FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

For the fiscal year ended January 1, 1999

                                             OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from _____________________ to ________________________

Commission File Number 0-4485

                               WESTERN BEEF, INC.
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             (Exact name of registrant as specified in its charter)

         Delaware                                          13-3266114
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(State or other jurisdiction of                         (I.R.S. employer 
incorporation or organization)                         identification no.)

47-05 Metropolitan Avenue, Ridgewood, New York               11385
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(Address of principal executive offices)                   (Zip code)

Registrant's telephone number, including area code: (718) 417-3770

Securities registered pursuant to Section 12 (b) of the Act: None

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

             Common Stock par value $.05 per share ("Common Stock")
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the $6.50 average of the closing bid and asked prices
reported by NASDAQ/NMS on March 23, 1999 was $10,056,235

As of March 23, 1999, the registrant had issued and outstanding 5,475,153 shares
of Common Stock.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents or the indicated portions thereof have been incorporated
herein by reference:

      (1)   Specifically identified information in the registrant's definitive
            proxy material for its 1999 Annual Meeting of Stockholders is
            incorporated by reference as Part III hereof, which definitive proxy
            material shall be filed not later than 120 days after January
            1,1999.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.

      The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report on Form 10-K contains or may contain forward-looking statements
such as those statements pertaining to the renovation of the Company's existing
stores, the construction or acquisition of new stores, the recoverability of
deferred tax assets, the continued availability of credit lines for capital
expansion, the suitability of facilities, access to suppliers, implementation of
technological improvement programs and year 2000 issues relating to computer
applications. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions; delays and other hazards inherent
in building and construction; competition in both the retail and wholesale
markets; government and regulatory policies and certifications (in particular
those relating to the United States Department of Agriculture food stamp
program); the pricing and availability of the products the Company sells and
distributes, including Western Beef label brand products; potential delays in
the implementation of the Company's technological improvement programs; and the
effectiveness of such programs upon the implementation of, and the Company's
ability to resolve, any and all year 2000 computer applications.


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                                     PART 1

ITEM 1. BUSINESS

General

      Western Beef, Inc. ("Western Beef" or the "Company") consists principally
of a retail food business that currently operates 21 high-volume, warehouse-type
supermarkets, two outlet-type food stores and a wholesale food business that
primarily deals in beef, pork, poultry, provisions, produce and private label
groceries. The Company's supermarkets serve the New York Metropolitan area,
while the Company's wholesale business operates in the New York, New Jersey and
Eastern Pennsylvania markets. In the fiscal years ended January 1, 1999
("1998"), January 2, 1998 ("1997") and January 3, 1997 ("1996") (a fifty-three
week fiscal year), the retail supermarket business accounted for approximately
82%, 73% and 70% respectively, of the Company's total net sales. See "ITEM 7.
Management Discussion and Analysis of Financial Condition and Results of
Operations."

      Western Beef's supermarkets are distinguishable from traditional
supermarket formats by their unusually broad selection of meat and produce items
and their limited selection of "non-food" items, such as health and beauty aids.
Western Beef's supermarkets are truly "food stores".

Key elements in Western Beef's business strategy include:

o     Competitive Prices - Western Beef's objective is to be perceived as the
      "value leader" in its markets by offering the best values to its customers
      on a consistent basis. Western Beef reinforces its image as a value leader
      by offering a large selection of high quality grocery items under the
      "Western Beef" label. These private label items are priced substantially
      below comparable national brand items. Western Beef sets its prices based
      on "everyday low pricing" policies on food staples such as, milk, bread,
      meat, produce, eggs and juices rather than the "high-low" pricing strategy
      (i.e. high regular prices with deep discounts on sale items) utilized by
      many other retailers.

o     Neighborhood/Ethnic Appeal - Western Beef's supermarkets are located in
      densely populated, culturally diverse neighborhoods in the New York
      Metropolitan area. The merchandise offerings in Western Beef's
      supermarkets are tailored to the preferences (i.e. specific items, brand
      names and packaging) of the various ethnic groups represented in each
      store's market area. Some of these products are not generally available in
      supermarkets operated by national chains.

o     Low-Cost Warehouse Format - In order to offer the lowest possible prices
      to its customers, Western Beef uses a low cost, no-frills warehouse store
      format. Management believes it can be successful in providing superior
      value to Western Beef's customers by carefully controlling all operating
      costs on a continuous basis.

      The retail and wholesale food businesses are generally characterized by
low profit margins with earnings primarily dependent on rapid inventory
turnover, careful cost control and the ability to achieve high sales volume.
Since many food products, particularly produce, meat and dairy products, are
subject to spoilage and become unmarketable with the passage of time, it is
important to avoid overstocking and to reduce excess inventories when they
occur. This is usually accomplished by promotional sales at reduced prices. It
is advantageous to combine wholesale and retail businesses under common
ownership because overstocking in the wholesale business can be relieved by
promotional sales in commonly owned retail stores. Commonly owned operations can
also more readily take advantage of opportunities for bargain purchases,
including stocks with shorter than usual shelf life, as they become available in
wholesale markets.

      For a description of certain financial information of the Company relative
to the Company's segments, see "Note 10, Segments of Business, to the Company's
Consolidated Financial Statements" included herein.


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<PAGE>

History

      Western Beef, Inc. was incorporated in Delaware on June 3, 1991 under the
name New Southern Blvd. Supermarkets, Inc. The Company is the successor of the
October 30, 1992 combination (the "Combination") of the food businesses of
Quarex Industries, Inc., P.S.L. Food Market, Inc. and Southern Blvd.
Supermarkets, Inc. Certain members of the Castellana family and their affiliates
were controlling stockholders (the "Principal Stockholders") of each of these
entities. Since the consummation of the Combination, the Principal Stockholders
have held in excess of 70% of the outstanding Common Stock of the Company. In
January 1993, the Company's name was changed to "Western Beef, Inc."

      The Company leases certain retail food stores, office and warehouse
facilities from the Principal Stockholders. Concurrent with the Combination,
independent appraisals were obtained of the rentals under all then existing
Company leases in which the Principal Stockholders had an interest as landlord
or tenant (other than one food store lease which was fixed on a formula basis).
Any necessary revisions to the leases were made so that in the aggregate, such
rentals did not exceed fair market value. The Company and the Principal
Stockholders agreed that any future leases from such affiliates would be based
on fair market value as established by independent appraisal. All Company leases
in which the Principal Stockholders had an interest have been amended
periodically, so that the rentals thereunder do not exceed fair market value.

1998 Developments

      In 1998, the Company opened its first outlet-type food stores which
operate under the trade name "Junior's Food Outlets" ("Junior's") and two retail
supermarkets bringing the total number of open supermarkets to twenty-one.

      The two Junior's were opened on Rockaway Boulevard in Queens, New York on
March 30, 1998 and Myrtle Avenue in Brooklyn, New York on September 4, 1998 at
approximate construction costs of $1,286,000 and $1,742,000, respectively.
Unlike conventional supermarkets, these two stores sell a limited selection of
food staples, most of which are Western Beef brand grocery products, as well as
pre-packaged meats and cheese. The two retail supermarkets were opened in New
Jersey in Manalapan on June 14, 1998 and Rahway on August 12, 1998 at
approximate construction costs of $643,000 and $1,628,000 respectively.

      Because of the favorable response generated by the opening of the two
Junior's, the Company decided to convert the space used by its Central Cutting
operation, which had prepared, custom packed and distributed pre-packaged meats
and cheese to the Company's retail supermarkets, to a distribution warehouse to
service the Junior's currently open as well as new Junior's to be opened in the
future.

      On May 4, 1998, the Company exercised an option to purchase land and a
building currently occupied by an existing Western Beef supermarket on Empire
Boulevard in Brooklyn, New York from an unrelated party for approximately
$2,124,000.

      On December 2, 1998, the Company purchased land and a building located on
Prospect Avenue, Bronx, New York from an unrelated party for approximately
$1,705,000 on which the Company intends to open a Western Beef supermarket with
satellite rental units. The total cost for the purchase of the land and
renovation of the existing building is estimated to be $5,000,000.

      On December 17, 1998, the Company purchased a parcel of vacant land
located on Frederick Douglas Boulevard, Manhattan, New York from an unrelated
party for approximately $660,000 on which the Company intends to open a Junior's
outlet-type store. The total cost of the land purchase and construction of this
Junior's is estimated to be $1,900,000.


                                      -3-
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      On December 21, 1998, the Company submitted the winning bid with New York
City to purchase a parcel of land on New Lots Avenue, Brooklyn, New York for
approximately $240,000. The Company intends to open a Junior's at a total cost
of approximately $1,300,000 including land purchase costs. This transaction is
expected to be consummated in the near future.

      On December 23, 1998, the Company purchased all outstanding capital stock
of 814 Jamaica Avenue, Inc. ("Jamaica") from its sole shareholder who was
unrelated to the Company, for approximately $744,000. Jamaica was the owner of
land and a building on Jamaica Avenue, Brooklyn, New York on which the Company
intends to open a Junior's at an estimated cost of approximately $2,100,000
including the purchase of capital stock of Jamaica.

      On January 29, 1999, the Company purchased a parcel of vacant land located
on Wyckoff Avenue, Queens, New York from an unrelated party, for approximately
$259,000 on which the Company intends to open a Junior's at a total cost of
approximately $1,300,000 including the land purchase price.

      To pay for these and other 1998 additions, the Company: (i) used cash flow
from operations; (ii) entered into a sale/leaseback arrangement in December 1997
with General Electric Capital Corporation ("G.E.C.C.") whereby G.E.C.C.
committed to provide up to $5,500,000 to the Company over a twelve month period.
The repayment provisions are for a six-year term (including three one-year
renewals). Pursuant to this agreement, the Company took down a total of
$4,507,000 including $913,000 and $1,262,000 on June 30, 1998 and December 31,
1998 at 7.28% and 6.44% per annum payable in monthly installments of $13,664 and
$18,293 respectively; (iii) borrowed $2,055,263 from Hyson Joint Venture, the
prior landlord of the Empire Boulevard property, at 6.25% per annum payable in
monthly installments of $17,622 commencing June 1, 1998 through June 1, 2013;
(iv) borrowed $1,700,000 for the Prospect Avenue location from North Fork Bank
at its prime rate payable in interest only installments from January 4, 1999 to
December 4, 2001, at which time the entire principal balance is due and payable;
(v) borrowed $512,000 for the Frederick Douglas Boulevard location from North
Fork Bank at 6.89% interest per annum payable in monthly installments of $5,942
commencing February 1, 1999 through January 1, 2009; (vi) borrowed $566,400 for
the Jamaica Avenue location from North Fork Bank at 6.85% interest per annum
payable in monthly installments of $6,562 commencing February 1, 1999 through
January 1, 2009; and (vii) borrowed $160,000 for the Wyckoff Avenue location
from its former owner, Lojo Realty, Inc., at 6% interest per annum payable in
monthly installments of $2,337 commencing March 1, 1999 through February 28,
2006. The Company also has a $3,000,000 working capital line of credit from
North Fork Bank, all of which is available to fund future operating and
construction programs.

      To simplify the corporate structure of its retail division, the Company:
(i) merged eighteen retail subsidiaries operating eighteen retail supermarkets
and two food-outlet stores into Western Beef Metropolitan Avenue, Inc., which
operated one retail supermarket and changed the name of the surviving
corporation to Western Beef Retail, Inc. on January 30, 1998; and (ii) merged
Western Beef Retail, Inc. into Western Beef Administration, Inc., the
administrative arm of the Company, and changed the name of the surviving
corporation to Western Beef Retail, Inc. on August 10, 1998.

