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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 6, 1999

COMMISSION FILE NUMBER -- 0-7277

FRESH FOODS, INC.
(Exact name of registrant as specified in its charter)

NORTH CAROLINA 56-0945643

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

361 SECOND STREET, NW, HICKORY, NORTH CAROLINA 28601
TELEPHONE: (828) 304-0027
(Address of principal executive offices)

Securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934:

COMMON STOCK, PAR VALUE $1.00 PER SHARE

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 twelve months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

The number of shares of Fresh Foods, Inc. Common Stock outstanding as of
May 3, 1999 was 5,809,199. The aggregate market value of Fresh Foods, Inc.
Common Stock held by nonaffiliates of Fresh Foods, Inc. as of May 3, 1999 was
$21,556,318.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the
Registrant's definitive proxy statement to be filed with respect to its Annual
Meeting of Shareholders to be held on July 22, 1999.

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2

TABLE OF CONTENTS

ITEM NUMBER PAGE
----------- ----

PART I
Item 1. Business........................................... 1
Overview.................................................. 1
Business Segments......................................... 2
Food Processing Operations................................ 2
Restaurant Operations..................................... 8
Ham Curing Operations..................................... 12
Trademarks and Licensing.................................. 12
Competition............................................... 12
Government Regulation..................................... 13
Employees................................................. 13

Item 2. Properties......................................... 13

Item 3. Legal Proceedings.................................. 14

Item 4. Submission of Matters to a Vote of Security
Holders................................................... 14

Item 4A. Executive Officers of the Registrant.............. 14

PART II

Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters........................... 15

Item 6. Selected Financial Data............................ 16
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations............................. 16
Results of Operations..................................... 17
Liquidity and Capital Resources........................... 20
Inflation................................................. 21
Seasonality............................................... 21
"Year 2000" Issues........................................ 21
New Accounting Pronouncements............................. 22

Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................... 22

Item 8. Financial Statements and Supplementary Data........ 23

Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial Disclosure.............................. 23

PART III

Item 10. Directors and Executive Officers of the
Registrant................................................ 23

Item 11. Executive Compensation............................ 23

Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 23

Item 13. Certain Relationships and Related Transactions.... 23

PART IV

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 24

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PART I

ITEM 1. BUSINESS

OVERVIEW

Fresh Foods, Inc. (the "Company" or "Fresh Foods") is a leading vertically
integrated producer and marketer of fully-cooked branded and private label
protein and bakery products and microwaveable sandwiches for the domestic
foodservice market. The Company sells its high-quality, value-added products
through various distribution channels under the Pierre(TM), Fast Choice(R), Fast
Bites(TM) and Mom 'n' Pop's(R) brand names, which are widely recognized in the
food industry. In addition to its food processing business, the Company owns and
operates 67, and franchises an additional 36, restaurants operating under the
Sagebrush, Western Steer, Prime Sirloin and Bennett's concepts. In its fiscal
year ended March 6, 1999, the Company had revenues of $258.3 million.

The Company's predecessor was founded in 1966 to own and operate
restaurants, initially under the Mom 'n' Pop's Ham House concept and later under
the Western Steer family steakhouse and other concepts. The Company acquired
Sagebrush, Inc. in a stock for stock transaction accounted for as a pooling of
interests in January 1998 as a vehicle for market penetration and unit growth of
its restaurant business. Since the acquisition, the Company has added 16
Sagebrush restaurants, consisting of nine conversions of the Company's
buffet-style restaurants, three conversions of restaurants operated by
franchisees, one conversion of a restaurant owned by another chain and three new
restaurants. The Company's food processing business was originally developed to
support its restaurants, but has grown independently to become its principal
business. In recognition of this fact, in May 1998, the Company, then known as
"WSMP, Inc.," changed its name to "Fresh Foods, Inc." In June 1998, Fresh Foods
consummated the purchase of substantially all of the business in Cincinnati,
Ohio, and a portion of the business in Caryville, Tennessee (collectively,
"Pierre"), conducted by the Pierre Foods Division of Hudson Foods, Inc.
("Hudson"), a subsidiary of Tyson Foods, Inc. ("Tyson"). The acquisition has
been accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. Pierre is a value-added food processor selling principally to
the foodservice market. In September 1998 the Company implemented a tax-exempt
reorganization of its corporate structure in order to streamline corporate
governance, improve corporate efficiencies and synergies, improve asset
allocation and accomplish other corporate objectives. The reorganization
established Fresh Foods, Inc. as a holding company, consolidated 32 subsidiaries
into 12 subsidiaries and separated the Company's food processing and restaurant
businesses.

Pursuant to the acquisition of Pierre, the Company is a leading
manufacturer of fully-cooked branded and private label protein and bakery
products and is, to management's knowledge, the only integrated producer of
microwaveable sandwiches. At its Cincinnati facility, the Company produces
specialty beef, poultry and pork products that provide superior quality and are
typically custom-developed to meet specific customer requirements. The Company
adds further value for its customers by offering comprehensive food solutions,
including proprietary product development, special ingredients and recipes as
well as custom packaging programs. The Company's bakery and sandwich assembly
plant is located at the Company's Claremont facility. The Company sells
primarily to the foodservice market, focusing on premium market niches, where it
offers customers the ability to outsource critical product development and food
processing functions, resulting in reduced labor costs, improved product quality
and consistency, improved portion control and waste reduction and greater
product safety.

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The Company has engaged Bowles Hollowell Conner & Co., a division of First
Union Capital Markets Corp., to pursue strategic alternatives to enhance the
market price of the Company's common stock. See Item 5 of this Report for recent
market price information.

Certain statements made in this Report are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties that may cause actual
results to differ materially from expected results. As detailed in Exhibit 99.1
to this Report, with respect to the Company these risks and uncertainties
include: substantial leverage; restrictions imposed by the Company's debt
instruments; management control; competition; government regulation; general
risks of the food industry; adverse changes in food costs and availability of
supplies; dependence on key personnel; and "Year 2000" issues. This list of
risks and uncertainties is not exhaustive. Also, new risk factors emerge over
time. Investors should not place undue reliance on the predictive value of
forward-looking statements.

In this Report, unless the context otherwise requires, the term "Company"
refers to Fresh Foods, Inc. and its subsidiaries. The Company's fiscal year
ended February 28, 1997 is referred to as "fiscal 1997"; its fiscal year ended
February 27, 1998 is referred to as "fiscal 1998"; and its fiscal year ended
March 6, 1999 is referred to as "fiscal 1999."

BUSINESS SEGMENTS

The Company operates in three business segments: food processing
operations, restaurant operations and ham curing operations. Information as to
revenue, operating profit, identifiable assets, depreciation and amortization
expense and capital expenditures for each of the Company's business segments for
fiscal 1999 is contained herein by reference to Item 8, "Financial Statements
and Supplementary Data," incorporating the information under the caption "Major
Business Segments" in Note 14 to the Company's consolidated financial
statements.

REVENUES BY SOURCE

FISCAL 1999 FISCAL 1998 FISCAL 1997
-------------------- -------------------- --------------------
REVENUES % REVENUES % REVENUES %
------------- ---- ------------- ---- ------------- ----
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)

Food Processing........................... $149.8 58.0 $56.4 35.8 $48.2 37.2
Fully-Cooked Protein Products........... 89.9 34.8 0 0 0 0
Microwaveable Sandwiches................ 52.4 20.3 45.2 28.7 41.7 32.2
Bakery and Other Products............... 7.5 2.9 11.2 7.1 6.5 5.0
Restaurants............................... 101.4 39.3 91.3 58.0 70.9 54.7
Ham Curing................................ 7.1 2.7 9.9 6.2 10.4 8.1

FOOD PROCESSING OPERATIONS

Overview

The Company is a leading manufacturer of fully-cooked branded and private
label protein and bakery products and is, to management's knowledge, the only
integrated producer of microwaveable sandwiches. The Company provides specialty
beef, poultry, and pork products formed and portioned to meet specific customer
requirements. The Company sells primarily to the foodservice market, offering
its customers the ability to outsource critical product development and food
processing functions, resulting in reduced labor costs, improved product quality
and consistency, improved portion control and waste reduction and greater
product safety. Within the foodservice industry, the Company identifies niche
markets that place premiums on the Company's differentiated products and
value-added services. The Company's primary markets include leading national
restaurant chains, primary and secondary schools, vending, convenience stores
and other niche foodservice markets. In addition, the Company sells fully-cooked
protein and bakery products and microwaveable sandwiches to warehouse clubs and
other non-foodservice markets.

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The Company purchased Pierre from Tyson in June 1998 and the acquired
business was subsequently combined with the Company's sandwich assembly
operation. While Pierre has always been one of the largest providers of
differentiated meat products in the United States, since the acquisition
management has been able to increase sales and earnings as a result of a renewed
focus on new customer and market development, the shift in product mix to
higher-margin core products, improvements in plant efficiencies, the integration
of the Cincinnati and Claremont facilities and the implementation of
profitability initiatives, including reduction of overhead.

According to industry sources, the domestic market for frozen, fully-cooked
protein products is growing rapidly. A number of factors are driving the growth,
including: (i) increased outsourcing by foodservice providers in order to
maximize food safety, reduce costs and ensure product consistency; (ii)
increased consumer demand for convenience products such as fully-cooked products
and convenience sandwiches; and (iii) rising public concern over food safety and
increased government regulation in the food processing industry. The Company is
well-positioned to capitalize on these trends as a leading supplier of a wide
array of differentiated, fully-cooked protein products and convenience
sandwiches to a variety of distribution channels and a fully-compliant,
top-quality manufacturer.

The food processing industry is subject to increasing federal, state and
local government regulation. In particular, the Hazard Analysis and Critical
Control Points ("HACCP") standards of the United States Department of
Agriculture (the "USDA"), requiring the implementation of a seven-step system
for preventing hazards that could cause food-borne illnesses, will go into
effect on January 25, 2000 for all food manufacturers with over ten employees
and $2.5 million in sales. The HACCP system governing the preparation and
production of food has made it more difficult for foodservice and smaller food
processing companies to prepare their own food products. As a fully-compliant
HACCP manufacturer and a leading producer of value-added protein products, the
Company is well positioned to capitalize on the implementation of the HACCP
standards.

Food Products

The Company produces a wide variety of fully-cooked differentiated protein
products, hand-held convenience sandwiches and value-added bakery products.
These products provide superior quality and are typically custom-developed to
meet specific customer requirements. The Company adds value for its customers by
offering comprehensive food solutions, including proprietary product
development, special ingredients and recipes as well as custom packaging
programs. The Company's current product line consists of over 1,000 stock
keeping units ("SKUs"). In fiscal 1999, the Company's revenues from food
processing operations totaled approximately $149.8 million, accounting for 58.0%
of the Company's revenues.

The Company purchases raw poultry, raw beef, seasonings, raw pork and soy,
which it processes into a broad range of fully-cooked food products at its
Cincinnati facility. The fully-cooked portions are immediately frozen and either
packaged for sale or shipped to the Company's Claremont facility to be combined
with the Company's specialty bread products to form sandwiches. The Company also
purchases bakery ingredients, which are blended, using technologically-advanced
equipment and the Company's proprietary recipes, and baked into yeast rolls and
biscuits at its Claremont facility. The bakery products are then either sold or
combined with meat and other fillings to create sandwiches. The Company's food
products are sold to foodservice customers such as restaurant chains,
convenience stores, schools and other niche food service markets or through
various other distribution channels, including warehouse clubs and other
non-foodservice markets.

The Company's longstanding customer relationships, reputation for
high-quality products, proprietary recipes and national presence enable it to
compete effectively in the markets that it serves. The Company has developed
customized meat and bread recipes that are specifically designed to maintain
flavor and texture under specialized applications, such as microwave oven
conditions, resulting in higher-quality meals and greater customer satisfaction.
The Company's product development team works closely with customers to develop
new products for specific customer applications. By working closely with its
customers during the product development stage, the Company has become an
integral component of their operations, as evidenced

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6

by the fact that the Company has sold to its fifteen largest customers for an
average of more than ten years. In fiscal 1999, however, no one customer
accounted for more than 3.0% of the Company's revenues.

Each of the Company's food products is well-known in the marketplace for
quality, consistency and food safety. This reputation has created strong
customer loyalty as these attributes are several of the most important
purchasing criteria within the markets for fully-cooked protein and bakery
products. Additionally, the Company's fully-cooked products reduce costs
associated with labor, waste, preparation, storage and administration and
provide a high level of convenience to end users.

The following table summarizes the Company's food product lines:

PRODUCT DESCRIPTION
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FULLY-COOKED PROTEIN
PRODUCTS:
Flame-Broiled Chicken
Patties Line of charbroiled, portion controlled, seasoned
chicken products in a variety of innovative shapes,
with and without sauce
Burger Patties Full line of charbroiled, homestyle-shaped burgers in a
variety of sizes and shapes
Breaded Patties A line of fully-cooked beef, pork and chicken products
designed to be baked or microwaved. Innovative
breadings, seasonings and shapes offer points of
differentiation
Rib-B-Q(R) Patties Variety of shapes and sizes of charbroiled rib-shaped
products with an exclusive blend of barbecue
seasonings, with and without barbecue sauce on top
Seasoned Patties Authentic seasoned charbroiled beef and pork products
with and without sauce, including meatloaf, salisbury
and pizza patties
Military Kits A line of packaged meals using branded components,
including Pierre(TM)-branded sliced meat or formed
meat sandwiches
MICROWAVEABLE SANDWICHES:
Pierre(TM) Sandwiches Premium-quality jumbo sandwiches in a wide variety and
with eye-catching graphics on packaging
Fast Choice(R) Sandwiches Mid-priced, broad line of sandwiches, both
microwaveable and deli sandwiches, with dynamic
packaging
Licensed Sandwiches Restaurant-branded product line offering the customer
restaurant-quality meats and breads at a premium
price
Warehouse Club Packs Variety of microwaveable sandwiches in six- and
eight-packs
Non-Foodservice Markets Mom 'n' Pop's(R) biscuit sandwiches and co-packed
retail sandwiches
BAKERY AND OTHER PRODUCTS: Fully-baked, homestyle, microwaveable buns, biscuits,
breadsticks and dumplings

Fully-Cooked Protein Products. Fully-cooked protein products represent the
Company's largest food product category. Within this category, the Company
manufactures flame-broiled and breaded patties and nuggets utilizing beef,
poultry and pork. The Company's protein products are sold in a variety of
package sizes and customized packaging options and into a wide variety of
distribution channels including restaurants and other niche foodservice, schools
and warehouse clubs.

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7

Microwaveable Sandwiches. Microwaveable sandwiches are the Company's
second largest food product category. Within this category, the Company produces
a variety of beef, chicken and pork sandwiches sold under the Company's
Pierre(TM) and Fast Choice(R) brand names and under widely-recognized, licensed
brand names, including Checkers, Rally's and Nathan's Famous. The Company
introduced Fast Bites(TM) sandwiches in February 1999 to round out its product
offerings in the vending markets by creating a product priced below $1.25. The
Company's sandwich products are sold to vending and convenience store operators,
warehouse clubs, retail grocery stores and schools throughout the United States.

Bakery and Other Products. Bakery and other products are currently the
Company's smallest food product category. The Company produces a variety of
differentiated bakery products, including flavored biscuits, buns, breadsticks
and other specialty baked products. The Company's bakery products are primarily
sold to restaurant chains.

Quality Control

The Company views quality control as a critical part of its total
production process. The Company maintains rigid health, food safety and quality
control standards, enabling it to meet the requirements of customers, the USDA
and the Food and Drug Administration (the "FDA"). The Company's quality control
personnel are dedicated to the maintenance of the Company's quality standards
and compliance with HACCP and other government regulations in the Company's food
processing plants and products. These employees perform both periodic and random
inspections of production lines, machinery and product. The Company has
well-defined procedures to ensure that all food is processed uniformly and
within federal guidelines and product specifications. All of the Company's
protein products are cooked for times and at temperatures sufficient to ensure
food safety and meet USDA requirements. Fully cooking the products destroys
bacteria. Once cooked, these products are immediately frozen to lock in flavor
and ensure a consistent quality product. The products remain frozen throughout
the assembly and shipping process, further ensuring product safety. The
Company's facilities are in full compliance with HACCP standards, and its
Cincinnati facility has held the USDA's "Total Quality Control" seal since 1986.

Food Processing Customer Channels

The Company sells fully-cooked protein and bakery products and
microwaveable sandwiches primarily to the foodservice market. The Company offers
its customers the ability to outsource critical product development and food
processing functions, resulting in reduced labor costs, improved product quality
and consistency, improved portion control and waste reduction and greater
product safety. Within the foodservice industry, the Company identifies niche
markets that place premiums on the Company's differentiated products and
value-added services. In fiscal 1999, the Company served restaurant chains,
school systems, vending, convenience stores and other niche foodservice markets.
In addition, the Company sells fully-cooked protein and bakery products and
microwaveable sandwiches to warehouse clubs and other non-foodservice markets.
The Company believes that it benefits from attractive growth trends in each of
its markets driven by the increased demand for product quality, safety, new
products and programs and convenience.

Restaurant Chains and Other Niche Foodservice. The Company supplies
foodservice products to restaurant chains and other foodservice customers
through a national network of more than 50 food brokers and 800 foodservice
distributors. The Company has strong relationships with major restaurant chains
and leading national foodservice distributors. The largest domestic foodservice
distributor purchases the Company's products for distribution through 67 of its
locations. The Company also provides protein and bakery components for use in
other processors' food programs. The Company sells fully-cooked protein
products, sandwiches and sandwich components to branded food companies,
commissaries and sandwich assemblers that package the products with their
respective labels.

School Systems. The Company is a leading producer of value-added food
products for school systems and currently supplies a variety of fully-cooked
protein products to 91 of the 100 largest, and more than 50% of all, public
primary and secondary school systems in the United States for use in cafeterias
and snack bars. The Company sells a full line of food products that meet the
customized needs of individual school systems. Sales

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to school systems are made through a network of over 800 foodservice
distributors. When selecting a food product supplier, school systems typically
put the contracts out for bid with exacting product specifications. The school
systems base their award decisions on the ability to meet the product
specifications, as well as price, taste, consistency and quality control
programs. The Company actively partners with school systems to develop
innovative and appealing menus, nutritional and marketing programs and custom
products.

The Company is one of the market leaders in the USDA Commodity Reprocessing
Program (the "USDA Program"). Under this federal program, the Company takes
USDA-donated beef and poultry and charges a fee for processing the meat into
value-added products such as cooked ground beef, charbroiled beef patties and
fully-cooked breaded chicken patties. The USDA Program has complex
administrative and regulatory requirements, which make it difficult for
potential competitors to enter the market. In addition, due to public health
concerns, many school systems will contract only with HACCP-compliant
processors, such as the Company, to supply fully-cooked protein products. Demand
for products under the USDA Program peaks in the spring and fall months. Since
these products are frozen, however, production can be scheduled throughout the
year to maximize plant utilization.

Vending. The Company sells microwaveable sandwich products to national and
regional vending machine operators, which typically purchase products through
distributors. The Company sells a full line of vended sandwiches under its
Pierre(TM), Fast Choice(R) and Fast Bites(TM) brand names and other nationally
recognized, licensed brands such as Checkers, Rally's and Nathan's Famous
through approximately 300 vending distributors. In addition, the Company has an
exclusive relationship to supply microwaveable sandwiches to one of the largest
vending operators in the United States.

Convenience Stores. The Company supplies a full array of sandwiches
through approximately 250 distributors and to over 40 convenience store chains
with over 3,000 locations across the United States. The Company sells its
sandwich products under the Pierre(TM), Fast Choice(R), Fast Bites(TM) and other
licensed brand names. Convenience stores generally target consumers looking for
value-added, high-quality sandwiches that can be prepared quickly and easily.
The Company provides certain convenience stores with in-store sandwich kiosks,
which include a microwave oven and condiment center, to increase visibility of
the full line of the Company's sandwich products.

