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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                           ___________________________


                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1997

                         Commission File Number 1-13747


                          ATLANTIC PREMIUM BRANDS, LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

     Delaware                                              36-3761400
(STATE OF INCORPORATION)                              (I.R.S. EMPLOYER ID NO.)

             650 Dundee Road, Suite 370, Northbrook, Illinois 60062
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (847) 480-4000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

   Title of Each Class                Name of Each Exchange on Which Registered
Common Stock, $.01 par value                   American Stock Exchange

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

    Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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 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 registrant's voting stock held by
non-affiliates of the registrant, based upon the last reported closing price of
the registrant's Common Stock on March 20, 1998: $19,122,321

    The number of shares outstanding of the registrant's Common Stock, par
value $.01, as of March 20, 1998: $7,400,174

                       DOCUMENTS INCORPORATED BY REFERENCE
    Certain sections of the registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held on May [13], 1998 are incorporated by reference into
Part III of this report.

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                                     PART I

ITEM 1.       BUSINESS
RECENT DEVELOPMENTS
     In the first quarter of 1998, Atlantic Premium Brands, Ltd. (the
"Company") and Potter Sausage Co., a newly-formed subsidiary, acquired
substantially all of the assets of J.C. Potter Sausage Company ("J.C. Potter"),
a branded food processing company based in Durant, Oklahoma, in consideration
for $13.0 million cash plus related transaction costs.

     J.C. Potter is engaged in the manufacturing, marketing and distribution of
premium, branded breakfast sausage, primarily in Oklahoma, Arkansas and Texas.
Its products are sold under the J.C. Potter brand name and are generally
delivered to the retail grocery trade through its own distribution system. In
addition, J.C. Potter manufactures products for other branded food companies on
a private-label basis. J.C. Potter is presently a supplier to the Company's
Prefco subsidiary and a customer of its Carlton subsidiary. J.C. Potter
presently has approximately 240 employees.

     The description of the Company set forth below in this Item 1 is a
description as of December 31, 1997, and does not include the recent acquisition
of J.C. Potter.

GENERAL
     The Company, through its subsidiaries' operations in Texas, Louisiana and
Kentucky, manufactures, markets and distributes branded and unbranded food
products for customers in a ten state region, and, through its operations in
Maryland, distributes specialty, non-alcoholic beverages to customers in the
Baltimore and Washington, D.C. metropolitan areas.

     Through its Prefco subsidiary, the Company is engaged in the marketing
and wholesale distribution of branded and unbranded meats to the retail grocery
trade. The Company markets and distributes its own branded, processed meat
products under the brand name Bum's Favorite Blue Ribbon(R). These products,
which include smoked sausages, bacon and packaged, sliced luncheon meats,
account for approximately 15% of the sales of the Prefco subsidiary and are
manufactured by the Company's Carlton subsidiary as well as by third party
contract manufacturing companies. Blue Ribbon is currently the best  selling
brand of bacon in the Houston market. In addition to marketing its own branded
products, the  Company is also a leading regional distributor of unbranded
products including  boxed beef, pork, chicken and related items.

     Through its Carlton subsidiary, the Company manufactures a variety of
smoked sausage products. Approximately 45% of total volume manufactured
reflects product sold through the Prefco subsidiary under the Blue Ribbon brand
name. Of the balance, approximately 30% of total volume reflects private label
manufacturing for other regional sausage brands and selected chain supermarket
house brands, and approximately 25% of total volume is sold by the Carlton
subsidiary under the brand names Carlton and Country Boy(TM). These branded
products are marketed on a regional basis, principally in south and west Texas.

     Through its Richards subsidiary, the Company manufactures, markets and
distributes Cajun-style, cooked, pork sausage products and specialty foods for
customers in Louisiana, under the brand name Richard's(TM).


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     Through its Grogan's subsidiary, the Company manufactures, markets and
distributes fresh pork sausage products for customers in a six state region.
These products are sold under the brand names Grogan's Farm(TM) and Partin's
Country Sausage(TM).

     In addition to its food businesses, the Company is a leading independent
wholesale distributor of specialty non-alcoholic beverages to over 6,000
retail trade accounts (including independent retail outlets such as
independent grocery stores, delicatessens and restaurants, as well as large
grocery and convenience store chains and their independent franchises) in the
greater Baltimore and Washington, D.C. metropolitan area and surrounding
counties. Under agreements that provide exclusive rights to selected
territories, the Company distributes juice drinks, sodas, bottled waters and
ready-to-drink teas. Brand name products distributed by the Company include
Mistic(R) and AriZona(TM). Sales of Mistic products accounted for approximately
45% of the Company's total beverage case sales in 1997.

                                CORPORATE HISTORY

     In April 1991, MB Acquisition Corp. ("MB Acquisition"), a corporation owned
by a group of individuals including the Company's Chairman of the Board and
certain of the Company's directors and stockholders, acquired the business of
the Company from a company now known as S&B Ventures, Inc. (the "Predecessor")
for a purchase price of $1,158,000 (the "Acquisition"). In connection with the
Acquisition, MB Acquisition also assumed certain obligations to pay the owners
of the Predecessor $2,000,000 pursuant to a non-compete agreement and $829,000
pursuant to consulting agreements. MB Acquisition financed the Acquisition
through a bridge loan provided by nine of its current stockholders, including an
officer and certain directors. In September 1991, Maryland Beverage, L.P. (the
"Partnership") was formed with the Company and Strategic Investment Corporation
("Strategic"), a wholly owned subsidiary of T. Rowe Price Strategic Partners
Fund, L.P., as its sole partners, and MB Acquisition was merged with and into
the Company, and its assets and liabilities were contributed to the Partnership.
In September 1993 the Company was reincorporated in Delaware and adopted the
name "Atlantic Beverage Company, Inc." In November 1993, in connection with the
Company's initial public offering, Strategic (whose only asset was its
partnership interest in the Partnership) merged with and into the Company.
Subsequently, the Partnership was dissolved and the Company succeeded to the
Partnership's assets and liabilities.

     On April 27, 1994, the Company entered into and consummated an agreement to
acquire certain assets and marketing rights from Flying Fruit Fantasy, USA, Inc.
("FF") for total consideration of approximately $1.2 million. Under the terms of
this agreement, the Company obtained worldwide marketing and distribution rights
to a frozen beverage served through automated dispensing machines. In December
1995, the Company adopted a plan to discontinue this division of business. As a
result, the Company recognized a one-time charge of approximately $2.4 million
in the fourth quarter of 1995 which reflected the write-off of $1.1 million in
equipment and $0.9 million in intangible assets, and costs of approximately $0.4
million associated with discontinuing the operation.

     In the first quarter of 1996, a newly formed, wholly-owned subsidiary of
the Company acquired the outstanding common stock of Prefco, Inc. ("Prefco").
Prefco, based in Houston, Texas, markets and distributes its own branded meat
products as well as unbranded meat products to the retail grocery trade in
Texas. Also in the first quarter of 1996, Carlton Foods, Inc. ("Carlton") was
merged into another newly formed, wholly-owned subsidiary of the Company.
Carlton, based in New Braunfels, Texas, is

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a manufacturer of branded and private label meat products. The combined purchase
price for these entities was approximately $11 million, which included
approximately $3.0 million in Carlton refinanced and assumed debt.

     In August 1996, a newly formed, wholly-owned subsidiary of the Company
acquired certain of the assets of Richard's Cajun Country Food Processors
("Richards"). Richards, based in Church Point, Louisiana, is engaged in the
manufacturing, marketing and distribution of Cajun-style processed meat and
specialty food products. The consideration for these assets was $2.5 million
cash and a subordinated promissory note in the amount of $0.875 million (the
"Richards Note").

     In October 1996, Grogan's Merger Corp. ("GMC"), a newly formed,
wholly-owned subsidiary of the Company, acquired and merged with the
distribution and manufacturing business of Grogan's Sausage, Inc. and Grogan's
Farm, Inc. respectively (collectively "Grogan's"), based in Arlington, Kentucky
for total consideration of approximately $3.8 million, consisting of $1.9
million cash, $0.2 million in a note (the "Grogan's Note") and 573,810 shares
of common stock of the Company.

     In November 1996, GMC acquired the assets of Partin's Sausage ("Partin's")
in consideration for $0.4 million cash, $0.225 million in a note (the "Partin's
Note"), and 78,310 shares of common stock of the Company. Partin's, based in
Cunningham, Kentucky, is engaged in the manufacturing, marketing and
distribution of pork sausage products.

                                    INDUSTRY

     The Company's operations are classified into three business segments: food
processing, food distribution and beverage distribution. Note 17 to the
Company's Consolidated Financial Statements provides summarized financial
information by business segment for continuing operations for the last three
fiscal years.

FOOD INDUSTRY
     Through its Carlton, Prefco, Richards and Grogan's subsidiaries, the
Company participates in three general segments of the food industry: processing,
distribution, and branded product marketing.

     The meat processing segment, which includes cooking, slicing, mixing,
grinding and similar functions is generally capital intensive. Unbranded raw
material typically comes from packing companies. In some instances, packing and
processing are vertically integrated. In other instances, as is the case with
the Company, processing and marketing are vertically integrated. The Company's
Carlton subsidiary manufactures the Company's own branded products as well as
those of other branded meat companies and supermarkets on a private label basis.
Because of the cost of transportation and shelf life of product, processing
facilities tend to serve a regional clientele. Large, integrated national meat
companies therefore tend to establish strategically located processing
facilities in different geographic regions.

     The meat distribution segment which serves several different classes of
trade including retail, restaurant and institutional customers is generally not
capital intensive but features very low gross margins and is subject to intense
price competition. Product is invoiced and priced according to weight.
Successful distributors typically distinguish themselves through customer
service and low cost position.

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Price, product selection, reliability, in-stock rate, promptness of delivery and
weekend delivery options are among the benefits which are most highly valued. It
is not uncommon for a grocery retailer to have one primary supplier in addition
to one or more secondary suppliers. Meat distribution companies typically serve
a local or regional clientele.

     The branded meat product business is generally not capital intensive.
Strong retail brands exist at local, regional and national levels and
include bacon, hot dogs, cooked and uncooked sausage, cooked hams, chicken and
turkey products. Advertising and promotion is generally critical to the
maintenance of brand equity. Companies which market branded meat products can
exist on a stand-alone basis as well as vertically integrated with processing
and/or distribution. The Company reflects, to a limited extent, both forms of
vertical integration.

BEVERAGE INDUSTRY
     The beverage distribution industry is divided generally into two different
types of distributors: bottler/distributors and independent distributors. The
largest soft drink manufacturers generally have a network of companies (which
include both independent and company-owned businesses) that serve as
bottler/distributors for their products. Smaller beverage companies, however,
typically engage contract bottlers to produce their products, and rely on
independent companies that function solely as distributors to distribute their
products to consumers.

     The Company offers suppliers the ability to distribute their products to
over 6,000 actively serviced customers. Both bottler/distributors and
distributors maintain inventory in their own warehouses, sell products using
their own sales force and deliver products using their own trucks. However,
subject to restrictions contained in distribution contracts, independent
distributors like the Company have the flexibility to select a mix of products
to carry without being primarily dedicated to the large, traditional soft drink
brands that bottler/distributors must support.

     Specialty beverage products and branded bottled water products have been
well received not only by the consumer but also by the retail trade. In general,
these products sell at a premium to traditional soft drinks, generating higher
gross profits per transaction for the retail trade. By contrast, traditional
soft drinks compete largely on the basis of pricing and promotion and generate
relatively lower unit profits.

     Although the domestic beverage distribution industry is characterized by
the relative absence of technological risk and relatively minor initial capital
investment requirements, there exist significant barriers to entry primarily due
to geographic exclusivity agreements with suppliers and established
relationships with customers. In addition, because of the relatively substantial
weight of bottled beverages and resulting expense of transportation, competition
at the distribution level occurs primarily on a regional basis.


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                                    STRATEGY

FOOD STRATEGY
     Operating Strategy. The Company's operating strategy with respect to its
newly acquired food businesses will be to grow these businesses profitably,
while identifying and exploiting synergy among them. Key elements of this
operating strategy include increasing sales to existing customers, adding new
customers, and identifying opportunities to add new products.

     Corporate Growth Strategy. The Company has identified potential strategies
that will use the combination of its food subsidiaries as a platform for
additional corporate growth. These potential strategies may include acquisition
opportunities that complement the subsidiaries' businesses.

BEVERAGE STRATEGY
     The Company's success in the beverage distribution business has been based
in large part on its ability to serve independent grocery stores, delicatessens
and restaurants, as well as institutional buyers, such as cafeterias and
universities, which traditionally sell cold, single-serve, bottled beverages to
consumers. These customers represented approximately 60% of the Company's
total beverage sales in 1997. The significant exposure that results from so
many smaller customers carrying the Company's line of beverages helps to create
the broad-based demand necessary for larger retail outlets to consider stocking
those beverages.

