paid                                                                      |                                                                  |          | (521,000   | )          |   |          | (669,000   | )          |   |   | (665,000   | )         
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|                                                                                    | Net cash (used in) financing activities                          |          |            | (819,000   | ) |          |            | (940,000   | ) |   |            | (955,000   | )
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|Net Increase (Decrease) in Cash and Cash
Equivalents                                |                                                                  |          | 122,000    |            |   |          | 2,518,000  |            |   |   | (1,061,000 | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Cash and Cash Equivalents at Beginning of Year                                      |                                                                  |          | 7,219,000  |            |   |          | 4,701,000  |            |   |   | 5,762,000  |           
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           
|Cash and Cash Equivalents at End of Year                                            |                                                                  | $        | 7,341,000  |            |   | $        | 7,219,000  |            |   | $ | 4,701,000  |           
|                                                                                    |                                                                  |          |            |            |   |          |            |            |   |   |            |           

See notes to consolidated financial statements

24



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMcRae Industries, Inc. and Subsidiaries

For the Years Ended July 28, 2001, July 29, 2000, and July 31, 1999

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company and its subsidiaries. Minority interest represents the
minority shareholders proportionate share of the equity of a
majority-owned subsidiary. The investment in an investee is accounted
for on the equity method. Significant inter-company transactions and
balances have been eliminated in consolidation.

Use of Estimates

The timely preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Actual results could differ from those estimates.
Significant estimates expected to change in the near term include the
allowance for contract contingencies.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid debt instruments such as
certificates of deposit and commercial paper purchased with an
original maturity date of three months or less.

Marketable Securities

Investments in marketable equity and debt securities have been
classified as available for sale and as a result are stated at fair
value based on quoted market prices. Unrealized holding gains and
losses, if applicable, are included as a separate component of
shareholders equity until realized.

Inventories

Inventories are stated at the lower of cost or market using the
last-in, first-out (LIFO) method for military boots and photocopier
inventories and using the first-in, first-out (FIFO) method for all
other inventories.

Property and Equipment

Property and equipment are stated at cost. Depreciation and
amortization are provided on the straight-line method for financial
reporting purposes and by accelerated methods for income tax
purposes.

Revenue Recognition

Service maintenance agreements are sold for certain products.
Revenues related to these agreements are deferred and recognized over
the term of the related agreements.

25



---



##### 



The Company sells equipment under sales-type equipment leasing and
third party
leasing companies. Sales of the equipment under cost per copy lease
agreements are recognized when third party or sales-type lease
agreements are signed and the equipment is installed. Revenue from
copy usage in excess of the lease minimum is recognized when billed
quarterly or monthly based on the actual usage. Maintenance and
supply expenses related to these cost per copy lease agreements are
recognized as incurred. Provision for losses are recognized when
determined.

Orders under the current U.S. Government military combat boot
contract awarded in April 1997 were modified in May 2001 to require
the Company to implement a bill and hold program for remaining
military boot shipments. Revenue on these orders is recognized when
the boots are inspected by the U. S. Government and accepted into the
Companys warehouse.

All other sales of the Company are recognized as revenues when title
passes to the buyer.

Goodwill

Goodwill represents the excess of the purchase prices over the fair
value of the net assets acquired in business combinations in prior
years and is being amortized by the straight-line method over periods
ranging up to 20 years. On a periodic basis, the Company estimates
the future undiscounted cash flow of the businesses to which goodwill
relates to assess that the carrying value of such goodwill has not
been impaired. During fiscal 2001, the Company wrote-off
approximately $78,000 of impaired goodwill related to the bar code
business. This goodwill was considered impaired based on the
undiscounted cash flow of the products incorporating the purchased
technology.

Income Taxes

A deferred tax asset or liability is recorded for all temporary
differences between financial and tax-reporting using enacted tax
rates. Deferred tax expense (benefit) results from the change during
the year of the deferred tax assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.

Earnings Per Share

Earnings per share are based on the weighted average number of shares
of common stock outstanding during the year.

Recently Issued Accounting Standards

In June 1998, SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, was issued and established the accounting
and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 became effective for the Company for the
fiscal year beginning August 1, 2000, as amended by SFAS No. 137 and
SFAS No. 138. Currently, the Company is not involved in any
derivative or hedging activities.

In June 2001, SFAS No. 141, Business Combinations was issued and
established the accounting and reporting standards for business
combinations. SFAS No. 141 is effective for the Company for periods
after June 30, 2001. The Company is in compliance with this reporting
requirement.

26



---



##### 



In June 2001, SFAS No. 142, Goodwill and Other Intangible Assets was
issued and
established the accounting and reporting standards for acquired
goodwill and other intangible assets. SFAS No. 142 is effective for the
Company for periods beginning after December 15, 2001. The Company is
evaluating the effects of this pronouncement on recorded goodwill and
trade names.

In 1999, SAB 101, Revenue Recognition in Financial Statements, was
released by the SEC to provide additional guidance in interpreting
revenue recognition under generally accepted accounting principals. SAB
101 was effective for the Company no later than the fourth quarter of
fiscal year 2001. This SAB had no effect on the Companys revenue
recognition procedures.

Research and Development

Research and development costs related to future products are
expensed in the year incurred. Research and development expense for
fiscal 2001, 2000, and 1999 were $496,000, $538,000, and $524,000,
respectively.

Advertising

The Company expenses advertising costs when incurred. Advertising
expense amounted to $406,000, $157,000, and $210,000 for fiscal 2001,
2000, and 1999, respectively.

Reclassifications

Certain reclassifications have been made to the prior years
financial statements and notes thereto to conform with the current
year presentation. In particular, the prior years financial
statements and notes have been adjusted to reflect the discontinuance
of the commercial printing business in fiscal 2001.

2.     MARKETABLE SECURITIES

The following is a summary of the estimated fair market value of
available for sale securities:

|                |  |      |       |      |  |   |        | 
|--------------- |  | ---- | ----- | ---- |  | - | ------ | 
|                |  | 2001 |       | 2000
|                |  |      |       |     
|Municipal Bonds |  | $    | -0-   |      |  | $ | 55,000 | 
|               
|               
|               
|               
|Common Stocks   |  |      | 5,000 |      |  |   | 6,000  | 
|                |  |      |       |      |  |   |        | 
|                |  | $    | 5,000 |      |  | $ | 61,000 | 
|                |  |      |       |      |  |   |        | 

Expected maturities may differ from contractual maturities of the
municipal bonds because the issuers of the securities may have the
right to prepay obligations without prepayment penalties. There were
no significant unrealized gains and losses at July 28, 2001 or July
29, 2000.