Long-Term Healthcare Facilities. The Company has made substantial
investments in the development of the market to provide fully-cooked protein and
bakery products to long-term healthcare facilities. Over the last year, the
Company has: (i) received approval to market selected Company products to over
6,000 long-term healthcare facilities; (ii) developed a strong relationship with
one of the largest healthcare foodservice distributors in the United States; and
(iii) created a complete line of fully-cooked, microwaveable home-style entrees
and value-added menu planning and nutritional services targeted to healthcare
facilities.

Military. The Company recently entered the military segment of the
foodservice market to provide ready-to-eat meals and fully-cooked protein
products. The Company has received government approval to market 30 SKUs to all
branches of the military.

Warehouse Clubs. The Company packages its fully-cooked food products into
"club packs," which it sells directly to national warehouse clubs. These clubs
typically buy the Company's products in larger volumes of fewer SKUs, enabling
the Company to realize operating efficiencies.

Other Non-Foodservice Markets. The Company sells private label, co-packed
and branded food products to a variety of non-foodservice customers through a
regional network of brokers. The Company primarily: (i) co-packs protein and
bakery products for large, branded convenience meal programs; (ii) sells Mom 'n'
Pop's(R) branded sandwiches to grocery store chains in the southeastern United
States; and (iii) sells a variety of private label and branded convenience
sandwich products to a large, national grocery chain in the United States. The
Company has established and maintains longstanding relationships with several
major grocery chains in the southeastern United States.

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Food Product Sales and Marketing

Sales. The Company's team of 28 sales professionals, who became employees
of the Company in the Pierre acquisition, have significant experience in the
Company's markets for fully-cooked protein and bakery products and microwaveable
sandwiches. The sales department is organized predominantly by distribution
channel, enhancing the sales team's knowledge of its end markets, increasing
responsiveness, facilitating new product and market opportunities and
strengthening customer relationships. The Company's sales force has an average
of ten years of experience in the food processing industry and is compensated
based upon revenues and profitability.

In addition to its direct sales force, the Company utilizes a nationwide
network of over 90 independent food brokers, all of whom are compensated solely
by payment of sales commissions. The Company believes these brokerage
relationships are a valuable corporate asset, providing significant new product
opportunities with existing customers and the opportunity to develop new
customer relationships. The brokers perform several significant functions for
the Company, including identifying and developing new business opportunities and
providing customer service and support to the Company's distributors and
customers. The Company has had relationships with many of its brokers for at
least ten years.

Marketing. The Company has assembled a team of six experienced
professionals in its marketing department. The Company's marketing department
drives the Company's research and development of new products and implements and
coordinates the yearly business plans. The product managers are dedicated to
specific distribution channels including foodservice, schools, vending and
convenience stores and warehouse clubs and other non-foodservice markets.

The Company has developed a reputation in the marketplace for quality,
product innovation, food safety, innovative merchandising material and
promotional programs and convenience. As a result, the Company has established
strong brand loyalty among its end users and substantial credibility among its
foodservice brokers and distributors. The Company's marketing strategy includes
distributor and consumer promotions, trade promotions, advertising and
participation in trade shows and exhibitions. The Company participates in
numerous conferences and is a member of 18 national industry organizations.
Company representatives serve on the boards of a number of industry
organizations, including the American Meat Institute, the American School Food
Service Association, the National Association of Convenience Stores and the
National Frozen Foods Association.

Supplies

The primary materials used by the Company in its food processing operations
include raw chicken, raw beef, bakery products, packaging, seasonings, raw pork
and soy. Proteins are generally purchased under seven-day payment terms.
Historically, raw material costs have remained stable and any price increases
have generally been passed on to the customer. In addition, the Company
opportunistically capitalizes on declining raw material prices by holding its
prices and thus widening its profit margins. The Company does not hedge in the
futures markets.

The Company purchases substantially all of its raw materials from outside
sources and constantly seeks to maximize its purchasing power through volume
purchasing. The Company does not depend on a single source for any significant
item, believes that its sources of supply for raw materials are adequate for its
present needs and does not anticipate any difficulty in acquiring such materials
in the future.

Product Development

Ongoing food production research and development activities include
development of new products, improvement of existing products and refinement of
food production processes. Subsequent to the acquisition of Pierre, the Company
spent $301,674 over the last nine months of fiscal 1999 on such activities.
These activities resulted in the launch of over 126 new SKUs in fiscal 1999.
Approximately 25% of fiscal 1999 food processing sales were related to products
developed in fiscal 1999.

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RESTAURANT OPERATIONS

The Company's restaurant operations are located primarily in smaller cities
and suburban areas in the southeastern United States, a market niche where the
primary competitors are economy steakhouses. At May 3, 1999, the Company owned
and operated 49 Sagebrush steakhouse restaurants, which provide moderately
priced, full-service, casual dining in an entertaining, family-oriented
atmosphere. The Company also owned and operated thirteen Western Steer and four
Prime Sirloin restaurants, which are more mature family steakhouses using the
"buffet and bakery" format, and one Bennett's barbecue-style restaurant. In
fiscal 1999, the Company's revenues from restaurant operations totaled
approximately $101.4 million, accounting for 39.3% of the Company's revenues.
Sagebrush restaurants are the only casual dining steakhouses in a majority of
the local markets in which they operate.

Restaurant Locations

The Company's restaurants have an average seating capacity of approximately
260 and occupy an average of 7,100 square feet. The following table sets forth
the location, opening date and concept of each of the Company's owned
restaurants at May 3, 1999:

LOCATION DATE OPENED CONCEPT
- -------- -------------- -------------

North Carolina:
Albemarle**............................................... September 1998 Sagebrush
Arden..................................................... August 1994 Sagebrush
Asheboro*................................................. May 1998 Sagebrush
Boone..................................................... June 1992 Sagebrush
Brevard................................................... March 1994 Sagebrush
Canton*................................................... March 1999 Sagebrush
Clemmons.................................................. December 1993 Sagebrush
Denver.................................................... October 1997 Sagebrush
Dunn*..................................................... July 1998 Sagebrush
Elkin*.................................................... June 1998 Sagebrush
Graham*................................................... March 1998 Sagebrush
Hickory................................................... October 1990 Sagebrush
Hickory................................................... July 1992 Sagebrush
Kernersville.............................................. June 1995 Sagebrush
Lenoir.................................................... August 1997 Sagebrush
Lincolnton*............................................... September 1998 Sagebrush
Marion*................................................... December 1998 Sagebrush
Monroe.................................................... December 1994 Sagebrush
Morganton................................................. March 1993 Sagebrush
Mt. Airy.................................................. January 1997 Sagebrush
Reidsville**.............................................. August 1998 Sagebrush
Salisbury................................................. April 1997 Sagebrush
Sanford*.................................................. January 1998 Sagebrush
Stanleyville*............................................. April 1998 Sagebrush
Statesville............................................... October 1991 Sagebrush
Waynesville............................................... January 1994 Sagebrush
Wilkesboro................................................ September 1994 Sagebrush
Winston-Salem............................................. September 1993 Sagebrush
Winston-Salem*............................................ August 1998 Sagebrush
Charlotte................................................. January 1992 Prime Sirloin
Cornelius................................................. March 1992 Prime Sirloin
Matthews.................................................. June 1992 Prime Sirloin
Statesville............................................... May 1992 Prime Sirloin

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LOCATION DATE OPENED CONCEPT
- -------- -------------- -------------

Boone..................................................... June 1976 Western Steer
Elizabeth City............................................ September 1979 Western Steer
Hickory................................................... January 1984 Western Steer
Hudson.................................................... May 1984 Western Steer
Jefferson................................................. June 1985 Western Steer
Lenoir.................................................... April 1987 Western Steer
Lexington................................................. March 1978 Western Steer
Mocksville................................................ October 1985 Western Steer
Morganton................................................. November 1984 Western Steer
Mt. Airy.................................................. January 1984 Western Steer
Newton.................................................... January 1978 Western Steer
Yadkinville............................................... July 1985 Western Steer
Conover................................................... March 1990 Bennett's
South Carolina:
Aiken**................................................... April 1998 Sagebrush
Gaffney................................................... December 1995 Sagebrush
Greenwood................................................. November 1996 Sagebrush
Lexington................................................. December 1997 Sagebrush
Rock Hill................................................. December 1992 Sagebrush
Tennessee:
Alcoa..................................................... June 1996 Sagebrush
Gatlinburg................................................ April 1995 Sagebrush
Johnson City.............................................. March 1996 Sagebrush
Kingsport................................................. February 1993 Sagebrush
Knoxville................................................. February 1992 Sagebrush
Morristown................................................ September 1996 Sagebrush
Newport*.................................................. February 1998 Sagebrush
Oak Ridge................................................. November 1991 Sagebrush
Pigeon Forge.............................................. September 1991 Sagebrush
Sevierville............................................... May 1994 Sagebrush
Virginia:
Bristol*.................................................. October 1998 Sagebrush
Colonial Heights.......................................... October 1996 Sagebrush
Lynchburg................................................. July 1996 Sagebrush
Roanoke................................................... June 1997 Sagebrush
Wytheville*............................................... May 1998 Sagebrush
Galax..................................................... May 1980 Western Steer

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

* Converted to the Sagebrush concept since the acquisition of Sagebrush, Inc.
from the Company's buffet-style restaurants, restaurants operated by
franchisees, and restaurants owned by other chains.
** New Sagebrush, opened in fiscal 1999.

The Sagebrush Concept

The Company acquired Sagebrush, Inc. as a vehicle for market penetration
and unit growth, leveraging off the concept's broad appeal, high-quality meals
and emphasis on service. Sagebrush restaurants provide moderately-priced,
full-service casual dining in an entertaining, family-oriented atmosphere and
are located along major interstates in smaller markets, an under-served market
niche. Sagebrush has direct full-service, casual dining steakhouse competition
in only 19 of its 49 markets. In a typical market, Sagebrush experiences
competition from either other moderately-priced, casual dining restaurants or
economy steakhouses. Sage-

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12

brush differentiates itself from economy steakhouse competitors by its full
table service, attentive wait staff, full bar service, entertaining atmosphere,
distinctive decor and consistently high-quality meals.

Menu. The Sagebrush menu features high-quality aged steaks, prime rib,
chops, ribs, chicken and fish, along with hamburgers and chicken sandwiches. The
dinner menu includes steak entrees from specially-selected, USDA choice, aged
western beef, prepared using a special seasoning. In addition to the regular
menu items, each restaurant has a daily, specially-priced "Blue Plate Special"
at lunch, which is selected by its general manager and typically features fish,
chicken or pork chops. All steaks come with a choice of Texas fries, baked
potato or baked sweet potato, a fresh garden salad and bread. The menu also
includes specialty appetizers, desserts and full bar service where legally
permitted. New menu items are tested periodically in an effort to update and
adapt to changing customer preferences, the latest of which was introduced in
December 1998. Dinner entrees, which are also available at lunch, range in price
from $8.99 to $19.99, lunch entrees range in price from $4.49 to $6.29, and
appetizers are priced from $3.99 to $4.99. The average check per customer,
including beverages, is approximately $13.96 for dinner and $8.77 for lunch.
Menu prices are generally the same at each restaurant, except for those located
in resort areas, where seasonal factors require slightly higher prices. Sales of
alcoholic beverages account for approximately 8.0% of Sagebrush revenues and are
available at all but five locations which are situated in "dry" counties. Each
restaurant typically serves lunch to 150 to 250 customers each weekday and to
100 to 300 customers on Saturdays and Sundays. Each restaurant typically serves
dinner to 250 to 300 customers from Sunday through Thursday and to 700 to 900
customers on Friday and Saturday. Sagebrush restaurants do not serve breakfast.

Atmosphere and Decor. Sagebrush restaurants are decorated with wooden
booths and walls and a mixture of western memorabilia and other collectibles,
including license plates and signs from around the United States, photographs of
sports figures and movie stars and replicas of antique jukeboxes featuring
country music. Special effort is made to make families with children feel
welcome. Sagebrush introduced its new "Kids Corral" menu, which features
low-price, higher-margin items and includes branded items such as Lay's(R)
potato chips, Mott's(R) applesauce and Oreo(R) cookies. Sagebrush emphasizes
user-friendly, bite-size portions for kids and selects brand names parents can
recognize and trust. Additionally, Sagebrush places less emphasis on its bar
area and sales of alcohol as compared to most of its competitors, which helps to
foster the family atmosphere.

Facilities. All but two Sagebrush restaurants are located in freestanding
buildings, generally near an interstate highway or other main thoroughfare.
Because the Company has established most of its restaurants in existing
buildings that it remodeled into the Sagebrush concept, restaurant sizes vary
from approximately 5,000 to 9,500 square feet, with the tables in the dining
area seating from approximately 150 to 300 people. The bar area of a typical
restaurant generally has seating capacity for approximately 20 people. Most
Sagebrush restaurants also have a private banquet room seating from 25 to 50
people. Although the banquet facilities are often used for private parties, they
can also be used for general customer seating during peak dining hours.

Conversions. Since the acquisition of Sagebrush, Inc., the Company has
converted to the Sagebrush concept nine of its buffet-style restaurants, three
restaurants operated by franchisees and one restaurant owned by another chain.
The historical average cost per conversion is $660,000. A typical Sagebrush
generates 57% more revenue than a typical Western Steer restaurant. The Company
has extensive experience in converting restaurants to the Sagebrush format as 37
of the Company's 49 Sagebrush restaurants were originally converted from other
restaurant concepts.

The Western Steer Concept

The Western Steer concept originated in 1975 as a family-oriented
steakhouse restaurant, featuring a rustic, western-style design, steaks and
other entrees cooked to order. Beginning in 1992, the Company began an extensive
renovation program of this concept, which included adding an "all-you-can-eat"
buffet food bar and in-house bakery and changing the store appearance to
highlight the new format. Restaurants updated to the new format have been
renamed "Western Steer -- Steaks, Buffet & Bakery." For fiscal 1999, the average
ticket price at the 13 Company-owned Western Steer restaurants was $6.15.

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13

The Prime Sirloin Concept

In 1987, the Company acquired Prime Sirloin, Inc., a regional franchised
steakhouse chain then headquartered in Morristown, Tennessee. The Company
currently operates four units under the Prime Sirloin concept. As compared to
the Western Steer concept, this concept features greater seating capacity and a
broader offering of buffet items, resulting in a greater concentration of buffet
sales. For fiscal 1999, the average ticket price at Company-owned Prime Sirloin
restaurants was $6.25.

The Bennett's Concept

In 1990, the Company became a sub-franchiser of Bennett's Bar-B-Que, Inc.,
based in Denver, Colorado. As a sub-franchiser, the Company pays royalty fees to
the franchiser equal to 1.0% of revenues for each Bennett's restaurant owned or
sub-franchised by the Company. In 1994, the Company redesigned the Bennett's
concept into "Bennett's Smokehouse & Saloon," a Texas roadhouse concept merging
steaks and barbecue in a 186-seat casual dinner house.

Restaurant Franchising Program

At May 3, 1999, the Company franchised 29 Western Steer, five Prime Sirloin
and two Bennett's restaurants, all in accordance with standard franchise
agreements. The franchise agreements executed prior to 1990 cover a term of 20
years, renewable for an additional term of 20 years, while those executed after
1990 cover ten-year terms renewable for an additional term of ten years. Royalty
fees of 3.0% of the franchised restaurant's gross sales throughout the term of
the agreement are payable to the Company. All of the Company's franchise
agreements provide for an exclusive territory and include in-term and post-term
non-compete covenants. For fiscal 1999, revenues from the Company's restaurant
franchise operations were $1.3 million. No single franchisee or group of
franchisees under common control comprises a significant portion of the
Company's revenues. In fact, the largest franchisee contributes less than 0.1%
of the Company's revenues.

Ingredients and Purchasing

As part of its commitment to using fresh, high-quality ingredients, the
Company establishes rigid specifications for all of its meat and produce. The
Company's restaurant operations currently purchase approximately 90% of their
food products from one supplier. The Company believes that products of
comparable quality are available, or upon short notice can be made available,
from alternative suppliers.

Quality Assurance

The Company has adopted a number of measures to ensure strict compliance
with its restaurant operating standards and procedures. Senior management
monitors each restaurant by reviewing the weekly reports prepared by the general
managers and staff accountants and by making regular visits to and inspections
of each restaurant. Management also engages an independent service (the "mystery
shopper" program) to visit each of its restaurants periodically on an anonymous
basis and to submit reports to senior management focusing on factors, such as
food quality, wait service and cleanliness, and to summarize the overall dining
experience at each restaurant. Each restaurant manager's bonus compensation is
tied directly to these anonymous mystery shopper reports. In addition,
approximately 95% of the Company's restaurant managers are "serve safe"
certified, a cleanliness and safety certification that is highly regarded
throughout the industry.

Restaurant Marketing and Advertising

The Company utilizes billboard advertising for its restaurants located near
interstate highways. It also uses aggressive direct local marketing campaigns,
including school programs, hotel marketing and charitable and community events,
to promote restaurant traffic. The Company does not advertise its restaurants in
newspapers or by distributing coupons. Local advertising has been the
responsibility of individual restaurant general managers and is expensed on a
restaurant-by-restaurant basis.

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14

HAM CURING OPERATIONS

The Company currently produces cured hams and ham products for foodservice
and retail grocery customers. In fiscal 1999, the Company sold almost 6.1
million pounds of ham and had revenues from ham curing operations totaling
approximately $7.1 million, accounting for 2.7% of the Company's revenues. In
its 55,000-square-foot curing facility in Claremont, the atmospheric conditions
of traditional air curing of hams are simulated, resulting in a curing process
that fully cures fresh hams in approximately 80 days. The Company cured more
than 6.5 million pounds of ham during fiscal 1999. Raw hams are available from
numerous sources, although the Company relies upon one supplier for 90% of its
hams. The Company believes that loss of this supplier would not have a material
adverse effect upon the Company.

The Company produces whole cured hams, packaged cured ham slices,
pre-portioned ham for portion control customers and various "side meat"
products. A portion of ham production is sold directly to retail supermarkets
under the Mom 'n' Pop's(R) brand name, primarily in North Carolina, South
Carolina, Virginia, Tennessee, Alabama and Georgia. The remainder of production
is sold to institutional food distributors and restaurant chains. One
supermarket customer accounted for approximately 25% of cured ham sales during
fiscal 1999. Sales for the Company's ham curing operations are seasonal in
nature, with sales volume increases occurring during Thanksgiving, Christmas and
Easter holiday seasons.

TRADEMARKS AND LICENSING

Food Processing and Ham Curing

Pierre, the Company's food processing subsidiary, markets products under a
variety of brand names, including Pierre and Design(TM), Fast Bites(TM), Fast
Choice(R) and Rib-B-Q(R). The Company's subsidiaries also market products under
the Mom 'n' Pop's(R) mark. The Company regards these trademarks and service
marks as having significant value in marketing their food products. Pursuant to
licenses entered in fiscal 1998, Pierre began producing and marketing
microwaveable Checkers, Rally's and Nathan's Famous sandwiches through its
existing distribution channels in the summer of 1998. The term of each such
license is subject to renewal and satisfaction of sales volume requirements. The
Company's distribution rights for Rally's, Checkers and Nathan's Famous products
are nationwide.

Restaurants

Claremont Restaurant Group, LLC, the Company's restaurant subsidiary, owns
the service marks Sagebrush Steakhouse & Saloon(R), Prime Sirloin(R), Western
Steer(R) and Western Steer Family Steakhouse(R) and certain related design
marks, all of which are registered with the United States Patent and Trademark
Office. The Company regards these marks as having significant value and as being
an important factor in the marketing of the Company's various restaurant
concepts.

COMPETITION

Food Processing and Ham Curing

The food production business is highly competitive and is often affected by
changes in tastes and eating habits of the public, economic conditions affecting
spending habits and other demographic factors. In sales of meat products, the
Company faces strong price competition from a variety of large meat processing
concerns and from smaller local and regional operations, including Tyson,
Zartic, Inc. and Advance Food Company. In sales of biscuit and yeast roll
products, the Company competes with a number of large bakeries in various parts
of the country. The sandwich industry is extremely fragmented, with few large
direct competitors but low barriers to entry and indirect competition in the
form of numerous other products. The Company's competitors in the sandwich
industry include McLane Foods, Bridgford Foods Corp. and Jimmy Dean Foods.