     Operating Strategy. The Company's operating strategy in its current
territory is to continue to focus on the distribution of non-alcoholic
beverages, with primary emphasis on specialty beverages, and to maximize market
penetration for the products it carries. Key elements of the Company's operating
strategy include: (i) increasing distribution to existing customers, in both the
variety of brands carried and the number of cases sold; (ii) adding new
customers each year within the Company's geographic territory; and (iii)
identifying and acquiring exclusive distribution rights to products not
currently distributed by the Company.

                                    PRODUCTS

     Through its Prefco subsidiary, the Company distributes a wide variety of
unbranded, boxed meat products. The Company maintains an inventory of over 200
different stock keeping units of unbranded product, which include beef, turkey,
pork and chicken. Product is stored in the Company's two refrigerated warehouses
in Houston and delivered on refrigerated vehicles to several hundred customers
including chain and independent supermarkets and discount clubs. The Company
purchases product from approximately one dozen meat packing companies.
Purchases of the same product may be spread among several suppliers over the
course of a year, and purchasing decisions are frequently driven by price and
availability, both of which are likely to vary. Three suppliers accounted for
approximately 9%, 8% and 8% of the Company's boxed meat purchases during
1997 and 20%, 13% and 10% of such purchases during 1996. No other supplier
accounted for more than 10% of such purchases during either year.

     Also through its Prefco subsidiary, the Company markets and distributes its
own branded sausage, bacon and packaged, sliced luncheon meats. These products
are stored in the Company's two refrigerated warehouses. Product is delivered on
the Company's refrigerated trucks, and customers typically include the same
retail establishments that purchase the Company's unbranded meat products. The
majority of Blue Ribbon (R) sausage product is manufactured by the Company's
Carlton and Grogan's subsidiaries. The

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balance of the sausage product as well as the bacon and luncheon meats are
purchased from four other contract food processing companies.

     In addition to manufacturing product for the Prefco subsidiary, the
Company's Carlton subsidiary manufactures and markets its own branded smoked
sausage products for the retail grocery trade. The Carlton subsidiary
manufactures similar products on a private label for other branded food
companies.

     Through its Richards subsidiary, the Company manufactures, markets and
distributes Cajun-style, cooked pork sausage products and specialty foods for
customers in the state of Louisiana under the brand name Richards(TM).

     Through its Grogan's subsidiary, the Company manufactures, markets and
distributes fresh pork sausage products for customers in a six state region.
These products are sold under the brand names Grogan's(TM) and Partin's(TM).

     The Company distributes a wide variety of beverages, including
ready-to-drink teas, natural sodas, sparkling waters with juice, fruit
juices, juice drinks, still and sparkling waters and sports drinks. Brand name
products distributed by the Company include Mistic(R), AriZona(TM), Clearly
Canadian(R), Hires(R), Crush(R), Vernor's(R), Elliott's Amazing(TM), Crystal
Geyser(R), Stewart's(R), Jolt Cola(R), and Sunlike Juices. The Company reviews
hundreds of products each year, and continuously evaluates the mix of products
it distributes. The Company actively seeks to acquire distribution rights for
products it believes show strong growth potential. For 1996 and 1997,
approximately 58% and 45%, respectively, of the Company's total beverage case
sales  represented Mistic(R) products, and in 1996 7% represented Elliott's(TM)
products while in 1997 16% represented AriZona(TM) products. None of the
Company's other suppliers accounted for more than 10% of the  Company's total
beverage case sales during such periods.

                               SUPPLIER CONTRACTS

     The Company does not currently have contracts with any of its food
suppliers. Many of the Company's major beverage brands, however, are distributed
on an exclusive basis under distribution contracts within the Company's
territory. The terms of the contracts, including their lengths, vary by
supplier. The Company has approximately 20 beverage suppliers.

     The Company's contract with Mistic Brands, Inc. ("MBI"), supplier of
Mistic(R), expires on December 31, 2000. The Company has been the exclusive
distributor of Mistic(R) in the greater Baltimore and Washington, D.C.
metropolitan area since the product was first introduced in this territory in
1990. Under the terms of the Mistic(R) contract, the Company is obligated to
distribute Mistic(R) products to 80% of the retail accounts that would carry on
a regular basis cold, single-serve, bottled specialty beverage products,
excluding the restaurant and bar trade. Unless such percentage is obtained by
the Company to MBI's satisfaction, MBI has the right to suspend shipments or
cancel the contract. MBI also retains the right to sell to certain national
buying chains that require servicing by one national vendor. The contract also
provides that, unless MBI agrees in writing to the sale of a product that MBI
considers, in its sole discretion, to be a direct competitor of its products,
the Company cannot, without MBI's consent, sell to anyone within its territory
any product that would, in the sole discretion of MBI, compete with Mistic(R) or
be likely to cause confusion in the minds of the public as to the Mistic(R)
products. The Company specifically cannot sell Snapple(R). The Company believes
that it is in compliance in all material respects with the terms of the
Mistic(R) contract.

     Other beverage distribution contracts place similar restrictions and
requirements on the Company. The Company believes that the terms of its
distribution contracts are similar to those employed throughout

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the industry. In addition, the Company has oral distribution agreements for
other beverage products.

                        SALES, MARKETING AND DISTRIBUTION

     The Company's Prefco subsidiary distributes unbranded boxed beef, pork, and
poultry to chain and independent retail grocery customers, most of whom are
located in the Houston metropolitan area, and all of whom are within a 400-mile
radius of the Company's distribution facilities. The Company serves several
hundred such customers as either their primary or secondary fresh meat supplier.
Prefco's direct sales force contacts its customers on a daily basis. The Company
delivers product using refrigerated trucks, generally within one to three
days of receiving an order.

     The Company's Prefco subsidiary also markets and distributes its own Blue
Ribbon(R) bacon, sausage and sliced luncheon meats to the retail grocery trade.
Orders are received on a pre-sell basis by the direct sales force mentioned
above as well as on a route-sales basis by a separate group of sales people,
each of whom is responsible for a route sales vehicle. The business has
historically engaged in significant radio and television advertising in the
Houston market.

     The Company's Carlton subsidiary solicits and receives customer orders for
branded product through direct salespeople as well as through third-party
food brokers and by telephone and facsimile transmission. The Company engages in
a limited amount of advertising for such products, primarily through weekly
chain supermarket flyers. Relationships with private label customers are
generally established at the senior management level, although recurring orders
from such customers are normally received over the telephone or facsimile
machine by clerical staff. Branded and private label orders are generally filled
within one to seven days and are either delivered on one of the Carlton
subsidiary's three refrigerated vehicles or by common carrier, or are picked up
by customers.

     The Company's Richards subsidiary employs a route delivery sales force.
Orders are taken by the route salespeople and filled immediately from stock on
the route sales trucks. The subsidiary engages in promotions, including
in-store sampling, as well as in print advertising. All customers are located
within the state of Louisiana.

     The Company's Grogan's subsidiary also employs a route sales force.
Orders are taken by the route salespeople and filled immediately from
stock onboard the route sales trucks. In addition, the subsidiary sells
approximately 30% of its product to third party distributors. The Company
engages in promotions, including in-store sampling, as well as in print, radio
and television advertising. Customers are located in Kentucky, Illinois,
Indiana, Mississippi, Tennessee, and Arkansas.

     One food distribution customer accounted for approximately 40% of the
Company's total food sales during both 1996 and 1997. No other customer
accounted for more than 10% of total food sales during either year.

     The Company has a beverage distribution sales force that services
existing customers and pursues new customers. The Company periodically sets
sales quotas for its salespersons, and promotes fulfillment of these quotas
through sales contests and specific monetary incentives. Demand for the
Company's beverage products tends to be greater during warmer months.
Accordingly, sales are generally highest in the second and third calendar
quarters.


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     Most beverage distribution customers are visited on a weekly or biweekly
basis by a salesperson from the Company. When a customer orders a product, the
salesperson enters all information into a hand-held computer terminal. At the
end of the day the salesperson is responsible for transmitting this information
by telephone to the Company's computer system. Invoicing, loading and routing
are then handled by the warehouse in preparation for delivery the following day.
The Company's computer system generates invoices and assists in managing the
loading and routing functions. The majority of orders are filled from the
Company's warehouse within 24 hours. The Company generally delivers products
directly to the retail outlets, where Company drivers usually stock displays and
collect payments. Deliveries are made by the Company's fleet of leased vehicles,
which includes beverage delivery trucks and vans.

     A variety of methods are used by the Company's beverage suppliers to
promote their products directly to the consumer, including advertising based on
product features such as ingredients, quality and taste as well as a variety of
themes including health, lifestyle, convenience, and physical fitness. Price
promotions, taste tests and event sponsorship are also common. The cost of these
promotional activities is typically shared with the Company's suppliers. In some
instances, under promotional arrangements with suppliers, the Company may place
refrigerated coolers with retail customers to display the Company's product
lines.

     Two beverage customers accounted for approximately 7% and 7% of total
beverage case sales during 1996 and approximately 7% and 6% in 1997. No other
customer accounted for more than 5% of the Company's beverage sales during
either year.

                                ASSET MANAGEMENT

     Accounts Receivable. Food sales are made almost exclusively on account, and
food accounts receivable typically average 15 to 20 days.

     Approximately 40% of the Company's beverage sales are made on a cash
basis. Beverage accounts receivable typically average approximately 20 to 25
days of total sales or 30 to 40 days of sales made on account.

     Inventory. The Company maintains its food inventory at the manufacturing
facilities operated by its Carlton subsidiary in New Braunfels, Texas, by its
Richards subsidiary in Church Point, Louisiana, by its Grogan's facility in
Arlington, Kentucky, and at two distribution facilities operated by its Prefco
subsidiary in Houston, Texas. The Company generally maintains an average of
eight to ten days of food inventory on hand which reflects approximately six
to eight days of inventory at its Prefco subsidiary and approximately 30 days
of inventory at its Carlton, Richards and Grogan's subsidiaries. The Company
typically places purchase orders to its suppliers by telephone and by facsimile
on a daily basis. Orders are placed both on an as-needed basis and on a
scheduled basis in anticipation of future demand. Orders are usually filled
within one to ten days, and products are transported to the Company's
warehouse by common carrier.

     The Company maintains all of its beverage inventory at the Company's
warehouse in Jessup, Maryland. The Company generally maintains an average of
approximately 20 days of beverage inventory on hand. The Company performs a
physical count of its beverage inventory twice a month. On an annual basis,
cumulative adjustments to such inventory have been less than 1% of total
purchases during each of the last three years. The Company turns its beverage
inventory approximately 18 times per year. The Company typically places
purchase orders to its suppliers by telephone and by facsimile

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on a daily basis. Once placed, these orders are usually filled within three
to five days for most brands, and the products are transported to the Company's
warehouse by common carrier.

                                   COMPETITION

COMPETITION IN THE FOOD BUSINESS
     Boxed Meat Distribution. Through its Prefco subsidiary, the Company
believes that it is the second largest of four major boxed meat distributors
in the Houston market. Although this segment of the food industry is extremely
competitive, the Company has generally succeeded in distinguishing itself
through a high level of customer service.

     Branded Meat Products. Through its Prefco, Carlton, Richards and
Grogan's subsidiaries, the Company competes with dozens of branded meat
companies, and its brands compete with a wide variety of both regional and
national trademarks. Among the competitive brands are Decker, J. Bar B.,
Hilshire Farms, Hormel and Bryan. The Company's Carlton(TM) and Country Boy(TM)
brands of smoked sausage are sold principally in the Dallas, San Antonio and
Austin markets and currently have limited market share. The Company's Blue
Ribbon(R) brand currently represents the best selling brand of bacon
in the Houston market. The Company's packaged, sliced luncheon meats, also
sold under the Blue Ribbon trademark, were introduced to the Houston market in
1995 and have limited market share. The Company's Richards(TM), Grogan's(TM)
and Partin's(TM) brands enjoy a strong regional share within their respective
markets.

     Private Label Manufacturing. Through its Carlton subsidiary, the Company
manufactures smoked sausage and meat products on a private label basis for other
branded food companies and, on a limited basis, for supermarkets and
restaurants. The Company believes that it enjoys a strong reputation for
innovation and responsiveness in creating original recipes for such customers.
The Company competes with a wide variety of manufacturers, many of whom are
significantly larger and may have greater manufacturing capacity and capital.

COMPETITION IN THE BEVERAGE INDUSTRY
     In the greater Baltimore and Washington, D.C. metropolitan area, beverage
suppliers have limited choices in securing distribution of their products in the
entire territory by a single distributor. The two largest bottler/distributors,
Mid Atlantic Coca-Cola Bottling Co., Inc. and Pepsi-Cola Company, are affiliated
with The Coca-Cola Company and PepsiCo Inc., respectively, and the Company
believes that they do not carry products from other sources. The other major
bottler/distributor, Canada Dry - Potomac Corporation, distributes a variety of
specialty beverage brands and competes directly with the Company. Mid Atlantic
Coca-Cola, Pepsi-Cola and Canada Dry are larger and have greater financial
resources than the Company. The Company also competes with specialty grocery
distributors, beer and wine distributors and other independent beverage
distributors. In general, the major bottlers in the Company's territory are
focused on distributing their own brands, while beer and wine distributors are
fragmented and service fewer non-alcoholic customers.