3.     INVENTORIES

Current costs exceed the LIFO value of inventories by approximately
$837,000 and $715,000 at July 28, 2001 and July 29, 2000,
respectively. Year-end inventories valued under the LIFO method were
$5,483,000 and $8,788,000 at July 28, 2001, and July 29, 2000,
respectively. An increase in fiscal 2001 LIFO reserves was due to
changes in FIFO pricing which resulted in decreased net earnings of
$74,000. The decrease in fiscal 2000 LIFO reserves was due to both
changes in FIFO pricing and reduction in fiscal 1999 inventory
quantities, which resulted in, increased net earnings of $18,000. The
components of inventory at each year-end are as follows:

27



---



##### 



|                |  |      |            |      |  |   |            | 
|--------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                |  | 2001 |            | 2000
|                |  |      |            |     
|Raw materials   |  | $    | 2,843,000  |      |  | $ | 3,033,000  | 
|               
|               
|               
|               
|Work-in-process |  |      | 746,000    |      |  |   | 979,000    | 
|               
|               
|               
|               
|Finished goods  |  |      | 10,217,000 |      |  |   | 12,282,000 | 
|                |  |      |            |      |  |   |            | 
|                |  | $    | 13,806,000 |      |  | $ | 16,294,000 | 
|                |  |      |            |      |  |   |            | 

4.     LEASES

The Company leases photocopier products under sales-type leases. The
Companys net investment in these leases is as follows:

|                                       |  |      |           |      |  |   |           |  
|-------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                       |  | 2001 |           | 2000
|                                       |  |      |           |     
|Minimum lease payments receivable      |  | $    | 1,663,000 |      |  | $ | 2,415,000 |  
|                                      
|                                      
|                                      
|                                      
|Estimated unguaranteed residual values |  |      | 116,000   |      |  |   | 135,000   |  
|                                      
|                                      
|                                      
|                                      
|Unearned income                        |  |      | (172,000  | )    |  |   | (309,000  | )
|                                      
|                                      
|                                      
|                                      
|Allowance for doubtful accounts        |  |      | (80,000   | )    |  |   | (113,000  | )
|                                       |  |      |           |      |  |   |           |  
|                                      
|                                      
|                                      
|                                      
|Net investment                         |  |      | 1,527,000 |      |  |   | 2,128,000 |  
|Less: Current portion                  |  |      | 567,000   |      |  |   | 595,000   |  
|                                       |  |      |           |      |  |   |           |  
|                                       |  | $    | 960,000   |      |  | $ | 1,533,000 |  
|                                       |  |      |           |      |  |   |           |  

The scheduled maturities for the above minimum lease payments
receivable at
July 28, 2001 is as follows:

|                                        |  |   |           | 
|--------------------------------------- |  | - | --------- | 
|Fiscal Years Ending                     |  |   |           | 
|2002                                    |  | $ | 752,000   | 
|                                       
|                                       
|                                       
|                                       
|2003                                    |  |   | 551,000   | 
|                                       
|                                       
|                                       
|                                       
|2004                                    |  |   | 252,000   | 
|                                       
|                                       
|                                       
|                                       
|2005                                    |  |   | 91,000    | 
|                                       
|                                       
|                                       
|                                       
|2006 and thereafter                     |  |   | 17,000    | 
|                                        |  |   |           | 
|Total minimum lease payments receivable |  | $ | 1,663,000 | 
|                                        |  |   |           | 

5.     PROPERTY AND EQUIPMENT

|                               |  |      |            |      |  |   |            | 
|------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                               |  | 2001 |            | 2000
|                               |  |      |            |     
|Land and improvements          |  | $    | 762,000    |      |  | $ | 732,000    | 
|                              
|                              
|                              
|                              
|Buildings                      |  |      | 4,279,000  |      |  |   | 4,268,000  | 
|                              
|                              
|                              
|                              
|Machinery and equipment        |  |      | 7,980,000  |      |  |   | 8,086,000  | 
|                              
|                              
|                              
|                              
|Furniture and fixtures         |  |      | 2,364,000  |      |  |   | 2,684,000  | 
|                               |  |      |            |      |  |   |            | 
|                               |  |      | 15,385,000 |      |  |   | 15,770,000 | 
|                              
|                              
|                              
|                              
|Less: Accumulated depreciation |  |      | 10,181,000 |      |  |   | 10,169,000 | 
|                               |  |      |            |      |  |   |            | 
|                               |  | $    | 5,204,000  |      |  | $ | 5,601,000  | 
|                               |  |      |            |      |  |   |            | 

Depreciation expense for fiscal 2001, 2000, and 1999 was $1,431,000,
$1,484,000, and $1,526,000, respectively.

28



---



##### 



6.     NOTES PAYABLE AND LINES OF CREDIT

NOTES PAYABLE:

|                                                                                                                                                                                                                                                                                                   |  |               |           |               |  |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ------------- |  | - | --------- | 
|                                                                                                                                                                                                                                                                                                   |  | July 28, 2001 |           | July 29, 2000
|                                                                                                                                                                                                                                                                                                   |  |               |           |              
|Note payable, bank, due in monthly
installments of $56,477 including
interest at the prime rate less 0.5%
through July, 2011. All inventory,
accounts receivable and property
and equipment, which originally cost $8,991,000,
of the Companys American West subsidiary
are pledged as collateral |  | $             | 4,755,000 |               |  | $ | 5,035,000 | 
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Note payable, State of Tennessee, due
March, 2013. Note is payable in 60 monthly
installments of $1,930 including interest at
1.5%, then 60 monthly installments of $2,073
including interest at 2.5% and then 120 monthly
installments of $2,175 including interest at 3.5%                       |  |               |           |               |  |   |           | 
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Land, buildings and building improvements, which
originally cost $847,000, of the Companys
American West subsidiary, are pledged as collateral                                                                                                                                                    |  |               | 250,000   |               |  |   | 269,000   | 
|                                                                                                                                                                                                                                                                                                   |  |               |           |               |  |   |           | 
|                                                                                                                                                                                                                                                                                                   |  |               | 5,005,000 |               |  |   | 5,304,000 | 
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Less: Current portion                                                                                                                                                                                                                                                                              |  |               | 407,000   |               |  |   | 247,000   | 
|                                                                                                                                                                                                                                                                                                   |  |               |           |               |  |   |           | 
|                                                                                                                                                                                                                                                                                                   |  | $             | 4,598,000 |               |  | $ | 5,057,000 | 
|                                                                                                                                                                                                                                                                                                   |  |               |           |               |  |   |           | 

Annual maturities of long-term debt are as follows:

|                     |  |   |           | 
|-------------------- |  | - | --------- | 
|Fiscal Years Ending: |  |   |           | 
|                    
|                    
|                    
|                    
|2002                 |  | $ | 407,000   | 
|                    
|                    
|                    
|                    
|2003                 |  |   | 432,000   | 
|                    
|                    
|                    
|                    
|2004                 |  |   | 458,000   | 
|                    
|                    
|                    
|                    
|2005                 |  |   | 488,000   | 
|                    
|                    
|                    
|                    
|2006                 |  |   | 519,000   | 
|                    
|                    
|                    
|                    
|thereafter           |  |   | 2,701,000 | 
|                     |  |   |           | 
|                     |  | $ | 5,005,000 | 
|                     |  |   |           | 

LINES OF CREDIT:

The Company has an unsecured $1,000,000 revolving line of credit with
a bank. The Company had no
outstanding borrowings under the line of credit as of July 28, 2001
and July 29, 2000. This line of credit was replaced in September 2001
with a $3,000,000 revolving line of credit with a bank and provides
for interest on outstanding balances to be payable monthly at the
prime rate less 0.5%. The new line of credit expires in November 2002
and is secured by the inventory and accounts receivable of American
West.

The Company has an additional $1,750,000 line of credit with a bank.
This line is restricted to 100% of the outstanding accounts
receivable due from the U. S. Government. There were no outstanding
borrowings under this line of credit as of July 28, 2001 and July 29,
2000. The line of credit expires in June 2002 and provides for
interest on outstanding balances to be payable monthly at the prime
rate.

Cash paid for interest during fiscal years 2001, 2000, and 1999 was
approximately
$403,000, $430,000, and $420,000, respectively.