Restaurants

The restaurant industry and the Company's restaurant business specifically
are intensely competitive with respect to concept, price, service, location and
food quality. While the Company believes that it competes for

12
15

customers with a broad variety of other restaurants, there are particular
restaurant chains, including Longhorn Steakhouse, Lone Star Steakhouse & Saloon,
Outback Steakhouse and Logan's Road House, that have restaurant concepts very
similar to the Company's. The Company endeavors to compete with other
restaurants primarily on the basis of service, value, location and providing
high-quality meals in a casual, family-oriented atmosphere. The restaurant
business is often affected by changes in consumer tastes, national, regional or
local economic conditions, demographic trends, traffic patterns and the type,
number and location of competing restaurants.

GOVERNMENT REGULATION

The food production and restaurant industries are subject to extensive
federal, state and local government regulation.

The Company's food processing facilities and food products are subject to
frequent inspection by the USDA, FDA and other government authorities. In July
1996, the USDA issued strict new policies against contamination by food-borne
pathogens and established the HACCP system. The Company is in full compliance
with all FDA and USDA regulations, including HACCP standards.

The Company's operations are governed by laws and regulations relating to
workplace safety and worker health that, among other things, establish noise
standards and regulate the use of hazardous chemicals in the workplace. The
Company also is subject to numerous federal, state and local environmental laws.
Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities relating to its facilities and the land on which its facilities are
or had been situated, regardless of whether the Company leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. The
Company does not believe that compliance with environmental laws will have a
material effect upon the capital expenditures, earnings or competitive position
of the Company and its subsidiaries.

The Company's operations are subject to licensing and regulation by a
number of state and local governmental authorities, which include alcoholic
beverage control, health, safety, sanitation, building and fire agencies.
Operating costs are affected by increases in costs of providing health care
benefits, the minimum hourly wage, unemployment tax rates, sales taxes and other
similar matters over which the Company has no control. The Company is subject to
laws governing relationships with employees, including minimum wage
requirements, overtime, working conditions and citizenship requirements.

EMPLOYEES

As of March 6, 1999, the Company employed approximately 4,900 persons
(approximately 2,400 full-time and 2,500 part-time). The Company has experienced
no work stoppage attributed to labor disputes and considers its employee
relations to be good.

ITEM 2. PROPERTIES

The Company believes that its facilities are generally in good condition
and that they are suitable for their current uses. The Company nevertheless
engages periodically in construction and other capital improvement projects
designed to expand and improve the efficiency of its facilities.

Principal Offices. The Company currently leases 6,000 square feet of
office space in Hickory, North Carolina for its principal executive offices. The
Company also owns and uses a 23,000 square foot building located on a 62-acre
tract in Claremont, North Carolina as the corporate office for Claremont
Restaurant Group, LLC.

Food Processing Plants. The Company produces its fully-cooked meat
products, packaged sandwiches and specialty bread products at facilities it owns
in Cincinnati, Ohio and Claremont, North Carolina. The Cincinnati facility
occupies buildings totaling approximately 200,000 square feet. The Claremont
facility occupies buildings totaling approximately 220,000 square feet.

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16

Restaurant Sites. The Company owns the property upon which 21 of its 67
restaurants are located, and it leases the remaining properties, generally under
long-term operating leases with renewal options.

Ham Curing Facility. The Company owns a 55,000 square foot curing facility
in Claremont.

Other Property. The Company owns various other parcels of property,
consisting of raw land and closed restaurant sites that are either vacant or are
leased to others. It also holds leasehold interests in various properties that
are either vacant or are subleased to others. None of these properties is of
material importance to the Company's operations.

ITEM 3. LEGAL PROCEEDINGS

Fresh Foods and its subsidiaries are parties in various lawsuits arising in
the ordinary course of business. In the opinion of management, any ultimate
liability with respect to these matters will not have a material adverse effect
on the Company's financial condition or results of operations.

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

No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1999.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Officers are elected by the Company's Board of Directors and serve
indefinitely at the pleasure of the Board. The following table sets forth
certain information with respect to the executive officers of the Company at
March 6, 1999:

EXECUTIVE
OFFICER
NAME POSITION AGE SINCE
- ---- -------- --- ---------

Richard F. Howard.................. Chairman of the Board 49 1987
James C. Richardson, Jr. .......... Vice Chairman of the Board, Chief 49 1987
Executive Officer and Director
David R. Clark..................... President, Chief Operating Officer 42 1996
and Director
James E. Harris.................... Executive Vice President, Chief 36 1998
Financial Officer, Treasurer and
Secretary
L. Dent Miller..................... President, Claremont Restaurant 65 1998
Group, LLC, and Director of the
Company
Norbert E. Woodhams................ President, Pierre Foods, LLC, and 53 1998
Director of the Company

Mr. Howard became a director in 1987 and has served as Chairman of the
Board of Directors since 1993. Mr. Howard served as Executive Vice President of
the Company from 1989 to 1993 and as Chief Financial Officer and Treasurer from
1989 to 1994.

Mr. Richardson became a director in 1987. He is the Company's Chief
Executive Officer and Vice Chairman of its Board of Directors, positions he
assumed in 1993 and 1996, respectively. He has served the Company as an
executive officer since 1987, including Executive Vice President from 1989 to
1993 and President from 1993 to 1996.

Mr. Clark became a director of the Company in 1996. He is the Company's
President and Chief Operating Officer, positions he assumed in 1996. From 1994
to 1996, he served as Executive Vice President and Chief Operating Officer of
Bank of Granite, located in Granite Falls, North Carolina. Prior to joining Bank
of Granite, Mr. Clark worked for 13 years with BB&T, a commercial bank and trust
company. Mr. Clark

14
17

served BB&T in various executive capacities, including President of BB&T of
South Carolina during 1993 and 1994.

Mr. Harris is the Company's Executive Vice President, Chief Financial
Officer, Treasurer and Secretary, positions he assumed in March 1998. From 1987
to 1998, Mr. Harris served in various executive capacities with The Shelton
Companies, Inc., a diversified investment group headquartered in Charlotte,
North Carolina. Prior to joining The Shelton Companies, Inc., Mr. Harris was a
Senior Accountant with Ernst & Young.

Mr. Miller became a director in 1998. He is the President of Claremont
Restaurant Group, LLC, the Company's restaurant subsidiary, having served as
President, Chief Executive Officer and director of Sagebrush, Inc. from 1990
until its merger with the Company in January 1998. Mr. Miller was a Fresh Foods
executive officer from 1984 to 1988 and a Fresh Foods director from 1987 to 1988
and had been in the restaurant business with the Company and its predecessors
since 1978.

Mr. Woodhams became a director in 1998. He is President of Pierre Foods,
LLC, the Company's food processing subsidiary, having served in this position
since the Company's acquisition of Pierre Foods in June 1998. Prior to the
acquisition of Pierre by Fresh Foods, he served as President of Hudson Specialty
Foods, a food processing division of Hudson, from 1994 to 1998. Upon the
acquisition of Hudson by Tyson in January 1998, Mr. Woodhams became President of
the Pierre Foods division. Prior to joining Hudson, Mr. Woodhams held the
position of Executive Group Vice President for the Pork and Beef Division of
Tyson from 1990 through 1994. He also served as President and Chief Executive
Officer for Henry House/Holly Farms, a value-added processor of pork products,
from 1987 to 1990.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

The Company's common stock trades on the NASDAQ National Market tier of the
NASDAQ Stock Market under the symbol "FOOD" ("WSMP" prior to May 8, 1998). As of
May 3, 1999, the Company had approximately 1,135 shareholders based on the
number of holders of record.

The following table sets forth the quarterly high and low closing bid price
quotations for the Company's common stock on the NASDAQ Stock Market. These
quotations represent interdealer prices, without retail mark-up, mark-down or
commissions, and do not necessarily reflect actual transactions.

RANGE OF PRICES
-----------------
HIGH LOW
------- -------

Fiscal year ended February 27, 1998:
First quarter............................................. $12.750 $ 9.000
Second Quarter............................................ 15.750 11.875
Third Quarter............................................. 24.500 12.500
Fourth Quarter............................................ 29.000 16.000
Fiscal year ended March 6, 1999:
First quarter............................................. 23.750 17.250
Second Quarter............................................ 17.875 8.750
Third Quarter............................................. 9.500 7.000
Fourth Quarter............................................ 8.375 4.250

The closing price on May 3, 1999 was $5.6875.

The Company has not declared a cash dividend during either fiscal 1998 or
fiscal 1999. The Company's debt instruments restrict its ability to pay
dividends. Regardless of the scope of such restrictions, the Company's policy is
to reinvest all earnings rather than pay dividends.

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18

The Company has engaged Bowles Hollowell Conner & Co., a division of First
Union Capital Markets Corp., to pursue strategic alternatives to enhance the
market price of the Company's common stock.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical financial information has been derived
from audited consolidated financial statements of the Company. Such financial
information should be read in conjunction with the consolidated financial
statements of the Company, the notes thereto and the other financial information
contained elsewhere herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Fresh Foods' consolidated
financial statements.

FISCAL YEAR ENDED
----------------------------------------------------
MARCH 6, FEB. 27, FEB. 28, FEB. 23, FEB. 24,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenues.................................. $258,282 $157,507 $129,482 $113,179 $122,329
Cost of goods sold........................ 137,964 92,113 79,000 69,290 76,745
Restaurant operating expenses............. 47,679 41,340 31,058 27,191 26,744
Selling, general and administrative....... 46,737 14,049 10,414 9,957 9,810
Depreciation and amortization............. 8,216 5,004 3,600 3,476 3,405
-------- -------- -------- -------- --------
Operating income.......................... 17,686 5,001 5,410 3,265 5,625
Interest expense, net..................... 12,401 1,762 1,868 2,163 2,068
Other income (expense), net............... (1,077) 739 493 (231) 1,052
Income tax provision (benefit)............ 1,713 1,728 2,010 (1,139) 575
-------- -------- -------- -------- --------
Earnings before extraordinary item........ 2,495 2,250 2,025 2,010 4,034
Extraordinary item(1)..................... (64) 415
-------- -------- -------- -------- --------
Net earnings.............................. $ 2,431 $ 2,250 $ 2,440 $ 2,010 $ 4,034
======== ======== ======== ======== ========
EARNINGS PER SHARE BEFORE EXTRAORDINARY
ITEM:
Basic..................................... $ 0.42 $ 0.40 $ 0.40 $ 0.42 $ --
Diluted................................... 0.41 0.37 0.37 0.41 --
OTHER DATA:
Capital expenditures...................... $ 15,465 $ 12,592 $ 9,702 $ 3,970 $ 3,674
BALANCE SHEET DATA:
Working capital (deficit)................. $ 27,832 $ (497) $ 2,114 $ 1,724 $ (329)
Total assets.............................. 216,989 71,656 59,571 51,994 55,502
Total debt................................ 146,940 20,918 18,208 21,109 25,898
Shareholders' equity...................... 41,152 39,227 31,348 22,328 19,339

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

(1) Reflects an extraordinary loss from early extinguishment of debt in the
amount of $64,335 in fiscal 1999 and an extraordinary gain from early
extinguishment of debt in the amount of $414,784 in fiscal 1997.
(2) See Note 12 to the Company's consolidated financial statements for an
explanation of the calculation of net income per share. The Company
historically has paid no dividends.

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

emerge over time. Investors should not place undue reliance on the predictive
value of forward-looking statements.

RESULTS OF OPERATIONS

The Company's operations are classified into three business segments: food
processing operations, principally fully-cooked protein and sandwich production;
restaurant operations, comprised of the Sagebrush, Western Steer, Prime Sirloin
and Bennett's concepts; and ham curing operations.

As a part of the Pierre acquisition, the Company changed its interim fiscal
periods to conform with the standard food processing industry interim periods.
In line with this, each quarter of the 52 week fiscal year will contain 13 weeks
except for the infrequent fiscal years with 53 weeks. In order to adopt this
interim calendar, the Company's existing operations contain 53 weeks in the
fiscal year ended March 6, 1999. This additional week of activity did not have a
material impact on any reported line item on the consolidated statements of
earnings when compared with the prior year's results.

Results for fiscal 1997, fiscal 1998 and fiscal 1999 for each segment are
shown below:

FISCAL YEAR ENDED
--------------------------------------
MARCH 6, FEBRUARY 27, FEBRUARY 28,
1999 1998 1997
-------- ------------ ------------
(IN MILLIONS)

Revenues:
Food processing operations.......................... $149.8 $56.4 $ 48.2
Restaurant operations............................... 101.4 91.3 70.9
Ham curing.......................................... 7.1 9.8 10.4
------ ----- ------
Total....................................... 258.3 157.5 129.5
------ ----- ------
Cost of goods sold:
Food processing operations.......................... 95.2 50.5 44.0
Restaurant operations............................... 36.6 33.0 25.2
Ham curing.......................................... 6.2 8.6 9.8
------ ----- ------
Total....................................... 138.0 92.1 79.0
------ ----- ------
Restaurant operating expenses......................... 47.7 41.3 31.1
Selling, general and administrative................... 46.7 14.1 10.4
Depreciation and amortization......................... 8.2 5.0 3.6
------ ----- ------
Operating income...................................... 17.7 5.0 5.4
Other expense, net.................................... (13.5) (1.0) (1.4)
------ ----- ------
Earnings before income taxes and extraordinary
items............................................... 4.2 4.0 4.0
Provision for income taxes............................ 1.7 1.7 2.0
------ ----- ------
Earnings before extraordinary items................... 2.5 2.3 2.0
Extraordinary items................................... (.1) 0.4
------ ----- ------
Net earnings.......................................... $ 2.4 $ 2.3 $ 2.4
====== ===== ======

Fiscal 1999 Compared to Fiscal 1998

Revenues. Revenues increased by $100.8 million, or 64.0%, due to a $93.4
million (165.6%) increase in the food processing segment and a $10.1 million
(11.2%) increase in the restaurant segment, which were partially offset by a
$2.7 million (27.6%) decrease in the ham curing segment. The increase in food
processing revenues was due to the acquisition of Pierre on June 9, 1998. The
increase in restaurant revenues was due to the opening of three new Sagebrush
restaurants, conversions of seven of the Company's existing buffet restaurants
to the Sagebrush concept, conversions of two of the Company's franchisees to
Company-owned Sagebrush restaurants and the conversion of one unaffiliated
restaurant to the Sagebrush concept. The decrease in ham curing revenues was due
to the loss of one large customer during fiscal 1999.

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20

Cost of goods sold. Cost of goods sold increased by $45.9 million, or
49.8%, due to increases in such cost in the food processing and restaurant
segments, offset slightly by a decrease in such costs in the ham curing segment.
Cost of goods sold in the food processing segment increased by $44.7 million
(88.5%) due to the acquisition of Pierre in June 1998. As a percentage of food
processing revenues, cost of goods sold in the food processing segment decreased
from 89.6% to 63.6%. The decrease was due to the Company's acquisition of
Pierre, which historically had a higher gross margin percentage than the
existing Company food processing operations due to Pierre's position as a leader
in the fully cooked food market. Cost of goods sold in the restaurant segment
increased by $3.6 million (10.9%) due to the opening of thirteen additional
Sagebrush restaurants. As a percentage of restaurant revenues, cost of goods
sold decreased from 36.1% to 36.0% due to efficiencies realized in purchasing,
distribution and inventory management, offset slightly by an increase in the
costs of beef, chicken and dairy products. Cost of goods sold in the ham curing
segment decreased $2.4 million (27.8%) due to lower production volume.

Restaurant operating expenses. Restaurant operating expenses increased by
$6.3 million (15.5%), primarily as a result of two factors: (1) the operation of
additional restaurants in fiscal 1999; and (2) costs associated with the
integration of Sagebrush operations into Fresh Foods' restaurant segment. In
addition to the opening of thirteen new restaurants during fiscal 1999, the
Company operated seven restaurants for all of fiscal 1999 which were opened at
various times during fiscal 1998 and therefore were not open during all of
fiscal 1998. As a percentage of restaurant revenues, restaurant operating
expenses increased from 45.2% to 47.0% due primarily to the restaurant opening
costs associated with the opening of thirteen new restaurants in fiscal 1999 as
compared to the opening of seven new restaurants in fiscal 1998, increased
emphasis on training and supervision throughout all restaurant concepts and
costs associated with the integration of Sagebrush operations into Fresh Foods'
restaurant segment.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $32.7 million (231.2%) and, as a percentage
of operating revenues, increased from 8.9% to 18.1%, due to the following four
factors: (1) incremental costs associated with the fiscal 1999 Pierre
acquisition, specifically personnel and facilities costs of Pierre in
Cincinnati; (2) additional costs associated specifically with the integration of
Pierre operations into Fresh Foods' food processing segment; (3) costs
associated with the integration of Sagebrush operations into Fresh Foods'
restaurant segment; and (4) costs related to the administration of additional
restaurants in fiscal 1999. These factors were offset by $1.9 million in cost
associated with the acquisition of Sagebrush, Inc. in fiscal 1998, which did not
reoccur in fiscal 1999.

Depreciation and amortization. Depreciation and amortization increased by
$3.2 million (64.2%) due to the acquisition of Pierre in June 1998 and the
opening of thirteen additional Sagebrush restaurants as mentioned above.
Additional depreciation of fixed assets and amortization of intangible assets
associated with the Pierre acquisition increased depreciation and amortization
by $1.1 million and $2.0 million, respectively. As a percentage of operating
revenues, depreciation and amortization was flat at 3.2% as a result of the
acquisition of Pierre, which historically required lower capital expenditures as
a percentage of revenues than the existing Company operations. This was offset
by the amortization of goodwill created with the Pierre acquisition.

Operating income. Operating income increased by $12.7 million (254.0%),
and increased as a percentage of revenues from 3.2% to 6.8%, due to the reasons
stated above.

Other income (expense). Net other expense increased by $12.5 million
(1,250.0%) due to: (1) an increase in interest expense resulting from borrowing
to finance the Pierre acquisition and the Company's recapitalization (see
"-- Liquidity and Capital Resources" below); and (2) dispositions of certain
fixtures and equipment.

Earnings before income taxes and extraordinary items. Such earnings
increased approximately $230,000 (5.8%), and declined as a percentage of
revenues from 2.5% to 1.6%, for the reasons stated above.

Income tax provision. The effective tax rate for fiscal 1999 was 40.70%,
as compared to 43.4% for fiscal 1998. Such rates were higher than the combined
federal and state rates, primarily due to nondeductible permanent differences.
See Note 8 to the Company's consolidated financial statements.

18
21

Earnings before extraordinary items. Such earnings increased by
approximately $245,000 (10.9%) for the reasons stated above.

Extraordinary items. In fiscal 1999, the Company recorded an extraordinary
loss, net of tax of approximately $64,000 due to a write-off of loan fees
associated with early extinguishment of debt.

Net earnings. Net earnings increased by approximately $181,000 (8.0%), and
decreased as a percentage of revenues from 1.4% to 1.0%, for the reasons stated
above.

Fiscal 1998 Compared to Fiscal 1997

Revenues. Revenues increased by $28.0 million, or 21.6%, due to a $20.4
million (28.8%) increase in the restaurant segment and an $8.2 million (17.0%)
increase in the food processing segment, offset slightly by a $.6 million (5.5%)
decrease in the ham curing segment. The increase in restaurant revenues was due
to the March 1997 acquisition of fourteen restaurants from a former franchisee
and the opening of seven Sagebrush restaurants during fiscal 1998, offset by the
closing of six non-Sagebrush restaurants. The increase in food processing
revenues was due to the introduction of a new line of home meal replacement
("HMR") products and a general increase in the volume of other food products.
The decrease in ham curing revenues was due to a general decline in the ham
curing market.