     The Company believes that it is the largest distributor to focus primarily
on specialty beverage products and branded bottled water within its territory. A
principal component of the Company's success is its willingness to service
smaller retailers as well as large customers, which the Company believes helps
develop a broad-based consumer interest in the products it carries. The Company
competes primarily on the basis of its product line and service. The product
line includes highly visible, exclusive, niche products. The principal methods
of competition in the premium beverage industry include product quality and
taste, packaging, brand advertising, trade and consumer promotions, pricing, and
the development

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of new products, while traditional soft-drink products compete on the basis of
all of the foregoing factors but with a greater emphasis on pricing and
advertising.

     Competitors may have a significant competitive advantage over the Company
if consumer choice favors products not distributed by the Company, and the
Company is unable to secure distribution rights to the favored products. A
significant shift in consumer demand away from specialty beverage products
generally would have a material adverse effect on the Company's beverage
business. There can be no assurance that the Company will be able to compete
successfully with other distributors to obtain new product distribution
agreements or that the Company's current distribution agreements will be renewed
on terms acceptable to the Company.

                              GOVERNMENT REGULATION

     The Company is subject to various federal, state and local statutes,
including federal, Maryland, and Texas occupational safety and health laws.
Furthermore, the Company and its suppliers may be subject to various rules and
regulations including those of the United States Department of Agriculture, the
United States Food and Drug Administration and similar state agencies that
relate to manufacturing, nutritional disclosure, labeling requirements and
product names.

     While the Company presently does not sell products in any state that
requires deposits on containers, federal and state proposals for container
deposit laws could significantly affect the company's operating costs if any
such proposal were to be implemented. Although the Company would seek to pass on
any additional costs to its customers, there can be no assurance that the
Company would be able to do so.

                         PRODUCT LIABILITY AND INSURANCE

     The Company believes that its present insurance coverage is sufficient
for its current level of business operations, although there is no assurance
that the present level of coverage will be available in the future or at a
reasonable cost. Further, there can be no assurance that such insurance will be
available in the future as the Company expands its operations, that insurance,
if available, will be sufficient to cover one or more large claims, or that the
applicable insurer will be solvent at the time of any covered loss.

                                    EMPLOYEES

     The Company currently has approximately 80 full-time employees in its
beverage distribution business, approximately 80 full-time employees in its
Prefco subsidiary, approximately 50 full-time employees in its Carlton
subsidiary, approximately 36 full-time employees in its Richards subsidiary
and approximately 50 full-time employees in its Grogan's subsidiary. The
Company uses temporary employees from time to time.

     The Company believes that its relations with employees are good. The
Company has never suffered a material work stoppage or slow down.



                                       10

<PAGE>   12


ITEM 2.       PROPERTIES
     Beverage Operations. The Company operates from a 70,000 square foot leased
facility in Jessup, Maryland. The Company's lease expires in April 2002.

     Prefco Subsidiary. The Company leases a 30,000 square foot refrigerated
warehouse in Houston. The lease for this facility expires July 31, 1998, with a
16 month renewal option. In addition to the foregoing, the subsidiary also
leases a 5,000 square foot office facility, the lease for which expires
September 30, 2000, with a three-year renewal option.

     Carlton Subsidiary. The Company leases a 20,000 square foot manufacturing
facility and a 2,000 square foot office facility in New Braunfels, Texas. The
lease on the manufacturing facility expires in September 2000, with two
five-year renewal options, and the lease on the office facility expires in
October 1999.

     Richards Subsidiary. The Company owns a 12,500 square foot manufacturing
facility in Church Point, Louisiana.

     Grogan's Subsidiary. The Company owns an 11,000 square foot manufacturing
facility in Arlington, Kentucky.

     Potter Subsidiary. The Company owns a 119,467 square foot rendering,
processing, distribution, warehouse and administrative facility in Durant,
Oklahoma. In addition, the Company owns a 6,800 square foot distribution
facility in Malvern, Arkansas.


ITEM 3.       LEGAL PROCEEDINGS
     None.


                                       11

<PAGE>   13



ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     No matters were submitted to a vote of security holders during the fourth
quarter of 1997.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
                            AGE OF
   NAME OF OFFICER         OFFICER             OFFICES HELD AND BUSINESS EXPERIENCE FOR LAST FIVE YEARS
-----------------------   ---------  ------------------------------------------------------------------------------


<S>                           <C>    <C>
Merrick M. Elfman             40     Chairman since July 1996 and Director since 1991.  Mr. Elfman is the
                                     founder of Elfman Venture Partners, Inc., a private investment firm,
                                     and Chairman of Gray Supply Company, Inc., a privately-held
                                     distributor of specialty lighting products.

Alan F. Sussna                41     Director, President and Chief Executive Officer since March 1996.  Prior
                                     to his employment with the Company, Mr. Sussna was a director of Bain &
                                     Company.

John Izzo                     47     Vice President since 1990.  In addition, Mr. Izzo is the Company's
                                     principal financial officer.
</TABLE>



                                      12

<PAGE>   14



                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS
     Since December 31, 1997, the Company's Common Stock has been principally
traded on the American Stock Exchange ("AMEX") under the symbol "ABR." Prior to
December 31, 1997, the Company's Common Stock was principally traded on the
NASDAQ SmallCap Market under the symbol "ABEV." The following table sets forth,
for the periods indicated, the high and low sales prices of the Company's Common
Stock as reported by AMEX or NASDAQ, as applicable.


<TABLE>
<CAPTION>
===================================================================================================
                       STOCK PRICES                                         STOCK PRICES
---------------------------------------------------------------------------------------------------
                  High              Low                                 High             Low
---------------------------------------------------------------------------------------------------
1996                                                1997
---------------------------------------------------------------------------------------------------
<S>               <C>               <C>             <C>                 <C>              <C>
1st Quarter       2                 1/8             1st Quarter         4 1/8            2 7/8
---------------------------------------------------------------------------------------------------
2nd Quarter       4 1/8             1 5/8           2nd Quarter         4                3 3/8
---------------------------------------------------------------------------------------------------
3rd Quarter       4                 3               3rd Quarter         3 3/4            2 1/2
---------------------------------------------------------------------------------------------------
4th Quarter       3 1/2             2 7/8           4th Quarter         4 1/2            3 1/8
===================================================================================================
</TABLE>

     As of March 20, 1998, there were approximately 159 shareholders of
record of the Company's Common Stock. The Company has not paid any cash
dividends since its initial public offering. The Company anticipates that
earnings, if any, will be retained for use in the business or for other
corporate purposes, and it is not anticipated that any cash dividends on the
Common Stock will be paid in the foreseeable future.



                                       13

<PAGE>   15



ITEM 6.       SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected financial data for the Company are based on the
consolidated financial statements of the Company.  The amounts provided as
statement of operations data and balance sheet data for the periods prior to
the merger on November 29, 1993 of Strategic Investment Corporation into the
Company (the "Reorganization") have not been adjusted to give effect to the
Reorganization.  The Company's financial statements as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997,
including the notes thereto and the related report of Arthur Andersen LLP,
independent public accounts, are included elsewhere in this Form 10-K.

     The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company contained elsewhere in
this Form 10-K.


<TABLE>
<CAPTION>
                                                                  (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
                                                                             YEARS ENDED DECEMBER 31,
                                                    1993             1994             1995             1996               1997
                                                   -------          -------         -------          --------          ---------
<S>                                               <C>              <C>              <C>              <C>               <C>
Statement of Operations Net Sales                  $26,296          $24,152         $20,596          $153,280          $ 172,198
Gross profit, exclusive of depreciation              6,782            6,365           5,853            17,128             19,590
Income (Loss) from operations                        1,216              278            (138)            1,638              1,718
Interest expense                                       765                8              25             1,197              1,693
Other income (expense), net                         (1,305)             (20)             12               476                381
Income (Loss) before minority interest, income
  tax (provision) benefit                             (853)             249            (152)              918                407
Minority interest in income (loss) before income
  tax (provision) benefit                              108               --              --                --                 --
Income (Loss) before income tax (provision)
  benefit                                             (961)             249            (152)              918                407
Income tax (provision) benefit                         350               15              --               (22)               (50)
Net income (loss from continuing operations           (611)             264            (152)              896                357
Loss from discontinued operations                       --             (302)           (528)               --                 --
Loss on disposal of discontinued operations             --               --          (2,410)               --                 --
Net income (loss)                                  $  (611)         $   (38)        $(3,091)         $    896          $     357
Net income (loss) per share                           (.48)            (.02)          (1.22)              .17                .05

BALANCE SHEET DATA
Cash                                               $ 1,065          $   142         $    --          $  1,249          $   1,263
Working capital (deficit)                            2,590              963            (758)           (4,185)            (3,671)
Total assets                                         4,940            5,175           2,921            34,653             34,954
Long-term debt                                          15               --              --             7,779              6,297
Deferred compensation                                   --               --              --                --                 --
Other liabilities                                       --               --              --                --                 --
Minority interest                                       --               --              --                --                 --
Accumulated earnings (deficit)                        (934)            (979)         (4,079)           (3,183)            (2,826)
Total stockholders' equity (deficit)               $ 3,886          $ 4,073         $   562          $  6,604          $   9,388
</TABLE>




                                      14



<PAGE>   16



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

GENERAL

In 1996 the Company implemented a new corporate strategy that resulted in the
acquisition of five food businesses. Each of these businesses represents a
preeminent local or regional branded processed meat company. In addition to
significantly increasing the Company's size, the newly acquired businesses have
created a broader platform for future growth.

     In order to acquire and operate its food businesses, the Company formed
four new subsidiaries during 1996: Prefco Corp., Carlton Foods Corp., Richards
Cajun Foods Corp., and Grogan's Farm, Inc. In 1998, the Company formed a fifth
new subsidiary to acquire the business of J.C. Potter Sausage Company and
affiliates.

     The Company continues to operate as a distributor of non-alcoholic
beverages in the Baltimore and Washington D.C. metropolitan areas. This business
represents the Company's Beverage Division, while the five subsidiaries
collectively represent the Company's Food Division.

RESULTS OF OPERATIONS

     All of the acquisitions completed during 1996 were recorded utilizing the
purchase method of accounting. Therefore results of the acquired businesses
prior to the effective date of such acquisitions are not included in the
Company's Results of Operations.

     During 1996 and 1997, the Company's Carlton subsidiary and the Company's
Grogan's subsidiary both sold product to the Company's Prefco subsidiary. The
Company's financial statements do not reflect this activity, as it is eliminated
on a consolidated basis.



                                       15

<PAGE>   17


YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Net Sales. Net sales increased by approximately $18.9 million or 12.3% from
approximately $153.3 million for the year ended December 31, 1996 to
approximately $172.2 million for the year ended December 31, 1997. Sales of the
Company's Food Division increased by approximately 13%, while sales of the
Company's Beverage Division increased by approximately 9%.

     The increase in food sales reflected increases in the sales of both Carlton
and Prefco. In addition, approximately $8 million of the sales increase was
attributable to a full year of operations for Richards, which the Company
acquired in August 1996, and Grogan's and Partin's, which the Company acquired
during the fourth quarter of 1996. The increase in beverage sales reflected the
addition of several new brands.

     Gross Profit. Gross profit increased by approximately $2.5 million or 14.4%
from approximately $17.1 million for the year ended December 31, 1996 to
approximately $19.6 million for the year ended December 31, 1997. This increase
reflects the factors discussed above in Net Sales.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.4 million or 15.4% from
approximately $15.5 million for the year ended December 31, 1996 to
approximately $17.9 million for the year ended December 31, 1997. This increase
is attributable primarily to the factors discussed above in Net Sales.

     As a percentage of net sales, selling, general and administrative expenses
increased from 10.1% to 10.4%. This increase is primarily attributable to an
increasing proportion of branded product sales, which generally require higher
selling, general and administrative expenses per sales dollar.

     Income from Operations. Income from operations increased approximately $0.1
million from approximately $1.6 million for the year ended December 31, 1996 to
approximately $1.7 million for the year ended December 31, 1997. This increase
is attributable to factors discussed above in Net Sales.

     Interest Expense. Interest expense increased approximately $0.5 million
from approximately $1.2 million for the year ended December 31, 1996 to
approximately $1.7 million for the year ended December 31, 1997. This increase
was primarily attributable to debt that the Company incurred (and the related
amortization of deferred financing costs and note discounts) in connection with
the acquisitions of Richards, Grogan's and Partin's, as well as the acquisition
of the rights to distribute AriZona(TM) beverage products.

     Other Income. Other income decreased approximately $0.1 million from $0.5
million for the year ended December 31, 1996 to approximately $0.4 million for
the year ended December 31, 1997. This decrease reflects the impact of a
one-time settlement payment of approximately $0.3 million that the Company
received during the 1996 period from a former beverage supplier . Other amounts
include,

                                       16

<PAGE>   18



during both years, sale of food by-products as well as income generated by the
Prefco subsidiary from product sold at special events.