29



---



##### 



7.     EMPLOYEE BENEFIT PLANS

The Companys employee benefit program consists of an employee stock
ownership plan, a 401-K retirement plan, a cash bonus program,
incentive awards, and other specified employee benefits as approved
by the Board of Directors. At its sole discretion, the Board of
Directors determines the amount and the timing of payment for
benefits under these plans.

The employee stock ownership plan (ESOP) covers substantially all
employees. Its principal investments include shares of Class A and B
Common Stock of the Company and collective funds consisting of
short-term cash, fixed-income, and equity investments.

The Company has a 401-K retirement plan, which covers substantially
all employees. Employees can contribute up to 15% of their salary. At
its sole discretion, the Board of Directors determines the amount and
timing of any Company matching contribution. The Companys
contribution was $184,000, $191,000, and $229,000 for the years ended
July 28, 2001, July 29, 2000, and July 31, 1999, respectively.

Employee benefit program expense amounted to $239,000, $261,000, and
$247,000 in 2001, 2000, and 1999, respectively. To the extent the
amounts of these benefits are not disbursed, the Board may, at its
sole discretion, reduce any remaining accruals.

8.     INCOME TAXES

Significant components of the provision for income taxes are as follows:

|                           |         |   |          |          |      |   |           |          |   |   |         |         | 
|-------------------------- | ------- | - | -------- | -------- | ---- | - | --------- | -------- | - | - | ------- | ------- | 
|                           |         |   | 2001     |          | 2000 |   | 1999     
|                           |         |   |          |          |      |   |          
|Current
expense (benefit)  |         |   |          |          |      |   |           |          |   |   |         |        
|                          
|                          
|                          
|                          
|                           | Federal |   | $        | (23,000  | )    |   | $         | 929,000  |   |   | $       | 98,000  | 
|                          
|                          
|                          
|                          
|                           | State   |   |          | 294,000  |      |   |           | 287,000  |   |   |         | 138,000 | 
|                           |         |   |          |          |      |   |           |          |   |   |         |        
|                           |         |   | 271,000  |          |      |   | 1,216,000 |          |   |   | 236,000 |        
|                           |         |   |          |          |      |   |           |          |   |   |         |        
|Deferred
expense (benefit) |         |   |          |          |      |   |           |          |   |   |         |        
|                          
|                          
|                          
|                          
|                           | Federal |   |          | (549,000 | )    |   |           | (201,000 | ) |   |         | 199,000 | 
|                          
|                          
|                          
|                          
|                           | State   |   |          | (97,000  | )    |   |           | (36,000  | ) |   |         | 35,000  | 
|                           |         |   |          |          |      |   |           |          |   |   |         |        
|                           |         |   | (646,000 | )        |      |   | (237,000  | )        |   |   | 234,000 |        
|                           |         |   |          |          |      |   |           |          |   |   |         |        
|                           |         | $ | (375,000 | )        |      | $ | 979,000   |          |   | $ | 470,000 |        
|                           |         |   |          |          |      |   |           |          |   |   |         |        

The components of the provision for deferred income taxes are as follows:

|                                       |                                          |   |          |          |      |   |          |          |   |   |         |         | 
|-------------------------------------- | ---------------------------------------- | - | -------- | -------- | ---- | - | -------- | -------- | - | - | ------- | ------- | 
|                                       |                                          |   | 2001     |          | 2000 |   | 1999    
|                                       |                                          |   |          |          |      |   |         
|Depreciation                           |                                          | $ | (73,000  | )        |      | $ | (115,000 | )        |   | $ | (31,000 | )      
|                                      
|                                      
|                                      
|                                      
|Leasing activities                     |                                          |   | (173,000 | )        |      |   | (111,000 | )        |   |   | 130,000 |        
|                                      
|                                      
|                                      
|                                      
|Accrued employee benefits              |                                          |   | 10,000   |          |      |   | (85,000  | )        |   |   | 118,000 |        
|                                      
|                                      
|                                      
|                                      
|Allowances for doubtful accounts       |                                          |   | 37,000   |          |      |   | 50,000   |          |   |   | 64,000  |        
|                                      
|                                      
|                                      
|                                      
|Inventory                              |                                          |   | (6,000   | )        |      |   | 24,000   |          |   |   | (47,000 | )      
|                                      
|                                      
|                                      
|                                      
|Contract contingencies                 |                                          |   | (255,000 | )        |      |   |         |          |   |   |        |        
|                                      
|                                      
|                                      
|                                      
|State net operating loss carry forward |                                          |   | (201,000 | )        |      |   |          |          |   |   |         |        
|                                      
|                                      
|                                      
|                                      
|Other                                  |                                          |   | 15,000   |          |      |   |         |          |   |   |        |        
|                                       |                                          |   |          |          |      |   |          |          |   |   |         |        
|                                       | Deferred income taxes,
expense
(benefit) |   | $        | (646,000 | )    |   | $        | (237,000 | ) |   | $       | 234,000 | 
|                                       |                                          |   |          |          |      |   |          |          |   |   |         |        

30



---



##### 



Deferred tax liabilities and assets at each year-end are as follows:

|                                     |                                        |   |         |          |      |   |          |          |  
|------------------------------------ | -------------------------------------- | - | ------- | -------- | ---- | - | -------- | -------- | -
|Deferred tax liabilities:            |                                        |   |         |          |     
|                                     |                                        |   | 2001    |          | 2000
|                                     |                                        |   |         |          |     
|                                     | Depreciation                           |   | $       | (18,000  | )    |   | $        | (91,000  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Leasing activities                     |   |         | (430,000 | )    |   |          | (603,000 | )
|                                     |                                        |   |         |          |      |   |          |         
|                                     | Total deferred tax liabilities         |   |         | (448,000 | )    |   |          | (694,000 | )
|                                     |                                        |   |         |          |      |   |          |         
|Deferred tax assets:                 |                                        |   |         |          |      |   |          |         
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued employee benefits              |   |         | 94,000   |      |   |          | 104,000  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Allowances for doubtful accounts       |   |         | 155,000  |      |   |          | 191,000  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Inventory                              |   |         | 159,000  |      |   |          | 137,000  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Contract contingency                   |   |         | 255,000  |      |   |          |         |  
|                                    
|                                    
|                                    
|                                    
|                                     | State net operating loss carry
forward |   |         | 201,000  |      |   |          |         |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                  |   |         | 32,000   |      |   |          |         |  
|                                     |                                        |   |         |          |      |   |          |         
|                                     | Total deferred tax assets              |   |         | 896,000  |      |   |          | 432,000  |  
|                                     |                                        |   |         |          |      |   |          |         
|Net deferred tax asset (liabilities) |                                        | $ | 448,000 |          |      | $ | (262,000 | )       
|                                     |                                        |   |         |          |      |   |          |         

State net operating loss carry forwards will expire in fiscal 2016.