Cost of goods sold. Cost of goods sold increased by $13.1 million, or
16.6%, due to increases in costs in the restaurant and food processing segments,
offset slightly by a decrease in the ham curing segment. Cost of goods sold in
the food processing segment increased by $6.5 million (14.8%), but decreased as
a percentage of food processing revenues of that segment from 91.2% to 89.5%.
The decrease was due to two principal factors: (1) a slight increase in the
margins associated with the new line of HMR products; and (2) an improvement in
the absorption of fixed costs. Cost of goods sold in the restaurant segment
increased by $7.8 million (31.0%), and increased as a percentage of restaurant
revenues from 35.5% to 36.1%, due primarily to higher beef costs in fiscal 1998.
Cost of goods sold in the ham curing segment decreased by $1.2 million (12.2%),
and as a percentage of ham curing revenues from 94.2% to 87.7%, due to the
Company's shift to the production of higher-margin products.

Restaurant operating expenses. Such expenses increased by $10.2 million
(32.8%), primarily as a result of the operation of additional restaurants in
fiscal 1998. As a percentage of restaurant revenues, restaurant operating
expenses increased from 43.9% to 45.2% due primarily to the incurrence in fiscal
1998 of rental expense associated with the fourteen restaurants purchased from a
former franchisee.

Selling, general and administrative expenses. Such expenses increased by
$3.7 million (35.6%) due to a $1.9 million nonrecurring cost associated with the
acquisition of Sagebrush, Inc. and costs related to the operation of additional
restaurants in fiscal 1998. But for the nonrecurring cost, selling, general and
administrative expenses as a percentage of revenues would have declined
slightly.

Depreciation and amortization. Depreciation and amortization increased by
$1.4 million (39.0%), and increased as a percentage of revenues from 2.8% to
3.2%, due to the construction of additional restaurants and the acquisition of
fourteen restaurants from a former franchisee in fiscal 1998.

Operating income. Operating income decreased by $409,000 (7.6%), and
decreased as a percentage of revenues from 4.2% to 3.2%, for the reasons stated
above.

Other income (expense). Net other expense decreased by $352,000 (25.6%),
due primarily to gains on the sale of excess real property in fiscal 1998.

Earnings before income taxes and extraordinary items. Such earnings
remained unchanged at $4.0 million, but declined as a percentage of revenues
from 3.1% to 2.5%, for the reasons stated above.

Income tax provision. The effective tax rate for fiscal 1998 was 43.4%, as
compared to 49.8% for fiscal 1997. Such rates were higher than the combined
federal and state rates, primarily due to nondeductible permanent differences.
See Note 8 to the Company's consolidated financial statements.

19
22

Earnings before extraordinary items. Such earnings increased by $225,000,
or 11.1%, for the reasons stated above.

Extraordinary items. In fiscal 1997, the Company recorded an extraordinary
gain of $415,000, net of tax, due to early extinguishment of debt.

Net earnings. Net earnings decreased by approximately $190,000, or 7.8%,
and decreased as a percentage of revenues from 1.9% to 1.4%, for the reasons
stated above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flows from operating
activities, the sale of debt securities and the use of the Company's revolving
credit facility. Net cash provided by operating activities was $11.0 million for
fiscal 1999. This compared to $7.7 million in fiscal 1998 and $6.5 million in
fiscal 1997. The increase in net cash provided by operating activities for
fiscal 1999 was primarily due to increased earnings (after reflecting noncash
items) from the acquisition of Pierre in June 1998 and the opening of thirteen
new restaurants in fiscal 1999, as previously discussed, offset by an increase
in accounts receivable and inventory in Pierre, net of accounts payable. The
increase from fiscal 1997 to fiscal 1998 was primarily due to the cash flow
generated from the March 1997 acquisition of fourteen restaurants from a former
franchisee and the opening of seven Sagebrush restaurants during fiscal 1998,
offset by the closing of six less profitable non-Sagebrush restaurants. The
Company had positive working capital at March 6, 1999 of $27.8 million, as
compared to a working capital deficit of $497,000 at February 27, 1998 and
positive working capital of $2.1 million at February 28, 1997.

Cash flows used by investing activities were $132.6 million in fiscal 1999.
The primary components of net cash used in investing activities were cash used
to purchase Pierre in June 1998 and capital expenditures relating to the opening
of thirteen new restaurants in fiscal 1999, as previously discussed, offset
slightly by collections on notes payable to the Company and proceeds from the
sale of assets. Cash acquisitions of fixed assets were $15.6 million for fiscal
1999. This compared to $12.6 million for fiscal 1998 and $9.7 million for fiscal
1997. Financing and investing activities also include noncash transactions
involving capital leases for certain restaurant and food processing equipment,
the result of which is to increase long-term debt and property. During fiscal
1999, fiscal 1998 and fiscal 1997, the Company acquired fixed assets (primarily
operating equipment) under capital leases of approximately $15,000, $660,000 and
$690,000, respectively.

Cash flows provided by (used in) financing activities were $120.5 million,
approximately ($800,000) and $2.6 million in fiscal 1999, fiscal 1998 and fiscal
1997, respectively. The major components of financing activities in fiscal 1999
included the issuance of $115 million principal amount of 10.75% Senior Notes
Due 2006 (the "Notes") and an initial borrowing under a new five-year, $75.0
million revolving credit facility, with availability subject to a borrowing base
formula. The proceeds of these financing activities were used to acquire Pierre,
extinguish all existing debt of the Company, with the exception of outstanding
industrial revenue bonds and certain lease obligations and repurchase 110,000
shares of the Company's common stock. During fiscal 1997, the Company entered
into an agreement with a bank to provide a $6.0 million revolving credit
facility, secured by a lien on inventory and receivables. Proceeds from this
credit facility were used to pay off all debt of the Company existing at the
time, with the exception of outstanding industrial revenue bonds and certain
lease obligations. The Company also obtained construction loans from a bank in
amounts of up to $1.0 million per restaurant to finance the construction of new
restaurants. Borrowings under the $6.0 million revolving credit facility and all
other bank debt were paid off during fiscal 1999 with proceeds from the new
$75.0 million revolving credit facility.

As of March 6, 1999, the Company had a $75.0 million revolving credit
facility with a syndicate of four banks. This facility is a five-year revolving
line of credit (expiring June 9, 2003) under which the Company may borrow up to
an amount (including standby letters of credit up to $2.5 million) equal to the
lesser of $75.0 million or a borrowing base (comprised of eligible accounts
receivable, inventory, machinery and real property). Funds available under the
facility may be used for working capital requirements, permitted acquisitions,
permitted investments and general corporate purposes. Borrowings under the
facility will bear interest at floating rates based upon the interest rate
option selected from time to time by the Company.
20
23

As of March 6, 1999, the Company had approximately $29.0 million in
outstanding borrowings, $1.5 million of outstanding letters of credit under the
revolving credit facility and approximately $23.1 million of additional
availability under the facility. The outstanding borrowings under the revolving
credit facility were used to finance part of the Pierre acquisition, restaurant
conversions and construction and working capital needs of all business segments.
These borrowings are classified as long-term debt on the balance sheet.

The Company anticipates that its cash requirements, including working
capital, capital expenditures and required principal and interest payments due
under the revolving credit facility and interest payments due on the Notes,
which represent significant liquidity requirements, will be met through a
combination of funds provided by operations and borrowings under the revolving
credit facility. In addition, from time to time, the Company expects to continue
its practice of acquiring equipment with the proceeds of capital or operating
leases as permitted under such facility.

The Company has budgeted approximately $5.5 million for capital
expenditures in its current fiscal year. These expenditures are being devoted to
(i) routine restaurant equipment and building upgrading and maintenance
(approximately $ 1.0 million), (ii) the food processing segment (approximately
$4.2 million) and (iii) other miscellaneous expenditures (approximately $0.3
million). The Company believes that funds from operations and funds from
existing credit agreements, as well as the Company's ability to enter into
capital or operating leases, will be adequate to finance these capital
expenditures.

INFLATION

The Company believes that inflation has not had a material impact on its
results of operations for fiscal 1997, fiscal 1998 or fiscal 1999.

SEASONALITY

The Company considers its restaurant operations to be somewhat seasonal in
nature, with stronger sales during the Christmas season and spring, weaker sales
during the mid-summer and late winter. Except for sales to school districts,
which decline significantly during the summer and early January, there is no
seasonal variation in the Company's sales of food products. The Company's food
production is steady throughout the year. Sales for the Company's ham curing
division are seasonal in nature, with sales volume increases occurring around
the Easter, Thanksgiving and Christmas holiday seasons.

"YEAR 2000" ISSUES

The "Year 2000" problem arose because many existing computer programs use
only the last two digits to refer to a year. If not addressed, computer programs
that are date-sensitive may not have the ability to properly recognize dates in
the year 2000 and beyond. The result could be a temporary disruption of
operations and the processing of transactions.

The Company developed a four-phase approach to addressing this problem.
Phase 1 was an analysis to identify the impact and costs relating to year 2000,
both in computer information systems and other equipment. Phase 2 was the
creation of a comprehensive plan to address and fix any problems identified.
Phase 3 is the implementation of the comprehensive plan. In Phase 4, the Company
is to address any unforeseen complications or issues not previously addressed.
The Company has completed Phase 1 and Phase 2.

Phase 3, relating to the Company's systems, both information technology and
non-information technology, was substantially complete at the end of calendar
year 1998, with most of the systems Year 2000 compliant. Testing of compliance
is continuing. Additionally, as part of Phase 3, the Company has sent Year 2000
questionnaires to vendors and other entities with which the Company conducts
business in order to assess whether they are Year 2000 compliant or have
adequately addressed their system conversion requirements. More than two-thirds
of all vendors and other entities and substantially all major vendors and other
entities receiving questionnaires from the Company have responded. The vast
majority of vendors and other entities responding have done so by offering
assurances that they are either currently Year 2000 compliant or have a

21
24

plan in place to be Year 2000 compliant in a timely manner. The Company plans to
validate readiness responses for its key relationships as it assesses its
contingency planning requirements. For those vendors that have responded with
substandard assurance, the Company is seeking alternative sources of supply. The
Company has sent out a second inquiry to those vendors and other entities that
had not responded to the initial mailing.

The Company cannot predict how many, if any, of the responses it receives
may prove later to be inaccurate or overly optimistic. The Company is continuing
to develop contingency plans, which are based on its actual testing experience
and an assessment of outside risks, to address unanticipated interruptions or
down time in both the Company's and third parties' systems and services. The
costs to implement the Company's plan through March 6, 1999 were $254,635 and
are being expensed as incurred. The estimated cost to complete Phase 3 is
$115,000. These costs exclude the costs of purchasing Year 2000 compliant
computer programs that would have been purchased in the ordinary course of
business regardless of Year 2000 concerns. As of March 6, 1999, the Company is
on schedule to complete Phase 3 by September 30, 1999.

The Company is continuing to closely monitor adherence to the
implementation plan and is currently satisfied that it will be completed in the
scheduled time frame. If, however, the Company encounters unforeseen
complications or issues not previously addressed in the comprehensive plan
(Phase 4), then additional resources would be committed to complete the
necessary conversions in the required time frame. The most reasonably likely
worst case Year 2000 scenario facing the Company's food processing business is
that production would be interrupted and distribution of products to customers
would be delayed, resulting in revenue and profit losses until the problems
could be corrected. The most reasonably likely worst case scenario relative to
the restaurant business is the failure to capture individual restaurant revenues
and other information electronically. The Company does not expect these events
to occur and thus has no plans for handling them (other than being aware that
data can be captured and accounted for temporarily by non-electronic means).
Since the Company has no reason to believe that it will need to use additional
(Phase 4) resources, no estimate as to their cost has been made at this time.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires that an entity recognize all derivative instruments as either assets or
liabilities in its balance sheet and measure those instruments at fair value.
The Company will be required to adopt this new statement for its fiscal year
ending March 2, 2002. Management is currently evaluating the impact of this
statement.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on the types of internal
costs, including payroll and interest costs, which should be capitalized
relative to development of software applications. The Company will be required
to adopt this new statement for fiscal 2000. The Company is in the process of
evaluating this statement and does not expect any material effect on the
Company's financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company owned no derivative financial instruments at March 6, 1999,
February 27, 1998 or February 28, 1997. The Company holds no financial
instruments of any kind for trading purposes.

Certain of the Company's outstanding financial instruments are subject to
market risks, including interest rate risk. Such financial instruments are not
currently subject to foreign currency risk or commodity price risk.

The Company's major market risk exposure is potential loss arising from
changing interest rates and the impact of such changes on its long-term debt.
The Company's policy is to manage interest rate risk by issuing a combination of
fixed and variable rate debt in amounts and with maturities that management
considers appropriate. Of the Company's long-term debt outstanding at March 6,
1999, $31.1 million principal amount

22
25

was accruing interest at a variable rate. A rise in prevailing interest rates
could have adverse effects on the Company's financial condition and results of
operations.

MARCH 6, 1999
EXPECTED MATURITIES IN FISCAL YEARS
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
-------- -------- -------- -------- ----------- ------------ ------------ ------------

Long-term debt:
Fixed rate............. $343,752 $328,506 $ 67,631 $ 49,686 $ 46,066 $115,001,539 $115,837,180 $112,387,180
Weighted average
interest rate........ 10.41% 10.31% 9.27% 9.28% 9.28% 10.75% 10.75%
Variable rate.......... $330,000 $330,000 $330,000 $330,000 $29,330,000 $ 452,500 $ 31,102,500 $ 31,102,500
Weighted average
interest rate........ 3.29% 3.29% 3.29% 3.29% 8.58% 3.29% 8.28%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is set forth on pages F-1 through
F-29.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item for each of the Company's directors
is contained under the caption "Election of Directors" in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders to be held on July 22,
1999 and is incorporated herein by reference.

The information required by this Item for each of the Company's executive
officers is contained under the caption "Executive Officers of the Registrant"
in Part I, Item 4A, of this Report.

ITEM 11. EXECUTIVE COMPENSATION

Information on remuneration of the Company's officers and directors is
contained in the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders to be held on July 22, 1999 under the caption "Executive
Compensation" and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information on security ownership of certain beneficial owners and
management is contained in the Company's Proxy Statement for its 1999 Annual
Meeting of Shareholders to be held on July 22, 1999 under the caption "Principal
Shareholders and Management Ownership" and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item is contained in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders to be held on July 22,
1999 under the caption "Certain Relationships and Related Party Transactions"
and is incorporated herein by reference.

23
26

PART IV

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

(a) 1. Financial Statements

The Financial Statements listed in the accompanying Index on page F-1
are filed as a part of this Report.

2. Financial Statement Schedules

Financial statement schedules have been omitted because they are not
applicable or not required or because the required information is provided
in the consolidated financial statements or notes thereto.

3. Exhibits

See Index to Exhibits.

(b) Reports On Form 8-K.

A Current Report on Form 8-K was filed on February 10, 1999 announcing: (i)
the authorization by the Board of Directors of a $1.5 million stock repurchase
program; and (ii) the adoption of two company-funded stock purchase loan
programs offering selected members of management, including directors, loans
with a maximum aggregate $1.8 million principal amount to purchase the Company's
Common Stock. The Company has terminated these programs.

24
27

INDEX TO FINANCIAL STATEMENTS

PAGE
----

FRESH FOODS
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 6, 1999 and
February 27, 1998...................................... F-3
Consolidated Statements of Earnings for the Years Ended
March 6, 1999, February 27, 1998 and February 28,
1997................................................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended March 6, 1999, February 27, 1998 and
February 28, 1997...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
March 6, 1999, February 27, 1998 and February 28,
1997................................................... F-6
Notes to Consolidated Financial Statements................ F-7

F-1
28

INDEPENDENT AUDITORS' REPORT

Shareholders and Board of Directors
Fresh Foods, Inc.
Claremont, North Carolina

We have audited the accompanying consolidated balance sheets of Fresh Foods,
Inc. (formerly WSMP, Inc.) and subsidiaries (the "Company") as of March 6, 1999
and February 27, 1998, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended March 6, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 6, 1999 and
February 27, 1998, and the results of its operations and its cash flows for each
of the three fiscal years in the period ended March 6, 1999 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Charlotte, North Carolina
June 7, 1999

F-2
29

FRESH FOODS, INC.

CONSOLIDATED BALANCE SHEETS

AS OF
----------------------------
MARCH 6, FEBRUARY 27,
1999 1998
------------ ------------

ASSETS (NOTE 7)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,664,398 $ 2,818,071
Marketable equity securities (at fair value; cost of
$175,790 at February 27,1998)........................... -- 206,706
Accounts receivable, net (Notes 3, 7 and 17 -- includes
related party receivables of $326,147 and $181,367 at
March 6, 1999 and February 27, 1998, respectively)...... 18,565,152 5,204,700
Notes receivable -- current, net (Note 3 and
17 -- includes related party notes receivable of
$986,457 and $526,592 at March 6, 1999 and February 27,
1998, respectively)..................................... 1,122,268 1,150,906
Inventories (Notes 4 and 7)............................... 30,430,482 7,361,347
Income tax receivable (Note 8)............................ -- 872,157
Deferred income taxes (Note 8)............................ 2,722,095 424,786
Prepaid expenses and other current assets................. 988,023 269,222
------------ -----------
Total current assets............................... 55,492,418 18,307,895
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 5 and 7).......... 74,999,394 45,023,793
------------ -----------
OTHER ASSETS:
Properties held for sale (Note 7)......................... 2,086,847 1,680,993
Trade name, net (Note 6).................................. 43,242,636 --
Excess of cost over fair value of net assets of businesses
acquired, net (Note 6).................................. 32,623,400 2,906,366
Other intangible assets, net (Note 6)..................... 3,520,053 829,500
Notes receivable (Notes 3 and 17 -- includes related party
notes receivable of $313,274 and $1,550,638 at March 6,
1999 and February 27, 1998, respectively)............... 367,494 1,886,249
Deferred income taxes (Note 8)............................ -- 685,458
Deferred loan origination fees, net....................... 4,524,753 262,828
Other..................................................... 132,028 72,717
------------ -----------
Total other assets................................. 86,497,211 8,324,111
------------ -----------
Total Assets....................................... $216,989,023 $71,655,799
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- banks (Note 7)........................... $ 5,105,144
Current installments of long-term debt (Note 7)........... $ 673,752 2,189,401
Trade accounts payable (Note 17 -- includes related party
payables of $92,370 and $218,180 at March 6, 1999 and
February 27, 1998, respectively)........................ 11,255,920 6,605,893
Income taxes payable...................................... 151,366 --
Accrued insurance......................................... 1,155,942 614,846
Accrued interest.......................................... 3,533,771 87,426
Accrued payroll and payroll taxes......................... 4,941,033 1,960,534
Accrued marketing and advertising......................... 1,420,580 12,000
Accrued taxes (other than income and payroll)............. 1,176,888 379,269
Other accrued liabilities (Note 17 -- includes related
party accrued liabilities of $185,000 at March 6,
1999)................................................... 3,351,366 1,850,766
------------ -----------
Total current liabilities.......................... 27,660,618 18,805,279
LONG-TERM DEBT, less current installments (Note 7).......... 146,265,928 13,623,532
DEFERRED INCOME TAXES (Note 8).............................. 1,910,468 --
COMMITMENTS AND CONTINGENCIES (Notes 9 and 15)..............
SHAREHOLDERS' EQUITY (Notes 7 and 11)
Preferred stock -- par value $.10, authorized 2,500,000,
no shares issued........................................ -- --
Common stock -- par value $1, authorized 100,000,000
shares; issued and outstanding 1999 -- 5,807,049 shares
and 1998 -- 5,898,449 shares............................ 5,807,049 5,898,449
Capital in excess of par value............................ 23,251,845 23,647,020
Retained earnings......................................... 12,093,115 9,662,258
Accumulated other comprehensive income.................... -- 19,261
------------ -----------
Total Shareholders' equity......................... 41,152,009 39,226,988
------------ -----------
Total Liabilities and Shareholders' Equity......... $216,989,023 $71,655,799
============ ===========

See accompanying notes to consolidated financial statements.
F-3
30

FRESH FOODS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

FISCAL YEAR ENDED
------------------------------------------
MARCH 6, FEBRUARY 27, FEBRUARY 28,
1999 1998 1997
------------ ------------ ------------