      The Company also simplified its wholesale division on June 30, 1998, by
merging its wholesale produce and central cutting subsidiaries into Western Beef
Supermarkets, Inc., its wholesale grocery warehouse company. Finally, the
Company amended the certificate of incorporation of its subsidiary, East Central
Meats, Inc., changed its name to Western Beef Properties, Inc. and transferred
the title to five pieces of real property owned by Western Beef Retail, Inc. to
Western Beef Properties, Inc.

      On November 16, 1998, the Company announced that it had received an
unsolicited proposal from Cactus Acquisition, Inc. ("Cactus"), a company
controlled by the Principal Stockholders, to acquire all of the outstanding
shares of common stock of Western Beef not currently owned by Cactus and its
affiliates for a cash price of $7.50 per share. The Cactus offer is subject to a
number of conditions, including negotiation of definitive documents, the filing
of a disclosure statement and other documents with the Securities and Exchange
Commission and approval of the merger by the holders of a majority of the issued
and outstanding common stock. Cactus and its affiliates currently own
approximately 3,982,000 shares of Western Beef common stock, or approximately
72% of the outstanding common stock.


                                      -4-
<PAGE>

      In response to the Cactus offer, Western Beef's Board of Directors has
appointed a Special Committee of the Board to determine the advisability and
fairness of the offer to Western Beef's stockholders other than Cactus and its
affiliates. The Special Committee has retained an independent investment banking
adviser and legal counsel to advise it on the fairness of the offer from a
financial point of view to the stockholders of Western Beef other than Cactus
and its affiliates. It is expected that the Special Committee will make a
recommendation regarding the offer to the Board of Directors in the second
quarter of 1999.

Year 2000 Issues

      The Company is executing a plan to ensure that the Company's computer
systems and software applications will properly function beyond 1999. This plan
involves identifying year 2000 issues, assigning priorities to items identified
and correcting or replacing material items that are not year 2000 compliant. The
plan also considers year 2000 vulnerability with respect to the Company's major
suppliers and third party service providers.

      The Company is utilizing both internal and external resources to address
year 2000 issues. Costs associated with year 2000 computer system modifications
are currently estimated to be approximately $300,000. Included in these costs
are $150,000 for certain front-end cash register systems whose upgrade was
previously identified for non-year 2000 operational enhancements.

      The Company has already installed year 2000 program code on all of its
financial, merchandise and distribution computer software systems. Effective
with the first payroll week of 1999, the Company was operating on year 2000
compliant software provided by its third party payroll service company. Finally,
the Company has received and completed the testing of the front-end register
system enhancements previously discussed and expects to complete Company-wide
implementation of this software before the end of the second quarter of 1999.

      As part of the Company's goal to achieve year 2000 compliance, it is
seeking representations and/or warranties from suppliers, vendors and business
partners about their year 2000 compliance. No assurances can be given that the
Company will be able to identify and address all year 2000 issues due to their
complexity and the Company's dependence on representations and preparedness of
third parties with whom the Company does business. Although the Company believes
that its efforts and plans will address year 2000 issues that are within the
Company's reasonable control, there can be no assurance that year 2000 issues
will not have a material adverse effect on the Company's business or results of
operations.

Retail Operations

      Western Beef operates twenty-one retail supermarkets in the New York
Metropolitan area under the trade name "Western Beef" and two outlet-type food
stores that operate under the trade name "Junior's." Its first two retail
supermarkets were opened in 1973 and 1979. In the late 1980's, management
decided to pursue a more aggressive growth and expansion program consisting of
new supermarket acquisitions and remodelings and/or the closing of smaller
supermarkets. Since that time, the Company has continued to search for suitable
locations in the New York Metropolitan area to open new supermarkets. In 1998,
the Company opened two Western Beef supermarkets and two Junior's food-outlet
stores. No new supermarkets were opened in 1997 and two supermarkets were opened
in 1996.

      During 1998, 1997 and 1996, the Company's capital expenditures for its
retail business were $11,359,000, $7,085,000 and $12,933,000, respectively.

      All of the Company's supermarkets and outlet-type stores are operated by
Western Beef Retail, Inc., a wholly-owned subsidiary of the Company. Most of the
Company's supermarkets and stores are free standing. The supermarkets are open
seven days a week, including evenings, and are high-volume operations. Most of
the Company's supermarkets have refrigerated, warehouse-type facilities which
are divided into separate areas kept at different temperatures. Non-perishable
items are displayed in an area maintained at normal room temperatures. In most
of the Company's supermarkets, meat is displayed in large refrigerated rooms
where the Company sells both bulk meat, which is custom cut by the Company's
butchers, as well as a full variety of pre-packaged meats. In nineteen of its
supermarkets, the Company sells produce which is displayed in refrigerated cases
maintained at 37 degrees Fahrenheit and where moisture content is regulated by
automatic misting equipment. Dairy and deli products are sold in separate areas
of the Company's supermarkets, maintained at 30-40 degrees Fahrenheit. Most of
the Company's supermarkets also contain stand-alone freezers, which maintain
temperatures suitable for storage of frozen foods, such as ice cream, vegetables
and dinner entrees. The Company's supermarkets also sell a complete line of dry
groceries and some non-food products such as paper products and household
utensils.


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<PAGE>

      Four of the Company's supermarkets operate scratch brick oven bakeries,
which bake a large variety of old world bread and rolls from basic ingredients.
One of these supermarkets supplies three other Company supermarkets with fresh
baked goods. It is anticipated that as capacity permits these baked goods will
be introduced into all of the Company's supermarkets. Fifteen supermarkets also
operate full service delicatessen departments, which cut-to-order the various
cheese and processed meats displayed. The Company's other supermarkets have
self-service delicatessen departments.

      The Company's outlet-type stores are open six days a week from Monday to
Saturday and are open about ten hours a day. From initial construction to daily
operation they are designed and constructed using a no-frills approach. The
building structures, which are approximately 11,000 square feet in size, are
made of prefabricated material which reduces construction costs and are designed
to be energy efficient. Refrigerated dairy, meat and frozen products are
merchandised through rear-fed door display units. Dry grocery products are
displayed on floor pallet stacks and "warehouse" type racking utilizing "cut
case" display techniques. This merchandising format is unlike conventional
supermarket formats in that they feature approximately 600 different products as
compared to the more than 40,000 products featured in conventional supermarkets.
Junior's sells high turnover food staples with a heavy emphasis on Western Beef
label brand products.

      The Company promotes its "Western Beef" retail supermarkets and outlet
food stores in full color store circulars and local newspapers, generally at
least once a week. In addition, advertisements are also placed on local radio
stations and smaller cable television networks in both the English and Spanish
languages. The Company distributes its weekly circulars door-to-door in selected
neighborhoods and through insertions in local newspapers. Advertising
expenditures for 1998 were $2,391,000, covering ad promotion, preparation,
placement and distribution. The Company's twenty-one retail supermarkets range
in size from 9,000 square feet to 83,000 square feet, with an average of 30,000
square feet per store. They are supported by the Company's wholesale division
warehouses totaling 117,000 square feet. In 1998, approximately 45% of the
Company's retail purchases were derived from the Company's warehouses; the
remaining purchases being delivered directly to the stores from manufacturers or
outside wholesalers.

      White Rose Foods ("White Rose") is the Company's largest outside
wholesaler. The Company does not have a formal supply agreement with White Rose.
From time to time, the Company meets with other wholesale suppliers to ascertain
if the service and prices charged by White Rose are as favorable as could be
received from other sources. Based on these meetings, the Company has determined
that purchasing from White Rose continues to be competitive with other supply
sources and in the best interest of the Company.

      In 1998, White Rose accounted for approximately 22% of the Company's
retail division's purchases. In 1998, no other supplier accounted for more than
10% of the Company's purchases. Management believes that the loss of White Rose
as a supplier would not have a long-term adverse effect on the Company's
performance since the Company has access to several other similar suppliers.

      During 1998, the Company increased both the number and diversity of the
products marketed under the Western Beef brand label. These products are
purchased from national and local food manufacturers. Western Beef brand


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<PAGE>

products are generally well accepted by the Company's retail customers and more
Western Beef brand products are expected to be introduced. In general, Western
Beef brand products, which are priced 20% to 50% lower than the comparable
national brand products, generate higher gross profit margins for the Company
than brand name merchandise.

Wholesale Operations

      The Company also conducts a wholesale food business. It purchases beef,
pork, poultry and provisions directly from major slaughterhouses, meat and
poultry processors and other suppliers on a daily basis to ensure a supply of
fresh products and to be responsive to customer needs. The Company does not have
formal supply agreements with any of these entities. It purchases merchandise
for its wholesale business by purchase orders, the terms of which are subject to
normal market conditions such as pricing and availability at the time of
purchase. The loss of any of these suppliers would not be material to the
Company. Additionally, the Company's wholesale business warehouses and
distributes grocery, produce, dairy and frozen food products to the Company's
own retail food stores.

      The Company distributes products from its warehouses in Ridgewood, New
York, which operate 24 hours a day. On average, the perishable inventory is
turned over approximately once a week. Notwithstanding such turnover, the
wholesale business requires large amounts of working capital for financing
inventory and accounts receivable.

      To facilitate its wholesale business and retail distribution, the Company
(through a wholly owned subsidiary) owns and operates a fleet of tractors,
trailers and trucks, most of which are refrigerated. At various times since
1989, the Company has transported food products for others on a limited basis;
however, substantially all trucking operations now are conducted for the
Company's own distribution facilities. In addition, to enhance profitability,
the Company "back hauls" merchandise inventory to achieve reduced product cost.

Competition

      The wholesale and retail segments of the food industry are competitive
throughout the market areas served by the Company. These businesses are
generally characterized by low profit margins, with earnings primarily dependent
on rapid inventory turnover, careful cost control and the ability to achieve
high sales volume.

      Competition manifests itself in virtually every aspect of the retail food
business, including pricing, advertising and promotion, store size, location and
attractiveness, hours of operation, product selection and quality, employee
friendliness, service and parking facilities. Although Management believes the
Company's retail stores price their products competitively, such pricing has
been made possible principally because of the low overhead costs incurred by
presenting the food in no-frills, warehouse type, bulk display settings without
the typical shelving, lighting, decor and other amenities offered by most
suburban supermarkets. In the past, the Company's retail food business has grown
by opening food supermarkets in locations in Metropolitan New York City areas
where its supermarkets were larger than existing independent supermarkets and
convenience food stores and where there had been a limited presence of national
or regional chain supermarkets. In recent years, however, the Company has
experienced competition from larger supermarket chains, some of which have
greater resources than the Company, as well as with other independent operators.
Such competitors have expanded and are likely to continue expanding, by opening
retail food stores within the Company's markets. Although Management believes it
will be able to continue to compete on the basis of quality, price and
reputation, there can be no assurance that the Company will be able to maintain
or improve its current competitive position.

      Wholesale competition is based principally on price, quality and service,
including the extension of favorable credit terms. Financially stronger
wholesale competitors may be better suited to take advantage of distressed,
"bargain" price opportunities, which arise during periods of over-supply, and to
finance the cost of carrying large inventories and receivables during periods of
market weakness. The wholesale division competes with several other companies on
the wholesale level, some of which are larger than the Company and may have
greater resources. Currently, there are adequate suppliers and multiple sources
of the products which the Company distributes and sells. However, there is a
trend toward consolidation in the food industry with many smaller suppliers
being acquired by larger concerns.