     Net Income. Net income decreased approximately $0.5 million from
approximately $0.9 million for the year ended December 31, 1996 to approximately
$0.4 million for the year ended December 31, 1997. This decrease is attributable
to factors discussed in Interest Expense and Other Income.


YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     Net Sales. Net sales increased by approximately $132.7 million or 644% from
approximately $20.6 million for the year ended December 31, 1995 to
approximately $153.3 million for the year ended December 31, 1996. This increase
reflects the acquisition of Carlton, Prefco, Richards, Grogan's and Partin's.

     Gross Profit. Gross profit increased by approximately $11.2 million or 193%
from approximately $5.9 million for the year ended December 31, 1995 to
approximately $17.1 million for the year ended December 31, 1996. This increase
reflects the acquisition of Carlton, Prefco, Richards, Grogan's and Partin's.
Gross profit as a percentage of net sales decreased from 28.4% to 11.2%
reflecting the lower gross profit margin associated with the Company's food
operations. Gross profit from beverage sales did increase, however, from 28.4%
of sales to 30.2% of sale reflecting lower product costs and higher selling
prices.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $9.5 million or 159% from
approximately $6.0 million for the year ended December 31, 1995 to approximately
$15.5 million for the year ended December 31, 1996. This increase reflects the
acquisition of Carlton, Prefco, Richards, Grogan's and Partin's. As a percentage
of net sales, selling, general and administrative expenses decreased from 29.1%
to 10.1%. This decrease reflects the fact that expenses as percentage of sales
ar significantly lower in the Company's food operations than in its beverage
operations, in addition to the fact that the Company is realizing economies
through spreading certain administrative expenses over several business units.

     Income from Operations. Income from operations increased approximately $1.7
million from a loss of approximately $0.1 million for the year ended December
31, 1995 to approximately $1.6 million for the year ended December 31, 1996.
This increase is attributable to income from the Company's newly acquired food
businesses as well as to the improvement in gross margin in the Company's
beverage business.

     Interest Expense. Interest expense increased approximately $1.2 million
from approximately $25,000 for the year ended December 31, 1995 to approximately
$1.2 million for the year ended December 31, 1996. This increase was
attributable to debt that the Company incurred (and the related amortization of
deferred financing costs and not discounts) in connection with the acquisitions
of Carlton, Prefco, Richards, Grogan's and Partin's, including bank term debt,
borrowings under the Company's line of credit, and amounts owed to former owners
of the acquired businesses.

     Other Income. Other income increased approximately $0.5 million from zero
for the year ended December 31, 1995 to approximately $0.5 million for the year
ended December 31, 1996. This increase was primarily the result of a one-time
settlement payment of $0.25 million that the Company received from a former
beverage supplier. Other amounts include approximately $0.1 million of income
generated by the Prefco subsidiary from product sold at special events.


                                       17

<PAGE>   19



     Net Income from Continuing Operations. Net income from continuing
operations increased approximately $1.0 million from a loss of approximately
$0.1 million for the year ended December 31, 1995 to approximately $0.9 million
for the year ended December 31, 1996. This increase reflects factors discussed
above in income from operations, interest expense, and other income.

     Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.5 million from approximately $0.5 million for the
year ended December 31, 1995 to zero for the year ended December 31, 1996. The
loss in 1995 represents the results of the Company's discontinued frozen
beverage division.

     Net Income (Loss). Net income (loss) increased approximately $4.0 million
from a loss of approximately $3.1 million for the year ended December 31, 1995
to income of approximately $0.9 million for the year ended December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating activities for the year ended December 31, 1997
was approximately $3.4 million. This amount was principally affected by net
income, the add-back of depreciation, amortization and non-cash interest,
increases in inventory, prepaid expenses and accounts payable, and decreases in
accounts receivable and accrued expenses. Cash used in investing activities for
the year ended December 31, 1997 was approximately $1.6 million and reflected
the acquisition of equipment, the purchase of beverage distribution rights and
the payment of cash in connection with business combinations. Cash used in
financing activities was approximately $1.8 million and was principally affected
by the proceeds of a $2.4 million private equity placement, offset by payments
on the Company's term debt and line of credit and a decrease in the bank
overdraft balance. Net cash increase during the period was approximately
$14,000.

     As of December 31, 1997, the Company had outstanding under the LaSalle
Facility approximately $12 million in term debt and line-of-credit borrowings
and approximately $2.7 million of subordinated debt owed to former owners of
Prefco, Richards, Grogan's and Partin's. Principal on these notes is due in
2001. Monthly interest payments, currently reflecting an average rate of
approximately 7.7%, are being made on the subordinated debt.

     In the first quarter of 1998, the Company acquired substantially all of the
assets of J.C. Potter, a branded food processing company based in Durant,
Oklahoma in consideration for approximately $13.0 million cash plus related
transaction costs. In connection with this acquisition, the Company borrowed
approximately $6.5 million in subordinated debt from Banc One Capital
Corporation. The subordinated debt included detachable common stock warrants.
The Company also refinanced its senior revolver and term debt through Fleet
Capital. The new senior debt facility (the "Fleet Facility") provided a term
loan of $11 million, which was approximately $6.0 million greater than the
balance previously outstanding under the LaSalle Facility.

     The Company believes that cash generated from operations and bank
borrowings will be sufficient to fund its debt service, working capital
requirements and capital expenditures as currently contemplated for the next
year. This is a forward-looking statement and is inherently uncertain. Actual
results may differ materially. The Company's ability to fund its working capital
requirements and capital expenditures will depend in large part on the Company's
compliance with covenants in the Fleet Facility. No assurance can be given that
the Company will remain in compliance with such covenants throughout the term of
the Fleet Facility.


                                       18

<PAGE>   20



     The Company's balance sheet as of December 31, 1997 reflected a net
deferred tax asset of approximately $0.1 million. A valuation allowance exists
because, based on the weight of all available evidence, management believes it
is more likely than not that the remaining deferred tax asset will not be fully
realized.

     During July 1997, the Company raised approximately $2.4 million cash, net
of issuance costs, through the private sale of approximately one million shares
of its common stock. These shares are subject to certain restrictions regarding
their resale.

     The Company, from time to time, reviews the possible acquisition of other
products or businesses. The Company's ability to expand successfully through
acquisition depends on many factors, including the successful identification and
acquisition of products or businesses and the Company's ability to integrate and
operate the acquired products or businesses successfully. There can be no
assurance that the Company will be successful in acquiring or integrating any
such products or businesses.

SEASONALITY

     Consumer demand for beverage products distributed by the Company tends to
be greater during warmer months. Accordingly, the Company's beverage sales and
profits are generally highest in the second and third calendar quarters.
Management believes that this effect will be mitigated by the results of its
food operations which are less dependent on seasonal factors.

FORWARD-LOOKING STATEMENTS

     The Company wants to provide stockholders and investors with more
meaningful and useful information. Therefore, this Form 10-K Company's belief
concerning future business conditions and the outlook for the Company based on
currently available information. Whenever possible, the Company has identified
these "forward looking" statements by words such as "believes," "estimates,"
"preparing to introduce," and similar expressions. These forward looking
statements are subject to risks and uncertainties which would cause the
Company's actual results or performance to differ materially from those
expressed in these statements. These risks and uncertainties include the
following: risks associated with acquisitions including integration of acquired
businesses; new product development and other aspects of the Company's business
strategy; uncertainty as to evolving consumer preferences; seasonality of demand
for certain products; customer and supplier concentration; the impact of
competition; and sensitivity to such factors as weather and raw material costs.
Readers are encouraged to review the Company's Annual Report on Form 10-K and
its Report on Form 8-K dated June 4, 1997 filed with the Securities and Exchange
Commission for a more complete description of these factors. The Company assumes
no obligation to update the information contained in this Form 10-K.


ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

              Not applicable.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
     The Company's 1997 Financial Statements and the related Report of
Independent Auditors are set forth on pages F-1 through F-25 of this Form 10-K.


ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE
      None.



                                       19

<PAGE>   21



                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
     Incorporated by reference to "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for
its Annual Meeting of Stockholders to be held on May 13, 1998 (the "1998 Proxy
Statement").


ITEM 11.      EXECUTIVE COMPENSATION
     Incorporated by reference to "Compensation" in the 1998 Proxy Statement.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT
     Incorporated by reference to "Beneficial Ownership of Common Stock" in the
1998 Proxy Statement.


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
     Incorporated by reference to "Certain Transactions with Management and
Others" in the 1998 Proxy Statement.




                                       20

<PAGE>   22



                                     PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S>          <C>                                                                                       <C>
     (a)     The following documents are filed as part of this Form 10-K:

             1.     The consolidated financial statements of the Company and
             its subsidiaries, together with the applicable report of
             independent public accountants:
                                                                                                        Page

                    Report of Independent Public Accountants                                             F-2

                    Consolidated Balance Sheets - as of December 31, 1996 and 1997                       F-3

                    Consolidated Statements of Operations - for the years ended
                    December 31, 1995, 1996 and 1997                                                     F-4

                    Consolidated Statements of Stockholders' Equity - for the years
                    ended December 31, 1995, 1996 and 1997                                               F-5

                    Consolidated Statements of Cash Flows - for the years ended
                    December 31, 1995, 1996 and 1997                                                     F-6

                    Notes to Consolidated Financial Statements                                           F-8

             2.     The following financial statement schedule:

                    Schedule I - Valuation and Qualify Accounts                                          S-1


             3.     The following exhibits are filed with this report or
             incorporated by reference as set forth below:

<CAPTION>
             Exhibit
             Number      Description

<S>         <C>          <C>
             2           Asset Purchase Agreement dated as of March 6, 1998 among Potter's
                         Acquisition Corp., J.C. Potter Sausage Company, Potter's Farm, Inc., Potter
                         Rendering Co. and Potter Leasing Company, Ltd. (*)
             3.1         Certificate of Incorporation of the Company, including all amendments
                         thereto (*)
             3.2         By-Laws of the Company (1)
             3.3         Certificate of Designation of the Series A Non-Voting Convertible Preferred
                         Stock of the Company (2)
             4.1         Specimen Stock Certificate (1)
             4.2         Certificate of Designation of the Series A
                         Non-Voting Convertible Preferred Stock of the
                         Company (see Exhibit 3.3)
             4.3         Stock Option Plan (1)

</TABLE>
                                                   21

<PAGE>   23



<TABLE>
<S>                      <C>                                                                         <C>
             4.4         Atlantic Premium Brands, Ltd. Employee Stock Purchase Plan dated
                         November 1, 1997 (3)
             4.5         $1.4 Million Subordinated Note made by ABEV
                         Acquisition Corp. in favor of Franklin Roth and Allen
                         Pauly (6)
             4.6         6.35% Subordinated Non-Negotiable Promissory Note Due
                         July 31, 2001 made by Richards Cajun Foods Corp. and
                         the Company in favor of J.L. Richard in the original
                         principal amount of $850,000 (*)
             4.7         8% Subordinated Non-Negotiable Promissory Note Due
                         September 30, 2001 made by Grogan's Merger Corp. in
                         favor of Bobby L. Grogan and Betty R. Grogan in the
                         original principal amount of $219,593 (*)
             4.8         8% Subordinated Non-Negotiable Promissory Note Due
                         December 31, 2003 made by Grogan's Farm, Inc. in favor
                         of Jefferson Davis and Roger Davis in the original
                         principal amount of $219,593 (*)
             4.9         Secured Promissory Note dated as of March 20, 1998
                         of the Company and certain of its subsidiaries
                         payable to Fleet Capital Corporation in the
                         original principal amount of $11,000,000 (*)
             4.10        Loan and Security Agreement dated as of March 20,
                         1998 among Fleet Capital Corporation, the Company
                         and certain of its subsidiaries (*)
             4.11        Stock Pledge Agreement dated as of March 20, 1998
                         between the Company and Fleet Capital Corporation (*)
             4.12        Atlantic Premium Brands, Ltd. and Subsidiaries
                         Senior Subordinated Note and Warrant Purchase
                         Agreement dated as of March 20, 1998 among the
                         Company, certain of its subsidiaries and Banc One
                         Capital Partners, LLC ("Banc One") (*)
             4.13        Senior Subordinated Note due March 31, 2005 of the
                         Company payable to Banc One dated as of March 20,
                         1998 in the original principal amount of
                         $6,500,000 (*)
             4.14        Atlantic Premium Brands, Ltd. Warrant Certificate Common Stock Purchase
                         Warrant of Banc One dated as of March 20, 1998 (*)
             4.15        Atlantic Premium Brands, Ltd. Warrant Certificate Contingent Common Stock
                         Purchase Warrant of Banc One dated as of March 20, 1998 (*)
             4.16        Put Option Agreement dated as of March 20, 1998 between the Company and
                         Banc One (*)
             4.17        Registration Rights Agreement dated as of March 20, 1998 between the
                         Company and Banc One (*)
             4.18        Shareholders Agreement dated as of March 20, 1998
                         among the Company, certain of its Shareholders and
                         Banc One (*)
             4.19        Preemptive Rights Agreement dated as of March 20, 1998 between the
                         Company and Banc One (*)
</TABLE>