REVENUES: (Notes 14 and 17)
Food processing........................................... $149,778,206 $56,387,112 $48,181,625
Restaurant operations and franchising (Note 17 -- includes
related party transactions totaling approximately
$34,000, $315,000 and $1,004,000 in 1999, 1998 and 1997,
respectively)........................................... 101,440,315 91,261,985 70,866,150
Ham curing................................................ 7,063,625 9,858,233 10,433,868
------------ ----------- -----------
Total revenues..................................... 258,282,146 157,507,330 129,481,643
------------ ----------- -----------
COSTS AND EXPENSES:
Cost of goods sold (Note 17 -- includes related party
transactions totaling approximately $698,000, $429,000
and $513,000 in 1999, 1998 and 1997, respectively)...... 137,964,462 92,112,998 78,999,482
Restaurant operating expenses (Note 17 -- includes related
party transactions totaling approximately $3,248,000,
$3,682,000 and $2,744,000 in 1999, 1998 and 1997,
respectively)........................................... 47,679,264 41,339,871 31,057,850
Selling, general and administrative expenses (Note
17 -- includes related party transactions totaling
approximately $2,744,000, $2,206,000 and $2,070,000 in
1999, 1998 and 1997, respectively)...................... 46,736,273 14,049,010 10,414,329
Depreciation and amortization............................. 8,216,256 5,004,310 3,600,317
------------ ----------- -----------
Total costs and expenses........................... 240,596,255 152,506,189 124,071,978
------------ ----------- -----------
OPERATING INCOME............................................ 17,685,891 5,001,141 5,409,665
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Other income -- (including interest) (Note 17 -- includes
related party transactions totaling approximately
$153,000, $146,000 and $114,000 in 1999, 1998 and 1997,
respectively)........................................... 805,608 747,121 1,018,745
Net gain (loss) on disposition of assets (net of
writedowns) (Note 17 -- include gains (losses) on sales
of assets to related parties totaling approximately
$1,000, $710,000 and $103,000 in 1999, 1998 and 1997,
respectively)........................................... (1,003,554) 639,966 345,930
Interest expense (Note 17 -- includes related party
transactions totaling approximately $30,000, $110,000
and $32,000 in 1999, 1998 and 1997, respectively)....... (12,400,851) (1,762,363) (1,867,948)
Other expense (Note 17 -- includes related party
transactions totaling approximately $171,000, $147,000
and $99,000 in 1999, 1998 and 1997, respectively)....... (879,232) (647,857) (871,388)
------------ ----------- -----------
Other expense, net................................. (13,478,029) (1,023,133) (1,374,661)
------------ ----------- -----------
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS....................................... 4,207,862 3,978,008 4,035,004
INCOME TAX PROVISION (Note 8)............................... 1,712,670 1,728,008 2,009,999
------------ ----------- -----------
EARNINGS BEFORE EXTRAORDINARY ITEMS......................... 2,495,192 2,250,000 2,025,005
EXTRAORDINARY GAIN (LOSS) FROM EARLY EXTINGUISHMENT OF DEBT
(Net of income tax benefit of $44,157 in 1999, and income
tax provision of $251,000 in 1997) (Note 7)............... (64,335) -- 414,784
------------ ----------- -----------
NET EARNINGS................................................ $ 2,430,857 $ 2,250,000 $ 2,439,789
============ =========== ===========
EARNINGS PER COMMON SHARE -- BASIC (Note 12)
Earnings before extraordinary items....................... $ 0.42 $ 0.40 $ 0.40
Extraordinary gain (loss) from early extinguishment of
debt.................................................... (0.01) -- 0.08
------------ ----------- -----------
Net earnings....................................... $ 0.41 $ 0.40 $ 0.48
============ =========== ===========
EARNINGS PER COMMON SHARE -- DILUTED (Note 12) Earnings
before extraordinary items................................ $ 0.41 $ 0.37 $ 0.37
Extraordinary gain (loss) from early extinguishment of
debt.................................................... (0.01) -- 0.08
------------ ----------- -----------
Net earnings....................................... $ 0.40 $ 0.37 $ 0.45
============ =========== ===========

See accompanying notes to consolidated financial statements.
F-4
31

FRESH FOODS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

ACCUMULATED
CAPITAL IN OTHER TOTAL
COMMON EXCESS OF RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK PAR VALUE EARNINGS INCOME EQUITY
---------- ----------- ----------- ------------- -------------

BALANCE AT FEBRUARY 23, 1996............. $2,958,538 $13,772,513 $ 5,591,489 $ 5,278 $22,327,818
Comprehensive income:
Net earnings........................... -- -- 2,439,789 --
Unrealized gain on available for sale
securities (net of tax of $4,742).... 4,781
Total comprehensive income............... 2,444,570
Common stock options exercised (158,750
shares) (Note 11)...................... 158,750 561,750 -- -- 720,500
Payments to and exchanges with
shareholders related to Sagebrush, Inc.
reorganization......................... 1,478,900 (6,475,119) -- -- (4,996,219)
Net proceeds of Sagebrush, Inc. public
offering (Note 1)...................... 687,960 10,337,242 -- -- 11,025,202
Issuance of common stock -- Sagebrush,
Inc. (42,800 shares)................... 42,800 671,898 -- -- 714,698
S Corporation dividends and
distributions -- Sagebrush, Inc........ -- -- (888,188) -- (888,188)
---------- ----------- ----------- -------- -----------
BALANCE AT FEBRUARY 28, 1997............. 5,326,948 18,868,284 7,143,090 10,059 31,348,381
Comprehensive income:
Net earnings........................... -- -- 2,250,000 --
Unrealized gain on available for sale
securities (net of tax of $7,055).... 9,202
Total comprehensive income............... 2,259,202
Net earnings of Sagebrush, Inc. for
period from January 4, 1997 to February
28, 1997 (Note 1)...................... -- -- 269,168 -- 269,168
Common stock options exercised (391,000
shares) (Note 11)...................... 391,000 919,700 -- -- 1,310,700
Purchase of common stock (143,325
shares)................................ (143,325) (1,840,425) -- -- (1,983,750)
Issuance of common stock (323,826
shares)................................ 323,826 2,599,040 -- -- 2,922,866
Tax benefit of stock options exercised
(Notes 8 and 11)....................... -- 3,100,421 -- -- 3,100,421
---------- ----------- ----------- -------- -----------
BALANCE AT FEBRUARY 27, 1998............. 5,898,449 23,647,020 9,662,258 19,261 39,226,988
Comprehensive income:
Net earnings........................... -- -- 2,430,857 --
Realized gain on sale of available for
sale securities (net of
reclassification adjustments and tax
of $13,094).......................... (19,261)
Total comprehensive income............... 2,411,596
Common stock options exercised (15,625
shares) (Note 11)...................... 15,625 65,625 -- 81,250
Purchase of common stock (110,000
shares)................................ (110,000) (490,022) -- (600,022)
Issuance of common stock (2,975
shares)................................ 2,975 29,222 -- 32,197
---------- ----------- ----------- -------- -----------
BALANCE AT MARCH 6, 1999................. $5,807,049 $23,251,845 $12,093,115 $ -- $41,152,009
========== =========== =========== ======== ===========

See accompanying notes to consolidated financial statements.
F-5
32

FRESH FOODS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED
---------------------------------------------
MARCH 6, FEBRUARY 27, FEBRUARY 28,
1999 1998 1997
------------- ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................ $ 2,430,857 $ 2,250,000 $ 2,439,789
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary (gain) loss on extinguishment of debt (before
effect of income taxes) (Note 8).......................... 108,493 -- (665,646)
Depreciation and amortization............................... 8,216,256 5,004,311 3,600,317
Depreciation on properties leased to others................. 247,595 225,733 293,894
Increase (decrease) in deferred income taxes, net........... 298,617 (2,081,085) 582,224
Net (gain) loss on disposition of assets (net of
writedowns)............................................... 1,003,555 (639,966) (345,930)
Tax benefit of stock options................................ -- 3,100,421 --
Other noncash adjustments to earnings....................... 494,023 32,269 228,199
Changes in operating assets and liabilities (net of effects
from purchase of restaurant companies and Pierre)
providing (using) cash:
Receivables............................................... (4,815,226) (1,628,423) 192,419
Inventories............................................... (2,124,657) (544,001) (741,522)
Income taxes refundable, prepaid expense and other
assets.................................................. 148,285 (673,905) 35,703
Trade accounts payable and other accrued liabilities...... 5,023,953 2,654,178 902,488
------------- ------------ ------------
Total adjustments.................................. 8,600,894 5,449,532 4,082,146
------------- ------------ ------------
Net cash provided by operating activities.......... 11,031,751 7,699,532 6,521,935
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of net assets of Pierre Foods...................... (119,289,571) -- --
Proceeds from sales of assets to others..................... 363,056 2,185,787 1,208,447
Proceeds from sales of assets to related parties............ 13,746 1,350,000 150,000
Decrease in related party notes receivables................. 777,499 179,452 289,913
Decrease in other notes receivables......................... 804,843 504,439 497,843
Capital expenditures to related parties..................... (2,148,910) (1,752,565) (563,294)
Capital expenditures -- other............................... (13,315,626) (10,839,058) (9,138,245)
Other investing activities, net............................. 111,680 14,909 (59,593)
------------- ------------ ------------
Net cash used in investing activities.............. (132,683,283) (8,357,036) (7,614,929)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit agreement............. 29,000,000 -- --
Proceeds from issuance of long-term debt.................... 115,000,000 5,894,000 8,585,000
Principal payments on long-term debt........................ (12,888,165) (4,971,615) (11,948,322)
Net proceeds (repayments) under short-term borrowing
agreements................................................ (5,105,144) (935,382) 27,776
Loan origination fees....................................... (4,990,060) (113,409) (304,674)
Proceeds from issuance of common stock...................... -- -- 11,472,779
S Corporation distribution dividend......................... -- -- (888,188)
Repurchase of common stock.................................. (600,022) (1,983,750) --
Proceeds from exercise of stock options..................... 81,250 1,310,700 720,500
Purchase of assets related to reorganization................ -- -- (1,652,500)
Cash paid to shareholders related to reorganization......... -- -- (3,412,902)
------------- ------------ ------------
Net cash provided by (used in) financing
activities....................................... 120,497,859 (799,456) 2,599,469
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................................... (1,153,673) (1,456,960) 1,506,475
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 2,818,071 4,275,031 2,489,022
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 1,664,398 $ 2,818,071 $ 3,995,497
============= ============ ============

See accompanying notes to consolidated financial statements.
F-6
33

1. BASIS OF PRESENTATION

Description of Business. Fresh Foods, Inc. (the "Company" or "Fresh
Foods") is a vertically integrated producer and marketer of fully-cooked branded
and private label protein and bakery products and microwaveable sandwiches for
the domestic foodservice market. The Company sells its products through various
distribution channels under the Pierre(TM), Fast Choice([), Fast Bites(TM) and
Mom 'n' Pop's([) brand names, which are widely recognized in the food industry.
The Company currently produces cured hams and ham products for food service and
retail grocery customers under the "Mom 'n' Pop's" brand name. In addition, the
Company owns and operates 67, and franchises an additional 36, restaurants
operating under the Sagebrush, Western Steer, Prime Sirloin and Bennett's
concepts.

In May 1998, the Company, formerly known as WSMP, Inc., changed its name to
"Fresh Foods, Inc." The name change had no major impact on the Company's
business, other than to make it more recognizable, emphasize its corporate
identity as a multi-faceted food service company and de-emphasize its identity
with any particular restaurant concepts.

Acquisition of Pierre Foods Division of Hudson Foods, Inc. On June 9,
1998, the Company purchased certain of the net operating assets of the Pierre
Foods Division ("Pierre") of Hudson Foods, Inc. ("Hudson"), a wholly owned
subsidiary of Tyson Foods. The acquisition was accounted for using the purchase
method of accounting and the results of Pierre's operations were included in the
Company's fiscal 1999 consolidated statements of earnings from the date of
acquisition. The purchase price, which totaled $119.3 million including the
capitalized costs of the acquisition, has been allocated to the net underlying
assets based on the respective fair values. Costs associated with the
acquisition totaling $1.5 million were capitalized as part of the transaction.
The acquisition price is allocated as follows (in millions):

Accounts receivable......................................... $ 8.5
Inventory................................................... 20.9
Fixed assets................................................ 22.3
Trade name.................................................. 44.3
Assembled work force........................................ 2.9
Accounts payable............................................ 5.3
Accrued liabilities......................................... 5.1
Excess of cost over fair value of net assets acquired....... 30.8

Excess purchase price over fair market value of the underlying assets was
allocated to goodwill, tradenames and assembled workforce, being amortized on a
straight-line basis over lives ranging from fifteen to thirty years.

The purchase was financed by the proceeds of an offering of $115.0 million
10.75% Senior Notes Due 2006 (the "Senior Notes") and an initial borrowing under
a new five-year, $75.0 million, revolving bank credit facility (the "Bank
Facility"), with availability subject to a borrowing base formula. In addition,
borrowings under the Bank Facility were used to extinguish all existing prior
indebtedness of the Company, with the exception of outstanding industrial
revenue bonds and certain capital lease obligations (Note 9).

Following is selected unaudited pro forma combined results of operations
for the years ended March 6, 1999 and February 27, 1998, assuming that the two
companies had been combined for accounting purposes on March 1, 1997. All
necessary adjustments based on the allocated purchase price of net assets
acquired and eliminations for transactions between Fresh Foods, Inc. and Pierre
Foods have been reflected in the pro forma calculations. However, the pro forma
amounts are not necessarily indicative of the actual results of operations had
the two companies been combined at March 1, 1997.

F-7
34

MARCH 6, FEBRUARY 27,
1999 1998
-------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Total operating revenues.................................... $287,159 $268,364
Operating income............................................ 18,312 12,757
Earnings (loss) before extraordinary items.................. 490 (1,448)
Extraordinary loss (net of tax)............................. -- (105)
-------- --------
Net earnings (loss)......................................... $ 490 $ (1,553)
======== ========
Net earnings per common share -- basic:
Earnings before extraordinary items......................... $ .08 $ (.26)
Extraordinary loss.......................................... -- (.01)
-------- --------
Net earnings (loss)......................................... $ .08 $ (.27)
======== ========
Net earnings per common share -- diluted:
Earnings (loss) before extraordinary items.................. $ .08 $ (.26)
Extraordinary loss.......................................... -- (.01)
-------- --------
Net earnings (loss)......................................... $ .08 $ (.27)
======== ========

Corporate Reorganization. On September 5, 1998, the Company completed a
reorganization, consisting of a series of stock and asset transfers, mergers and
liquidations among and involving the parent corporation and its subsidiaries,
designed to simplify the corporate structure. As a result of this
reorganization, Fresh Foods, Inc. is a holding company with no assets or
operations other than investments in its subsidiaries. All subsidiaries of Fresh
Foods, Inc. are wholly owned, directly or indirectly, by Fresh Foods, Inc., and
serve as subsidiary guarantors of the Bank Facility and Senior Notes and as such
have unconditionally guaranteed the notes on a joint and several basis. In
addition, all guarantors of the Bank Facility and Senior Notes are subsidiaries
of Fresh Foods, Inc.

As a result of the September 5, 1998 reorganization, separate financial
statements of the subsidiary guarantors are not presented because (a) the
subsidiary guarantors have jointly and severally guaranteed the Senior Notes on
a full and unconditional basis, (b) the aggregate assets, liabilities, earnings
and equity of the subsidiary guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the parent on a consolidated basis
and (c) management has determined that such information is not material to
investors.

Merger with Sagebrush, Inc. On January 30, 1998, Fresh Foods, Inc.
completed a merger with Sagebrush, Inc. ("Sagebrush") through issuance of
2,264,535 shares of Fresh Foods common stock for all of the outstanding common
stock of Sagebrush. Each share of Sagebrush common stock was converted into
.3822 shares of Fresh Foods common stock. The outstanding Sagebrush employee
stock options were converted at the .3822 exchange ratio into options to
purchase 120,317 shares of Fresh Foods common stock.

The merger qualifies as a tax-free reorganization and has been accounted
for as a pooling of interests under Accounting Principles Board Opinion No. 16.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined financial position, results of operations
and cash flows of Sagebrush.

Transactions between Fresh Foods and Sagebrush prior to the combination
have been eliminated. Adjustments recorded to conform Sagebrush's accounting
policies were immaterial, except for restaurant pre-opening costs. Prior to the
consummation of the merger, Sagebrush deferred restaurant pre-opening costs and
amortized these costs over 12 months. The accompanying financial statements for
the periods prior to the merger have been restated to conform to Fresh Foods'
policy which is to expense these costs as incurred. In addition, certain
reclassifications were made to the Sagebrush financial statements to conform to
Fresh Foods' presentation.

F-8
35

The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements for fiscal 1998 and
1997 are as follows:

YEAR YEAR
ENDED ENDED
FEBRUARY 27, FEBRUARY 28,
1998 1997
------------ ------------

Revenues:
Fresh Foods............................................ $104,721,605 $87,300,791
Sagebrush.............................................. 52,785,725 42,180,852
Combined............................................... 157,507,330 129,481,643
Extraordinary Item
Fresh Foods............................................ -- 414,784
Sagebrush.............................................. -- --
Combined............................................... -- 414,784
Net Earnings (Loss)
Fresh Foods............................................ (456,591) 1,120,696
Sagebrush.............................................. 2,706,591 2,112,331
Eliminations........................................... -- (793,238)
Combined............................................... 2,250,000 2,439,789

Transaction costs of approximately $1,875,000 in connection with the merger
with Sagebrush, primarily for investment banking, accounting and legal fees are
included in the accompanying statement of earnings for the fiscal year ended
February 27, 1998.

Sagebrush's 1998 fiscal year end was restated to conform to Fresh Food's
fiscal year. A summary of fiscal year ends as restated is shown as follows:

FISCAL YEAR PERIOD
- ----------- ------

1998..................................... 52 weeks ended February 27, 1998
1997..................................... 53 weeks ended February 28, 1997*

- ---------------
* Includes results of operations and cash flows for Sagebrush for the 52 weeks
ended January 3, 1997.

A summary of Sagebrush's results of operations for the period January 4,
1997 through February 28, 1997 follows:

Restaurant operations and franchising revenue............... $7,043,659
Operating income............................................ 452,438
Net income.................................................. 269,418

In January 1996, Sagebrush completed an initial public offering of stock in
which it sold 1,800,000 shares of common stock, raising $11,025,202 net
proceeds. Prior to the completion of this initial public offering, Sagebrush was
structured as 22 operating restaurant corporations using the name "Sagebrush
Steakhouse & Saloon," and certain operations relating to a restaurant management
company ("the combining companies"). In connection with this initial public
offering a reorganization took place in which the combining companies either
became wholly owned subsidiaries of, or transferred all of their assets to,
Sagebrush. This reorganization was accounted for at historical costs in a manner
similar to a pooling of interests due to the entities being under common
management and control and the absence of significant monetary consideration to
the related shareholders.

F-9
36

Acquisition of Franchised Restaurants On March 1, 1997, the Company
acquired fourteen franchised restaurants from various corporations predominantly
owned by a former executive officer of the Company for a total purchase price of
$3,767,500 payable as follows:

Cash........................................................ $ 500
Assumption of accrued liabilities........................... $ 309,500
Assumption of long-term liabilities......................... $ 645,000
Forgiveness of note receivable.............................. $ 125,000
Issuance of Common stock.................................... $2,012,500
Issuance of Promissory Note, 2 year at interest rate of
5%........................................................ $ 800,000

As part of this transaction, 223,611 shares of common stock were issued to
the selling corporations. In addition, costs associated with the acquisition
totaling $64,707 were capitalized as part of the transaction. The acquisition
price is allocated as follows:

Inventories................................................. $ 151,313
Fixed assets................................................ $1,203,413
Excess of cost over fair value of net assets acquired....... $2,477,481

In addition, existing lease agreements for eleven of the restaurant
properties were assigned to the Company. Also the Company signed new lease
agreements on the remaining three properties. The new leases are classified as
operating leases.

Also as part of this transaction, the former executive officer, who was
also the single largest franchisee of the Company, entered into a fifteen-year
non-competition agreement with the Company in exchange for 98,750 shares of
common stock valued at $888,750 on the date of the agreement. (Note 6) These
shares are restricted securities and their resale is subject to certain
conditions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying consolidated financial
statements include Fresh Foods, Inc. and subsidiaries in which it has an
ownership percentage greater than 50%. All significant intercompany balances and
transactions have been eliminated.