The reconciliation of income tax computed at the U. S. federal statutory
tax rate to actual income tax expense are (in thousands):

|                                               |  |   |        |   |         |  |        |    |         |   |        |   |         |  |      |   |  |   |     |   |  |  |      |   | 
|---------------------------------------------- |  | - | ------ | - | ------- |  | ------ | -- | ------- | - | ------ | - | ------- |  | ---- | - |  | - | --- | - |  |  | ---- | - | 
|                                               |  |   | 2001   |   | 2000    |  | 1999  
|                                               |  |   |        |   |         |  |       
|                                               |  |   | Amount |   | Percent |  | Amount |    | Percent |   | Amount |   | Percent
|                                               |  |   |        |   |         |  |        |    |         |   |        |   |        
|Tax at U. S. statutory rate                    |  | $ | (326   | ) |         |  | (34.0  | )% |         | $ | 849    |   |         |  | 34.0 | % |  | $ | 445 |   |  |  | 34.0 | %
|                                              
|                                              
|                                              
|                                              
|State income taxes, net of
federal tax benefit |  |   | (60    | ) |         |  | (6.3   | )  |         |   | 157    |   |         |  | 6.3  |   |  |   | 82  |   |  |  | 6.3  |  
|                                              
|                                              
|                                              
|                                              
|Other  net                                    |  |   | 11     |   |         |  | 1.2    |    |         |   | (27    | ) |         |  | (0.9 | ) |  |   | (57 | ) |  |  | (4.4 | )
|                                               |  |   |        |   |         |  |        |    |         |   |        |   |         |  |      |   |  |   |     |   |  |  |      |  
|                                               |  | $ | (375   | ) |         |  | (39.1  | )% |         | $ | 979    |   |         |  | 39.4 | % |  | $ | 470 |   |  |  | 35.9 | %
|                                               |  |   |        |   |         |  |        |    |         |   |        |   |         |  |      |   |  |   |     |   |  |  |      |  

Total income tax payments during fiscal years 2001, 2000, and 1999
were approximately $965,000, $671,000, and $1,244,000, respectively.

31



---



##### 



9.     COMMITMENTS AND CONTINGENCIES

Lease Agreements

The Company leases certain sales offices and equipment under
non-cancelable operating leases. Rental expenses on all operating
leases were $786,000, $487,000, and $423,000 for fiscal 2001, 2000,
and 1999. The future minimum annual rental payments under
non-cancelable operating leases are as follows:

|                    |  |   |         | 
|------------------- |  | - | ------- | 
|Fiscal Years Ending |  |   |         | 
|2002                |  | $ | 318,000 | 
|                   
|                   
|                   
|                   
|2003                |  |   | 134,000 | 
|                   
|                   
|                   
|                   
|2004                |  |   | 15,000  | 
|                   
|                   
|                   
|                   
|2005                |  |   | -0-     | 
|                   
|                   
|                   
|                   
|2006                |  |   | -0-     | 
|                    |  |   |         | 
|                    |  | $ | 467,000 | 
|                    |  |   |         | 

Minority Interest

The Company has entered into a restrictive stock agreement with the
minority shareholder of its majority owned subsidiary. Under the
terms of the agreement, the Company has the right of first refusal to
purchase at any time any shares representing the minority interest in
the subsidiary at a defined book value of said shares. The minority
shareholder has the right to sell twenty percent of his shares per
year to the Company, at the defined book value of such shares,
provided the minority shareholder remains employed by the subsidiary.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments, receivables, and capitalized leases. The Company
maintains substantially all of its cash and certificates of deposits
with various financial institutions in amounts that are in excess of
the federally insured limits. Management performs periodic
evaluations of the relative credit standing of those financial
institutions.

Concentrations of credit risk with respect to receivables and
capitalized leases are limited due to the large number of
entities comprising the Companys customer base and their
dispersion across many different industries. The Company does
not require collateral on trade accounts receivable. As of July
28, 2001, five customers accounted for 19% of accounts receivable
and five customers accounted for 37% of the net investment in
capitalized leases. For July 28, 2001 sales to the U.S. Government amounted to
20% of total consolidated net revenues.

As of July 29, 2000, seven customers accounted for 26% of the
accounts receivable and three customers accounted for 35% of the net
investment in capitalized leases.

For July 29, 2000 sales to the U.S. Government amounted to
13% of total consolidated net revenues.

Other

Under the terms of sale to the U.S. Government, the negotiated
contract prices of combat boots are subject to renegotiation if
certain conditions are present. Management is of the opinion that
renegotiation, if any, will have no material adverse effect on the
Companys consolidated financial position or results of operations.

32



---



##### 



The Company has committed to provide maintenance and supplies
(excluding paper) on
$17.5 million of office products equipment under certain lease
agreements. Under these lease agreements, customers are charged on a
cost per copy basis and have agreed to a minimum copy usage per
quarter over the term of the lease. The terms of the lease agreements
range from three to six years. The minimum copy usage over the lease
term should cover the cost of the equipment, supplies, and service.
The average cost per copy rate in these lease agreements is $0.02.
Although the Company has committed to provide maintenance and
supplies (excluding paper), the Companys ability to recognize
additional revenue on these lease agreements is contingent upon the
customers actual copy usage exceeding the minimum copy usage in the
lease agreement. As a result of this contingency, the Company has
provided approximately $224,000 in fiscal 2001 and $426,000 in fiscal
2000 to offset any possible increase in the operating costs of these
programs or copy usage below estimated levels. For the last three
fiscal years, the Company recognized revenue in excess of the related
maintenance and supplies expenses for these lease agreements as the
actual copy usage had significantly exceeded the minimum copy usage
for the lease agreements.

10.     SHAREHOLDERS EQUITY

Common Stock

Each share of Class A Common Stock is entitled to one-tenth vote and
each share of Class B Common Stock is entitled to one full vote at
meetings of shareholders, except that Class A shareholders are
entitled to elect 25% and Class B shareholders are entitled to elect
75% of the directors. Each share of Class B Common Stock can be
converted to Class A Common Stock on a share for share basis. All
dividends paid on Class B Common Stock must also be paid on Class A
Common Stock in an equal amount.

During fiscal 1999, the Company adopted the McRae Industries, Inc.
1998 Incentive Equity Plan (the Plan). The Plan has reserved
100,000 shares of the Companys Class A Common Stock for issuance to
certain key employees of the Company. At July 28, 2001, there were
100,000 shares available for future grants under the Plan.

11.     RELATED PARTY TRANSACTIONS

Notes and accounts receivable from related entities that are included
in the balance sheet are as follows:

|                                                      |  |   |         |  |      |   |         |  | 
|----------------------------------------------------- |  | - | ------- |  | ---- | - | ------- |  | 
|                                                      |  |   | 2001    |  | 2000
|                                                      |  |   |         |  |     
|Investments in and advances to investee (see Note 12) |  | $ | 527,000 |  |      | $ | 652,000 | 
|                                                      |  |   |         |  |     

33



---



##### 



12.     INVESTMENT IN AMIC

The Company has an investment in a real estate development company,
American Mortgage & Investment Company (AMIC). AMIC has been
operating under Chapter X of the United States Bankruptcy Act since
1974, and the court has imposed certain restrictions under a Plan of
Reorganization. The President of the Company is also the President of
the AMIC. The Company adjusts its investment in and advances to the
AMIC by the equity method. Summarized financial data of the AMIC is
as follows:

|                      |                          |  |      |           |      |  |      |           |   |  |   |           |  
|--------------------- | ------------------------ |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                      |                          |  | 2001 |           | 2000 |  | 1999
|                      |                          |  |      |           |      |  |     
|Balance Sheet         |                          |  |      |           |      |  |      |           |   |  |   |          
|                      | Assets                   |  | $    | 1,457,000 |      |  | $    | 1,543,000 |   |  | $ | 1,579,000 |  
|                     
|                     
|                     
|                     
|                      | Liabilities              |  |      | 1,559,000 |      |  |      | 1,728,000 |   |  |   | 1,724,000 |  
|                     
|                     
|                     
|                     
|                      | Shareholders deficiency |  |      | (102,000  | )    |  |      | (185,000  | ) |  |   | (145,000  | )
|                     
|                     
|                     
|                     
|Results of Operations |                          |  |      |           |      |  |      |           |   |  |   |          
|                      | Revenues                 |  | $    | 573,000   |      |  | $    | 165,000   |   |  | $ | 297,000   |  
|                     
|                     
|                     
|                     
|                      | Net income (loss)        |  |      | 83,000    |      |  |      | (40,000   | ) |  |   | (29,000   | )