                                       22

<PAGE>   24


<TABLE>
<S>                      <C>                                                                         <C>
             4.20        Debt Subordination Agreement dated as of March 20,
                         1998 among Banc One Capital Partners, LLC, the
                         Company, certain of its subsidiaries and Fleet
                         Capital Corporation (*)
             4.21        Lien Subordination Agreement dated as of March 20, 1998 between Fleet
                         Capital Corporation and Banc One Capital Partners, LLC (*)
             10.1        Distribution Agreement dated as of November 25,
                         1992 between Joseph Victori Wines, Inc. and
                         Maryland Beverage, L.P., as amended. (**) (1)
             10.2        Non-Compete and Non-Disclosure Agreement dated September 24, 1993
                         among the Company, Sterling Group, Inc., Eric D. Becker, Steven M.
                         Taslitz, Douglas L. Becker and R. Christopher Hoehn-Saric (1)
             10.3        Consulting Agreement dated March 15, 1996 by and between the Company,
                         Sterling Advisors, L.P. and Elfman Venture Partners, Inc. (4)
             10.4        Amendment to Consulting Agreement dated as of October
                         16, 1996 among the Company, Sterling Advisors, L.P. and
                         Elfman Venture Partners, Inc. (*)
             10.5        Second Amendment to Consulting Agreement dated as of
                         September 7, 1997 among the Company, Sterling Advisors,
                         L.P. and Elfman Venture Partners, Inc. (*)
             10.6        Form of Tax Indemnification Agreement (1)
             10.7        Stock Purchase Agreement dated as of January 23,
                         1996 among the Company, ABEV Acquisition Corp.,
                         Franklin Roth and Allen Pauly (6)
             10.8        Employment Agreement dated March 15, 1996 between ABEV Acquisition
                         Corp. and Franklin Roth (6)
             10.9        Agreement and Plan of Merger dated as of January 25, 1996 among the
                         Company, Carlton Foods Corp. and Carlton Foods, Inc. (6)
             10.10       $1.4 million Subordinated Note made by ABEV Acquisition Corp. in favor of
                         Franklin Roth and Allen Pauly (6)
             10.11       Stock Purchase Agreement dated as of March 15,
                         1996 among the Company and Purchasers under the
                         $2.8 million Private Placement (6)

</TABLE>

                                       23

<PAGE>   25


<TABLE>
<S>                      <C>                                                                         <C>
             10.12       Employment Agreement dated October 29, 1996
                         between the Company and Alan F. Sussna (7)
             10.13       Asset Purchase Agreement dated as of March 6, 1998 among Potter's
                         Acquisition Corp., J.C. Potter Sausage Company, Potter's Farm, Inc., Potter
                         Rendering Co. and Potter Leasing Company, Ltd. (See Exhibit 2)
             11          Statement regarding computation of per share earnings (*)
             21          Subsidiaries of the Company (*)
             23          Consent of Independent Public Accountants (*)
             27          Financial Data Schedule (*)
</TABLE>

------------------
*    Filed herewith.
**   Confidential treatment was afforded for certain portions of these
     agreements.
(1)  Filed as an exhibit to the Company's Registration Statement No. 33-69438 or
     the amendments thereto and incorporated herein by reference.
(2)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 1994 and incorporated herein by reference.
(3)  Filed as an exhibit to the Company's Form S-8 Registration Statement No.
     333-39561 and incorporated herein by reference.
(4)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended March 31, 1996 and incorporated herein by reference.
(5)  Filed as an exhibit to the Company's Current Report on Form 8-K dated April
     27, 1994, filed with the Securities and Exchange Commission on July 11,
     1994, and incorporated herein by reference.
(6)  Filed as an exhibit to the Company's Current Report on Form 8-K dated March
     15, 1996, filed with the Securities and Exchange Commission on April 1,
     1996, and incorporated herein by reference.
(7)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended September 30, 1996 and incorporated herein by reference.


         (b)      Reports on Form 8-K:

                  None.

                                       24

<PAGE>   26



                                   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.

                                      ATLANTIC PREMIUM BRANDS, LTD.


                                      By:        /s/ JOHN IZZO
                                            ------------------------------------
                                            John Izzo
                                            Principal Accounting Officer
Date: March 31, 1998.

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

<TABLE>
<CAPTION>
               SIGNATURE                                      TITLE                                 DATE
               ---------                                      -----                                 ----

<S>                                        <C>                                                 <C>
           /s/ ERIC D. BECKER              Director                                            March 31, 1998
----------------------------------------
             Eric D. Becker

         /s/ MERRICK M. ELFMAN             Director                                            March 26, 1998
----------------------------------------
           Merrick M. Elfman

           /s/ BRIAN FLEMING               Director                                            March 26, 1998
----------------------------------------
             Brian Fleming

           /s/ JOHN T. HANES               Director                                            March 26, 1998
----------------------------------------
             John T. Hanes

                                           Director                                            March __, 1998
----------------------------------------
              Rick Inatome

                                           Director                                            March __, 1998
----------------------------------------
          G. Cook Jordan, Jr.

                                           Director                                            March 31, 1998
----------------------------------------
             John A. Miller

           /s/ ALAN F. SUSSNA              Chief Executive Officer and Director                March 31, 1998
----------------------------------------
             Alan F. Sussna

         /s/ STEVEN M. TASLITZ             Director                                            March 31, 1998
----------------------------------------
           Steven M. Taslitz

</TABLE>


                                       25

<PAGE>   27
                          ATLANTIC PREMIUM BRANDS, LTD.


                          INDEX TO FINANCIAL STATEMENTS



                                                                Page
                                                                ----

Report of Independent Public Accountants                         F-2

Consolidated Balance Sheets - as of December 31, 1996
    and 1997                                                     F-3

Consolidated Statements of Operations -
    for the years ended December 31, 1995, 1996 and 1997         F-4

Consolidated Statements of Stockholders' Equity -
    for the years ended December 31, 1995, 1996 and 1997         F-5

Consolidated Statements of Cash Flows -
    for the years ended December 31, 1995, 1996 and 1997         F-6

Notes to Consolidated Financial Statements                       F-8




                                      F-1
<PAGE>   28







                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of
Atlantic Premium Brands, Ltd.:

We have audited the accompanying consolidated balance sheets of Atlantic Premium
Brands, Ltd. (a Delaware corporation), and subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Premium Brands, Ltd.
and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.



                                                    /s/ Arthur Anderson LLP


Baltimore, Maryland,
    March 20, 1998


                                      F-2
<PAGE>   29

                          ATLANTIC PREMIUM BRANDS, LTD.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                  --------------------------------
                                                                                        1996            1997
                                                                                  ---------------   ----------
<S>                                                                              <C>              <C>
                                     ASSETS

CURRENT ASSETS:
    Cash                                                                          $    1,248,963    $    1,262,805
    Accounts receivable, net of allowance for doubtful accounts
       of $118,000 and $117,000, respectively                                         10,160,891         9,448,489
    Inventory                                                                          3,629,647         4,213,026
    Prepaid expenses and other                                                           794,938           672,386
                                                                                  --------------    --------------

          Total current assets                                                        15,834,439        15,596,706

PROPERTY, PLANT AND EQUIPMENT, net                                                     4,820,900         4,939,536
GOODWILL, net                                                                         13,175,918        12,790,619
OTHER ASSETS, net                                                                        821,834         1,626,831
                                                                                  --------------    --------------

          Total Assets                                                            $   34,653,091    $   34,953,692
                                                                                  ==============    ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Bank overdraft                                                                $    2,672,630    $    1,491,557
    Line of credit                                                                     7,255,984         6,839,323
    Current portion of long-term debt                                                  2,324,267         1,659,310
    Accounts payable                                                                   6,120,435         8,216,422
    Accrued expenses                                                                   1,083,884         1,061,338
    Net current liabilities of discontinued operations                                   562,283                 -
                                                                                  --------------    --------------

          Total current liabilities                                                   20,019,483        19,267,950

LONG-TERM DEBT, net of current portion                                                 7,778,934         6,297,288

DEFERRED TAX LIABILITY                                                                   250,900                 -
                                                                                  --------------    --------------

          Total liabilities                                                           28,049,317        25,565,238
                                                                                  --------------    --------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value; 5,000,000 shares authorized;
       none issued                                                                             -                 -
    Common stock, $.01 par value; 30,000,000 shares authorized;
       6,396,610 and 7,373,574 shares issued in 1996 and 1997,
       respectively                                                                       64,000            73,770
    Additional paid-in capital                                                         9,723,123        12,141,176
    Accumulated deficit                                                               (3,183,349)       (2,826,492)
                                                                                  --------------    --------------

          Total Stockholders' Equity                                                   6,603,774         9,388,454
                                                                                  --------------    --------------

          Total Liabilities and Stockholders' Equity                              $   34,653,091    $   34,953,692
                                                                                  ==============    ==============


</TABLE>

              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      F-3
<PAGE>   30

                          ATLANTIC PREMIUM BRANDS, LTD.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                --------------------------------------------------
                                                                      1995              1996            1997
                                                                ---------------   ---------------   --------------

<S>                                                            <C>               <C>               <C>
NET SALES                                                       $   20,596,436    $  153,279,993    $  172,198,494
COST OF GOODS SOLD, exclusive of depreciation
    shown below                                                     14,743,435       136,151,779       152,608,121
                                                                --------------    --------------    --------------

          Gross profit                                               5,853,001        17,128,214        19,590,373
                                                                --------------    --------------    --------------
SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES:
    Salaries and benefits                                            3,087,421         7,406,525         7,997,062
    Other operating expenses                                         2,515,439         7,089,913         8,493,832
    Depreciation and amortization                                      388,321           993,513         1,381,221
                                                                --------------    --------------    --------------
          Total selling, general and administrative
              expenses                                               5,991,181        15,489,951        17,872,115
                                                                --------------    --------------    --------------

          (Loss) income from operations                               (138,180)        1,638,263         1,718,258

INTEREST EXPENSE                                                        25,394         1,196,888         1,692,610

OTHER INCOME, net                                                       11,654           476,384           381,209
                                                                --------------    --------------    --------------
          (Loss) income before income tax provision                   (151,920)          917,759           406,857

INCOME TAX PROVISION                                                         -           (22,000)          (50,000)
                                                                --------------    ---------------   --------------

          Net (loss) income from continuing operations                (151,920)          895,759           356,857
LOSS FROM DISCONTINUED OPERATIONS                                     (528,466)                -                 -
LOSS ON DISPOSAL OF DISCONTINUED
    OPERATIONS                                                      (2,410,200)                -                 -
                                                                --------------    --------------    --------------

NET (LOSS) INCOME                                               $   (3,090,586)   $      895,759    $      356,857
                                                                ==============    ==============    ==============

(LOSS) INCOME PER COMMON SHARE DATA:

    BASIC EPS:
       Net (loss) income from continuing operations
          after accretion of preferred stock                    $         (.06)   $          .17    $          .05
       Loss from discontinued operations, including
          loss on disposal                                               (1.17)                -                 -
                                                                --------------    --------------    --------------
    NET (LOSS) INCOME                                           $        (1.23)   $          .17    $          .05
                                                                ==============    ==============    ==============

    DILUTED EPS:
       Net (loss) income from continuing operations
          after accretion of preferred stock                    $         (.06)   $          .17    $          .05
       Loss from discontinued operations, including
          loss on disposal                                               (1.16)                -                 -
                                                                --------------    --------------    --------------
    NET (LOSS) INCOME                                           $        (1.22)   $          .17    $          .05
                                                                ==============    ==============    ==============
WEIGHTED AVERAGE SHARES OUTSTANDING:
    Basic calculation                                                2,522,890         5,199,171         6,846,013
                                                                ==============    ==============    ==============
    Diluted calculation                                              2,528,532         5,349,539         7,102,850
                                                                ==============    ==============    ==============

</TABLE>

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


                                      F-4
<PAGE>   31
                          ATLANTIC PREMIUM BRANDS, LTD.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                                       Series A Nonvoting
                                                                           Convertible
                                                                        Preferred Stock                     Common Stock
                                                               ---------------------------------  --------------------------------
                                                                    Shares            Amount           Shares            Amount
                                                               ---------------   ---------------  ---------------   ---------------
<S>                                                                 <C>          <C>                  <C>          <C>
BALANCE, December 31, 1994                                                  1    $      140,357        2,692,146    $       26,955
    Accretion of preferred stock                                           -              9,643               -                 -
    Purchase of treasury stock                                             -                 -          (402,032)           (4,020)
    Conversion of preferred stock to common stock                          (1)         (150,000)          30,000               300
    Net loss                                                               -                 -                -                 -
                                                               --------------    --------------   --------------    --------------