Fiscal Year. The Company reports the results of operations using a 52-53
week basis. As a result of the Pierre acquisition, described in Note 1, the
Company changed its interim fiscal periods to conform with standard food
processing industry interim periods. Prior to the change in interim periods the
Company reported the results of operations based on a 12, 12, 12 and 16 week
quarters. In order to adopt this interim calendar, the Company's existing
operations contain 53 weeks in the fiscal year ended March 6, 1999, and the
third quarter year to date represented 40 weeks for the fiscal year ended March
6, 1999, compared to 36 weeks for fiscal years ended February 27, 1998 and
February 28, 1997. Fiscal years 1999 and 1997 represent fifty-three week periods
while fiscal 1998 represents a fifty-two week period. This additional week of
activity did not have a material impact on any reported line item on the
consolidated statements of earnings when compared with the prior year's results.

The Company's fiscal year ended March 6, 1999 is referred to herein as
"fiscal 1999", its fiscal year ended February 27, 1998 is referred to herein as
"fiscal 1998"; and its fiscal year ended February 28, 1997 is referred to herein
as "fiscal 1997."

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

Investments. The Company classifies its investments in debt and equity
securities as available-for-sale. Securities classified as available-for-sale
are carried at fair market value with unrealized gains and losses excluded from
earnings but shown as a separate component of shareholders' equity. All
investments at

F-10
37

February 27, 1998 of the Company were comprised of marketable equity securities
held in broker managed accounts.

Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market.

Property Plant and Equipment. Property, plant and equipment are stated at
cost. Expenditures for maintenance and repairs which do not significantly extend
the useful lives of assets are charged to earnings whereas additions and
betterments, including interest costs incurred during construction, are
capitalized. Gains and losses on dispositions are reflected in other income
except for gains and losses on traded properties which are reflected in the
basis of the new asset.

Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets on the straight-line basis.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or the terms of the respective leases. Property under capital
leases is amortized in accordance with the Company's normal depreciation policy.
Depreciation on properties leased to others is combined with other expenses
related to rental income and reported as other expense.

The Company evaluates the carrying values of its long-lived assets based on
the criteria set forth in Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. For fiscal 1998 the Company recorded a pretax earnings
charge of $394,000 for the writedown of buildings, machinery and equipment and
furniture and fixtures. The fair value of the items considered to be impaired
was determined based on information about sales and purchases of similar assets.
The writedown is included in fiscal 1998 depreciation expense. Management
determined that no writedown for impairment was necessary in fiscal 1999.

Properties Held for Sale. Properties held for sale which include real
properties and certain undeveloped land holdings are carried at their estimated
fair value less estimated selling costs.

Intangible Assets. Intangible assets consist of the excess of cost over
the fair value of net assets of businesses acquired, trade name, assembled
workforce, and covenants not to compete which are being amortized over fifteen
to forty years. The Company routinely assesses recoverability of the excess cost
over the assigned value of net assets acquired by determining whether the
amortization of the balance over its remaining life can be recovered through the
undiscounted future operating cash flows of the acquired operations.

Deferred Loan Origination Fees. Deferred loan origination fees relate to
fees associated with obtaining the Senior Notes and Bank Facility. These fees
are amortized over the term of the related debt on a straight-line basis which
approximates the effective interest method.

Revenue Recognition. Revenue from sales of food processing and ham curing
products are recorded at the time the goods are shipped and title passes.
Revenues are recognized in the restaurant segment when the earnings process is
complete as evidenced by the customer payment.

Costs and Expenses. Cost of goods sold includes the direct and indirect
costs of tangible products sold by the food processing and ham curing operations
and the direct costs of tangible products sold through restaurant operations.
Operating expenses include additional indirect costs such as labor, insurance
and occupancy costs, other than depreciation, associated with restaurant product
sales and other revenues. Selling, general and administrative expenses reflect
costs of marketing, selling and general administration not included in cost of
goods sold or operating expenses.

Advertising Costs. The Company expenses advertising costs as incurred.
Advertising expense for fiscal 1999, fiscal 1998 and fiscal 1997 was $2,731,517,
$3,139,145 and $3,199,318, respectively.

Pre-opening Expenses. Preopening expenses associated with new restaurant
openings are expensed as incurred.

Income Taxes. Income taxes are provided for temporary differences between
the tax and financial accounting basis of assets and liabilities using the asset
and liability method. The tax effects of such differences are reflected in the
balance sheet at the enacted tax rate applicable to the years when such
F-11
38

differences are scheduled to reverse. The effect on deferred taxes of a change
in tax rates is recognized in the period that includes the enactment date.

Franchise, Royalty and Other Fees. Initial franchise fees are recognized
as revenue when substantially all of the services required of the Company by the
franchise agreement have been performed, which is generally the date the
franchised unit opens. At the time the Company has substantially performed all
obligations for initial service relating to the restaurant, the Company
recognizes the pro rata portion of the fee allocated to the option to develop
that particular restaurant. Royalty and other fees are accrued as earned based
on franchisees' sales.

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

Impact of New Accounting Standards. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This standard requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company will be required to adopt this new
statement for the fiscal year ending March 2, 2002. Management is currently
evaluating the impact of this statement.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (the "AICPA") issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on the types
of internal costs, including payroll and interest costs, which should be
capitalized relative to development of software applications. The Company will
be required to adopt this new statement for the fiscal year ending March 4,
2000. The Company is in the process of evaluating this statement and does not
expect any material effect on the Company's financial statements.

Reclassifications. Financial statements for fiscal 1998 and 1997 have been
reclassified, where applicable, to conform to the financial statement
presentation used in fiscal 1999.

3. ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable consist of the following:

MARCH 6, FEBRUARY 27,
1999 1998
----------- ------------

Accounts receivable:
Trade accounts receivable (less allowance for doubtful
receivables of $158,790 and $30,000 in 1999 and 1998,
respectively)......................................... $17,387,293 $4,785,503
Franchisees (less allowance for doubtful receivables of
$35,000 and $76,000 in 1999 and 1998, respectively)... 200,060 145,086
Other.................................................... 651,652 92,744
----------- ----------
18,239,005 5,023,333
Related parties (less allowance for doubtful receivables
of $6,153 and $6,000 in 1999 and 1998, respectively)
(See Note 17)......................................... 326,147 181,367
----------- ----------
Total accounts receivable........................ $18,565,152 $5,204,700
=========== ==========
Notes receivable:
Related parties; interest rates 8.25% to 9.0% (see Note
17)................................................... $ 1,299,731 $2,077,230
Less current portion..................................... 986,457 526,592
----------- ----------
Noncurrent notes receivable -- related parties........... 313,274 1,550,638
----------- ----------

F-12
39

MARCH 6, FEBRUARY 27,
1999 1998
----------- ------------

Notes receivable -- other; interest rates 9.0% to 12.5%
(less allowance for doubtful receivables of $47,676
and $201,723 in 1999 and 1998, respectively).......... 190,031 959,925
Less current portion..................................... 135,811 624,314
----------- ----------
Noncurrent notes receivable -- other..................... 54,220 335,611
----------- ----------
Total noncurrent notes receivable................ $ 367,494 $1,886,249
=========== ==========

Notes receivable have maturities ranging from fiscal 2000 to fiscal 2012
and mature as follows:

FISCAL YEAR AMOUNT
- ----------- ----------

2000........................................................ $1,122,268
2001........................................................ 25,880
2002........................................................ 28,230
2003........................................................ 30,795
2004........................................................ 33,595
Later years................................................. 248,994
----------
$1,489,762
==========

4. INVENTORIES

A summary of inventories, by major classification, follows:

MARCH 6, FEBRUARY 27,
1999 1998
----------- ------------

Manufacturing supplies............................. $ 1,299,177 $ 260,371
Raw materials...................................... 4,553,087 2,526,175
Work in process.................................... 1,008,315 1,574,767
Finished goods..................................... 22,776,027 2,123,171
Restaurant food and supplies....................... 793,876 876,863
----------- ----------
Total.................................... $30,430,482 $7,361,347
=========== ==========

5. PROPERTY, PLANT AND EQUIPMENT

The major components of property, plant and equipment are as follows:

ESTIMATED MARCH 6, FEBRUARY 27,
USEFUL LIFE 1999 1998
----------- ------------ ------------

Land............................................... $ 8,717,431 $ 8,067,964
Land improvements.................................. 10-15 years 2,030,307 1,947,574
Buildings.......................................... 20-40 years 31,003,329 20,522,287
Leasehold improvements............................. 5-20 years 10,819,557 7,596,517
Machinery and equipment............................ 5-15 years 40,468,872 23,283,557
Machinery and equipment under capital leases....... 5-15 years 1,417,541 1,521,117
Furniture and fixtures............................. 5-10 years 8,591,112 7,029,614
Automotive equipment............................... 2-5 years 598,789 571,765
Construction in progress........................... 1,544,373 1,015,258
------------ -----------
Total.................................... 105,191,311 71,555,653
Less accumulated depreciation and amortization..... 30,191,917 26,531,860
------------ -----------
Property, plant and equipment, net................. $ 74,999,394 $45,023,793
============ ===========

F-13
40

Depreciation and amortization expense of property, plant and equipment was
$6,194,802, $4,961,910 and $3,850,077 for fiscal 1999, fiscal 1998 and fiscal
1997, respectively. Accumulated depreciation applicable to property under
capital leases was $516,056, $260,347 and $105,355 for fiscal 1999, fiscal 1998
and fiscal 1997, respectively. Interest costs capitalized in 1999 and 1998
associated with construction in progress were $202,629 and $58,903,
respectively.

6. INTANGIBLE ASSETS

Trade name, excess of cost over fair value of net assets of businesses
acquired and other intangible assets relate primarily to the Company's
acquisition of Pierre in fiscal 1999 and the franchised restaurant acquisitions
in fiscal 1997 (Note 1).

MARCH 6, FEBRUARY 27,
1999 1998
----------- ------------

Trade name......................................... $44,340,000 --
Excess of cost over fair value of net assets
acquired......................................... 34,250,980 $3,572,693
----------- ----------
78,590,980 3,572,693
Less accumulated amortization...................... (2,724,944) (666,327)
----------- ----------
$75,866,036 $2,906,366
=========== ==========

Non-compete agreement.............................. $ 888,750 $ 888,750
Assembled workforce................................ 2,893,000 --
----------- ----------
Total other intangible assets............ 3,781,750 888,750
Less accumulated amortization...................... (261,697) (59,250)
----------- ----------
Net other intangible assets........................ $ 3,520,053 $ 829,500
=========== ==========

Management has evaluated the operations of the specific acquisition that
gave rise to these intangible assets and has determined the following
amortization periods are appropriate recovery periods for each intangible asset.
Amortization is calculated on the straight-line basis using the following
estimated useful lives:

Excess of cost over fair value of net assets acquired....... 15-40 years
Trade name.................................................. 30 years
Non-compete agreement....................................... 15 years
Assembled workforce......................................... 15 years

7. FINANCING ARRANGEMENTS

Notes payable -- banks classified as current in fiscal 1998 consists of
various notes payable to banks that were paid in fiscal 1999 as a part of the
proceeds from the 10.75% Senior Notes.

F-14
41

Long-term debt is comprised of the following:

MARCH 6, FEBRUARY 27,
1999 1998
------------ ------------

10.75% Senior Notes, interest payable on June 1 and December
1 of each year, maturing on June 1, 2006.................. $115,000,000
Revolving line of credit, maximum borrowings of $75.0
million subject to a borrowing base formula, expiring June
2003, interest at floating rate based upon interest option
selected periodically by the Company...................... 29,000,000
Variable rate Industrial Revenue Bonds maturing in 2005..... 2,102,500 $ 2,515,000
Prime plus .50% to 1.50% notes payable to banks -- paid in
fiscal 1999............................................... -- 5,690,633
4.5% to 11.0% other notes payable -- paid in fiscal 1999.... -- 2,231,481
9.25% to 11.5% capitalized lease obligations maturing 1998
to 2004 (see Note 9)...................................... 837,180 1,186,522
Notes payable to bank, interest at the bank's prime
rate -- paid in fiscal 1999............................... -- 4,189,297
------------ -----------
Total..................................................... 146,939,680 15,812,933
Less current portion...................................... 673,752 2,189,401
------------ -----------
Long-term debt, excluding current installments.............. $146,265,928 $13,623,532
============ ===========

The applicable prime interest rate at March 6, 1999 was 7.75%. The average
rate on the revolving line of credit was 8.26% for the fiscal year ended March
6, 1999. The variable rate payable on the Industrial Revenue Bonds at March 6,
1999 was 3.29%. At March 6, 1999, the net book value of the Company's property,
plant and equipment and properties held for sale pledged as collateral under the
above obligations was $51,226,534.

On June 9, 1998, the Company completed the acquisition of Pierre Foods (see
Note 1). The $119.3 million cash purchase price was financed by the proceeds of
an offering of $115.0 million aggregate principal amount of the Company's 10.75%
Senior Notes Due 2006 (the "Notes") and an initial borrowing under a new
five-year, $75.0 million revolving line of credit, with availability subject to
a borrowing base formula. Additional borrowings under the revolving line of
credit were used to extinguish all existing debt of the Company, with the
exception of outstanding industrial revenue bonds and certain capital lease
obligations. The extinguishment of debt resulted in an extraordinary loss of
$64,335 (net of income tax benefit of $44,157).

The Senior Notes are unsecured obligations of the Company, unconditionally
guaranteed on a senior unsecured basis by all existing subsidiaries of the
Company.

Under the revolving line of credit, the Company may borrow up to an amount
(including standby letters of credit totaling $2.5 million) equal to the lesser
of $75.0 million or a borrowing base (comprised of eligible accounts receivable,
inventory, machinery and real property) for a period of five years. The unused
portion of the revolving line of credit is available for working capital
requirements, permitted acquisitions and general corporate purposes. Borrowings
under the revolving line of credit bear interest at floating rates based upon
the interest rate option selected from time to time by the Company. The
borrowings are secured by a first priority security interest in substantially
all of the personal property of the Company and its subsidiaries, together with
all real property included in the borrowing base. In addition, the Company is
required to meet certain financial covenants regarding leverage, fixed charges,
capital expenditures, and restricted payments, including limited dividend
restrictions.

As of March 6, 1999 the Company had $29.0 million in outstanding borrowings
and approximately $23.1 million of additional availability under the revolving
line of credit. At March 6, 1999, the Company was in compliance with the
financial covenants.

During fiscal 1997, the Company recognized an extraordinary gain of
$414,784, net of income taxes of $250,862, on the early extinguishment of debt.
The two major life insurance companies which held the debt

F-15
42

agreed to a discount totaling $787,651 upon the early retirement of this debt.
In addition, as part of this refinancing, the Company wrote off unamortized loan
costs relating to the debt totaling $73,208. Also during fiscal 1997, the
Company incurred a prepayment penalty totaling $48,797 upon the early payment of
a Small Business Association loan which was secured by restaurant property sold
during the year.

Long-term debt maturities, including capital leases (Note 9), subsequent to
March 6, 1999, are as follows:

FISCAL YEAR AMOUNT
- ----------- ------------

2000........................................................ $ 673,752
2001........................................................ 658,505
2002........................................................ 397,631
2003........................................................ 379,686
2004........................................................ 29,376,066
Later years................................................. 115,454,040
------------
Total............................................. $146,939,680
============

8. INCOME TAXES

The provision for income taxes (benefit) is summarized as follows:

YEAR ENDED
------------------------------------------
MARCH 6, FEBRUARY 27, FEBRUARY 28,
1999 1998 1997
---------- ------------ ------------

Current:
Federal..................................... $ 832,400 $ 478,867 $1,040,744
Charge equivalent to tax benefit of stock
option exercises......................... -- 3,100,421 --
State....................................... 537,496 229,805 244,716
---------- ----------- ----------
Total current....................... 1,369,896 3,809,093 1,285,460
---------- ----------- ----------
Deferred:
Federal..................................... 579,341 (1,718,853) 644,948
State....................................... (280,724) (362,232) 79,591
---------- ----------- ----------
Total deferred...................... 298,617 (2,081,085) 724,539
---------- ----------- ----------
Total income tax provision
(including income tax benefit of
$44,157 in 1999, and income tax
provision of $251,000 in 1997
relating to extraordinary
items)............................ $1,668,513 $ 1,728,008 $2,009,999
========== =========== ==========

F-16
43

Actual provisions for income tax expense are different from amounts
computed by applying a statutory federal income tax rate to earnings before
income taxes. The computed amount is reconciled to total income tax expense
before extraordinary item as follows:

1999 1998 1997
----------------------- ----------------------- -----------------------
PERCENT OF PERCENT OF PERCENT OF
PRETAX PRETAX PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS
---------- ---------- ---------- ---------- ---------- ----------

Computed tax at statutory
rate......................... $1,430,673 34.0% $1,352,523 34.0% $1,371,902 34.0%
Tax effect resulting from:
State income taxes net of
federal tax benefit....... 174,339 4.1 200,553 5.0 193,749 4.8
Nondeductible merger
expenses.................. -- -- 385,419 9.7 -- --
New general business credits
(net)..................... (148,698) (3.5) (120,608) (3.0) (21,285) (0.5)
Meals and entertainment...... 144,244 3.4 55,876 1.4 20,298 0.5
Other permanent
differences............... 112,112 2.7 31,510 0.8 398,409 9.9
Reduction in valuation
allowance................. -- -- (119,178) (3.0) -- --
Other........................ -- -- (58,087) (1.5) 46,926 1.1
---------- ---- ---------- ---- ---------- ----
Income tax provision......... $1,712,670 40.7% $1,728,008 43.4% $2,009,999 49.8%
========== ==== ========== ==== ========== ====

The approximate tax effect of each type of temporary difference and
carryforward that gave rise to the Company's deferred income tax assets and
liabilities for fiscal 1999 and fiscal 1998 is as follows:

MARCH 6, 1999 FEBRUARY 27, 1998
-------------------------------------- --------------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
---------- ----------- ----------- ---------- ----------- -----------

Current:
Allowance for doubtful
receivables....................... $ 88,652 $ -- $ 88,652 $ 141,027 $ -- $ 141,027
Inventory........................... 908,691 -- 908,691 86,582 -- 86,582
Accrued promotional expense......... 646,673 -- 646,673 5,400 -- 5,400
Accrued vacation pay................ 434,474 -- 434,474 102,022 -- 102,022
Reserve for returns................. 41,017 -- 41,017 49,047 -- 49,047
Unrealized gain on securities
available for sale................ -- -- -- -- (11,655) (11,655)
Prepaid expenses.................... -- (182,903) (182,903) -- (15,650) (15,650)
VEBA costs.......................... 150,598 -- 150,598 68,013 -- 68,013
Accrued bonus....................... 212,740 -- 212,740 -- -- --
Accrued worker's compensation....... 252,486 -- 252,486 -- -- --
Other............................... 169,667 -- 169,667 -- -- --
---------- ----------- ----------- ---------- ----------- -----------
Total current................. 2,904,998 (182,903) 2,722,095 452,091 (27,305) 424,786
---------- ----------- ----------- ---------- ----------- -----------

F-17
44

Noncurrent:
Property, plant and equipment....... -- (2,339,050) (2,339,050) -- (2,347,809) (2,347,809)
Basis write-up (reorganization)..... 73,002 -- 73,002 132,614 -- 132,614
Installment sales................... -- -- -- -- (190,036) (190,036)
Writedown of property held for
sale.............................. -- -- -- 258,282 -- 258,282
Earnings in unconsolidated
subsidiaries...................... 24,255 -- 24,255 -- (23,398) (23,398)
Goodwill amortization............... -- (704,512) (704,512) -- -- --
General business credit
carryforward...................... 531,798 -- 531,798 373,350 -- 373,350
Alternative minimum tax credit
carryforward...................... 282,932 -- 282,932 293,771 -- 293,771
Federal loss carryforward........... -- -- -- 1,682,716 -- 1,682,716
Pre-acquisition (SRLY) loss
carryforward...................... -- -- -- 57,184 -- 57,184
State loss carryforward............. 602,580 -- 602,580 830,257 -- 830,257
Less valuation allowance............ (381,473) -- (381,473) (381,473) -- (381,473)
---------- ----------- ----------- ---------- ----------- -----------
Total noncurrent.............. 1,133,094 (3,043,562) (1,910,468) 3,246,701 (2,561,243) 685,458
---------- ----------- ----------- ---------- ----------- -----------
Total current and
noncurrent.................. $4,038,092 $(3,226,465) $ 811,627 $3,698,792 $(2,588,548) $ 1,110,244
========== =========== =========== ========== =========== ===========

As of March 6, 1999, state operating loss carryovers of approximately
$16,000,000 are available to offset future state taxable income. The carryover
periods range from five to twenty years, which will result in expirations of
varying amounts beginning in fiscal 2000 and continuing through fiscal 2019.