                                      -7-
<PAGE>

Government Regulation

      The food business is subject to, and affected by, substantial and complex
federal, state and local laws and regulations that apply to the sale of food at
both the wholesale and retail level, and it is required to obtain certain
federal, state and local permits and/or licenses for accepting United States
Department of Agriculture ("USDA") food stamps and Women, Infants and Children
("WIC") checks (assistance checks which can only be used to purchase certain
dairy and grocery items), operating a bakery, processing meat, selling produce,
beer and wine coolers, and otherwise in order to conduct business. In addition,
such regulation includes unannounced inspections by government officials
investigating sanitary conditions, weights, measures and other matters. The
Company believes it currently holds all licenses and permits required to conduct
its business and is in compliance in all material respects with applicable
regulations. For fiscal 1998, 1997 and 1996, respectively, food stamp
redemptions accounted for approximately 19%, 20% and 24% of the Company's retail
sales. There would be a material adverse effect on the Company if it were to
suffer the loss of its USDA permits to accept food stamps or if the Government
was to reduce or eliminate the food stamp program. Management believes that the
decline in 1998 and 1997 food stamp redemptions resulted from modifications made
by the USDA regarding eligibility requirements for obtaining food stamps.

Employees

      As of March 17, 1999, the Company's retail business employed approximately
1,700 people and its wholesale business employed approximately 100 people. None
of these employees are represented by a labor union. 

      The Company believes that its relationship with its employees is generally
satisfactory.

Seasonality

      No material portion of the Company's business is affected by seasonal
fluctuations, except that sales are generally strongest around holidays,
particularly the Fourth of July and Easter.

Environmental Laws

      The Company is subject to various applicable federal, state and local laws
and regulations relating to environmental matters. Under such laws, the Company
is exposed to liability primarily as an owner or operator of real property and,
as such, the Company may be responsible for the proper management or remediation
of hazardous substances. Such substances for which the Company may be liable
could include historic contamination of real property, asbestos-containing
material in improvements and hazardous substances and oil used in the course of
regular business operations. Remediation requirements may be imposed whether or
not the owner or operator knew of, or was responsible for, the presence of
contamination by hazardous substances. Also, the presence of contamination may
hinder the owner or operator's ability to lease or sell property or to use the
property as loan collateral.

      The Company believes that it does not have any material environmental
liability and that compliance with environmental laws and regulations will not,
individually or in the aggregate, have a material adverse effect on the
Company's operations or its financial condition. There can be no assurance,
however, that new or amended environmental laws or regulations or the future
discovery of environmental conditions will not require additional expenditures
by the Company.

Dependence on Major Customers

      The business of the Company is not dependent on a single or a few
customers.


                                      -8-
<PAGE>

Order Backlog

      The Company does not have any backlog of orders. 

Research and Development Activity

      The Company has not expended material amounts on research and development
activities.

Government Contracts

      Other than licenses to accept USDA food stamps and WIC checks, the Company
does not have any material contracts or sub-contracts with any governmental
agency. See "Government Regulation".

ITEM 2. PROPERTIES-GENERAL

      The buildings utilized by the Company were constructed at various dates
between 1918 and 1998. The Company considers its warehouse facilities to be in
good condition. Most of the Company's retail facilities have been opened or
modernized in recent years and the Company considers these facilities to be in
good condition. The Company believes that all its physical facilities, both
owned and leased, are suitable and adequate for their intended uses and
purposes.

Property-Retail

      The Company's twenty-one retail supermarkets range in size from 9,000
square feet to 83,000 square feet, with an average of 30,000 square feet per
store. They are supported by Company warehouses totaling 117,000 square feet.
The Junior's outlet-type stores average approximately 11,000 square feet.

      As of January 1, 1999, the Company owned six (including one outlet-type
store) and leased seventeen of its supermarkets and outlet food stores currently
in operation. Ten of the leased supermarkets are rented from non-affiliated real
estate owners and the other seven (including one outlet-type store) are leased
from entities owned by the Principal Stockholders. See "Item 1.
Business-History".

      As described in greater detail above under "Item 1. Business - 1998
Developments", the Company: (i) opened two Western Beef supermarkets in
Manalapan and Rahway, New Jersey; (ii) opened two Junior's Food Outlets in
Queens and Brooklyn, New York; (iii) exercised an option to purchase property on
Empire Boulevard in which the Company currently operates a supermarket; (iv)
purchased four parcels of real estate on which the Company intends to open one
supermarket and three outlet-type stores; and (v) submitted the winning bid to
purchase from New York City a parcel of land on which the Company intends to
build another outlet-type store.

      The Company's supermarkets and one outlet-type store are leased for terms,
including options, of up to 40 years under leases which generally require the
Company to pay for all real estate taxes, repairs and insurance. The average
remaining life, including renewal options, of leases from non-affiliates and
from the Principal Stockholders is 23 and 11 years, respectively.

Property-Wholesale

      Under a lease purchase agreement, the Company occupies a two-story
warehouse building located in Ridgewood, New York, of approximately 178,000
square feet with an adjacent parking area, requiring annual base rental payments
of approximately $251,000 per year plus taxes, utilities and all other operating
costs with the final payment scheduled for August 2004. The Company utilizes
approximately half of the building for its wholesale operations and the
remainder for its retail operations.


                                      -9-
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

      The Company has various outstanding litigation matters which it considers
to be in the ordinary course of business. In the opinion of Management, the
outcome of these litigation matters will not materially adversely affect the
Company's financial position.

      On December 3, 1998, a purported class action, Plumpe v. Castellana et
al., No. 16807 NC, was filed in the Delaware Chancery Court against Western
Beef, Peter Castellana, Jr., Joseph Castellana, Stephen R. Bokser and Arnold B.
Becker. The action seeks to enjoin a transaction pursuant to which the Company
would be acquired by an entity formed by certain Company officials and their
family members, on the grounds that the transaction would create a breach of
fiduciary duties to shareholders. The action also seeks recission of the
transaction if it is consummated, and accounting, damages and attorneys' fees.
By agreement with plaintiff, defendants' time to answer the complaint has been
extended indefinitely, pending possible settlement discussions with plaintiff.
Western Beef believes that plaintiff's claims are without legal merit and is
prepared to defend them vigorously.

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

      There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.

                                     PART II

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

      The Company's Common Stock is traded over-the-counter in the NASDAQ
National Market System ("NASDAQ") under the symbol "BEEF".

      The range of the high and low bid prices per share of the Common Stock
during the last two years, listed under the name Western Beef, Inc. as reported
by NASDAQ, is set forth below:

                   1998                    HIGH                   LOW
                   ----                    ----                   ---

            1st   Quarter                  9 1/2                   7
            2nd   Quarter                  8 1/2                   7
            3rd   Quarter                 10                       7
            4th   Quarter                  8 1/2                   6 7/8


                   1997                    HIGH                   LOW
                   ----                    ----                   ---

            1st   Quarter                 14                      10 3/8
            2nd   Quarter                 12 1/4                   8
            3rd   Quarter                 10 3/4                   7 3/4
            4th   Quarter                  9 1/2                   6


      As of March 23, 1999, there were 249 holders of record of the Company's
Common Stock at which point the closing bid price on NASDAQ was $6.50 per share.


                                      -10-
<PAGE>

      The Company has never paid cash dividends on its Common Stock. Payment of
dividends if any, will be within the discretion of the Company's Board of
Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. At the
present time, the Company's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, in order to finance
the development of its business.

ITEM 6. SELECTED FINANCIAL DATA

      The selected financial data set forth below is derived from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Annual Report. See also "ITEM 7. Management Discussion and Analysis of Financial
Condition and Results of Operations."

                               WESTERN BEEF, INC.
                             SELECTED FINANCIAL DATA
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                            January 1,   January 2,   January 3,    December 29,  December 30
                              1999         1998         1997(1)         1995         1994
---------------------------------------------------------------------------------------------
<S>                         <C>          <C>          <C>             <C>          <C>     
Net sales                   $298,990     $317,079     $340,873        $301,387     $291,886

Net income                  $  3,352     $  3,203     $  5,989        $  4,934     $  4,773

Net income per share        $    .61     $    .59     $   1.10        $    .90     $    .87
of common stock-basic

Net income per share of     $    .61     $    .58     $   1.09        $    .90     $    .87
common stock-diluted

Total assets                $ 86,357     $ 76,254     $ 74,499        $ 63,313     $ 54,731

Long-term obligations       $ 11,257     $  8,837     $ 11,011        $  7,691     $  7,224
---------------------------------------------------------------------------------------------
</TABLE>

      (1) Fifty-three week fiscal year. The other fiscal years presented have
fifty-two weeks.

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

      The following should be read in conjunction with the Company's financial
statements and the related notes included herein.

OVERVIEW

      The Company expects competition in the retail segment from major chains as
the Company expands and continues to open new retail supermarkets. Several of
the Company's retail supermarkets have been impacted by this competition;
however, the Company believes that its ability to serve its customers with
quality merchandise at the lowest price should allow it to stay profitable and
maintain a significant part of its market share.


                                      -11-
<PAGE>

General

      The Company opened two new retail supermarkets in 1998, bringing the total
number of open supermarkets to twenty-one and two outlet-type food stores which
operate under the trade name Junior's. The two supermarkets were opened in New
Jersey in Manalapan on June 14, 1998 and Rahway on August 12, 1998 at
approximate construction costs of $643,000 and $1,628,000, respectively.

      The two Junior's were opened on Rockaway Boulevard in Queens, New York on
March 30, 1998 and Myrtle Avenue in Brooklyn, New York on September 4, 1998 at
approximate construction costs of $1,286,000 and $1,742,000. Unlike conventional
supermarkets, these two stores sell a limited selection of food staples, most of
which are Western Beef brand grocery products, as well as pre-packaged meats and
cheese.

      On May 4, 1998, the Company exercised an option to purchase land and a
building currently occupied by an existing Western Beef supermarket on Empire
Boulevard in Brooklyn, New York from an unrelated party for approximately
$2,124,000.

      Because of the favorable response generated by the opening of the two
Junior's, the Company decided to convert the space used by its Central Cutting
operation, which had prepared, custom packed and distributed pre-packaged meats
and cheese to the Company's supermarkets, to a distribution warehouse to service
the Junior's currently open as well as new Junior's to be opened in the future.

      On December 2, 1998, the Company purchased land and a building located on
Prospect Avenue, Bronx, New York from an unrelated party for approximately
$1,705,000 on which the Company intends to open a Western Beef supermarket with
satellite rental units. The total cost for the purchase of the land and
renovation of the existing building is estimated to be $5,000,000.

      On December 17, 1998, the Company purchased a parcel of vacant land
located on Frederick Douglas Boulevard, Manhattan, New York from an unrelated
party for approximately $660,000 on which the Company intends to open a Junior's
outlet-type store. The total cost of the land purchase and construction of this
new Junior's is estimated to be $1,900,000.

      On December 21, 1998, the Company submitted the winning bid with New York
City to purchase a parcel of land on New Lots Avenue, Brooklyn, New York for
approximately $240,000. The Company intends to open a Junior's outlet-type store
at a total cost of approximately $1,300,000 including land purchase costs. This
transaction is expected to be completed in the near future.

      On December 23, 1998, the Company purchased all outstanding capital stock
of 814 Jamaica Avenue, Inc. ("Jamaica") from its sole shareholder who was
unrelated to the Company for approximately $744,000. Jamaica was the owner of
land and building on Jamaica Avenue, Brooklyn, New York on which the Company
intends to open a new Junior's at an estimated cost of $2,100,000 including the
purchase of capital stock of Jamaica.

      On January 29, 1999, the Company purchased a parcel of vacant land located
on Wyckoff Avenue, Queens, New York from an unrelated party for approximately
$259,000 on which the Company intends to open a Junior's outlet-type store at a
total cost of approximately $1,300,000 including the land purchase price.