BALANCE, December 31, 1995                                                 -                 -         2,320,114            23,235
    Issuance of common stock through private placement, net                -                 -         2,765,549            27,656
    Issuance of common stock in connection with business
       combinations                                                        -                 -         1,105,430            11,054
    Issuance of common stock to former noteholders                         -                 -           205,517             2,055
    Net income                                                             -                 -                -                 -
                                                               --------------    --------------   --------------    --------------

BALANCE, December 31, 1996                                                 -                 -         6,396,610            64,000
    Issuance of common stock through private placement, net                -                 -           976,964             9,770
    Issuance of stock options                                              -                 -                -                 -
    Net income                                                             -                 -                -                 -
                                                               --------------    --------------   --------------    --------------

BALANCE, December 31, 1997                                                 -     $           -         7,373,574    $       73,770
                                                               ==============    ==============   ==============    ==============
<CAPTION>


                                                                       Additional                              Total
                                                                         Paid-in           Accumulated      Stockholders'
                                                                         Capital             Deficit           Equity
                                                                   ----------------     ---------------   ---------------
<S>                                                                <C>                 <C>                <C>
BALANCE, December 31, 1994                                         $      4,884,077     $      (978,879)  $     4,072,510
    Accretion of preferred stock                                                 -               (9,643)               -
    Purchase of treasury stock                                             (415,550)                 -           (419,570)
    Conversion of preferred stock to common stock                           149,700                  -                 -
    Net loss                                                                     -           (3,090,586)       (3,090,586)
                                                                   ----------------     ---------------   ---------------

BALANCE, December 31, 1995                                                4,618,227          (4,079,108)          562,354
    Issuance of common stock through private placement, net               2,754,727                  -          2,782,383
    Issuance of common stock in connection with business
       combinations                                                       2,043,949                  -          2,055,003
    Issuance of common stock to former noteholders                          306,220                  -            308,275
    Net income                                                                   -              895,759           895,759
                                                                   ----------------     ---------------   ---------------

BALANCE, December 31, 1996                                                9,723,123          (3,183,349)        6,603,774
    Issuance of common stock through private placement, net               2,378,053                  -          2,387,823
    Issuance of stock options                                                40,000                  -             40,000
    Net income                                                                   -              356,857           356,857
                                                                   ----------------     ---------------   ---------------

BALANCE, December 31, 1997                                         $     12,141,176     $    (2,826,492)  $     9,388,454
                                                                   ================     ===============   ===============
</TABLE>

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


                                     F-5


<PAGE>   32
                          ATLANTIC PREMIUM BRANDS, LTD.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                   -------------------------------------------------
                                                                         1995              1996             1997
                                                                   ---------------   ---------------  ----------
<S>                                                               <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) income                                              $   (3,090,586)   $      895,759   $      356,857
    Adjustments to reconcile net (loss) income to net
       cash flows provided by operating activities, net
       of assets and liabilities acquired through
       business combinations-
          Loss on disposal of discontinued operations                   2,410,200                -                -
          Loss from discontinued operations                               528,466                -                -
          Depreciation and amortization                                   388,321           993,513        1,381,221
          Amortization of debt discount and deferred
              financing cost                                               10,120           102,217          213,580
          Deferred income tax benefit                                          -            (60,000)              -
          Decrease (increase) in accounts receivable, net                 201,944        (3,337,143)         712,402
          Decrease (increase) in inventory                                 62,001          (296,724)        (583,379)
          Decrease (increase) in prepaid expenses and
              other assets                                                 57,784          (109,899)        (171,146)
          Increase (decrease) in accounts payable                         197,707           (30,436)       2,095,987
          (Decrease) increase in accrued expenses                         (41,184)          414,587          (22,546)
                                                                   --------------    --------------   --------------
    Net cash flows provided by (used in)
       operating activities of-
          Continuing operations                                           724,773        (1,428,126)       3,982,976
          Discontinued operations                                        (597,626)         (159,890)        (522,283)
                                                                   --------------    --------------   --------------

              Net cash flows from operating activities                    127,147        (1,588,016)       3,460,693
                                                                   --------------    --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of property, plant and equipment                         (493,272)         (584,869)        (767,873)
    Cash paid in connection with business
       combinations, including deferred acquisition fees                  (88,014)       (9,417,351)        (499,770)
    Cash paid for distribution agreements and
       exclusivity  rights                                                     -            (50,000)        (379,626)
                                                                   --------------    --------------   --------------

              Net cash flows from investing activities                   (581,286)      (10,052,220)      (1,647,269)
                                                                   --------------    --------------   --------------

</TABLE>

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





                                      F-6


<PAGE>   33

                          ATLANTIC PREMIUM BRANDS, LTD.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                  ------------------------------------------------
                                                                        1995             1996             1997
                                                                  ---------------  ---------------  --------------
<S>                                                              <C>              <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Increase (decrease) in bank overdraft                         $      297,458   $     (708,527)  $   (1,181,073)
    Borrowings (payments) under line of credit, net                      440,000        6,815,984         (416,661)
    (Payments) borrowings under term debt and
       notes payable, net                                                 (6,144)       4,705,779       (2,454,693)
    Payments of deferred financing costs                                      -          (706,420)        (134,978)
    Issuance of common stock through private
       placement, net                                                         -         2,782,383        2,387,823
    Purchase of treasury stock                                          (419,570)              -                -
                                                                  --------------   --------------   -------------

              Net cash flows from financing activities                   311,744       12,889,199       (1,799,582)
                                                                  --------------   --------------   --------------

NET (DECREASE) INCREASE IN CASH                                         (142,395)       1,248,963           13,842

CASH, beginning of period                                                142,395               -         1,248,963
                                                                  --------------   --------------   --------------

CASH, end of period                                               $           -    $    1,248,963   $    1,262,805
                                                                  ==============   ==============   ==============

</TABLE>



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


                                      F-7
<PAGE>   34

                          ATLANTIC PREMIUM BRANDS, LTD.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.     BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY:

The accompanying consolidated financial statements present the accounts of
Atlantic Premium Brands, Ltd. (formerly Atlantic Beverage Company, Inc.) and
subsidiaries (the "Company"). All significant intercompany transactions have
been eliminated in consolidation.

The Company is engaged in the distribution of specialty nonalcoholic beverages
to the retail trade in the Baltimore and Washington, D.C. metropolitan areas
and, as a result of business combinations consummated during 1996, is engaged in
the manufacturing, marketing and distribution of meat products in Texas,
Louisiana, Kentucky and surrounding states. The operating results of the
Company's food division are impacted by changes in commodity markets.

The Company, from time to time, reviews the possible acquisition of other
products or businesses. The Company's ability to expand successfully through
acquisition depends on many factors, including the successful identification and
acquisition of products or businesses and the Company's ability to integrate and
operate the acquired products or businesses successfully. There can be no
assurance that the Company will be successful in acquiring or integrating any
such products or businesses.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

The Company records sales when product is delivered to the customers. Discounts
provided, principally volume, are accrued at the time of the sale.

Cash

Cash consists of cash held in various deposit accounts with financial
institutions. As of December 31, 1997, $175,000 was restricted to meet minimum
balance funding requirements.

Inventory

Inventory is stated at the lower of cost or market and is comprised of raw
materials, finished goods and packaging supplies. Cost is determined using the
first-in, first-out method.


                                      F-8
<PAGE>   35
Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of applicable
depreciation. Depreciation is provided using the straight-line method over the
following useful lives.

  Buildings and building improvements                      5-30 years
  Machinery, equipment and furniture                       5-10 years
  Leasehold improvements                                   2- 5 years
  Vehicles                                                 5-10 years

Reclassifications

Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the current year's presentation.

Other Assets

Other assets consist of noncompete agreements, deferred acquisition costs, cash
surrender value of life insurance, distribution, exclusivity and license
agreements and deferred financing costs. Noncompete agreements and distribution,
exclusivity and license agreements are being amortized over 2-5 years using the
straight-line method, while the deferred financing costs are being amortized
over 5 years, representing the term of the related debt, using the effective
interest method.

Goodwill

Goodwill recorded in connection with business combinations is being amortized
using the straight-line method over 5 to 40 years. Amortization expense for each
of the years ended December 31, 1995, 1996 and 1997 was $115,699, $290,807 and
$363,210, respectively. Accumulated amortization as of December 31, 1996 and
1997 was $260,141 and $624,383, respectively.

Income Taxes

Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," requires deferred income taxes to be recorded under the liability method
and restricts the conditions under which a deferred asset may be recorded.


                                      F-9
<PAGE>   36

Accounting Pronouncements

During 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128 (SFAS No. 128), "Earnings Per Share," which establishes new standards
for computing and presenting earnings per share. The Company adopted SFAS No.
128 during 1997 and has restated earnings per share data presented to reflect
the new standard. SFAS No. 128 requires presentation of basic earnings per share
and diluted earnings per share. The weighted average shares used to calculate
basic and diluted earnings per share for 1995, 1996 and 1997, in accordance with
SFAS No. 128 are as follows:

<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                      -------------------------------------------------
                                                            1995             1996              1997
                                                      ---------------  ---------------   --------------

<S>                                                    <C>              <C>                <C>
          Common stock outstanding                         2,522,890        5,199,171         6,846,013
                                                          ----------       ----------        ----------

          Weighted average shares
              outstanding for basic EPS                    2,522,890        5,199,171         6,846,013

          Dilutive effect of common stock
              equivalents                                      5,642          150,368           256,837
                                                          ----------       ----------        ----------

          Weighted average shares
              outstanding for dilutive EPS                 2,528,532        5,349,539         7,102,850
                                                          ==========       ==========        ==========
</TABLE>

Options to purchase 25,000 shares of common stock at $4 per share were
outstanding during the years ended December 31, 1996 and 1997, but were not
included in the computation of diluted EPS because the options exercise price
was greater than the average market price of common shares during those years.

During June 1997, the FASB issued Statement No. 130 (SFAS No. 130), "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Management has not yet determined whether the implementation
of SFAS No. 130 will have any impact on the Company's financial statements.

During July 1997, the FASB issued Statement No. 131 (SFAS No. 131), "Disclosures
About Segments of an Enterprise and Related Information," which establishes a
new approach for determining segments within a company and reporting information
on those segments. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management has not yet determined whether the implementation
of SFAS No. 131 will have any impact on the Company's current method of
disclosing business segment information.



                                      F-10
<PAGE>   37

Supplemental Cash Flow Information

<TABLE>
<CAPTION>
                                                                                 Cash Paid         Cash Paid
                                                                                  for Taxes       for Interest
                                                                                  ---------       ------------
     <S>                                                                     <C>               <C>
        Year ended December 31, 1995
            Related parties                                                   $           -     $        4,026
            Other                                                                         -             15,274
        Year ended December 31, 1996
            Related parties                                                               -            103,642
            Other                                                                         -          1,012,307
        Year ended December 31, 1997
            Related parties                                                               -            291,752
            Other                                                                   112,000          1,170,648

</TABLE>

Unregistered Shares

During 1996, the Company issued 655,429 unregistered shares of its common stock
as part of the consideration paid in connection with the acquisitions of
Grogan's and Partin's (see Note 5). In July 1997, the Company sold approximately
1,000,000 unregistered shares of its common stock at a price of $2.55 per share
through a private placement (see Note 20). These shares were issued under and
are subject to Regulation Section 230.144.

Use of Estimates

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

3.     INVENTORY:

Inventory consisted of the following as of December 31:

<TABLE>
<CAPTION>
                                                                             1996              1997
                                                                       ---------------   ---------------
         <S>                                                          <C>               <C>
          Raw materials                                                $      100,619    $      297,297
          Finished goods                                                    3,077,431         3,380,766
          Packaging supplies                                                  451,597           534,963
                                                                       --------------    --------------

                 Total                                                 $    3,629,647    $    4,213,026
                                                                       ==============    ==============
</TABLE>


                                      F-11
<PAGE>   38


4.     PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment as of December 31, 1996 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
                                                                             1996              1997
                                                                       --------------    ---------------

         <S>                                                          <C>               <C>
          Land                                                         $       85,000    $       85,000
          Buildings and building improvements                               1,567,368         1,567,368
          Machinery, equipment and furniture                                3,534,307         4,385,006
          Leasehold improvements                                              498,218           625,747
          Vehicles                                                            448,977           531,520
                                                                       --------------    --------------

                                                                            6,133,870         7,194,641

          Less - Accumulated depreciation                                  (1,312,970)       (2,255,105)
                                                                       --------------    --------------

          Property, plant and equipment, net                           $    4,820,900    $    4,939,536
                                                                       ==============    ==============
</TABLE>

Depreciation expense for the years ended December 31, 1995, 1996 and 1997 was
$224,930, $655,014 and $941,382, respectively.