A valuation allowance has been established due to the uncertainty of
realizing the state operating loss carryovers.

9. LEASED PROPERTIES

The company operates certain machinery and equipment under leases
classified as capital leases. The machinery and equipment leases have original
terms ranging from one to eight years. The assets covered under these leases
have carrying values of $1,022,457 and $1,260,770 at March 6, 1999 and February
27, 1998, respectively.

Certain land and restaurant locations occupied by the Company and machinery
and equipment are under operating leases with terms that are effective for
varying periods until 2012, except for one land lease which expires in 2022.
Certain of these leases have remaining renewal clauses, exercisable at the
option of the lessee. In addition, most of these leases contain terms that
provide for scheduled increases in base rents and certain leases contain
provisions providing for contingent rentals based on a percentage of gross
sales. Leases with related parties are discussed in Note 17.

F-18
45

At March 6, 1999, minimum rental payments required under operating and
capital leases are summarized as follows:

OPERATING LEASES
--------------------------------------------
MINIMUM
MINIMUM SUBLEASE CAPITAL
FISCAL YEAR PAYMENTS RECEIPTS TOTAL LEASES TOTAL
- ----------- ---------------- ----------- ----------- -------- -----------

2000...................... $ 4,234,459 $ (235,000) $ 3,999,459 $419,123 $ 4,418,582
2001...................... 3,984,346 (169,000) 3,815,346 361,629 4,176,975
2002...................... 3,667,056 (169,000) 3,498,056 79,659 3,577,715
2003...................... 3,039,162 (169,000) 2,870,162 56,640 2,926,802
2004...................... 2,539,699 (169,000) 2,370,699 48,242 2,418,941
Later years............... 6,601,289 (422,583) 6,178,706 1,563 6,180,269
----------- ----------- ----------- -------- -----------
Total minimum lease
payments.................. $24,066,011 $(1,333,583) $22,732,428 966,856 $23,699,284
=========== =========== =========== ===========
Less amount representing
interest.................. 129,676
--------
Present value of minimum
lease payments under
capital leases (see Note
7)........................ $837,180
========

Rental expense under operating leases charged to earnings is as follows:

MARCH 6, FEBRUARY 27, FEBRUARY 28,
1999 1998 1997
---------- ------------ ------------

Real estate.................................... $3,664,244 $3,672,552 $2,475,103
Less sublease rentals.......................... (343,557) (206,215) (199,760)
Equipment...................................... 756,434 338,915 304,817
---------- ---------- ----------
Total................................ $4,077,101 $3,805,252 $2,580,160
========== ========== ==========

Real estate rental expenses includes contingent rentals of $396,061, $188,690
and $197,760 for fiscal 1999, 1998 and 1997, respectively.

10. EMPLOYEE BENEFITS

On March 1, 1994, Fresh Foods established an employee stock purchase plan
through which employees, after meeting minimum eligibility requirements, may
contribute up to 10% of their base earnings toward the purchase of Fresh Foods'
common stock. The plan provides that Fresh Foods will make matching
contributions of 25% of the employee's contribution. Participation in the plan
is voluntary and all contributions of Fresh Foods are funded monthly and vest
immediately. Fresh Foods' contributions to the plan totaled $13,275, $19,260 and
$12,569 in fiscal 1999, 1998 and 1997, respectively.

Fresh Foods also maintains a 401(k) Retirement Plan for its employees. The
plan provides that Fresh Foods will make a matching contribution of up to 25% of
an employee's voluntary contribution, limited to the lesser of 8% of that
employee's annual compensation or $10,000 for fiscal 1999. Fresh Foods'
contributions to that plan were $78,241, $86,360 and $77,132 in fiscal 1999,
1998 and 1997, respectively.

On June 9, 1998, Fresh Foods acquired Pierre as a wholly owned subsidiary.
Pierre maintains a 401(k) Retirement Plan for its employees. The plan provides
that Pierre Foods will make a matching contribution of up to 50% of an
employee's voluntary contribution, limited to the lesser of 4% of that
employee's annual compensation or $10,000 for fiscal 1999. Pierre Foods'
contributions to that plan were $201,742 in fiscal year 1999.

Fresh Foods also provides employee health insurance benefits to its
employees, through a Voluntary Employee Beneficiary Association (VEBA) which are
partially funded by Fresh Foods. During fiscal 1999, 1998 and 1997,
contributions to these plans were $2,499,266, $714,007 and $555,648,
respectively.

F-19
46

11. CAPITAL STOCK

STOCK OPTIONS

The Company's 1987 Incentive Stock Option Plan, as amended, provides for
the issuance of up to 625,000 shares of the Company's common stock to key
employees, including officers and directors of the Company. The Company may
grant Incentive Stock Options ("ISOs") or nonqualified stock options to eligible
employees. Stock options granted under this plan have terms of ten years, vest
evenly over five years, and are assigned an exercise price of not less than the
fair value on the date of grant.

The Company's 1987 Special Stock Option Plan, as amended, provides for the
issuance of up to 625,000 shares of the Company's common stock to key management
employees, including officers and directors of the Company. All options granted
under this Plan are nonqualified stock options. Stock options granted under this
plan have terms of ten years, vest immediately, and are assigned an exercise
price of not less than the fair value on the date of grant.

Fresh Foods assumed the Sagebrush 1995 Stock Option Plan, which provided
314,801 shares of Sagebrush's common stock to key management employees,
including former officers of Sagebrush. All options granted under this plan are
nonqualified stock options.

The Company's 1997 Incentive Stock Option Plan, as amended, provides for
the issuance of up to 1,000,000 shares of the Company's common stock to key
employees, including officers and directors of the Company. The Company may
grant Incentive Stock Options ("ISOs") or nonqualified stock options to eligible
employees. Stock options granted under this plan have terms of ten years, vest
evenly over five years, and are assigned an exercise price of not less than the
fair value on the date of grant.

The Company's 1997 Special Stock Option Plan, as amended, provides for the
issuance of up to 1,500,000 shares of the Company's common stock to key
management employees, including officers and directors of the Company. All
options granted under this Plan are nonqualified stock options. Stock options
granted under this plan have terms of ten years, vest immediately, and are
assigned an exercise price of not less than the fair value on the date of grant.

During fiscal 1999, the Company repriced certain of its outstanding options
to $10.50, the fair market value on the date of repricing. All options with an
exercise price in excess of $10.50 were repriced.

A summary of the changes in shares under option and the weighted-average
exercise prices for these Plans follows:

INCENTIVE STOCK SPECIAL STOCK
OPTION PLANS OPTION PLANS
--------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ---------- --------

Balance at February 23, 1996............ 196,875 $ 4.82 562,500 $ 3.41
Forfeited or cancelled................ (20,893) 14.60 -- --
Issued................................ 198,103 18.84 50,000 5.88
Exercised............................. (33,750) 4.31 (125,000) 4.60
--------- ----------
Balance at February 28, 1997............ 340,335 12.43 487,500 3.36
Forfeited or cancelled................ (51,662) 14.40 -- --
Issued................................ 157,566 15.81 875,000 16.00
Exercised............................. (78,500) 4.63 (312,500) 3.03
--------- ----------
Balance at February 27, 1998............ 367,739 11.92 1,050,000 13.99
Forfeited or cancelled*............... (617,285) 15.47 (1,075,000) 16.00

F-20
47

Issued*............................... 1,077,969 11.93 1,275,000 11.36
Exercised............................. (15,625) 5.20 -- --
--------- ----------
Balance at March 6, 1999................ 812,798 9.37 1,250,000 9.50
========= ==========

- ---------------
* Includes 584,402 Incentive Stock Options and 1,075,000 Special Stock Options
repriced on August 27, 1998.

The weighted average exercise prices for the options outstanding at March
6, 1999 are equivalent to the exercise prices listed in the table below. A
summary of the range of exercise prices and remaining contractual life for
options outstanding under each Plan at March 6, 1999 is as follows:

AVERAGE
EXERCISE SHARES SHARES CONTRACTUAL
PRICE OUTSTANDING EXERCISABLE LIFE
-------- ----------- ----------- -----------

Incentive Stock Option Plan.......... $ 5.20 56,500 39,625 72 months
$ 5.88 50,000 20,000 88 months
$10.50 633,298 60,091 108 months
$ 5.13 65,500 -- 118 months
$ 5.75 7,500 -- 119 months

Special Stock Option Plan............ $ 2.90 12,500 12,500 22 months
$ 3.20 112,500 112,500 32 months
$ 5.88 50,000 50,000 88 months
$10.50 1,075,000 1,075,000 108 months

Fresh Foods applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for stock-based
compensation relating to options granted in fiscal 1999, 1998 and 1997 since the
exercise price of the option approximated the fair market value on the date of
grant. Had compensation for stock options granted been determined consistent
with SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
earnings and earnings per common share amounts for fiscal 1999, 1998 and 1997
would approximate the following pro forma amounts:

YEAR ENDED
------------------------------------------------------------------------------
MARCH 6, 1999 FEBRUARY 28, 1997 FEBRUARY 27, 1998
----------------------- ------------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ----------- ----------- ----------

Net earnings (loss)....... $2,430,857 208,968 $2,250,000 $(2,857,510) $2,439,789 $2,203,033
Earnings (loss) per common
share -- basic.......... 0.41 0.04 0.40 (0.51) 0.48 0.43
Earnings (loss) per common
share -- diluted........ 0.40 0.03 0.37 (0.47) 0.45 0.40
Weighted average fair
value of the options.... 5.18 9.08 3.90

The fair value of options granted under Fresh Foods' and Sagebrush's stock
option plans during fiscal 1999, 1998 and 1997 were estimated on the date of
grant using the Black-Scholes option pricing model.

F-21
48

The weighted-average assumptions used were as follows:

MARCH 6, 1999 FEBRUARY 27, 1998 FEBRUARY 28, 1997
----------------------- ----------------------- -----------------------
FRESH FOODS SAGEBRUSH FRESH FOODS SAGEBRUSH FRESH FOODS SAGEBRUSH
----------- --------- ----------- --------- ----------- ---------

Dividend yield................... -- -- -- -- -- --
Expected volatility.............. 66.6% 66.6% 44.2% 25.0% 44.2% 25.0%
Risk free interest rate.......... 5.0% 5.0% 6.7% 6.5% 6.7% 6.5%
Expected lives................... 3.5 3.5 6.0 4.5 6.0 4.5

Contributed capital increased $3,100,421 in fiscal 1998 representing the
income tax benefits the Company realized from stock options exercised during
fiscal 1998.

SHAREHOLDER RIGHTS PLAN

In fiscal 1998, Fresh Foods adopted a shareholder rights plan pursuant to
which the holder of each share of Fresh Foods common stock also holds a Right
that may be exercised for Fresh Foods preferred stock or Fresh Foods common
stock upon the occurrence of certain "triggering events" specified in a Rights
Agreement dated as of September 2, 1997 between Fresh Foods and American Stock
Transfer and Trust Company.

On August 28, 1997, the Fresh Foods Board declared a dividend distribution
of one Right for each share of Fresh Foods common stock to Fresh Foods
shareholders of record at the close of business on September 10, 1997. Each
Right entitles the record holder to purchase from Fresh Foods one one-hundredth
of a share of Junior Participating Preferred Stock, Series A, of Fresh Foods at
a purchase price of $30. The Rights are attached to the Fresh Foods common stock
and are not exercisable except under the limited circumstances set forth in the
Rights Agreement relating to the acquisition of, or the commencement of a tender
offer for, 15% or more of the Fresh Foods common stock. The Rights may be
redeemed at a price of $.001 per Right by Fresh Foods any time prior to any
person or group acquiring 15% or more of Fresh Foods common stock and will
expire on September 10, 2007. Until the Rights separate from Fresh Foods common
stock, each newly-issued share of such common stock will have a Right attached.
The Rights do not have voting or dividend rights.

PREFERRED STOCK

The Company is authorized to issue 2,500,000 shares of preferred stock with
a par value of ten cents per share in one or more series. All rights and
preferences of each series are to be established by the Company prior to
issuance. There are no issues of this class of stock outstanding as of March 6,
1999.

F-22
49

12. EARNINGS PER SHARE

Basic earnings per share (EPS) excludes dilution and is computed by
dividing net earnings by the weighted-average number of common shares
outstanding for the period. Diluted EPS includes the dilutive effects of common
stock equivalents. Following is a reconciliation between basic and diluted
earnings per share before extraordinary gains (losses) from early extinguishment
of debt:

EARNINGS BEFORE
EXTRAORDINARY PER SHARE
ITEM SHARES AMOUNT
--------------- --------- ---------

YEAR ENDED MARCH 6, 1999
Earnings per common share -- basic.............. $2,495,192 5,898,839 $0.42
Stock-based compensation awards................. -- 160,777 (0.01)
---------- --------- -----
Earnings per common share -- diluted............ $2,495,192 6,059,616 $0.41
========== ========= =====
YEAR ENDED FEBRUARY 27, 1998
Earnings per common share -- basic.............. $2,250,000 5,653,988 $0.40
Stock-based compensation awards................. -- 463,045 (0.03)
---------- --------- -----
Earnings per common share -- diluted............ $2,250,000 6,117,033 $0.37
========== ========= =====
YEAR ENDED FEBRUARY 28, 1997
Earnings per common share -- basic.............. $2,025,005 5,135,352 $0.40
Stock-based compensation awards................. -- 316,564 (0.03)
---------- --------- -----
Earnings per common share -- diluted............ $2,025,005 5,451,916 $0.37
========== ========= =====

13. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of the financial instruments listed below have
been determined by the Company using available market information and
appropriate valuation techniques. Considerable judgment is required, however, to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.

MARCH 6, 1999
-------------------------------
CARRYING AMOUNT FAIR VALUE
--------------- ------------

ASSETS:
Cash and cash equivalents............................ $ 1,664,398 $ 1,664,398
Accounts receivable.................................. 18,565,152 18,565,152
Notes receivable..................................... 1,489,762 1,489,762
LIABILITIES:
Accounts payable..................................... 11,255,920 11,255,920
Long-term debt (excluding capital leases)............ 146,102,500 142,652,500

FEBRUARY 27, 1998
-------------------------------
CARRYING AMOUNT FAIR VALUE
--------------- ------------

ASSETS:
Cash and cash equivalents............................ $ 2,818,071 $ 2,818,071
Accounts receivable.................................. 5,204,700 5,204,700
Notes receivable..................................... 3,037,155 2,953,434
LIABILITIES:
Accounts payable..................................... 6,605,893 6,605,893
Short-term debt...................................... 5,105,144 5,105,144
Long-term debt (excluding capital leases)............ 14,626,411 14,621,667

F-23
50

The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and short-term debt are a reasonable estimate of their fair
value. The fair value of notes receivable is estimated by discounting the 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.

Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair value
for long-term debt instruments using discounted cash flows.

14. MAJOR BUSINESS SEGMENTS

The Company operates in three business segments: food processing
operations, restaurant operations and ham curing operations.

Food Processing: Pursuant to the acquisition of Pierre, the Company
produces beef, poultry and pork products that typically are custom-developed to
meet specific customer requirements. These products are (i) sold to foodservice
customers such as restaurant chains, schools and healthcare providers, (ii) sold
through various distribution channels, including warehouse clubs and grocery
stores, or (iii) combined with specialty breads to produce microwaveable
sandwiches that are sold through other foodservice channels such as convenience
stores, vending machines, warehouse clubs and grocery stores. Prior to the
acquisition of Pierre, the Company produced a variety of biscuits, yeast rolls
and other flour-based products, sold primarily under the "Mom 'n' Pop's" brand
name to institutional buyers, vending companies, delicatessens and supermarkets.
The inclusion of Pierre's operations in fiscal 1999 (see Note 1) results in
increases in every revenue and expense category compared with prior years
results for the comparable periods.

Restaurants: The Company's restaurant operations are located primarily in
smaller cities and suburban areas in the southeastern United States, a market
niche where the primary competitors are economy steakhouses. At March 6, 1999,
the Company owned and operated 48 Sagebrush steakhouse restaurants, which
provide moderately priced, full-service casual dining in an entertaining,
family-oriented atmosphere. The Company also owned and operated 13 Western Steer
and four Prime Sirloin restaurants, which are more mature family steakhouses
using the "buffet and bakery" format, and one Bennett's barbecue-style
restaurant. In addition, as part of its restaurant operations, the Company
franchised 29 Western Steer and five Prime Sirloin restaurants, and
sub-franchised two Bennett's restaurants, all in accordance with standard
franchise agreements.

Ham Curing: The Company produces whole cured hams, packaged cured ham
slices, pre-portioned ham for portion control customers, and various "side meat"
products. A portion of ham production is sold directly to retail supermarkets
under the "Mom 'n' Pop's" brand name, primarily in North Carolina, South
Carolina, Virginia, Tennessee, Alabama and Georgia. The remainder of production
is sold to institutional food distributors and restaurant chains.

The following sets forth certain information about the Company's operating
segments:

FOOD RESTAURANT HAM
PROCESSING OPERATIONS CURING TOTAL
------------ ------------ ----------- ------------

1999:
Revenues from external
customers..................... $149,778,206 $101,440,315 $ 7,063,625 $258,282,146
Intersegment revenues(1)......... -- -- 25,532 25,532
Depreciation and amortization.... 4,450,616 3,314,900 340,966 8,106,482
Segment profit................... 18,183,964 8,017,983 (87,556) 26,114,391
Segment assets................... 150,857,914 30,250,673 4,012,412 185,120,999
Expenditures for capital
assets........................ 23,789,566 10,880,593 498,290 35,168,449

F-24
51

FOOD RESTAURANT HAM
PROCESSING OPERATIONS CURING TOTAL
------------ ------------ ----------- ------------

1998:
Revenues from external
customers..................... $ 56,387,112 $ 91,261,985 $ 9,858,233 $157,507,330
Intersegment revenues(1)......... -- -- 247,716 247,716
Depreciation and amortization.... 1,185,006 3,389,487 271,149 4,845,642
Segment profit................... 3,047,131 9,273,696 390,518 12,711,345
Segment assets................... 20,651,963 38,660,911 2,650,509 61,963,383
Expenditures for capital
assets........................ 3,026,217 12,178,573 371,058 15,575,848
1997:
Revenues from external
customers..................... $ 48,181,625 $ 70,866,150 $10,433,868 $129,481,643
Intersegment revenues (1)........ -- -- 257,134 257,134
Depreciation and amortization.... 1,024,465 2,199,189 234,900 3,458,554
Segment profit (loss)............ 2,181,306 9,301,034 (336,118) 11,146,222
Segment assets................... 18,743,758 27,746,944 3,350,858 49,841,560
Expenditures for capital
assets........................ 1,457,256 9,207,775 86,126 10,751,157

- ---------------
(1) Intersegment sales are recorded on prevailing prices and relate solely to
the food processing and ham curing segments.