      The cost of opening a new supermarket is dependent upon the size of the
supermarket and the amount of building renovations necessary to convert the
property into a supermarket. Other factors involved are the amount of equipment
to be installed along with the number of product departments in the store. There
can be no assurance that the Company can implement this strategy in a timely
manner or at the costs stated above or that such strategy, when implemented,
will be successful. The Company's growth and expansion program is susceptible to
the hazards inherent in building and construction, including delays, cost
overruns and zoning issues. While in the past such issues have not materially
affected the Company's growth and expansion program, there can be no assurance
that in the future such issues will not delay the implementation of this program
or have a material effect on this program and the Company.


                                      -12-
<PAGE>

Year 2000 Issues

      The Company is executing a plan to ensure that the Company's computer
systems and software applications will properly function beyond 1999. This plan
involves identifying year 2000 issues, assigning priorities to items identified
and correcting or replacing material items that are not year 2000 compliant. The
plan also considers year 2000 vulnerability with respect to the Company's major
suppliers and third party service providers.

      The Company is utilizing both internal and external resources to address
year 2000 issues. Costs associated with year 2000 computer system modifications
are currently estimated to be approximately $300,000. Included in these costs
are $150,000 for certain front-end cash register systems whose upgrade was
previously identified for non-year 2000 operational enhancements.

      The Company has already installed year 2000 program code on all of its
financial, merchandise and distribution computer software systems. Effective
with the first payroll week of 1999, the Company was operating on year 2000
compliant software provided by its third party payroll service company. Finally,
the Company has received and completed the testing of the front-end register
system enhancements previously discussed and expects to complete Company wide
implementation of this software before the end of the second quarter of 1999.

      As part of the Company's goal to achieve year 2000 compliance, it is
seeking representations and/or warranties from suppliers, vendors and business
partners about their year 2000 compliance. No assurances can be given that the
Company will be able to identify and address all year 2000 issues due to their
complexity and the Company's dependence on representations and preparedness of
third parties with whom the Company does business. Although the Company believes
that its efforts and plans will address year 2000 issues that are within the
Company's reasonable control, there can be no assurance that year 2000 issues
will not have a material adverse effect on the Company's business or results of
operations.

RESULTS OF OPERATIONS

1998 Compared to 1997

      For 1998, the Company achieved net income of $3,352,000, or $.61 per
share, on net sales of $298,990,000 as compared to 1997 net income of
$3,203,000, or $.58 per share, on net sales of $317,079,000.

      The 5.7% decrease in net sales in 1998 compared to 1997 resulted from: (i)
a decline in retail and wholesale net sales as a result of lower food stamp
redemptions, which the Company believes resulted from modifications made by the
USDA to food stamp eligibility requirements; (ii) a decline of 34.8% in
wholesale net sales as a result of a more restrictive credit policy adopted by
the Company; (iii) low food price inflation; and (iv) increased competition. The
decrease was partially offset by the sales of the two supermarkets and two
outlet-type stores that opened in 1998. The retail segment provided 81.5% of
total net sales in 1998, as compared with 73.3% of total net sales in 1997.

      Gross profits, as a percentage of net sales, for 1998 and 1997 were 26.8%
and 25.0%, respectively. The increase in the gross profit percentage for 1998
resulted primarily from the increased ratio of retail to wholesale sales in 1998
as compared with 1997. For the years 1998 and 1997, the retail segment
contributed 94.0% and 90.9% of the gross profit, respectively.

      Selling, general and administrative expenses expressed as a percentage of
sales increased to 25.3% in 1998 from 23.5% in 1997 primarily as a result of:
(i) the inclusion of the costs in 1998 of the two supermarkets and two
outlet-type stores that opened in 1998; (ii) certain occupancy costs, such as
utilities, rent and depreciation, which do not vary directly with sales
declines, thereby increasing the expense ratio; and (iii) the large decrease in
wholesale sales which generally have much lower related selling, general and
administrative costs.


                                      -13-
<PAGE>

      Income from operations decreased 3.9% to $4,549,000 in 1998 from
$4,732,000 in 1997. This decrease was principally the result of: (i) decreased
sales partially offset by an increase in the gross profit percentage; and (ii)
higher selling, general and administrative expenses.

Income Taxes

      The effective tax rate of the Company decreased to 37.4% for 1998 from
40.0% for 1997 as a result of the utilization of low income housing tax credits
and lower state and local income taxes resulting from investment tax credits.

      The Company's investment in low income housing credits reduced the
Company's effective tax rate approximately 3.6% in 1998 and 4.3% in 1997. In
addition to the low income housing credits, the Company participated in the
federally sponsored Work Opportunity Tax Credit ("WOTC") program which helped to
reduce the 1998 and 1997 effective tax rates by 0.9% and 1.3%, respectively.

Retail Segment

      Net sales in the retail segment increased 4.9% in 1998 compared to 1997 as
a result of the sales generated by the two supermarkets and two outlet-type
stores opened in 1998, but was partially offset by a decline in food stamp
redemptions which the Company believes resulted from modifications by the USDA
to food stamp eligibility requirements. Same store sales declined 0.52% in 1998
compared to 1997 due to decreased food stamp redemptions.

      Retail gross profits as a percentage of sales were 30.9% and 31.0% in 1998
and 1997, respectively. Retail income from operations decreased 8.8% to
$4,310,000 in 1998 from $4,727,000 in 1997 principally as a result of the costs
associated with opening the two new supermarkets in 1998.

Wholesale Segment

      Wholesale net sales decreased 34.8% to $55,178,000 in 1998 from
$84,679,000 in 1997. This decrease in wholesale net sales resulted primarily
from: (i) an adjustment of the Company's credit policy to sell only to customers
who have the requisite credit worthiness; (ii) low food price inflation; and
(iii) reduced food stamp redemptions at wholesale customers of the Company.
Wholesale gross profits as a percentage of sales for 1998 and 1997 were 8.8% and
8.6%, respectively. Wholesale income from operations increased to $239,000 in
1998 from $5,000 in 1997 due principally to better management of accounts
receivable.

1997 Compared to 1996

      For 1997, the Company achieved net income of $3,203,000, or $.58 per
share, on net sales of $3l7,079,000 as compared to 1996 net income of
$5,989,000, or $1.09 per share, on net sales of $340,873,000.

      The 7.0% decrease in net sales in 1997 compared to 1996 resulted from: (i)
1996 being a 53-week fiscal year, whereas 1997 was a 52-week fiscal year; (ii) a
decline in retail and wholesale net sales as a result of lower food stamp
redemptions, which the Company believes resulted from modifications made by the
USDA to food stamp eligibility requirements; (iii) a decline of 16.3% in
wholesale net sales as a result of a more restrictive credit policy adopted by
the Company; (iv) low food price inflation; and (v) increased competition. These
decreases were partially offset by the full year's sales in 1997 of the two
stores that opened in 1996. The retail segment provided 73.3% of total net sales
in 1997, as compared with 70.3% of total net sales in 1996.


                                      -14-
<PAGE>

      Gross profits, as a percentage of net sales, for 1997 and 1996 were 25.0%
and 24.2%, respectively. The increase in the gross profit percentage for 1996
resulted primarily from the increased ratio of retail to wholesale sales in 1997
as compared with 1996. For the years 1997 and 1996, the retail segment
contributed 90.9% and 89.0% of the gross profit, respectively.

      Selling, general and administrative expenses expressed as a percentage of
sales increased to 23.5% in 1997 from 21.3% in 1996 primarily as a result of:
(i) the inclusion of the full year's cost in 1997 of the two stores that opened
in 1996; (ii) certain occupancy costs, such as utilities, rent and depreciation
which do not vary directly with sales declines thereby increasing the expense
ratio; and (iii) wage and related benefit costs which were unfavorably impacted
by increases in the federal minimum wage.

      Income from operations decreased 51.3% to $4,732,000 in 1997 from
$9,717,000 in 1996. This decrease was principally the result of: (i) decreased
sales partially offset by an increase in the gross profit percentage; and (ii)
higher selling, general and administrative expenses.

Income Taxes

      The effective tax rate of the Company decreased to 40.0% for 1997 from
43.3% for 1996 as a result of the utilization of low income housing tax credits
and lower state and local income taxes resulting from investment tax credits.

      The Company's investment in low income housing credits reduced the
Company's effective tax rate approximately 4.3% in 1997 and 2.1% in 1996. In
addition to the low income housing credits, the Company participated in the
federally sponsored Work Opportunity Tax Credit ("WOTC") program which helped to
reduce the 1997 tax rate by 1.3%.

Retail Segment

      Net sales in the retail segment decreased 3.0% in 1997 compared to 1996 as
a result of: (i) 1996 being a 53-week fiscal year, whereas 1997 was a 52-week
fiscal year; (ii) a decline in food stamp redemptions, which the Company
believes resulted from modifications made by the USDA to food stamp eligibility
requirements; (iii) low food price inflation; and (iv) increased competition.
These declines were partly offset by the inclusion in 1997 net sales of full
year net sales for the two supermarkets opened by the Company in 1996. Same
store sales decreased 4.0% in 1997 as compared to 1996 due to 1997 being a
shorter fiscal year and decreased food stamp redemptions.

      Retail gross profits as a percentage of sales increased to 31.0% in 1997
from 30.6% in 1996, principally as a result of the increased ratio of retail to
wholesale sales, as well as the capital expansion program, which increased the
selling square footage dedicated to the higher gross profit dairy, frozen and
bakery merchandise categories. Retail income from operations decreased 46.2% to
$4,727,000 in 1997 from $8,793,000 in 1996. This decrease was principally the
result of: (i) decreased net sales; and (ii) higher selling, general and
administrative expenses.

Wholesale Segment

      Wholesale net sales decreased 16.3% to $84,679,000 in 1997 from
$101,162,000 in 1996. This decrease in wholesale net sales resulted primarily
from: (i) an adjustment of the Company's credit policy to sell only to customers
who have the requisite credit worthiness; (ii) low food price inflation; and
(iii) reduced food stamp redemptions at wholesale customers of the Company.
Wholesale gross profit for 1997 and 1996 was 8.6% and 8.9%, respectively.
Wholesale income from operations decreased 99.5% to $5,000 in 1997 as compared
with $924,000 in 1996 due principally to increased write-offs of uncollectible
receivables.

      Wholesale gross profits as a percentage of sales decreased to 8.6% in 1997
from 8.9% in 1996, principally as a result of: (i) higher purchase costs; and
(ii) increased competition.


                                      -15-
<PAGE>

Recent Accounting Standards

      In 1997, the Financial Account Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 established standards for reporting and display
of comprehensive income and its components within financial statements.
Comprehensive income consists of all changes in equity during a period except
those resulting from investments by and distributions to owners. SFAS No. 130
also requires that all components of comprehensive income be disclosed in a
separate financial statement or on the face of the income statement. This
statement was effective for the Company beginning in 1998 and required
re-classification of prior period information for comparative purposes.

      In 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 replaced the products and services approach of
SFAS No. 14's to reporting business segments with the management approach. Under
the provision of SFAS No. 131, business segments are based on the way that the
chief operating decision maker organizes the segments within the enterprises,
for deciding how to allocate resources and in assessing performance. SFAS No.
131 was effective for the Company in 1998, and segment information that is
reported with corresponding information for the initial year must be re-stated
unless it is impractical to do so.

      In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers" Disclosures about Pensions
and Other Post-retirement Benefits" ("SFAS No. 132"), an amendment of FASB
Statements No. 87, 88 and 106. SFAS No. 132 revises employers' disclosure about
pension and other post-retirement benefit plans. SFAS No. 132 was effective for
the Company in 1998.

      The adoption of these statements did not have a material effect on the
consolidated financial statements of the Company.