The following table summarizes the activity of the Companys
investment in AMIC:

|                                    |  |      |          |      |  |      |         |   |  |   |         |  
|----------------------------------- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                    |  | 2001 |          | 2000 |  | 1999
|                                    |  |      |          |      |  |     
|Beginning investment                |  | $    | 652,000  |      |  | $    | 729,000 |   |  | $ | 693,000 |  
|                                   
|                                   
|                                   
|                                   
|Equity in income (loss)             |  |      | 83,000   |      |  |      | (40,000 | ) |  |   | (29,000 | )
|                                   
|                                   
|                                   
|                                   
|Additional investments (repayments) |  |      | (208,000 | )    |  |      | (37,000 | ) |  |   | 65,000  |  
|                                    |  |      |          |      |  |      |         |   |  |   |         |  
|Ending investment                   |  | $    | 527,000  |      |  | $    | 652,000 |   |  | $ | 729,000 |  
|                                    |  |      |          |      |  |      |         |   |  |   |         |  

13.     FINANCIAL INSTRUMENTS

All financial instruments are held or issued for other than
trading purposes.

Management used the following methods and assumptions to estimate the
fair value of financial instruments:

Cash and cash equivalents:Because of the close proximity to
maturity, the carrying value of cash and cash equivalents
approximates fair value.

Marketable Securities:The fair values of marketable debt and equity
securities are based on quoted market prices.

Notes Receivable:For notes receivable, fair value is estimated
by discounting future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.

Cash Surrender Value Life Insurance:Represents officers life
insurance policies recorded at their cash surrender value, which
approximates fair value.

Long and short-term debt:The carrying amounts of the borrowings
under short-term revolving credit agreements approximate its fair
value. The fair value of long-term debt was estimated using
discounted cash flow analyses, based on the Companys current
incremental borrowing rates for similar types of borrowing
arrangements.

34



---



##### 



|            |                                         |        |          |           |      |  |   |           | 
|----------- | --------------------------------------- | ------ | -------- | --------- | ---- |  | - | --------- | 
|            |                                         |        | Carrying |           | Fair
|Assets      |                                         | Amount |          | Value    
|            |                                         |        |          |          
|            | Cash and cash equivalents               |        | $        | 7,341,000 |      |  | $ | 7,341,000 | 
|           
|           
|           
|           
|            | Short-term investments                  |        |          | 5,000     |      |  |   | 5,000     | 
|           
|           
|           
|           
|            | Notes receivable, related entities      |        |          | 527,000   |      |  |   | 527,000   | 
|           
|           
|           
|           
|            | Notes receivable, current and long-term |        |          | 597,000   |      |  |   | 597,000   | 
|           
|           
|           
|           
|            | Cash surrender value life insurance     |        |          | 2,041,000 |      |  |   | 2,041,000 | 
|           
|           
|           
|           
|Liabilities |                                         |        |          |           |      |  |   |          
|           
|           
|           
|           
|            | Long and short-term debt                |        |          | 5,005,000 |      |  |   | 5,005,000 | 

14.     SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

The following table sets forth unaudited quarterly financial
information for the years ended July 28, 2001 and July 29, 2000:

|                                                              |  |       |            |        |  |       |            |        |  |   |            |   |  |   |            |  
|------------------------------------------------------------- |  | ----- | ---------- | ------ |  | ----- | ---------- | ------ |  | - | ---------- | - |  | - | ---------- | -
|                                                              |  | First |            | Second |  | Third |            | Fourth
|                                                              |  |       |            |        |  |       |            |       
|July 28, 2001                                                 |  |       |            |        |  |       |            |        |  |   |            |   |  |   |            |  
|Net revenues                                                  |  | $     | 16,525,000 |        |  | $     | 13,835,000 |        |  | $ | 12,786,000 |   |  | $ | 13,999,000 |  
|                                                             
|                                                             
|                                                             
|                                                             
|Gross profit                                                  |  |       | 3,896,000  |        |  |       | 3,345,000  |        |  |   | 2,951,000  |   |  |   | 2,690,000  |  
|                                                             
|                                                             
|                                                             
|                                                             
|Operating income (loss)                                       |  |       | 430,000    |        |  |       | (137,000   | )      |  |   | (497,000   | ) |  |   | (844,000   | )
|                                                             
|                                                             
|                                                             
|                                                             
|Income (loss) from continuing
operations                      |  |       | 267,000    |        |  |       | (143,000   | )      |  |   | (298,000   | ) |  |   | (397,000   | )
|                                                             
|                                                             
|                                                             
|                                                             
|Income (loss) from
discontinued operations,
net of income tax |  |       | (238,000   | )      |  |       | (26,000    | )      |  |   | (1,000     | ) |  |   | 139,000    |  
|                                                             
|                                                             
|                                                             
|                                                             
|Net income (loss)                                             |  |       | 29,000     |        |  |       | (169,000   | )      |  |   | (299,000   | ) |  |   | (258,000   | )
|                                                             
|                                                             
|                                                             
|                                                             
|Net income (loss) per
common share                            |  |       | .01        |        |  |       | (.06       | )      |  |   | (.11       | ) |  |   | (.09       | )
|                                                             
|                                                             
|                                                             
|                                                             
|July 29, 2000                                                 |  |       |            |        |  |       |            |        |  |   |            |   |  |   |            |  
|                                                             
|                                                             
|                                                             
|                                                             
|Net revenues                                                  |  | $     | 14,178,000 |        |  | $     | 13,225,000 |        |  | $ | 14,525,000 |   |  | $ | 15,213,000 |  
|                                                             
|                                                             
|                                                             
|                                                             
|Gross profit                                                  |  |       | 4,108,000  |        |  |       | 3,512,000  |        |  |   | 3,510,000  |   |  |   | 3,733,000  |  
|                                                             
|                                                             
|                                                             
|                                                             
|Operating income                                              |  |       | 967,000    |        |  |       | 695,000    |        |  |   | 301,000    |   |  |   | 606,000    |  
|                                                             
|                                                             
|                                                             
|                                                             
|Income from continuing
operations                             |  |       | 588,000    |        |  |       | 415,000    |        |  |   | 197,000    |   |  |   | 302,000    |  
|                                                             
|                                                             
|                                                             
|                                                             
|Income (loss) from
discontinued operations,
net of income tax |  |       | (25,000    | )      |  |       | (21,000    | )      |  |   | (33,000    | ) |  |   | (66,000    | )
|                                                             
|                                                             
|                                                             
|                                                             
|Net income                                                    |  |       | 563,000    |        |  |       | 394,000    |        |  |   | 164,000    |   |  |   | 236,000    |  
|                                                             
|                                                             
|                                                             
|                                                             
|Net income per common share                                   |  |       | .20        |        |  |       | .14        |        |  |   | .06        |   |  |   | .09        |  

Reclassifications affecting cost of sales for certain employee
benefit costs have been made to the prior quarters and prior year
amounts to conform with the current year presentation.