5.   BUSINESS COMBINATIONS:

As of January 1, 1996, a newly formed wholly-owned subsidiary of the Company
acquired the outstanding common stock of Prefco, Inc. (Prefco). Also as of
January 1, 1996, Carlton Foods, Inc. (Carlton Foods) was merged into another
newly formed, wholly-owned subsidiary of the Company. In addition, as of August
1, 1996, a subsidiary of the Company acquired the assets of Richard's Cajun
Country Food Processors (Richard's). As of October 1, 1996, a subsidiary of the
Company merged with Grogan's Farm, Inc. and Grogan's Sausage, Inc. (collectively
referred to as "Grogan's") and acquired certain real property previously held by
the sellers. As of November 15, 1996, the Company obtained certain operating
assets from Partin's Country Sausage (Partin's). In connection with these
business combinations, the Company entered into a loan agreement with a
commercial bank which provided a $7.45 million term loan and a $8.5 million
revolving line of credit (see Notes 9 and 10). The business combinations were
accounted for using the purchase method of accounting, whereby the purchase
price is allocated to the assets acquired and liabilities assumed based upon
fair value. The resulting goodwill was determined as follows:

<TABLE>
     <S>                                                              <C>
        Cash paid                                                      $   10,850,728
        Issuance of notes to the Sellers, at fair value                     2,472,150
        Issuance of the Company's common stock                              2,055,003
        Debt assumed by the Company                                         2,945,180
        Acquisition costs                                                   1,121,799
                                                                       --------------

                  Total purchase price                                     19,444,860
                                                                       --------------
        Current assets acquired                                            11,364,230
        Noncurrent assets acquired                                          4,107,775
        Current liabilities assumed                                        (9,060,539)
        Noncurrent liabilities assumed                                       (381,608)
                                                                       --------------

                  Net assets acquired                                       6,029,858
                                                                       --------------
                  Goodwill                                             $   13,415,002
                                                                       ==============
</TABLE>


                                      F-12
<PAGE>   39


Prefco and Carlton Foods

In connection with the Prefco and Carlton Foods transactions, the Company paid
approximately $3.6 million, net of cash acquired, issued approximately 650,000
shares of common stock to the former shareholders. The Company also issued a
subordinated promissory note to the former shareholders of Prefco with a face
amount of $1.4 million (see Note 10). In addition, a former shareholder of
Prefco signed an employment agreement with the Company for five years, with an
automatic one-year extension. If, at the end of each of the first four years,
the shareholder is still employed by the Company and Prefco meets predetermined
operating income growth from the previous year, the Company will grant to the
former shareholders, options to acquire additional shares of the Company's
stock. The effect of these contingent options has not been reflected in the
accompanying financial statements.

Richard's

In connection with the Richard's transaction, the Company paid cash in the
amount of $2,500,000 and issued a subordinated promissory note to the former
shareholder with a face amount of $874,786 (see Note 10). In addition, the
former shareholder signed an employment agreement with the Company for three
years. If, at the end of three years, the former shareholder is still employed
by the Company and Richard's meets certain cumulative operating income targets,
the Company will deliver a pre-determined amount of shares to the former
shareholder. The effect of these contingent shares has not been reflected in the
accompanying financial statements.

Grogan's

In connection with the Grogan's transaction, the Company issued 573,810 shares
of its common stock to the former shareholders, paid approximately $1,900,000 in
cash and issued a subordinated promissory note to the former shareholders with a
face amount of $200,000 (see Note 10). In addition, the former shareholder
signed an employment agreement with the Company for one year.

Partin's

In connection with the Partin's transaction, the Company issued 78,310 shares of
its common stock to the former shareholders, paid $419,891 in cash and issued a
subordinated promissory note to the former shareholders in the amount of
$224,891 (see Note 10).


                                      F-13
<PAGE>   40

6.     OTHER ASSETS:

Other assets are comprised of the following as of December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                                              1996             1997
                                                                       --------------    ---------------
         <S>                                                          <C>               <C>
          Noncompete agreement                                         $      200,000    $      200,000
          Distribution agreements and exclusivity rights                       50,000           441,681
          Deferred financing costs                                            706,420           841,398
          Cash surrender value of life insurance and other                     64,443            80,141
          Deferred tax asset                                                       -             27,100
          Deferred acquisition costs                                               -            499,770
                                                                       --------------    --------------

                                                                            1,020,863         2,090,090

          Less - Accumulated amortization                                    (199,029)         (463,259)
                                                                       --------------    --------------

          Other assets, net                                            $      821,834    $    1,626,831
                                                                       ==============    ==============
</TABLE>

Amortization expense applicable to distribution, exclusivity, license and
consulting agreements for years ended December 31, 1995, 1996 and 1997, was
$7,692, $7,692, and $37,142, respectively, and is included within depreciation
and amortization expenses in the accompanying consolidated statements of
operations. Amortization of deferred financing costs of $10,120, $81,466 and
$175,546, respectively, has been included within interest expense in the
accompanying consolidated statements of operations for the years ended December
31, 1995, 1996 and 1997, respectively.

The Company, Sterling Group, Inc. (Sterling Group) and Sterling Group's
principals have entered into a noncompete and nondisclosure agreement, effective
November 29, 1993 (the closing date of the Company's initial public offering),
containing certain noncompetition and confidentiality provisions. The agreement
provides that Sterling Group and its principals agree not to compete with the
Company for a period of five years from the closing date, nor will they solicit
for employment any director, stockholder or certain employees of the Company.
Such agreement also provides that Sterling Group and its principals will not
disclose any confidential information concerning the Company and its business to
any other person or entity except as may be required by law. The Company paid
Sterling Group a fee of $200,000 at closing in consideration of such agreement.
Amortization expense for the years ended December 31, 1995, 1996 and 1997, was
$40,000, $40,000 and $39,487, respectively. Accumulated amortization as of
December 31, 1996 and 1997 was $124,000 and $163,487, respectively.

7.     SIGNIFICANT SUPPLIERS AND CUSTOMERS:

For the year ended December 31, 1995, two suppliers supplied approximately 62%
and 13%, respectively, of the Company's total product purchases. No single
customer accounted for more than 10% of the Company's total sales.

For the year ended December 31, 1996, two suppliers supplied approximately 17%
and 11%, respectively, of the Company's total product purchases. In addition, a
single customer accounted for approximately 41% of the Company's total sales.

For the year ended December 31, 1997, no single supplier accounted for more than
10% of the Company's total product purchases. In addition, a single customer
accounted for approximately 41% of the Company's total sales.

                                      F-14
<PAGE>   41

8.     INCOME TAXES:

The Company has incurred significant tax losses and has generated timing
differences which would give rise to deferred taxes. Based upon available
evidence, management believes that, it is more likely than not, that a portion
of these losses and future deductions will be realized in future periods and has
recorded a tax benefit and deferred tax asset, net of an applicable valuation
allowance as required by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." In connection with the loss on disposal of
discontinued operations, no benefit for income taxes was recorded.

The benefit (provision) from income taxes on continuing operations for the years
ended December 31, 1995, 1996 and 1997, included amounts summarized as follows:

<TABLE>
<CAPTION>
                                                            1995             1996              1997
                                                      ---------------  ---------------   ----------------
         <S>                                         <C>              <C>              <C>
          Current:
              Federal                                 $            -   $      (60,000)   $      (10,000)
              State                                                -          (22,000)          (40,000)
          Deferred:
              Federal                                        180,000         (353,000)         (199,400)
              State                                           24,000          (47,000)          (26,600)
                                                      --------------   --------------    --------------

                                                             204,000         (482,000)         (276,000)

          Valuation allowance                               (204,000)         460,000           226,000
                                                      --------------   --------------    --------------

          Total tax benefit (provision)               $            -   $      (22,000)   $      (50,000)
                                                      ==============   ==============    ==============
</TABLE>

                                      F-15
<PAGE>   42

In connection with certain business combinations consummated during 1996, the
Company recorded a deferred tax liability of $285,400 through the allocation of
the related purchase price. Gross deferred tax assets and liabilities are
comprised of the following at December 31:

<TABLE>
<CAPTION>
                                                                              1996             1997
                                                                        ---------------  ----------------

         <S>                                                           <C>             <C>
          Deferred Tax Assets:
              Net operating loss carryforwards                          $      633,800   $      636,800
              Net liabilities of discontinued operations                       442,800          368,400
              Inventory                                                         59,800           41,700
              Accrued expenses                                                  44,100           31,800
              Accounts receivable                                               39,300           39,000
              Other                                                             97,200           37,000
                                                                        --------------   --------------

                                                                             1,317,000        1,154,700

              Valuation allowance                                             (688,500)        (462,500)
                                                                        --------------   --------------

                 Deferred tax assets                                           628,500          692,200
                                                                        --------------   --------------

          Deferred Tax Liabilities:
              Property, plant and equipment                                    222,200          442,200
              Other                                                            266,700          110,400
                                                                        --------------   --------------

                 Deferred tax liabilities                                      488,900          552,600
                                                                        --------------   --------------

                                                                        $      139,600   $      139,600
                                                                        ==============   ==============
</TABLE>

As of December 31, 1997, the Company has approximately $1.9 million of net
operating loss carryforwards for tax purposes, expiring through 2010.

The statutory federal income tax rate, reconciled to the effective income tax
rate benefit (provision) is as follows:

<TABLE>
<CAPTION>
                                                                     1995             1996             1997
                                                                  ---------        ----------       ----------

         <S>                                                   <C>                <C>              <C>
          Statutory federal income tax rate                           34.0%           (34.0)%           (34.0)%
          State income taxes, net of federal income
              tax effect                                               4.6             (5.0)            (10.8)
          Nondeductible amortization of goodwill                     (75.6)            (9.6)            (21.5)
          Valuation allowance                                         37.0             50.1              55.5
          Other                                                          -             (3.9)             (1.5)
                                                                    ------          -------           -------

              Total                                                      -%            (2.4)%           (12.3)%
                                                                    ======          =======           =======
</TABLE>


                                      F-16
<PAGE>   43

9.     BORROWINGS UNDER LINE OF CREDIT:

In March 1996, the Company entered into a new line of credit agreement with a
bank through March 2001. Under the terms of the agreement, the Company is
permitted to borrow up to $8,500,000, subject to advance formulas based on
accounts receivable and inventory. Amounts borrowed are due on demand and bear
interest at either the bank's prime rate plus an additional rate of 1% or LIBOR
plus an additional 3%. Amounts borrowed are payable monthly and are secured by
all assets of the Company.

Information related to the line of credit for the years ended December 31, 1995,
1996 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                Weighted Average
                                                         --------------------------
                                                                                           Maximum
                                                         Month-end         Interest         Amount
                                                          Balance            Rate        Outstanding
                                                          -------            ----        -----------
         <S>                                         <C>                    <C>         <C>
          1995                                        $       88,417          8.75%      $    575,000
          1996                                             3,895,000          9.00          7,255,984
          1997                                             6,929,683          8.96          8,442,372
</TABLE>

As of December 31, 1997, approximately $875,000 of standby letters of credit
were outstanding under the line of credit facility.


                                      F-17
<PAGE>   44
10. LONG-TERM DEBT:

Long-term debt as of December 31, 1996 and 1997, consisted of the following:

<TABLE>
<CAPTION>
                                                                                               1996              1997
                                                                                          --------------    -------------
        <S>                                                                              <C>               <C>
         Note payable, bearing interest at either prime plus 1.5% or LIBOR
              plus 3.5%, due in varying amounts monthly through March 2001                $    7,117,308    $    5,067,482
         Subordinated promissory note, bearing interest at 9% annually,
              payable throughout 1997                                                            300,000                -
         Subordinated promissory note to former shareholders of Prefco,
              bearing interest at 9% annually, payable in quarterly
              installments of interest, with all outstanding principal and
              interest due March 2001                                                          1,400,000         1,400,000
         Subordinated promissory note to former shareholder of Richard's,
              bearing interest at 6.35% annually, payable in quarterly
              installments of interest, with all outstanding principal and
              interest due July 2001                                                             874,786           874,786
         Subordinated promissory note to former shareholders of Grogan's,
              effective October 1998, bearing interest at 8% annually, payable
              in quarterly installments of interest, with all outstanding
              principal and interest due September 2001                                          200,000           200,000
         Subordinated promissory note to former shareholders of Partin's,
              bearing interest at 8% annually, payable in quarterly
              installments, with all outstanding principal and interest due
              December 2003                                                                      224,891           224,891
         Capital lease obligations and other                                                     192,992           358,181
                                                                                          --------------    --------------
                Total                                                                         10,309,977         8,125,340
         Less:  Current portion                                                               (2,324,267)       (1,659,310)
                Unamortized discount                                                            (206,776)         (168,742)
                                                                                          --------------    --------------

                Long-term debt, net of current portion and
                   unamortized debt discount                                              $    7,778,934    $    6,297,288
                                                                                          ==============    ==============
</TABLE>

The future maturities of the notes payable as of December 31, 1997, are as
follows:

          1998                                             $    1,659,310
          1999                                                  1,776,502
          2000                                                  1,800,088
          2001                                                  2,642,809
          2002                                                     21,740
          2003 and thereafter                                     224,891
                                                           --------------
                                                           $    8,125,340
                                                           ==============


                                      F-18
<PAGE>   45

In connection with the Company's line of credit (see Note 9) and note payable,
the Company is required to meet certain financial and nonfinancial covenants.