Liquidity and Capital Resources

      Net cash flow from operations was $11,725,000 for 1998. The Company had
capital expenditures of $11,675,000 for 1998 primarily relating to: (i) the
acquisition of the Empire Boulevard property; (ii) equipment purchases and
improvements at the two supermarkets and two outlet-type stores opened in 1998;
(iii) the four real estate parcels acquired in December 1998 on which the
Company intends to open one supermarket and three outlet-type stores; and (iv)
miscellaneous equipment purchases and leasehold improvements at its other
existing store locations. The Company also repaid long term debt of $2,704,000
in 1998. As of January 1, 1999, the Company had $12,086,000 in cash and cash
equivalents available for acquisitions and expansion.

      These additions and improvements were funded by: (i) cash flow from
operations; (ii) the takedown of $913,000 and $1,262,000 on June 30, 1998 and
December 31, 1998 at 7.28% and 6.44% per annum payable in monthly installments
of $13,664 and $18,293 respectively under a sale/leaseback arrangement with
General Electric Capital Corporation; (iii) $2,055,263 borrowed from Hyson Joint
Venture, the prior Empire Boulevard landlord, at 6.25% per annum payable in
monthly installments of $17,622 commencing June 1, 1998 through June 1, 2013;
(iv) $1,700,000 borrowed for the Prospect Avenue location from North Fork Bank
at its prime rate payable in interest only installments from January 4, 1999 to
December 4, 2001, at which time the entire principal balance is due and payable;
(v) $512,000 borrowed for the Frederick Douglas Boulevard location from North
Fork Bank at 6.89% interest per annum payable in monthly installments of $5,942
commencing February 1, 1999 through January 1, 2009; and (vi) $566,400 borrowed
for the Jamaica Avenue location at 6.85% interest per annum from North Fork Bank
payable in monthly installments of $6,562 commencing February 1, 1999 through
January 1, 2009.

      The Company has available a $3,000,000 working capital line of credit from
North Fork Bank expiring on June 30, 1999, which the Company expects will be
renewed for another year on similar terms. At January 1, 1999, the entire
balance was available for use by the Company. The Company also has several
financial institutions that it believes would be willing to finance new store
equipment, usually over a five to ten year period.


                                      -16-
<PAGE>

      The Company plans to utilize most of its available cash flow to fund
capital expenditures for renovating existing stores and for opening new retail
outlets. There are no restrictions on the transfer of assets between segments,
though the Company intends to let each segment develop its own growth. The
Company expects that available cash flow from the wholesale segment will be used
to expand its customer base, which should result in higher levels of inventory
and accounts receivable. Although Management believes that these expenditures
will enable the Company to expand its customer base, there can be no assurance
that this strategy will be successful.

      In 1999, the Company intends to commence the construction of one Western
Beef supermarket and four Junior's outlet-type stores. The Company expects the
aggregate 1999 capital commitments for these projects to be approximately
$11,600,000. See "Overview" for a description of the factors that may affect the
costs of opening a new supermarket and the risks inherent in the Company's
growth and expansion plan.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

            Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash flows of the
Company due to adverse changes in financial rates. The Company may be exposed to
market risk in the area of interest rates; however, the Company borrows at fixed
rates of interest and the Company's management does not believe that there is a
significant market risk to interest rate changes at the present time. The
Company does not currently maintain any interest rate hedging arrangements due
to the reasonable risk that near-term interest rates will not rise
significantly. The Company is continuously evaluating this risk and will
implement interest rate hedging arrangements when deemed appropriate.


                                      -17-
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Western Beef, Inc. 
and Subsidiaries

Consolidated Financial Statements
Years Ended January 1, 1999,
January 2, 1998 and January 3, 1997


                                      -18-
<PAGE>

                       Western Beef Inc. and Subsidiaries

                                    Contents

Reports of Independent Accountants                                        F-1-2
Consolidated Balance Sheets                                               F-3
Consolidated Statements of Income                                         F-4
Consolidated Statements of Stockholders' Equity                           F-5
Consolidated Statements of Cash Flows                                     F-6
Notes to Consolidated Financial Statements                                F-7-21
Report of Independent Accountants on Consolidated
      Financial Statement Schedule                                        F-22
Schedule II-- Valuation and Qualifying Accounts                           F-23

<PAGE>

                        Report of Independent Accountants

To the Board of Directors and
Stockholders of Western Beef, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Western Beef, Inc.
and Subsidiaries at January 1, 1999 and January 2, 1998 and the results of their
operations and their cash flows for each of the fifty-two week periods then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, New York
March 5, 1999


                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders and Directors
  of Western Beef, Inc.

We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Western Beef, Inc. for the year ended
January 3, 1997. We have also audited the schedule listed in the accompanying
index. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Western Beef, Inc. for the year ended January 3, 1997, in conformity with
generally accepted accounting principles.

Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein for the year ended January 3, 1997.


/s/ BDO Seidman, LLP

BDO Seidman, LLP
New York, New York
March 5, 1997


                                      F-2
<PAGE>

Western Beef, Inc. and Subsidiaries

Consolidated Balance Sheets
(In Thousands, Except Par Value)
--------------------------------------------------------------------------------

                                                          January 1,  January 2,
                                                             1999        1998

Assets

Current:
   Cash and cash equivalents                               $ 12,086    $  7,527
   Accounts receivable, net of allowance for
     doubtful accounts of $522 and $552                       5,632       6,275
   Inventories                                               15,290      14,113
   Deferred income taxes                                      1,550       1,235
   Prepaid expenses and other current assets                  2,133       2,933
                                                           --------    --------
       Total current assets                                  36,691      32,083

Property, plant and equipment, net                           47,373      41,918
Other assets                                                  2,293       2,253
                                                           --------    --------
       Total assets                                        $ 86,357    $ 76,254
                                                           ========    ========

Liabilities and Stockholders' Equity

Current:
   Current portion of long-term debt                       $  1,681    $  1,571
   Current portion of obligations under capital leases          690       1,090
   Accounts payable                                          10,564       8,903
   Accounts payable-related party                             3,765       1,997
   Accrued expenses and other current liabilities             5,610       4,834
                                                           --------    --------

       Total current liabilities                             22,310      18,395

Long-term debt, net of current portion                        8,819       5,707
Obligations under capital leases, net of current portion      2,438       3,130
Deferred income taxes liability                               2,497       2,059
Other non-current liabilities                                 1,760       1,834
                                                           --------    --------
       Total liabilities                                     37,824      31,125
                                                           --------    --------

Commitments and contingencies (Note 7)

Stockholders' equity:
   Preferred stock, $.05 par value - 2,000 shares
      authorized; none issued
   Common stock, $.05 par value - 15,000 shares
      authorized; 5,475 and 5,466 shares,
      respectively, issued and outstanding                      274         273
   Capital in excess of par value                            11,407      11,390
   Retained earnings                                         36,915      33,563
   Deferred compensation                                        (63)        (97)
                                                           --------    --------
       Total stockholders' equity                            48,533      45,129
                                                           --------    --------
       Total liabilities and stockholders' equity          $ 86,357    $ 76,254
                                                           ========    ========

   The accompanying notes are an integral part of these financial statements.


                                      F-3
<PAGE>

Western Beef, Inc. and Subsidiaries

Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
--------------------------------------------------------------------------------

                                                    1998       1997       1996

Net sales                                         $298,990   $317,079   $340,873
Cost of sales                                      218,865    237,808    258,402
                                                  --------   --------   --------
   Gross profit                                     80,125     79,271     82,471

Selling, general and administrative expenses        75,576     74,539     72,754
                                                  --------   --------   --------

   Income from operations                            4,549      4,732      9,717

Other income, net                                      814        603        837
                                                  --------   --------   --------

   Income before provision for income taxes          5,363      5,335     10,554

Provision for income taxes                           2,011      2,132      4,565
                                                  --------   --------   --------

   Net income                                     $  3,352   $  3,203   $  5,989
                                                  ========   ========   ========

Net income per share of common stock:

   Basic                                          $    .61   $    .59   $   1.10
                                                  ========   ========   ========

   Diluted                                        $    .61   $    .58   $   1.09
                                                  ========   ========   ========

Weighted average shares outstanding:

   Basic                                             5,473      5,465      5,463
                                                  ========   ========   ========

   Diluted                                           5,507      5,503      5,497
                                                  ========   ========   ========

   The accompanying notes are an integral part of these financial statements.


                                      F-4
<PAGE>

Western Beef, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity
(In Thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                     Common Stock      Capital in
                                ---------------------  Excess of    Retained    Deferred
                                 Shares    Par Value   Par Value    Earnings  Compensation
                                ---------  ----------  -----------  --------  ------------
<S>                               <C>       <C>         <C>         <C>         <C>     
Balance, December 29, 1995        5,463     $   273     $11,379     $24,371     $  (164)

Net income for 1996                  --          --          --       5,989          --

Amortization of deferred                                                        
  compensation                       --          --          --          --          34
                                -------     -------     -------     -------     -------

Balance, January 3, 1997          5,463         273      11,379      30,360        (130)

Net income for 1997                  --          --          --       3,203          --

Amortization of deferred                                                        
  compensation                       --          --          --          --          33

Stock options exercised               3          --          11          --          --
                                -------     -------     -------     -------     -------

Balance, January 2, 1998          5,466         273      11,390      33,563         (97)
                                -------     -------     -------     -------     -------
                                                                                
Net income for 1998                  --          --          --       3,352          --

Amortization of deferred                                                        
  compensation                       --          --          --          --          34

Stock options exercised               9           1          17          --          --
                                -------     -------     -------     -------     -------
                                                                                
Balance, January 1, 1999          5,475     $   274     $11,407     $36,915     $   (63)
                                =======     =======     =======     =======     =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-5
<PAGE>

Western Beef, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
(In Thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           1998        1997        1996
<S>                                                      <C>         <C>         <C>     
Cash flows from operating activities:
  Net income                                             $  3,352    $  3,203    $  5,989
  Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation and amortization                          4,170       4,172       3,395
     Provision for losses on accounts receivable              348         955         611
     Deferred income taxes                                    123         593        (316)
     Gain on disposal of property, plant and equipment       (139)        (80)        (20)
     (Increase) decrease in assets:
        Accounts receivable                                   295       1,204        (291)
        Inventories                                        (1,177)      3,555      (1,709)
        Prepaid expenses and other current assets             800      (1,472)        559
        Other assets                                          (40)       (140)        (59)
     (Decrease) increase in liabilities:
        Accounts payable                                    3,429        (514)     (1,720)
        Accrued expenses and other current liabilities        638         114       1,530
        Non-current liabilities                               (74)        456       1,142
                                                         --------    --------    --------

        Net cash provided by operating activities          11,725      12,046       9,111
                                                         --------    --------    --------

Cash flows from investing activities:
  Capital expenditures                                    (11,675)     (7,322)    (13,121)
                                                         --------    --------    --------

        Net cash used in investing activities             (11,675)     (7,322)    (13,121)
                                                         --------    --------    --------

Cash flows from financing activities:
  Proceeds from sale of property, plant and equipment       2,361       2,517         112
  Proceeds on issuance of long-term debt                    4,834         647       6,377
  Payments on long-term debt                               (2,704)     (3,006)     (2,276)
  Issuance of common stock                                     18          11          --
                                                         --------    --------    --------

        Net cash provided by financing activities           4,509         169       4,213
                                                         --------    --------    --------

Net increase in cash and cash equivalents                   4,559       4,893         203

Cash and cash equivalents, beginning of year                7,527       2,634       2,431
                                                         --------    --------    --------

Cash and cash equivalents, end of year                   $ 12,086    $  7,527    $  2,634
                                                         ========    ========    ========

Cash paid during the year for:
  Interest                                               $    985    $  1,086    $  1,071
  Income taxes                                           $  1,509    $  2,569    $  4,442
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-6
<PAGE>

Western Beef, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.    Summary of Significant Accounting Policies

      Description of Business

      Western Beef, Inc. and Subsidiaries, all of which are wholly-owned, (the
      "Company") operate high-volume, warehouse-type, retail food stores and a
      wholesale meat and poultry business. During 1998, the Company operated
      twenty three retail food stores. During 1997 and 1996, the Company
      operated nineteen retail stores. The Company also sells poultry, beef,
      pork and provisions through its wholesale operations to supermarket
      chains, retailers and other distributors. The retail stores serve the New
      York/New Jersey metropolitan area and the wholesale business operates
      principally in the New York, New Jersey and Eastern Pennsylvania markets.

      Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
      and its subsidiaries. All significant intercompany balances and
      transactions have been eliminated in consolidation.

      Fiscal Year

      The Company uses a 52-53 week fiscal year. The fiscal years ended January
      1, 1999, January 2, 1998 and January 3, 1997 are referred to as 1998, 1997
      and 1996, respectively, throughout these financial statements. Fiscal
      years 1998 and 1997 include 52 weeks and fiscal year 1996 includes 53
      weeks.

      Revenue Recognition

      Retail revenues are recorded at the time of sale. Wholesale revenues are
      recorded at the time the products are shipped.

      Inventories

      Inventories, consisting of meats, poultry, groceries and other food
      products held for resale, are stated at the lower of cost (first-in,
      first-out retail method) or market.

      Property, Plant and Equipment

      Property, plant and equipment are recorded at cost. Depreciation and
      amortization are computed on the straight-line method over the estimated
      useful lives of the assets. The buildings under capital lease and
      leasehold improvements are being amortized over their useful lives.
      Repairs and maintenance are charged to operations. Renewals and
      improvements are capitalized.

      Estimated Fair Value of Financial Instruments

      Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
      "Disclosure about Fair Value of Financial Instruments", requires
      disclosures of fair value information about financial instruments for
      which it is practicable to estimate the value, whether or not recognized
      on the balance sheet. The fair values of accounts receivable, accounts
      payable, accrued expenses and long-term debt approximate their carrying
      values.

      Income Taxes

      Deferred income taxes are recognized for temporary differences between the
      basis of assets and liabilities for financial statement and income tax
      purposes. Deferred income taxes represent the future tax return
      consequences of those differences which will either be taxable or
      deductible when the assets and liabilities are recovered or settled.


                                      F-7
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
------------------------------------------------------------------------------

      Other Assets

      Included in other assets are investments in two limited liability
      partnerships and the net cash surrender value of life insurance policies.
      The investments in limited liability partnerships of approximately
      $821,000 and $901,000 at January 1, 1999 and January 2, 1998,
      respectively, were made by the Company during 1995. These investments have
      generated low income housing tax credits to be used to offset future
      federal income taxes. In accordance with Emerging Issues Task Force Issue
      No. 94-1, "Accounting for Tax Benefits Resulting from Investments in
      Affordable Housing Projects", these investments are accounted for under
      the effective yield method. The credits are guaranteed by an
      indemnification agreement in the partnership contract.

      Life insurance policies insure principally the officers of the Company. At
      January 1, 1999 and January 2, 1998, the value of these policies totaled
      $1,044,000 and $905,000, net of outstanding loans of $405,000 and
      $425,000, respectively.

      Cash Equivalents

      Cash equivalents include all highly liquid debt instruments with an
      original maturity of three months or less. Cash equivalents consist
      primarily of money market accounts.

      Concentration of Credit Risk

      Financial instruments which potentially expose the Company to
      concentrations of credit risk consist primarily of cash and trade accounts
      receivable. The Company maintains some of its cash balances in accounts
      which exceed federally insured limits, but has not experienced any losses
      to date resulting from this policy. The Company sells primarily to retail
      customers and wholesale food businesses located in the New York
      metropolitan area. Although the Company is directly affected by the
      well-being of the food industry, management does not believe significant
      credit risk exists.

      Store Opening Costs

      Costs associated with the opening of new stores are expensed as incurred.

      Use of Estimates

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires the Company 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, costs and
      expenses during the reporting period. Actual results could differ from
      those estimates.

      Reclassifications

      Certain reclassifications have been made to the prior year amounts to
      conform to the fiscal 1998 presentation.


                                      F-8
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
------------------------------------------------------------------------------

2.    Property, Plant and Equipment

      Property, plant and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                      Depreciable
                                                          life       January 1,    January 2,
                                                        in years        1999          1998
      <S>                                               <C>           <C>           <C>

      Land                                                            $ 5,740       $ 3,373
      Buildings                                         35 to 39        9,922         6,003
      Improvements                                      10 to 30       31,859        30,241
      Machinery and equipment                            6 to 30       20,995        19,594
      Furniture and fixtures                             5 to 7         2,935         2,814
      Transportation equipment                             5              189           189
                                                                      -------       -------
                                                                       71,640        62,214

      Less: Accumulated Depreciation and Amortization                  24,267        20,296
                                                                      -------       -------

                                                                      $47,373       $41,918
                                                                      =======       =======
</TABLE>

Included in land, buildings and machinery and equipment is property under    
capital leases totaling $650,000, $1,950,000 and $3,328,000, respectively, at
January 1, 1999 and $650,000, $1,950,000 and $7,341,000, respectively, at
January 2, 1998.


                                      F-9
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
------------------------------------------------------------------------------

3.    Debt

      Installment Notes

<TABLE>
<CAPTION>
                                                                  January 1,     January 2,
                                                                     1999           1998
      <S>                                                           <C>            <C>    
      Long-term debt consists of the following (in thousands):

      Installment notes payable in monthly installments 
        of $127 including interest, at rates ranging from 
        7.55% to 10%, expiring at various dates through 2001 
        and collateralized by certain accounts receivable,
        inventory and equipment.                                    $ 2,065        $ 3,407
                                                                   
      Installment notes payable in monthly installments            
        of $77 including interest, at rates ranging from           
        6.25% to 9.38%, expiring at various date through           
        2013 and collateralized by land and buildings.                6,575          3,711
                                                                   
      Mortgage note payable with a lump sum principal payment      
        due in December 2001, monthly interest payments at the       
        Bank's prime rate (7.75% at 1/1/99) and collateralized by    
        certain land and building.                                    1,700             --
                                                                   
      Installment note payable in annual principal payments        
        of $16, plus interest at 8%; payments commence in 2001       
        through 2010.                                                   160            160
                                                                    -------        -------

                                                                     10,500          7,278
                                                                   
      Less: Current maturities                                        1,681          1,571
                                                                    -------        -------

                                                                    $ 8,819        $ 5,707
                                                                    =======        =======
</TABLE>

      As of January 1, 1999, debt matures as follows (in thousands):

      1999                                                              $ 1,681
      2000                                                                1,099
      2001                                                                2,267
      2002                                                                  396
      2003                                                                  342
      Thereafter                                                          4,715
                                                                        -------
                                                                 
                                                                        $10,500
                                                                        =======

     At January 1, 1999, land, property and equipment with a net book value of
     $11,612,000 was pledged as collateral for the debt.


                                      F-10
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
------------------------------------------------------------------------------

      For fiscal years 1998, 1997 and 1996, interest expense (net of interest
      income of $295,000, $106,000 and $164,000, respectively) was $690,000,
      $965,000 and $907,000, respectively.

      Bank Facility

      During 1998, the Company renewed its agreement for a credit facility that
      permits borrowings of up to $3,000,000, expiring June 30, 1999. The
      facility is available for working capital purposes and is secured by all
      monies possessed by the bank that are at any time credited by or due from
      the bank to the Company. Borrowings under the facility bear interest at
      the bank's prime rate of 7.75% at January 1, 1999. The facility provides
      for an additional fee payable (at the bank's prime rate plus 4%) if and to
      the extent that the aggregate average monthly balance in non-interest
      bearing deposit accounts is less than $1,000,000. During 1998, the Company
      had no borrowings under this facility.

      Capital Lease Obligations

      The Company utilizes certain land, buildings and equipment in its
      operations pursuant to lease agreements which are accounted for as capital
      leases. Future minimum lease payments under capital lease obligations,
      together with the present value of the net minimum lease payments at
      January 1, 1999, were as follows (in thousands):

      Fiscal Year

      1999                                                          $  932
      2000                                                             932
      2001                                                             932
      2002                                                             553
      2003                                                             251
      Thereafter                                                       167
                                                                    ------

                                                                     3,767

      Less: Amounts representing interest                              639
                                                                    ------
  
      Present value of net minimum lease payments                    3,128
  
      Less: Current portion                                            690
                                                                    ------

                                                                    $2,438
                                                                    ======


                                      F-11
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

4.    Income Taxes

      The provision for income taxes consists of the following (in thousands):

                                          1998         1997         1996

      Federal:
        Current                         $ 1,556      $   704      $ 2,744
        Deferred                             91          467         (183)
                                        -------      -------      -------
                                          1,647        1,171        2,561
                                        -------      -------      -------

      State and local:
        Current                             330          837        2,137
        Deferred                             34          124         (133)
                                        -------      -------      -------
                                            364          961        2,004
                                        -------      -------      -------
                                        $ 2,011      $ 2,132      $ 4,565
                                        =======      =======      =======

      The deferred income tax provision (benefit) results primarily from the
      annual change in temporary differences between the basis of assets and
      liabilities for financial reporting purposes and such amounts as measured
      by income tax laws.

      A reconciliation of income taxes at the 34% federal statutory income tax
      rate for 1998, 1997 and 1996 to income taxes as reported is as follows:

                                                       1998      1997      1996

      Statutory federal income tax rate                34.0%     34.0%     34.0%
      State and local income taxes, net of federal
        income tax benefit                              7.9      12.2      12.1
      Low income housing tax credits                   (3.6)     (4.3)     (2.1)
      Work opportunity tax credit                      (0.9)     (1.3)       --
      Other                                              --       (.6)      (.7)
                                                       ----      ----      ----

      Effective income tax rate                        37.4%     40.0%     43.3%
                                                       ====      ====      ====

      The Company has qualified low income housing tax credits of $1,269,000
      which are available to reduce future regular federal income taxes.


                                      F-12
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

      The components of net deferred tax assets (liabilities) are as follows
      (dollars in thousands):

                                                      January 1,   January 2,
                                                         1999         1998
                                                                    
      Deferred tax assets:                                          
        Capitalized costs for income tax purposes      $   788      $   877
        Accounts receivable allowance                      230          280
        Lease obligations                                  532           78
                                                       -------      -------
                                                                    
          Deferred income taxes included                            
            in current assets                          $ 1,550      $ 1,235
                                                       =======      =======
                                                                    
      Deferred tax liabilities:                                     
        Depreciation and amortization                   (2,497)      (2,059)
                                                       -------      -------
                                                                    
          Deferred income taxes included                            
            in non-current liabilities                 $(2,497)     $(2,059)
                                                       =======      ======= 


                                      F-13
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

5.    Reconciliation of Basic and Diluted Net Income per Share (in thousands,
      except per share amounts)

                                                         Weighted
                                                          Average
                                              Net          Shares     Per Share
                                             Income     Outstanding    Amounts

      1998
      Basic net income per share             $3,352        5,473       $   .61 
      Effect of dilutive securities:                                 
        Stock options                            --           34            --
                                             ------        -----       -------
                                                                     
      Diluted net income per share           $3,352        5,507       $   .61
                                             ======        =====       =======
                                                                     
      1997                                                           
      Basic net income per share             $3,203        5,465       $   .59
      Effect of dilutive securities:                                 
        Stock options                            --           38          (.01)
                                             ------        -----       -------
                                                                     
      Diluted net income per share           $3,203        5,503       $   .58
                                             ======        =====       =======
                                                                     
      1996                                                           
      Basic net income per share             $5,989        5,463       $  1.10
      Effect of dilutive securities:                                 
        Stock options                            --           34          (.01)
                                             ------        -----       -------
                                                                     
      Diluted net income per share           $5,989        5,497       $  1.09
                                             ======        =====       =======
                                                               
      A total of 63,400, 27,700 and 15,000 options were not included in the
      1998, 1997 and 1996, respectively, effect of diluted securities due to the
      anti-dilutive nature of the options.