15.     DISCONTINUED OPERATIONS

In August 2000, the Company adopted a plan to discontinue the
operations of Rae-Print and operations ceased on April 28, 2001. This
subsidiary generated revenues of approximately $2.0 million, $3.1
million, and $3.2 million and incurred operating losses of
approximately $41,000, $145,000, and $33,000 in fiscal 2001, 2000, and
1999, respectively. At July 28, 2001, receivables, inventory, and
equipment with an estimated fair market value of $200,000 were
included in accounts receivable.

35



---



##### 



16.     SUBSEQUENT EVENTS

On August 28, 2001, the Company declared a cash dividend of $.05
cents per share of its Class A Common Stock payable on September 28,
2001 to shareholders of record on September 14, 2001.

In September 2001, the U.S. Government notified the Company to
increase the production levels of military combat boots as a result
of the deployment of American troops in the war against terrorism.
The higher production levels represent an approximate 60% increase
over the quantities normally purchased by the U.S. Government under
the existing contract.

On October 3, 2001, the Companys American West subsidiary purchased
the Dan Post brand name and certain inventory from Lucchese, Inc., a
wholly owned subsidiary of Arena Brands, Inc., for approximately $2.6
million.

36



---



##### 



17.     OPERATING SEGMENT INFORMATION

The Companys principal operations have been classified into four business
segments: bar code operations; office products; printing and packaging;
and footwear manufacturing. The bar code segment manufactures and sells
bar code reading and related printing devices and other products related
to optical data collection to customers throughout the United States. The
office products segment sells, provides maintenance and leases Toshiba
photocopiers, Toshiba facsimile machines, and RISO digital duplicators,
principally to customers in North Carolina and parts of Virginia and South
Carolina. Machines, components, and certain supplies sold by the office
products segment are generally available only from Toshiba and RISO. The
footwear segment manufactures combat boots, military dress oxfords, and
military safety boots for the U.S. Government and foreign governments, and
western and work boots for customers throughout the United States. The
printing and packaging segment provided print materials and packaging
services for commercial and industrial customers, and was discontinued
during fiscal 2001. Total consolidated revenues related to sales to the
U.S. Government were 20% in 2001, 14% in 2000, and 14% in 1999. There were
no significant inter-segment sales or transfers during 2001, 2000, and
1999. Operating profits by business segment exclude allocated corporate
interest income, income taxes, minority interest, and equity in net loss
of investee. Corporate assets consist principally of cash, short-term
investments, certain receivables, and real estate held for investment.

|                                 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |        |  
|-------------------------------- | ------------------------------------- | ----- | -------- | ------ | ---- | -------- | -------- | -------- | - | -------- | ------ | ------- | - | ------------ | - | ------ | --------- |  | - | ----- | - |  | - | ----- | - |  | - | ------ | -
|                                 |                                       |       |          |        |      |          | Western/ |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |  
|                                 |                                       |       | Military |        | Work |          |          |          |   |          | Office |         |   |              |   |        | Corporate |  |   |       |  
|(In Thousands)                   |                                       | Boots |          | Boots  |      | Bar Code |          | Products |   | Printing |        | & Other |   | Consolidated
|                                 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |             
|For
the Year Ended July 28, 2001 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |       
|                                
|                                
|                                
|                                
|                                 | Net Revenues                          |       | $        | 16,792 |      |          | $        | 9,371    |   |          | $      | 12,454  |   |              | $ | 18,640 |           |  | $ | 1,979 |   |  | $ | (112  | ) |  | $ | 59,124 |  
|                                
|                                
|                                
|                                
|                                 | Earnings
(loss) from
operations       |       |          | 3,406  |      |          |          | (550     | ) |          |        | (1,933  | ) |              |   | (2,028 | )         |  |   | (65   | ) |  |   | 57    |   |  |   | (1,113 | )
|                                
|                                
|                                
|                                
|                                 | Identifiable assets                   |       |          | 1,552  |      |          |          | 8,599    |   |          |        | 8,748   |   |              |   | 12,903 |           |  |   | 0     |   |  |   | 6,294 |   |  |   | 38,096 |  
|                                
|                                
|                                
|                                
|                                 | Capital expenditures                  |       |          | 25     |      |          |          | 118      |   |          |        | 47      |   |              |   | 993    |           |  |   | 0     |   |  |   | 12    |   |  |   | 1,195  |  
|                                
|                                
|                                
|                                
|                                 | Depreciation expense
and amortization |       |          | 103    |      |          |          | 96       |   |          |        | 224     |   |              |   | 748    |           |  |   | 32    |   |  |   | 228   |   |  |   | 1,431  |  
|                                 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |       
|For the Year Ended July 29, 2000 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |       
|                                
|                                
|                                
|                                
|                                 | Net Revenues                          |       | $        | 12,395 |      |          | $        | 7,866    |   |          | $      | 16,422  |   |              | $ | 20,678 |           |  | $ | 3,071 |   |  | $ | (220  | ) |  | $ | 60,212 |  
|                                
|                                
|                                
|                                
|                                 | Earnings
(loss) from
operations       |       |          | 2,329  |      |          |          | (542     | ) |          |        | (206    | ) |              |   | 1,038  |           |  |   | (215  | ) |  |   | (52   | ) |  |   | 2,352  |  
|                                
|                                
|                                
|                                
|                                 | Identifiable assets                   |       |          | 2,381  |      |          |          | 5,791    |   |          |        | 11,159  |   |              |   | 15,462 |           |  |   | 1,523 |   |  |   | 6,385 |   |  |   | 42,701 |  
|                                
|                                
|                                
|                                
|                                 | Capital expenditures                  |       |          | 122    |      |          |          | 0        |   |          |        | 256     |   |              |   | 633    |           |  |   | 141   |   |  |   | 215   |   |  |   | 1,367  |  
|                                
|                                
|                                
|                                
|                                 | Depreciation expense
and amortization |       |          | 108    |      |          |          | 213      |   |          |        | 168     |   |              |   | 751    |           |  |   | 29    |   |  |   | 256   |   |  |   | 1,525  |  
|                                 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |       
|                                 | For the Year Ended July 31, 1999      |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |        |  
|                                
|                                
|                                
|                                
|                                 | Net Revenues                          |       | $        | 7,365  |      |          | $        | 6,402    |   |          | $      | 14,695  |   |              | $ | 19,846 |           |  | $ | 3,164 |   |  | $ | (19   | ) |  | $ | 51,453 |  
|                                
|                                
|                                
|                                
|                                 | Earnings
(loss) from
operations       |       |          | 1,316  |      |          |          | (704     | ) |          |        | 146     |   |              |   | 721    |           |  |   | (73   | ) |  |   | (72   | ) |  |   | 1,334  |  
|                                
|                                
|                                
|                                
|                                 | Identifiable assets                   |       |          | 2,130  |      |          |          | 5,828    |   |          |        | 9,169   |   |              |   | 15,157 |           |  |   | 1,955 |   |  |   | 5,712 |   |  |   | 39,951 |  
|                                
|                                
|                                
|                                
|                                 | Capital expenditures                  |       |          | 24     |      |          |          | 64       |   |          |        | 206     |   |              |   | 1,400  |           |  |   | 5     |   |  |   | 96    |   |  |   | 1,795  |  
|                                
|                                
|                                
|                                
|                                 | Depreciation expense
and amortization |       |          | 119    |      |          |          | 318      |   |          |        | 181     |   |              |   | 653    |           |  |   | 25    |   |  |   | 270   |   |  |   | 1,566  |  
|                                 |                                       |       |          |        |      |          |          |          |   |          |        |         |   |              |   |        |           |  |   |       |   |  |   |       |   |  |   |       