1999 1998 1997
------------ ------------ ------------

Revenues:
Total revenues from reportable segments........ $258,307,678 $157,755,046 $129,738,777
Elimination of intersegment revenues........... (25,532) (247,716) (257,134)
------------ ------------ ------------
Total consolidated revenues............ $258,282,146 $157,507,330 $129,481,643
============ ============ ============
Profit or Loss:
Total profit or loss for reportable segments... $ 26,114,391 $ 12,711,345 $ 11,146,222
Corporate expenses............................. (8,233,991) (7,710,204) (5,736,557)
Interest expense............................... (12,400,851) (1,762,363) (1,867,948)
Other profit or loss........................... (1,271,687) 739,230 493,287
------------ ------------ ------------
Earnings before income taxes and
extraordinary items.................. $ 4,207,862 $ 3,978,008 $ 4,035,004
============ ============ ============
Assets:
Total assets for reportable segments........... $185,120,999 $ 61,963,383 $ 49,841,560
Corporate assets............................... 31,868,024 9,692,416 9,729,570
------------ ------------ ------------
Consolidated total..................... $216,989,023 $ 71,655,799 $ 59,571,130
============ ============ ============

SEGMENT CONSOLIDATED
TOTALS CORPORATE TOTAL
------------ ------------ ------------
Other Significant Items:
1999:
Expenditures for capital assets................ $ 35,168,449 $ 777,027 $ 35,945,476
Depreciation and amortization.................. 8,106,482 109,774 8,216,256
1998:
Expenditures for capital assets................ $ 15,575,848 $ 172,006 $ 15,747,854
Depreciation and amortization.................. 4,845,642 158,668 5,004,310
1997:
Expenditures for capital assets................ $ 10,751,157 $ 432,611 $ 11,183,768
Depreciation and amortization.................. 3,458,554 141,763 3,600,317

F-25
52

Significantly all revenues and long-lived assets are derived and reside in
the United States.

During fiscal 1999, subsequent to the Company's acquisition of Pierre
Foods, no single customer accounted for more than 10% of segment sales or total
operating revenues.

15. COMMITMENTS AND CONTINGENCIES

The Company provides two secured letters of credit in the amounts of
$500,000 and $350,000 and two unsecured letters of credit for $700,000 and
$450,000 to its insurance carrier for outstanding and potential worker's
compensation and general liability claims.

The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.

16. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes is as follows:

1999 1998 1997
---------- ---------- ----------

Interest....................................... $8,954,506 $1,621,404 $1,933,528
Income taxes net............................... 346,372 $2,211,998 $1,911,308

The Company received accounts and notes receivable totaling $1,110,000,
$355,000 from the sale of property, plant and equipment in fiscal 1998 and 1997,
respectively.

The Company acquired machinery and equipment totaling $14,912, $660,662 and
$694,298 through capital leases or debt during 1999, 1998 and 1997,
respectively. In fiscal 1997, the Company purchased a restaurant property by
exchanging land with a book value of $260,236 and assuming a note payable in the
amount of $527,695.

As discussed in Note 1, on March 1, 1997, the Company acquired fourteen
franchise restaurants through the issuance of common stock and assumption of
liabilities. The purchase price was allocated to inventory and supplies in the
amount of $151,313, property and equipment in the amount of $1,203,413, and
excess of cost over fair value of net assets acquired in the amount of
$2,477,481.

Accounts receivable from certain franchisees totaling $23,074 and $84,762
in fiscal 1998 and 1997, respectively, were converted into notes receivable.

In fiscal 1997, the Company issued common stock in exchange for cash and a
note receivable totaling $78,388 and $705,493, respectively.

17. TRANSACTIONS WITH RELATED PARTIES

Related party transactions during fiscal 1999, 1998 and 1997 arose in
connection with the following relationships:

Certain current and past officers, directors and principal shareholders of
the Company had ownership interests in franchisee companies during fiscal 1999,
1998 and 1997. Total franchise, royalty and other fees from related party
franchise companies were approximately $34,000, $315,000, and $1,004,000 during
fiscal 1999, 1998 and 1997, respectively.

Immediate family members of a current director have ownership interests in
companies from which the Company purchases restaurant equipment, furnishings and
supplies. Purchases from these companies totaled approximately $2,555,000,
$1,753,000, and $1,348,000 during fiscal 1999, 1998 and 1997, respectively.

The Company obtains public relations, investor relations and graphic design
services from a marketing services company that is owned by a current director.
Payments for these services totaled approximately $529,000, $393,000, and
$355,000 during fiscal 1999, 1998 and 1997, respectively.

F-26
53

The Company maintains comprehensive insurance coverage through an insurance
agency whose owner is a principal shareholder of the Company. Payments made to
this agency totaled approximately $2,267,000, $2,221,000, and $1,822,000 in
fiscal 1999, 1998 and 1997, respectively.

Under a contract with a management services company owned by certain
officers and directors, the Company receives general management services, which
include, among other things, the review and supervision of financing and the
provision of real estate services and strategic planning services. Management
fees paid under this contract are in lieu of salary compensation for certain of
the Company's senior executives. During fiscal 1999, 1998 and 1997, the amount
paid annually under this contract was $1,500,000. In addition, during fiscal
1999 the company paid a bonus of $375,000 to the management services company for
one of the senior executives.

The Company has leasing agreements with certain related individuals and
with certain corporations in which the Company's principal shareholders have a
substantial ownership interest. Total payments under such leasing agreements
were approximately $1,848,000, $1,804,000, and $1,081,000 during fiscal 1999,
1998 and 1997, respectively.

During fiscal 1997, the Company sold a restaurant property to an individual
who is an executive officer and principal shareholder of the Company at a price
of $150,000, resulting in a gain of $103,000. During 1998, the Company sold an
80% consolidated subsidiary to the same individual for a price of $160,000,
giving the Company a gain of $78,000. During 1998, the Company sold its 50%
interests in two equity affiliates to the other owner for prices of $272,000 and
$235,000, respectively, resulting in gains of $22,000 and $12,000, respectively.

During fiscal 1997, the Company sold certain restricted equity securities
of Sagebrush common stock to a corporation which is owned by two principal
shareholders and executive officers of the Company for cash totaling $78,388 and
an 8.5% demand note in the amount of $705,493. The promissory note is supported
by personal guarantees received from the two principal shareholders and
executive officers.

Two current directors have direct and indirect interests in companies with
which product licensing agreements have been signed. Under the terms of the
agreements, Fresh Foods can produce and market certain products under brand
names owned by the other companies in exchange for royalty payments. Production
of these products began in mid-fiscal 1999, and royalties paid during the
current fiscal year totaled $78,000.

Related party accounts receivable arise in the ordinary course of business
and relate to unpaid franchise, royalty and other fees. Notes receivable from
related parties relate primarily to notes generated from the sales of assets.
Related party accounts payable relate to transactions in the normal course of
business with related individuals and corporations as described above.

Related party receivables and payables are as follows:

1999 1998
---------- ----------

Accounts receivable......................................... $ 326,147 $ 181,367
Notes receivable (interest rates ranging from 8.25% to
12.5%, Payable over 1 to 15 years)........................ 1,299,731 2,077,230
Accounts payable............................................ 92,370 218,180
Accrued liabilities......................................... 185,000 --

F-27
54

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

QUARTERS ENDED
--------------------------------------------------------
5/22/98 9/5/98 12/5/98 3/6/99(1)
----------- ----------- ----------- -----------

Operating revenues.................... $34,899,127 $77,631,553 $73,230,297 $72,521,169
Gross profit.......................... $ 5,166,518 $21,879,382 $22,134,038 $23,458,482
Pretax earnings (loss) before
extraordinary item.................. $ 544,154 $ (468,035) $ 2,136,508 $ 1,995,235
Income tax provision (benefit)........ $ 205,146 $ (175,460) $ 899,309 $ 783,675
Extraordinary loss (net of tax)....... $ -- $ (66,181) $ -- $ 1,846
Net earnings (loss)................... $ 339,008 $ (358,756) $ 1,237,199 $ 1,213,406
Earnings (loss) from continuing
operations per common
share -- basic...................... $ 0.06 $ (0.06) $ 0.21 $ 0.21
Earnings (loss) from continuing
operations per common
share -- diluted.................... $ 0.05 $ (0.06) $ 0.21 $ 0.21

QUARTERS ENDED
--------------------------------------------------------
5/23/97 8/15/97 11/7/97 2/27/98(1)
----------- ----------- ----------- -----------

Operating revenues.................... $36,266,273 $39,476,070 $35,703,042 $46,061,945
Gross profit.......................... $ 6,180,748 $ 6,502,510 $ 5,926,837 $ 1,987,925
Pretax earnings (loss)................ $ 1,622,058 $ 2,178,172 $ 1,874,232 $(1,696,455)
Income tax provision (benefit)........ $ 620,047 $ 823,710 $ 705,022 $ (420,770)
Net earnings (loss)................... $ 1,002,011 $ 1,354,462 $ 1,169,211 $(1,275,684)
Earnings (loss) from continuing
operations per common
share -- basic...................... $ 0.18 $ 0.24 $ 0.20 $ (0.22)
Earnings (loss) from continuing
operations per common
share -- diluted.................... $ 0.17 $ 0.22 $ 0.19 $ (0.22)

- ---------------
(1) There were no material fourth quarter adjustments in fiscal 1999 or fiscal
1998.

F-28
55

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, Fresh Foods, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

FRESH FOODS, INC.

By: /s/ DAVID R. CLARK
------------------------------------
David R. Clark
President

Dated: June 7, 1999

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ RICHARD F. HOWARD Chairman of the Board June 7, 1999
- -----------------------------------------------------
Richard F. Howard

/s/ JAMES C. RICHARDSON, JR. Vice Chairman of the Board June 7, 1999
- ----------------------------------------------------- (Principal Executive Officer)
James C. Richardson, Jr.

/s/ DAVID R. CLARK President and Director June 7, 1999
- ----------------------------------------------------- (Principal Operating Officer)
David R. Clark

/s/ JAMES E. HARRIS Executive Vice President, June 7, 1999
- ----------------------------------------------------- Treasurer and Secretary
James E. Harris (Principal Financial Officer)

/s/ PAMELA M. WITTERS Vice President -- Finance June 7, 1999
- ----------------------------------------------------- (Principal Accounting Officer)
Pamela M. Witters

/s/ E. EDWIN BRADFORD Director June 7, 1999
- -----------------------------------------------------
E. Edwin Bradford

/s/ WILLIAM P. FOLEY, II Director June 7, 1999
- -----------------------------------------------------
William P. Foley, II

/s/ BOBBY G. HOLMAN Director June 7, 1999
- -----------------------------------------------------
Bobby G. Holman

/s/ LEWIS C. LANIER Director June 7, 1999
- -----------------------------------------------------
Lewis C. Lanier

/s/ L. DENT MILLER Director June 7, 1999
- -----------------------------------------------------
L. Dent Miller

/s/ WILLIAM R. MCDONALD III Director June 7, 1999
- -----------------------------------------------------
William R. McDonald III

/s/ ANDREW F. PUZDER Director June 7, 1999
- -----------------------------------------------------
Andrew F. Puzder

/s/ NORBERT E. WOODHAMS Director June 7, 1999
- -----------------------------------------------------
Norbert E. Woodhams

25
56

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- -------- -----------

2.1 -- Agreement and Plan of Merger, dated as of November 14, 1997,
among the Company, Sagebrush, Inc., WSMP Acquisition, Inc.,
L. Dent Miller and Charles F. Connor, Jr. (incorporated by
reference to Appendix A to the Joint Proxy
Statement -- Prospectus included in the Company's
Registration Statement on Form S-4 (No. 333-43921))
2.2 -- Asset Purchase Agreement, dated as of April 10, 1998,
between Fresh Foods of North Carolina, LLC and Hudson Foods,
Inc. (schedules and exhibits omitted) (incorporated by
reference to Exhibit 23 to the Company's Current Report on
Form 8-K filed with the SEC on May 13, 1998)
3.1 -- Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (No. 333-58711))
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit
3.4 to the Company's Annual Report on Form 10-K for its
fiscal year ended February 27, 1998)
4.1 -- Note Purchase Agreement, dated June 4, 1998, among the
Company, the Guarantors and the Initial Purchasers
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the SEC on June 24,
1998)
4.2 -- Indenture, dated as of June 9, 1998, among the Company,
certain Guarantors and State Street Bank and Trust Company,
Trustee (incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K filed with the SEC on
June 24, 1998)
4.3 -- Registration Rights Agreement, dated June 9, 1998, among the
Company, certain Guarantors and certain Initial Purchasers
(incorporated by reference to Exhibit 4.3 to the Company's
Current Report on Form 8-K filed with the SEC on June 24,
1998)
4.4 -- Form of Initial Global Note (included as Exhibit A to
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the SEC on June 24, 1998 and incorporated herein
by reference)
4.5 -- Form of Initial Certificated Note (included as Exhibit B to
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the SEC on June 24, 1998 and incorporated herein
by reference)
4.6 -- Form of Exchange Global Note (included as Exhibit C to
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the SEC on June 24, 1998 and incorporated herein
by reference)
4.7 -- Form of Exchange Certificated Note (included as Exhibit D to
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the SEC on June 24, 1998 and incorporated herein
by reference)
4.8 -- First Supplemental Indenture, dated as of September 5, 1998,
among the Company, State Street Bank and Trust Company,
Trustee, and Pierre Leasing, LLC (incorporated by reference
to Exhibit 4.8 to Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-4 (No.
333-58711))
10.1 -- Management Services Agreement, dated June 23, 1995, between
the Company and HERTH (incorporated by reference to Exhibit
10(a) to the Company's Annual Report on Form 10-K for its
fiscal year ended February 23, 1996)
10.2 -- Extension Agreement, dated as of August 29, 1997, between
the Company and HERTH (incorporated by reference to Exhibit
99(a) to the Company's Quarterly Report on Form 10-Q for its
fiscal quarter ended November 7, 1997)
10.3 -- 1987 Incentive Stock Option Plan (incorporated by reference
to Exhibit 4 to the Company's Registration Statement on Form
S-8 (No. 33-15017))
10.4 -- First Amendment to 1987 Incentive Stock Option Plan
(incorporated by reference to Exhibit 4(b) to Post-Effective
Amendment No. 10 to the Company's Registration Statement on
Form S-8 (No. 33-15017))
10.5 -- 1987 Special Stock Option Plan (restated as of May 15, 1997)
(incorporated by reference to Exhibit 99 to the Company's
Registration Statement on Form S-8 (No. 333-29111))

EXHIBIT
NUMBER DESCRIPTION
- -------- -----------

10.6 -- 1997 Incentive Stock Option Plan (as amended and restated
February 23, 1998) (incorporated by reference to
Post-Effective Amendment No. 1 to Exhibit 99(a) to the
Company's Registration Statement on Form S-8 (No.
333-32455))
10.7 -- First Amendment to 1997 Incentive Stock Option Plan, dated
February 23, 1998 (incorporated by reference to Exhibit
99(b) to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (No. 333-32455))
10.8 -- 1997 Special Stock Option Plan (as amended and restated
February 23, 1998) (incorporated by reference to Exhibit
99.1 to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (No. 333-33439))
10.9 -- First Amendment to 1997 Special Stock Option Plan, dated
February 23, 1998 (incorporated by reference to Exhibit 99.2
to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8 (No. 333-33439))
10.10 -- 1994 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 4(c) to the Company's Registration Statement on
Form S-8 (No. 33-79014))
10.11 -- Amendment to 1994 Employee Stock Purchase Plan, dated as of
May 10, 1995 (incorporated by reference to Exhibit 4(b) to
Post-Effective Amendment No. 3 to the Company's Registration
Statement on Form S-8 (No. 33-79014))
10.12 -- Second Amendment to 1994 Employee Stock Purchase Plan, dated
as of August 30, 1995 (incorporated by reference to Exhibit
4(c) to Post-Effective Amendment No. 3 to the Company's
Registration Statement on Form S-8 (No. 33-79014))
10.13 -- Third Amendment to 1994 Employee Stock Purchase Plan, dated
February 12, 1997 (incorporated by reference to Exhibit 4(d)
to Post-Effective Amendment No. 4 to the Company's
Registration Statement on Form S-8 (No. 33-79014))
10.14 -- Agreement of Purchase and Sale, dated as of March 1, 1997,
among the Company, F&H Companies, Inc., Western Steer of
North Carolina, Inc., Northwest Food Systems, Inc., Davidson
Food Systems, Inc., Mocksville Food Systems, Inc. and CFR
Foods, Inc. (incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-3 (No.
333-22891))
10.15 -- Guaranty Agreement, dated as of March 1, 1997, between the
Company and Cecil R. Hash (incorporated by reference to
Exhibit 99.G to the Company's Registration Statement on Form
S-3 (No. 333-22891))
10.16 -- Non-Competition Agreement, dated March 1, 1997, between the
Company and Cecil R. Hash (incorporated by reference to
Exhibit 99.F to the Company's Registration Statement on Form
S-3 (No. 333-22891))
10.17 -- Employment Contract, dated as of June 30, 1996, between the
Company and David R. Clark, together with Amendment to
Employment Contract, dated as of February 23, 1998
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-4 (No. 333-58711))
10.18 -- Employment Agreement, dated as of January 29, 1998, between
the Company and L. Dent Miller (incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on
Form S-4 (No. 333-58711))
10.19 -- Consulting and Non-Competition Agreement, dated as of
January 29, 1998, between the Company and Charles F. Connor,
Jr. (incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-4 (No.
333-58711))
10.20 -- Employment Contract, dated as of March 4, 1998, between the
Company and Norbert E. Woodhams, together with form of
Amendment to Employment Contract, dated as of July 1, 1998
(incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-4 (No. 333-58711))
10.21 -- Change in Control Agreement, dated as of August 29, 1997,
between the Company and James C. Richardson, Jr.
(incorporated by reference to Exhibit 99(b) to the Company's
Quarterly Report on Form 10-Q for its fiscal quarter ended
November 7, 1997)

EXHIBIT
NUMBER DESCRIPTION
- -------- -----------

10.22 -- Rights Agreement, dated as of September 2, 1997, between the
Company and American Stock Transfer & Trust Company, Rights
Agent (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed with the
Commission on September 5, 1997)
10.23 -- Change in Control Agreement, dated as of August 29, 1997,
between the Company and Richard F. Howard (incorporated by
reference to Exhibit 99(c) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.24 -- Change in Control Agreement, dated as of August 29, 1997,
between the Company and David R. Clark (incorporated by
reference to Exhibit 99(d) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.25 -- Change in Control Agreement, dated as of August 29, 1997,
between the Company and James M. Templeton (incorporated by
reference to Exhibit 99(e) to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended November 7, 1997)
10.26 -- Change in Control Agreement, dated as of January 29, 1998,
between the Company and L. Dent Miller (incorporated by
reference to Exhibit 10.28 to the Company's Registration
Statement on Form S-4 (No. 333-58711))
10.27 -- Change in Control Agreement, dated as of March 25, 1999,
between the Company and James E. Harris
10.28 -- Change in Control Agreement, dated as of June 9, 1998,
between the Company and Norbert E. Woodhams
10.29 -- Credit Agreement, dated as of June 9, 1998, among the
Company, certain Guarantors, First Union Commercial
Corporation ("First Union"), as Agent and a Lender, and
NationsBank, N.A., American National Bank and Trust Company
of Chicago and National City Commercial Finance, Inc., as
Lenders (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed with the SEC on
June 24, 1998)
10.30 -- Security Agreement, dated as of June 9, 1998, among the
Company, certain Guarantors and First Union, as Agent
(incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed with the SEC on June 24,
1998)
10.31 -- Pledge Agreement, dated as of June 9, 1998, among the
Company, certain Guarantors and First Union, as Agent
(incorporated by reference to Exhibit 99.3 to the Company's
Current Report on Form 8-K filed with the SEC on June 24,
1998)
10.32 -- Amendment to Credit Agreement and Consent, dated as of
September 5, 1998, among the Company, certain subsidiaries
of the Company, First Union, as Agent and a Lender, and
certain other Lenders (incorporated by reference to Exhibit
10.32 to Pre-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-4 (No. 333-58711))
11 -- Computation of Earnings per Share
12 -- Calculation of Ratios of Earnings to Fixed Charges
21 -- Subsidiaries of Fresh Foods, Inc.
23 -- Independent Auditors' Consent
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Risk Factors

The Company hereby agrees to provide to the Commission, upon request,
copies of long-term debt instruments omitted from this Registration Statement
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act.