6.    Stock Options

      At January 1, 1999, the Company has two stock option plans which are
      described below. The Company applies APB Opinion No. 25, "Accounting for
      Stock Issued to Employees," and related interpretations in accounting for
      the plans. Under APB Opinion No. 25, when the exercise price of the stock
      option equals the market price of the underlying stock on the date of
      grant, no compensation cost is recognized. Options granted during 1998,
      1997 and 1996 were issued at the fair market value on the date of grant.

      Pursuant to the 1995 Stock Option Plan (the "Plan"), options to purchase
      an aggregate of not more than 1,300,000 shares of common stock may be
      granted from time to time to key employees, officers, directors, advisors
      and independent consultants to the Company or to any of its subsidiaries.
      The total number of shares of common stock for which options may be
      granted under the Plan shall 


                                      F-14
<PAGE>

Western Beef, Inc. and Subsidiaries                                            

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

      not exceed 2% cumulatively of the number of shares issued as of January 1
      of each year. The Plan is administered by a committee of the Board of
      Directors. The per share exercise price for incentive stock options
      ("ISO's") will not be less than 100% of the fair market value of a share
      of common stock on the date the option is granted (ISO's may not be
      granted if the optionee owns more than 10% of the Company's common stock)
      and nonqualified stock options will not be less than 25% of the fair
      market value on the date the option is granted. Options may be granted for
      a term, to be determined by the committee, of not more than ten years from
      the date of grant.

      Pursuant to the 1995 Nonemployee Director Stock Option Plan (the
      "Directors' Plan"), options to purchase an aggregate of not more than
      200,000 shares of common stock may be granted from time to time to
      directors who are neither employees nor officers of the Company. The
      Directors' Plan is administered by a committee of the Board of Directors.
      Each option granted prior to December 31, 1996 shall vest one year from
      the date granted and will expire at a term, determined by the committee,
      not to exceed ten years. Options granted after January 1, 1997 will vest
      over a five year period, at equal percentages, and will expire at a term,
      determined by the committee, not to exceed ten years.

      Statement of Financial Accounting Standards No. 123, "Accounting for
      Stock-Based Compensation" ("SFAS No. 123"), requires the Company, if
      material, to provide pro forma information regarding net income and net
      income per share as if compensation cost for the Company's stock option
      plans had been determined in accordance with the fair value based method
      prescribed in SFAS No. 123. The compensation costs associated with the
      Company's stock option plan determined in accordance with SFAS No. 123
      would have been $55,000, $77,000 and $70,000 for 1998, 1997 and 1996,
      respectively.

      The fair value of the options was estimated at the date of grant using the
      Black-Scholes option-pricing model with the following weighted average
      assumptions for 1998, 1997 and 1996: dividend yield of 0; expected
      volatility of 44% and expected life of 5 years. The weighted average risk
      free interest rate for 1998, 1997 and 1996 was 5.4%, 6.5% and 6.5%,
      respectively. The weighted average fair values of options granted during
      1998, 1997 and 1996, for which the exercise price equaled the market price
      on the grant dates, were $3.81, $4.12 and $3.34 per option, respectively.


                                      F-15
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

      The following table contains information regarding options under both
      plans:

                                                      Exercise       Weighted
                                                    Price Range      Average
                                       Options       Per Share    Exercise Price
      
      Outstanding, December 29, 1995    81,949    $1.50 to $6.00     $  3.93
      Granted during 1996               15,000        $ 9.31            9.31
      Canceled during 1996              (7,000)   $5.88 to $6.00        5.91
                                      --------                      
      
      Outstanding, January 3, 1997      89,949    $1.50 to $9.31        4.67

      Granted during 1997               32,300        $11.50           11.50
      Exercised during 1997             (2,833)   $1.50 to $6.00        3.88
      Canceled during 1997             (16,600)   $6.00 to $11.50       8.52
                                      --------                      
      
      Outstanding, January 2, 1998     102,816    $1.50 to $11.50       6.22

      Granted during 1998               29,550         $8.25            8.25
      Exercised during 1998             (9,003)   $l.50 to $6.00        2.00
      Canceled during 1998              (5,600)   $6.00 to $11.50       9.39
                                      --------                      
      
      Outstanding, January 1, 1999     117,763    $1.50 to $11.50       6.88
                                      ========
    
      As of January 1, 1999, approximately 51,000 of the options granted were
      exercisable and approximately 440,000 options were available for future
      grants.

7.    Commitments and Contingencies

      Operating Leases

      The Company has commitments for various noncancellable operating leases
      which expire at various dates through January 2017. Certain of the leases
      are with related parties (see Note 9). Many of the leases have renewal
      options and most contain provisions for passing through incremental costs.
      Future minimum rental payments required under noncancellable operating
      leases at January 1, 1999 are as follows (in thousands):


                                      F-16
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

      Fiscal Year

      1999                                                            $  5,989
      2000                                                               5,186
      2001                                                               4,576
      2002                                                               3,502
      2003                                                               3,203
      Thereafter                                                        13,873
                                                                      --------

      Total future minimum rentals                                    $ 36,329
                                                                      ========

      For fiscal years 1998, 1997, 1996, rent expense was $6,057,000, $5,225,000
      and $4,838,000, respectively.

      The Company has entered into sublease agreements for certain space located
      within its various retail facilities. For fiscal years 1998, 1997 and
      1996, rental income from subleases was $1,120,000, $997,000 and $906,000,`
      respectively. The Company retains the right to sublease the additional
      unoccupied space. The subleases currently in effect provide for future
      rental income as follows (in thousands):

      Fiscal Year

      1999                                                            $  1,172
      2000                                                               1,053
      2001                                                                 979
      2002                                                                 861
      2003                                                                 613
      Thereafter                                                         1,332
                                                                      --------

                                                                      $  6,010
                                                                      ========

      Litigation

      The Company is engaged in various outstanding litigation matters which
      arose in the ordinary course of business. In the opinion of management,
      the outcome of such matters will not have a material adverse effect on the
      Company's financial position or operating results.

      Standby Letter of Credit

      The Company has outstanding letters of credit totaling $4,350,000 to
      collateralize incurred but unpaid insurance claims.

8.    Profit Sharing Plans

      In 1998, the Company consolidated their profit sharing and 401(k) plans.
      The plan allows for salary deferral arrangements under the provisions of
      Section 401(k) of the Internal Revenue Code. The Company's funding
      requirements for the plan are nonobligatory; however, for fiscal years
      1998, 


                                      F-17
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

      1997 and 1996, the profit sharing plan expense was $779,000, $750,000 and
      $625,000, respectively.

9.    Related Party Transactions

      The Company leases land, various retail food stores and warehouse storage
      and office space from affiliates of the principal stockholders under
      various leases which expire through January 2017. For fiscal years 1998,
      1997 and 1996, rent expense relating to these leases was $3,004,000,
      $2,829,000 and $2,737,000, respectively (see Note 7). The Company made
      capital expenditures of approximately $436,000, $2,022,000 and $725,000
      during 1998, 1997 and 1996, respectively, at leaseholds owned by
      affiliates of the principal stockholders.

      For fiscal years 1998, 1997 and 1996, the Company purchased various food
      products in the amounts of $46,287,000, $37,111,000 and $27,423,000,
      respectively, from a company in which an officer is also a director of the
      Company. As of January 1, 1999 and January 2, 1998, the Company had
      accounts payable of $3,765,000 and $1,997,000, respectively, due to such
      company.

      For fiscal years 1998, 1997 and 1996, the Company had sales to related
      parties of $561,000, $894,000 and $335,000, respectively.

      During 1998, the Company received an unsolicited proposal from Cactus
      Acquisition, Inc. ("Cactus") to acquire, for a price of $7.50 per share in
      cash, all of the outstanding capital stock of the Company not currently
      owned by Cactus and its affiliates. At January 1, 1999, Cactus and its
      affiliates owned approximately 72% of the outstanding shares of Western
      Beef common stock.

      In response to the Cactus offer, Western Beef's Board of Directors has
      appointed a Special Committee of the Board to determine the advisability
      and fairness of that offer to Western Beef's stockholders other than
      Cactus and its affiliates. The Special Committee will retain independent
      investment banking advisers and legal counsel to advise it on the fairness
      of the offer from the financial point of view of the stockholders of
      Western Beef other than Cactus and its affiliates.


                                      F-18
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

10.   Segments of Business

      In 1998, the Company adopted Statement of Financial Accounting Standards
      No.131, "Disclosures about Segments of an Enterprise and Related
      Information" ("SFAS No. 131"). SFAS No. 131 supersedes SFAS No. 14,
      "Financial Reporting for Segments of a Business Enterprise" ("SFAS No.
      14"). One of the principal changes under SFAS No. 131 is the method for
      reporting segment information, referred to as the "management" approach,
      in contrast to the "industry segment" approach of SFAS No. 14. Under the
      management approach, operating segments and certain aspects of such, are
      identified based on the way that management evaluates the information for
      making operating decisions and assessing overall performance of the
      segments.

      The adoption of SFAS No. 131 did not affect the results of operations or
      financial position but did affect the disclosure of segment information
      required to be presented. All prior period information has been restated
      to conform to the required disclosures.

      The Company operates in two industry segments. The wholesale segment
      primarily sells poultry, beef, pork and provisions to retailers,
      restaurants and institutions. The retail segment sells various meat and
      grocery items to the general public.

      The accounting policies of the segments are the same as those described in
      the summary of significant accounting policies. All intersegment sales
      prices are market based. Corporate overhead costs are allocated to each of
      its operating segments based on overall sales. The Company evaluates the
      performance of its segments based on operating earnings before taxes of
      the respective business units.


                                      F-19
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

      The tables below present information about reported segments for fiscal
      years 1998, 1997 and 1996 (in thousands):

      1998                                  Retail      Wholesale     Totals
                                          ----------   ----------   ----------

      Net sales                             $243,812     $ 55,178     $298,990
      Intersegment sales                          --       55,546       55,546
      Interest expense                           838          147          985
      Interest income                            227           68          295
      Net interest expense                       611           79          690
      Depreciation and amortization            4,038          132        4,170
      Income from operations                   4,310          239        4,549
      Other significant non cash items:                             
         Bad debt expense                         --          352          352
      Identifiable assets                     72,642       13,715       86,357
      Capital expenditures                    11,359          298       11,657
                                                                  
      1997                                  Retail      Wholesale     Totals
                                          ----------   ----------   ----------

      Net sales                           $  232,400   $   84,679   $  317,079
      Intersegment sales                          --       53,931       53,931
      Interest expense                           923          148        1,071
      Interest income                             75           31          106
      Net interest expense                       848          117          965
      Depreciation and amortization            4,034          138        4,172
      Income from operations                   4,727            5        4,732
      Other significant non cash items:
         Bad debt expense                         --          955          955
      Identifiable assets                     63,738       12,516       76,254
      Capital expenditures                     7,085          237        7,322

      1996                                  Retail      Wholesale     Totals
                                          ----------   ----------   ----------

      Net sales                           $  239,711   $  101,162   $  340,873
      Intersegment sales                          --       60,775       60,775
      Interest expense                           909          162        1,071
      Interest income                            125           39          164
      Net interest expense                       784          123          907
      Depreciation and amortization            3,214          181        3,395
      Income from operations                   8,793          924        9,717
      Other significant non cash items:
         Bad debt expense                         --          611          611
      Identifiable assets                     60,475       14,024       74,499
      Capital expenditures                    12,933          188       13,121


                                      F-20
<PAGE>

Western Beef, Inc. and Subsidiaries                                           

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

11.   Quarterly Information (Unaudited)

      The summarized quarterly financial data presented below (in thousands
      except per share amounts) reflects all adjustments which, in the opinion
      of management, are of a normal and recurring nature necessary to present
      fairly the results of operations for the periods presented.