37



---



##### 



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
McRAE INDUSTRIES, INC. AND SUBSIDIARIES

|                                     |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|------------------------------------ | -------- | ---------- | ------- | ---------- |  | -------- | -------- | --------- |  | --------- |  |  |  | - | -------- | ---- |  | - | ------- | 
|                                     |          | ADDITIONS 
|                                     |          |            |         |            |  | (1)      |          | (2)       |  |           |  |  |  |   |          |     
|DESCRIPTION                          |          | BALANCE AT |         | CHARGED TO |  | CHARGED  |          | DEDUCTION |  | BALANCE  
|                                     |          | BEGINNING  |         | COSTS AND  |  | TO OTHER |          | DESCRIBE  |  | AT END OF
|                                     |          | OF PERIOD  |         | EXPENSES   |  | ACCOUNTS |          |           |  | PERIOD   
|                                     | DESCRIBE |            |         |            |  |         
|Year ended July 28, 2001             |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|                                    
|                                    
|                                    
|                                    
|Deducted from Assets Accounts:       |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|                                    
|                                    
|                                    
|                                    
|Allowance for Doubtful Accounts      |          | $          | 440,000 |            |  | $        | (251,000 | )         |  |           |  |  |  | $ | 164,000  | (1)  |  | $ | 353,000 | 
|                                    
|                                    
|                                    
|                                    
|Employee Benefit Accrual             |          |            | 276,000 |            |  |          | 240,000  |           |  |           |  |  |  |   | (277,000 | )(2) |  |   | 239,000 | 
|                                    
|                                    
|                                    
|                                    
|Health Insurance Accrual             |          |            | 250,000 |            |  |          |         |           |  |           |  |  |  |   |         |      |  |   | 250,000 | 
|                                    
|                                    
|                                    
|                                    
|Allowance for contract contingencies |          |            | 426,000 |            |  |          | 224,000  |           |  |           |  |  |  |   |         |      |  |   | 650,000 | 
|                                    
|                                    
|                                    
|                                    
|Year ended July 29, 2000             |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|                                    
|                                    
|                                    
|                                    
|Deducted from Assets Accounts:       |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|                                    
|                                    
|                                    
|                                    
|Allowance for Doubtful Accounts      |          | $          | 561,000 |            |  | $        | (235,000 | )         |  |           |  |  |  | $ | 114,000  | (1)  |  | $ | 440,000 | 
|                                    
|                                    
|                                    
|                                    
|Employee Benefit Accrual             |          |            | 250,000 |            |  |          | 262,000  |           |  |           |  |  |  |   | (236,000 | )(2) |  |   | 276,000 | 
|                                    
|                                    
|                                    
|                                    
|Health Insurance Accrual             |          |            | 212,000 |            |  |          |         |           |  |           |  |  |  |   | 38,000   | (2)  |  |   | 250,000 | 
|                                    
|                                    
|                                    
|                                    
|Allowance for contract contingencies |          |            |        |            |  |          | 426,000  |           |  |           |  |  |  |   |         |      |  |   | 426,000 | 
|                                    
|                                    
|                                    
|                                    
|Year ended July 31, 1999             |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|                                    
|                                    
|                                    
|                                    
|Deducted from Assets Accounts:       |          |            |         |            |  |          |          |           |  |           |  |  |  |   |          |      |  |   |         | 
|                                    
|                                    
|                                    
|                                    
|Allowance for Doubtful Accounts      |          | $          | 718,000 |            |  | $        | (233,000 | )         |  |           |  |  |  | $ | 76,000   | (1)  |  | $ | 561,000 | 
|                                    
|                                    
|                                    
|                                    
|Employee Benefit Accrual             |          |            | 550,000 |            |  |          | 4,000    |           |  |           |  |  |  |   | (304,000 | )(2) |  |   | 250,000 | 
|                                    
|                                    
|                                    
|                                    
|Health Insurance Accrual             |          |            | 192,000 |            |  |          |         |           |  |           |  |  |  |   | 20,000   | (2)  |  |   | 212,000 | 



---

|(1) |  | Uncollectible accounts written off            
|--- |  | ----------------------------------------------
|   
|(2) |  | Payments and/or expenses charged to operations

38



---



##### 



ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL DISCLOSURE

None.

PART III

Items 10 through 13 are incorporated herein by reference to the
sections captioned Principal Stockholders and Holdings of
Management; Election of Directors; Director Compensation;
Executive Officers; Compensation Committee Interlocks and
Insider Participation; Certain Relationships and Related
Transactions; Executive Compensation; Stock Performance Graph;
Compensation Committee Report; and Section 16 (a) Beneficial
Ownership Reporting Compliance in the Registrants Proxy
Statement for the Annual Meeting of Shareholders to be held
December 20, 2001.

PART IV

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

|       |  |                                                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)(1) |  | Independent auditors report
McRae Industries, Inc. and Subsidiaries consolidated financial
statements:                                               
|      
|      
|      
|      
|       |  | Consolidated Balance Sheets as of July 28, 2001 and July 29,
2000.                                                                                    
|      
|      
|      
|      
|       |  | Consolidated Statements of Operations for the Years Ended July 28, 2001,
July 29, 2000, and July 31, 1999.                                            
|      
|      
|      
|      
|       |  | Consolidated Statements of Shareholders Equity for the Years Ended
July 28, 2001, July 29, 2000, and July 31, 1999.                                  
|      
|      
|      
|      
|       |  | Consolidated Statements of Cash Flows for the Years Ended July 28, 2001,
July 29, 2000, and July 31, 1999.                                            
|      
|      
|      
|      
|       |  | Notes to Consolidated Financial Statements.                                                                                                           
|      
|      
|      
|      
|(2)    |  | Financial Statement Schedule:                                                                                                                         
|      
|      
|      
|      
|       |  | Schedule II                                                                                                                                           
|      
|      
|      
|      
|(3)    |  | Exhibits:                                                                                                                                             
|      
|      
|      
|      
|3.1    |  | Certificate of Incorporation (Incorporated by reference to
Exhibit 3.1 to the Registrants Form S-14, Registration
No. 2-85908)                       
|      
|      
|      
|      
|3.2    |  | Amendment to the Certificate of Incorporation (Incorporated by
reference to Exhibit 3 to the Registrants Form
10-K for the year ended August 1, 1987)
|      
|      
|      
|      
|3.3    |  | Restated Bylaws of the Registrant effective May 29, 2001
(filed herein). Pages 43-52.                                                                 