<TABLE>
<CAPTION>
                                                   1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
      <S>                                           <C>          <C>          <C>          <C>    
      Fiscal year ended January 1, 1999
      Sales                                         $ 70,061     $ 76,193     $ 75,031     $ 77,705
      Gross profit                                    19,005       20,323       20,320       20,477
      Net income                                         948          858          821          725
      Net income per share                                                               
        of common stock - basic                          .17          .16          .15          .13
                                                     ==============================================
      Fiscal year ended January 2, 1998                                                  
      Sales                                         $ 72,795     $ 81,881     $ 86,372     $ 76,031
      Gross profit                                    18,142       19,939       21,605       19,585
      Net income                                         813          779          867          744
      Net income per share
        of common stock - basic                          .15          .14          .16          .14
                                                     ==============================================
                                                                                         
      Fiscal year ended January 3, 1997                                                  
      Sales                                         $ 79,349     $ 84,180     $ 85,167     $ 92,177
      Gross profit                                    19,589       20,014       20,680       22,188
      Net income                                       1,262        1,520        1,522        1,685
      Net income per share
        of common stock - basic                          .23          .28          .28          .31
                                                     ==============================================
</TABLE>


                                      F-21
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                  ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Stockholders of Western Beef, Inc.

Our audit of the consolidated financial statements referred to in our report
dated March 5, 1999 appearing on page F-1 of this 1998 Annual Report on Form
10-K also included an audit of the financial statement schedule listed on page
F-23 of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statement.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, New York
March 5, 1999


                                      F-22
<PAGE>

Western Beef, Inc. and Subsidiaries 

Schedule II - Valuation and Qualifying Accounts
(In Thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              Additions
                                                     --------------------------
                                      Balance at      Charged to                               Balance at 
                                     Beginning of      Cost and       Charge to                 End of   
                                         Year          Expenses    Other Accounts  Deductions    Year    
                                                                  
<S>                                     <C>            <C>              <C>          <C>          <C>    
Year ended January 1, 1999:                                         
  Allowance for doubtful accounts       $ 552          $ 352            $--          $(382)       $ 522  
                                                                                                         
Year ended January 2, 1998:                                                                              
  Allowance for doubtful accounts       $ 386          $ 955            $--          $(789)       $ 552  
                                                                                                         
Year ended January 3, 1997:                                                                              
  Allowance for doubtful accounts       $ 326          $ 611            $--          $(551)       $ 386  
</TABLE>                                                         


                                      F-23
<PAGE>

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

            NONE

                                    PART III

      All items under this section are incorporated by reference to the
Company's proxy statement that will be filed no later than 120 days after
January 1, 1999.

                                     PART IV

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

The following documents are being filed as a part of this report:

(a)   1.    Financial Statements
      2.    Financial Statement Schedule

All other schedules are omitted since the required information is either not
required or not present.

      3.    Exhibits

                  3.1   Certificate of Incorporation of the Company, as amended
                        (1)

                  3.2   Certificate of Amendment to the Certificate of
                        Incorporation of the Company, dated January 13, 1993 (3)

                  3.3   By-Laws of the Company (2)

                  10.1  Agreement of Combination (2)

                  10.2  Agreement of Merger (1)

                  10.3  Certificate of Merger (1)

                  10.4  Master Lease Agreement dated December 29, 1997 between
                        the Company and General Electric Capital Corporation (4)

                  10.5  $3,000,000 Line of Credit Agreement expiring June 30,
                        1999 between the Company and North Fork Bank in the form
                        of a Promissory Note dated July 29, 1998 from the
                        Company to North Fork Bank (5)

                  10.6  Lease Agreement dated November 1, 1991 between P.M.C.
                        Supermarket, Inc. d/b/a Western Beef Forest Avenue Inc.
                        and Forest Associates, an affiliate of the Principal
                        Stockholders for the rental of the Company's Forest
                        Avenue store. (4)

                  10.7  Store Lease dated February 6, 1990 between the Company
                        and 130-35 Merrick Boulevard Associates, L.P., an
                        affiliate of the Principal Stockholders, for the rental
                        of the Company's Merrick Boulevard Store. (4)


                                      -19-
<PAGE>

                  10.8  Parking Lot Lease dated February 6, 1990 between the
                        Company and CM Boulevard Associates, L.P., an affiliate
                        of the Principal Stockholders, for the rental of the
                        parking lot at the Company's Merrick Boulevard Store.
                        (4)

                  10.9  Agreement of Lease dated July 6, 1989 between Quarex,
                        Inc. and Elmont Q. Properties, an affiliate of the
                        Principal Stockholders, for the rental of the Company's
                        Elmont Store. (4)

                  10.10 Lease Agreement dated November 1, 1992 between Western
                        Beef - 173rd Street Inc. and Peter Castellana, Jr. and
                        Marie Castellana for the rental of the Company's 173rd
                        Street Store. (4)

                  10.11 Lease Agreement dated March 1, 1990 between Western Beef
                        East New York Inc. and Elmont Q. Properties, Inc., an
                        affiliate of the Principal Stockholders, for the rental
                        of the Company's East New York Store. (4)

                  10.12 Store Lease dated January 30, 1997 between the Company
                        and ANT Realty Corp., an affiliate of the Principal
                        Stockholders, for the lease of the Company's Rockaway
                        Boulevard Store. (4)

                  10.13 Lease Agreement dated January 23, 1992 between Quarex
                        Inc. and 61 2nd Street Associates, an affiliate of the
                        Principal Stockholders for the lease of the Company's
                        Mineola Store. (4)

                  10.14 Agreement dated September 18, 1995 between the Company
                        and Amplicon Financial Corp. (4)

                  10.15 Assignment dated March 19, 1996 between Western
                        Beef-Steinway Street, Inc. and Metlife Capital Financial
                        Corporation (4)

                  10.16 Amended and Restated Mortgage dated March 19, 1996
                        between Western Beef - Steinway Street, Inc. and Metlife
                        Capital Financial Corporation (4)

                  10.17 Amended and Restated Promissory Noted dated March 19,
                        1996 between Western Beef-Steinway Street, Inc. and
                        Metlife Capital Financial Corporation (4)

                  10.18 Indenture dated September 17, 1993 between Ranbar
                        Packing, Inc. and Astoria Federal Savings and Loan
                        Association (4)

                  10.19 Note dated September 17, 1993 between Ranbar Packing,
                        Inc. and Astoria Federal Savings and Loan Association
                        (4)

                  10.20 Contract of Sale dated June 29, 1993 between Ranbar
                        Packing, Inc. and Astoria Federal Savings and Loan
                        Association (4)

                  10.21 Mortgage agreement dated December 2, 1998 between
                        Western Beef Properties, Inc. and North Fork Bank
                        pertaining to the purchase of the Prospect Avenue,
                        Bronx, New York real estate.(5)

                  10.22 Bargain and sale deed dated May 5, 1998 from Hyson Joint
                        Venture to Western Beef Retail, Inc. for the sale of
                        the land and a building currently occupied by the
                        Company's Empire Boulevard store.(5)


                                      -20-
<PAGE>

                  10.23 Contract of Sale - Office, Commercial and multi-Family
                        Residential Premises dated July _______, 1998 between
                        Western Beef Properties, Inc. and LOJO Realty, Inc. for
                        the purchase of vacant land on Wyckoff Avenue, Queens,
                        New York by Western Beef Properties, Inc. for 
                        $250,000.(5)

                  10.24 Mortgage agreement dated January 29, 1999 between
                        Western Beef Properties, Inc. and LOJO Realty, Inc.
                        pertaining to the purchase of the Wyckoff Avenue, 
                        Queens, New York property.(5)

                  10.25 Mortgage Note dated December 17, 1998 between Western
                        Beef Properties, Inc. and North Fork Bank pertaining to
                        the purchase of vacant land on Frederick Douglas
                        Boulevard, Manhattan, New York.(5)

                  10.26 Indenture agreement dated December 17, 1998 between the
                        City of New York and Western Beef Properties, Inc. for
                        the purchase of vacant land on Frederick Douglas
                        Boulevard, Manhattan, New York.(5)

                  10.27 Acquisition agreement dated September 18, 1999 between
                        Western Beef, Inc. and Michael Alagna for the purchase
                        of all outstanding capital stock of 814 Jamaica Avenue,
                        the owner of a parcel of real estate of Jamaica Avenue,
                        Brooklyn, New York.(5)

                  10.28 Amendment to lease (Exhibit 20.13) between 61 2nd Street
                        Associates and Western Beef Mineola, Inc. dated February
                        1, 1997.(5)

                  10.29 Certificate of Merger dated January 29, 1998 of Western
                        Beef - 14th Street, Inc. et al into Western Beef 
                        Metropolitan Avenue, Inc.(5)

                  10.30 Certificate of Merger dated June 30, 1998 of Western
                        Beef Retail, Inc. into Western Beef Administration, 
                        Inc.(5)

                  10.31 Certificate of Merger dated June 30, 1998 of Western
                        Beef Produce - Metropolitan Avenue, Inc. and W. B.
                        Packing, Inc. into Western Beef Supermarket, Inc.(5)

                  21    Subsidiaries (5)

                  23.1  Consent of PricewaterhouseCoopers LLP (5)

                  23.2  Consent of BDO Seidman, LLP (5)

                  27    Financial Data Schedule (5)

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

                  (1)   Incorporated by reference to the Form 8-K Current Report
                        filed November 13, 1992 (the "8-K")

                  (2)   Incorporated by reference to Form S-4 File No. 33-44494.

                  (3)   Filed with the Annual Report on Form 10-K for the fiscal
                        year 1992.

                  (4)   Filed with the Annual Report on Form 10-K for the fiscal
                        year 1997.

                  (5)   Filed herewith.


                                      -21-
<PAGE>

      Reports on Form 8K

(b)   The registrant filed a report on Form 8-K in November 1998 pertaining to
      the receipt of an unsolicited proposal from Cactus Acquisition, Inc.
      ("Cactus") to acquire all of the outstanding capital stock of the Company
      not currently owned by Cactus and its affiliates for a price of $7.50 per
      share in cash.

(c)   See Item 14(a)3, above

(d)   Not applicable


                                      -22-
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             WESTERN BEEF, INC.

                                             By: /s/Peter Castellana, Jr., 
                                             ------------------------------
                                             Peter Castellana, Jr.,
                                             President,

Date: March 26, 1999

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


/s/ Peter Castellana, Jr.
-------------------------    President, Chief Executive Officer   March 26, 1999
Peter Castellana, Jr.        and Director


/s/ Chris Darrow
-------------------------    Chief Financial Officer              March 26, 1999
Chris Darrow


/s/ Joseph Castellana
-------------------------    Director                             March 26, 1999
Joseph Castellana


/s/ Stephen R. Bokser
-------------------------    Director                             March 26, 1999
Stephen R. Bokser


/s/ Arnold B. Becker
-------------------------    Director                             March 26, 1999
Arnold B. Becker


                                      -23-