39



---



##### 



|     |  |                                                                                                                                                                                                                                                                                                                   
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|10.1 |  | 1985 McRae Industries, Inc. Non-Qualified Stock Option Plan
(Incorporated by reference to Exhibit 10 to the
Registrants Form 10-K for the fiscal year ended August 3, 1985).*                                                                                                                                    
|    
|    
|    
|    
|10.2 |  | Technical Assistance Agreement dated September 13, 1984 between
the Registrant and Ro-Search, Incorporated
(Incorporated by reference to Exhibit 10.4 to the
Registrants Form 10-K for the fiscal year ended July 28, 1984)                                                                                      
|    
|    
|    
|    
|10.3 |  | Stock Purchase Agreement and Guaranty Agreement as of April 7,
1996 among Walter A. Dupuis, Kenneth O. Moore, William
Glover, and McRae Industries, Inc., was filed as Exhibit 2
to the Registrants current report on Form 8-K filed May
11, 1996 and is incorporated herein by reference.                       
|    
|    
|    
|    
|10.4 |  | Promissory Note, Security Agreement and Guaranty Agreement dated
July 25, 1996 among American West Trading Company, as
borrower, The Fidelity Bank, as lender, and
the Registrant, as Guarantor (Incorporated by reference to
Exhibit 10.5 to the Registrants Form 10-K for the
fiscal year ended August 3, 1996)
|    
|    
|    
|    
|10.5 |  | Deed of Trust between American West Trading Company and The
Fidelity Bank, dated July 25, 1996 (Incorporated by
reference to Exhibit 10.6 to the Registrants Form 10-K
for the fiscal year ended August 3, 1996)                                                                                                 
|    
|    
|    
|    
|10.6 |  | Security Agreement pertaining to inventory, accounts receivable
and equipment between American West Trading Company
and The Fidelity Bank, dated July 25, 1996 (Incorporated
by reference to Exhibit 10.7 to the Registrants Form
10-K for the fiscal year ended August 3, 1996)                                 
|    
|    
|    
|    
|10.7 |  | Award/Contract between Defense Personnel Support Center and
McRae Industries, Inc. dated April 15, 1997
(Incorporated by reference to Exhibit 10.8 to the
Registrants Form 10-K for the fiscal year ended
August 2, 1997)                                                                                        
|    
|    
|    
|    
|10.8 |  | McRae Industries, Inc. Incentive Equity Plan (Incorporated
by reference to Exhibit 4 to the Registrants Form S-8 dated
January 6, 1999).*                                                                                                                                                                        
|    
|    
|    
|    
|10.9 |  | Modification of Award/Contract between Defense Personnel Support
Center and McRae Industries, Inc. dated May 1, 2001. (Filed herein). Pages
53-76.                                                                                                                                                                
|    
|    
|    
|    
|21   |  | Subsidiaries of the Registrant (Filed herein). Page 77.                                                                                                                                                                                                                                                           
|    
|    
|    
|    
|23   |  | Consent of Independent Auditors (Filed herein). Page 78.                                                                                                                                                                                                                                                          

---

*Denotes a management contract or compensatory plan or arrangement.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | (b) Reports
on Form 8-K:                                                         
|
| | The Company filed no reports on Form 8-K for the fiscal
year ended July 28, 2001.

40



---



##### 



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.

|                        |  |     |  |                                         
|----------------------- |  | --- |  | ----------------------------------------
|McRAE INDUSTRIES, INC. 
|                       
|Dated: October 26, 2001 |  | By: |  | /s/ D. Gary McRaeD. Gary McRae
President

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:

|                                                                                                     |  |                 
|---------------------------------------------------------------------------------------------------- |  | ----------------
|SIGNATURE                                                                                            |  | DATE            
|                                                                                                    
|/s/ D. Gary McRaeD. Gary McRae
President, Treasurer, and Director
(Principal Executive Officer)      |  | October 26, 2001
|                                                                                                    
|/s/ George M. BrutonGeorge M. Bruton
Director                                                        |  | October 26, 2001
|                                                                                                    
|/s/ Hilton J. CochranHilton J. Cochran
Director                                                      |  | October 26, 2001
|                                                                                                    
|/s/ Brady W. DicksonBrady W. Dickson
Director                                                        |  | October 26, 2001
|                                                                                                    
|/s/ Victor A. KaramVictor A. Karam
President  McRae Footwear and Director                           |  | October 26, 2001
|                                                                                                    
|/s/ James W. McRaeJames W. McRae
Vice President, Secretary, and Director                             |  | October 26, 2001
|                                                                                                    
|/s/ Harold W. SmithHarold W. Smith
Vice President  McRae Office Solutions
and Director              |  | October 26, 2001
|                                                                                                    
|/s/ Marvin G. Kiser, Sr.Marvin G. Kiser, Sr.
Controller
(Principal Financial and Accounting Officer) |  | October 26, 2001

41



---



##### 



EXHIBIT INDEX

|     |  |                                                                                                                                                                                                                                                                                                                  
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificates of Incorporation (Incorporation by reference to Exhibit
3.1 to the Registrants Form S-14, Registration No. 2-85908)                                                                                                                                                                                
|    
|    
|    
|    
|3.2  |  | Amendment to the Certificate of Incorporation (Incorporated by
reference to Exhibit 3 to the Registrants Form 10-K for the fiscal
year ended August 1, 1987)                                                                                                                                                    
|    
|    
|    
|    
|3.3  |  | Restated Bylaws of the Registrant effective May 29, 2001 (filed
herein). Pages 43-52.                                                                                                                                                                                                                            
|    
|    
|    
|    
|10.1 |  | 1985 McRae Industries, Inc. Non-Qualified Stock Option Plan
(Incorporated by the reference to Exhibit 10 to the Registrants Form
10-K for the fiscal year ended August 3, 1985)                                                                                                                                 
|    
|    
|    
|    
|10.2 |  | Technical Assistance Agreement dated September 13, 1984 between the
Registrant and Ro-Search, Incorporated (Incorporated by reference to
Exhibit 10.4 to the Registrants Form 10-K for the fiscal year July 28,
1984)                                                                                           
|    
|    
|    
|    
|10.3 |  | Stock Purchase Agreement and Guaranty Agreement as of April 17, 1996
among Walter A. Dupuis, Kenneth O. Moore, William Glover, and McRae
Industries, Inc., was filed as Exhibit 2 to the Registrants current
report on Form 8-K filed May 11, 1996 and is incorporated herein by
reference.                     
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|10.4 |  | Promissory Note, Security Agreement and Guaranty Agreement dated July
25, 1996 among American West Trading Company, as borrower, The Fidelity
Bank, as lender and the Registrant, as Guarantor (Incorporated by
reference to Exhibit 10.5 to the Registrants Form 10-K for the fiscal
year ended August 3, 1996)
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|10.5 |  | Deed of Trust between American West Trading Company and The Fidelity
Bank, dated July 25, 1996 (Incorporated by reference to Exhibit 10.6 to
the Registrants Form 10-K for the fiscal year ended August 3, 1996)                                                                                                
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|10.6 |  | Security Agreement pertaining to inventory, accounts receivable and
equipment between American West Trading Company and The Fidelity Bank,
dated July 25, 1996 (Incorporated by reference to Exhibit 10.7 to the
Registrants Form 10-K for the fiscal year ended August 3, 1996)                                
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|10.7 |  | Award/Contract between Defense Personnel Support Center and McRae
Industries, Inc. dated April 15, 1997 (Incorporated by reference to
Exhibit 10.8 to the Registrants Form 10-K for the fiscal year ended
August 2, 1997)                                                                                       
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|10.8 |  | McRae Industries, Inc. Incentive Equity Plan (Incorporate by reference
to Exhibit 4 to the Registrants Form S-8 dated January 6, 1999)                                                                                                                                                                          
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|10.9 |  | Modification of Award/Contract between Defense Personnel Support Center
and McRae Industries, Inc. dated May 1, 2001. (Filed herein). Pages
53-76.                                                                                                                                                               
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|21   |  | Subsidiaries of the Registrant (Filed herein). Page 77.                                                                                                                                                                                                                                                          
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|23   |  | Consent of Independent Auditors (Filed herein). Page 78.                                                                                                                                                                                                                                                         

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