In March 1998, the Company refinanced its outstanding note payable and line of
credit (see Note 21).

11.    FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amounts reported in the balance sheet for cash, accounts payable
and accrued expenses approximate fair value because of the short maturity of
those instruments.

Fair value of the Company's long-term debt is estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.

The aggregate face amounts and fair values of the Company's long-term debt as of
December 31, 1997, were $8,125,340 and $7,956,598, respectively. The aggregate
face amounts and fair values of the Company's long-term debt as of December 31,
1996, were $10,309,977 and $10,103,201, respectively. The face amount of the
Company's long-term debt approximated the fair value as of December 31, 1995.

12.    STOCK OPTIONS:

The Company has a non-incentive stock option plan (the Non-Incentive Plan) and a
Director's stock option plan (the Directors' Plan), which authorize the Company
to grant, to eligible individuals, options for the purchase of shares of the
Company's $.01 par value common stock.

Under the terms of the Non-Incentive Plan, the Company may issue up to 1,100,000
options to officers, advisors, full-time employees and other eligible
individuals. In addition, the Company may issue up to 150,000 options to outside
directors. In general, the option exercise price equals the stock's market price
on the date of grant and vest up to three years. Under the terms of the
Directors' Plan, the Company may issue up to 500,000 options to eligible outside
Directors. Each eligible Director was granted an initial option to purchase
1,500 shares of stock. Each eligible Director is granted additional options to
purchase 10,000 shares of stock at the beginning of each year of service. The
option exercise price equals the stock's market price on the date of grant and
vest after one year. The issuance of options under the Non-Incentive and
Directors' Plans during 1995, 1996 and 1997, had no impact on the accompanying
consolidated financial statements.

In connection with the employment agreement with the Chief Executive Officer
(see Note 13), the Company issued 250,000 stock options with an exercise price
of $1.50, representing the fair market value at March 15, 1996. The options vest
over a five year period and provide for accelerated vesting if certain financial
performance thresholds are met. As of December 31, 1997, 40% of these options
had vested.


                                      F-19
<PAGE>   46
The Company has elected to account for its stock-based compensation plans in
accordance with APB No. 25, under which no compensation expense has been
recognized. The Company has computed for pro forma disclosure purposes the value
of all options granted during 1995 and 1996, using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 and the following assumptions used
for option grants:

<TABLE>
<CAPTION>
                                                                               1996               1997
                                                                       --------------------  ---------------

         <S>                                                             <C>                    <C>
          Risk-free interest rate (range)                                 5.44% - 6.81%          5.23 - 5.31%
          Expected dividend yield                                             0.00%                 0.00%
          Expected lives                                                    5-6 years             5-6 years
          Expected volatility                                                  36%                   32%
</TABLE>

Adjustments were made for options forfeited prior to vesting. Had compensation
expense for these plans been determined in accordance with SFAS No. 123, the
Company's net income and earnings per share reflected on the accompanying
statement of operations would have been reduced to the following "pro forma"
amounts:

<TABLE>
<CAPTION>
                                                                      1995             1996              1997
                                                                --------------   --------------    --------------
         <S>                                                  <C>               <C>               <C>
          Net (Loss) Income:
                                 As reported                   $   (3,090,586)  $      895,760    $      356,857
                                 Pro forma                         (3,153,437)         715,067           254,657

          Basic Earnings Per Share:
                                 As reported                            (1.23)             .17               .05
                                 Pro forma                              (1.25)             .14               .04

          Diluted Earnings Per Share:
                                 As reported                            (1.23)             .17               .05
                                 Pro forma                              (1.25)             .13               .04

</TABLE>

Because the FASB Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of that to be expected in future years.

<TABLE>
<CAPTION>
                                               1995                            1996                      1997
                                    ---------------------------    -----------------------     ------------------------
                                                     Weighted                    Weighted                     Weighted
                                                     Average                      Average                      Average
                                                     Exercise                     Exercise                     Exercise
                                        Shares        Price         Shares         Price        Shares          Price
                                        ------       -------        ------         ------       ------         --------

<S>                                  <C>             <C>        <C>               <C>       <C>               <C>
Outstanding, beginning of year         170,036        $  6.31      233,136        $  5.47      693,236        $  3.00
Granted                                 67,700           2.75      464,200           1.76      178,400           2.89
Exercised                                   -            -              -            -              -            -
Forfeited                               (4,600)          3.49       (4,100)          3.24       (5,400)          3.21
Expired                                     -            -              -            -              -            -
                                    ----------                  ----------                  ----------
Outstanding, end of year               233,136           5.47      693,236           3.00      866,236        $  2.98
                                    ==========                  ==========                  ==========
Exercisable, end of year               142,552           5.45      410,044           3.51      552,344           3.34
Weighted average fair value
    of options granted                                $  1.40                     $   .81                     $   .88


</TABLE>


                                     F-20
<PAGE>   47


The Company has a Retirement Savings Plan (401(k) plan) whereby employees may
contribute up to the limits established by the Internal Revenue Service.
Matching contributions are made by the Company equal to 25% of employee
contributions, subject to certain limitations. The Company's matching expense
during 1995, 1996 and 1997 was $17,207, $22,645 and $57,663, respectively.

During 1997, the Company approved an Employee Stock Purchase Plan (the "Stock
Purchase Plan"). The Stock Purchase Plan qualified as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code. All regular
full-time employees of the Company (including officers) and all other employees
whose customary employment is for more than 20 hours per week are eligible to
participate in the Stock Purchase Plan. Directors who are not employees are not
eligible. A maximum of 250,000 shares of the Company's common stock is reserved
for issuance under the Stock Purchase Plan.

13.   COMMITMENTS:

Executive Employment Agreement

Effective March 15, 1996, the Company entered into a five-year employment
agreement with its Chief Executive Officer which provides for base compensation
and an incentive bonus.

Operating Leases

The Company leases warehouses, office buildings and most of its delivery
vehicles under operating leases. These leases have remaining terms ranging from
one to five years. Rental expense under these leases for the years ended
December 31, 1995, 1996 and 1997 was $594,010, $1,223,271 and $2,183,808,
respectively. The delivery vehicle leases include options to cancel up to three
of the leases in the event of an economic slowdown. As of December 31, 1997,
future minimum lease payments under these operating leases are as follows:

<TABLE>
         <S>                                                      <C>
          1998                                                     $    1,342,736
          1999                                                            804,374
          2000                                                            651,259
          2001                                                            470,556
          2002                                                            212,072
          2003 and thereafter                                             118,800
                                                                   --------------
                                                                   $    3,599,797
                                                                   ==============
</TABLE>

14.    REPURCHASE OF COMMON STOCK:

Throughout 1995, the Company repurchased 402,032 shares of its outstanding
common stock at an average per share cost of $1.03. Shares repurchased are
considered retired and, therefore, are reflected on the accompanying balance
sheets as reductions to common stock and additional paid-in capital.


                                      F-21
<PAGE>   48

15.    RELATED PARTY TRANSACTIONS:

The accompanying consolidated statements of operations include interest related
to certain notes payable to related parties (including amortization of deferred
financing costs) and other liabilities to stockholders of approximately $4,026,
$171,159 and $396,674 for the years ended December 31, 1995, 1996 and 1997,
respectively.

The Company has a consulting agreement (the Agreement) with Elfman Venture
Partners, Inc. and Sterling Advisors, L.P., a partnership owned by certain
stockholders of the Company (the Managers). The term of the Agreement is through
December 31, 2001. The Agreement provides that the Company shall pay a base fee
of $300,000 per year, which shall increase 5% for each year the Agreement
remains in effect. The Agreement also stipulates adjustments to the base fee for
future acquisitions or sales. During each year the Agreement is in effect, the
Company is also required to grant options to purchase 25,000 shares of the
Company's $.01 par value common stock. Such options vest on each December 31 at
an exercise price equal to the market price on the preceding January 1 (see Note
12).

This Agreement was amended effective July 1, 1997, in connection with the
Potter's acquisition (see Note 21). The Amendment, covering the period July 1,
1997, through December 31, 1998, provides for an aggregate payment to the
Managers of $750,000 for services provided in connection with the Potter's
acquisition and the related financing, in lieu of all other fees payable under
the Agreement.

The accompanying consolidated statements of operations include approximately
$148,000, $340,000 and $175,000 for the years ended December 31, 1995, 1996 and
1997, respectively, for management and consulting services that were paid to the
Managers. As of December 31, 1997, $194,000 of fees related to this amended
Agreement were included in other assets in the accompanying consolidated balance
sheet.

16.    OTHER (EXPENSE) INCOME:

During the first quarter of 1996, the Company and one of its former suppliers
agreed to terminate their distribution agreement. As part of the settlement, the
former supplier agreed to pay the Company $250,000 in consideration. The
consideration received is included in other income on the consolidated
statements of operations. During 1995, approximately 4% of the total cases sold
represented cases supplied by this former supplier.

17.    BUSINESS SEGMENT INFORMATION:

The Company's operations have been classified into three business segments:
beverage distribution, food processing and food distribution. The beverage
distribution segment includes purchasing, marketing and distribution of
nonalcoholic beverages to the retail trade in the greater Baltimore and
Washington, D.C. metropolitan area and surrounding counties. The food processing
segment includes the processing and sales of sausage and related products to
distributors and retailers in the Louisiana, Texas, Kentucky and other
surrounding states. The food distribution segment includes the purchasing,
marketing and distribution of packaged meat products to retailers and
restaurants, primarily in Texas.


                                      F-22
<PAGE>   49


Summarized financial information, by business segment, for continuing operations
in 1995, 1996 and 1997 is as follows (corporate overhead not specifically
associated with a segment has been presented separately):

<TABLE>
<CAPTION>
                                                                     1995             1996              1997
                                                               ---------------  ---------------   ---------------
         <S>                                                  <C>              <C>               <C>
          Net sales:
              Beverage distribution                            $    20,596,436  $    19,401,759   $    21,149,844
              Food processing                                                -       12,864,437        22,940,688
              Food distribution                                              -      125,610,141       133,763,274
                                                               ---------------  ---------------   ---------------

                                                               $    20,596,436  $   157,876,337   $   177,853,806
                                                               ===============  ===============   ===============
          Operating income (loss):
              Beverage distribution                            $      (138,180) $       631,108   $        77,598
              Food processing                                                -          934,691         1,400,752
              Food distribution                                              -        1,075,395         1,402,761
              Corporate                                                      -         (972,931)       (1,177,187)
                                                               ---------------  ---------------   ---------------

                                                               $      (138,180) $     1,668,263   $     1,703,924
                                                               ===============  ===============   ===============
          Total assets:
              Beverage distribution                            $     2,921,147  $     5,700,876   $    12,019,992
              Food processing                                                -       14,170,199        15,295,068
              Food distribution                                              -       17,317,461        15,808,920
                                                               ---------------  ---------------   ---------------

                                                               $     2,921,147  $    37,188,536   $    43,123,980
                                                               ===============  ===============   ===============
          Depreciation and amortization:
              Beverage distribution                            $       388,321  $       344,399   $       387,084
              Food processing                                                -          447,651           752,620
              Food distribution                                              -          201,463           241,517
                                                               ---------------  ---------------   ---------------

                                                               $       388,321  $       993,513   $     1,381,221
                                                               ===============  ===============   ===============

          Capital expenditures:
              Beverage distribution                            $       493,272  $       374,235   $       420,308
              Food processing                                                -           76,853           321,309
              Food distribution                                              -          133,781            26,256
                                                               ---------------  ---------------   ---------------

                                                               $       493,272  $       584,869   $       767,873
                                                               ===============  ===============   ===============
</TABLE>

There were no significant intersegment sales or transfers during 1995.
Intersegment sales and related receivables and payables among the segments
during 1996 and 1997, for the purpose of this presentation, have not been
eliminated. In 1997, there were intersegment sales of $5,655,312 by the food
processing segment. Operating income, by business segment excludes interest
income, interest expense and net unallocated corporate expenses.

18. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:

On April 27, 1994, the Company acquired substantially all of the assets and
assumed certain liabilities of Flying Fruit Fantasy, USA, Inc. for approximately
$580,000 in cash and 23,077 shares of common stock of the Company with a market
value of approximately $104,000 at closing, one share of Series A nonvoting
preferred stock convertible into $150,000 worth of common stock on October 18,
1995, and $5,000 in cash per month for 24 months after closing. The convertible
preferred stock on April 27, 1994, was valued at $133,091 and was accreted
through the conversion




                                      F-23


<PAGE>   50
date up to the estimated fair value at conversion. On October 18, 1995, the
preferred stock was converted into 30,000 shares of common stock.

In December 1995, the Company adopted a plan to dispose of its Flying Fruit
Fantasy division. As a result, the Company recognized a one-time charge of
$2,410,200, which was determined as follows:

<TABLE>
         <S>                                                                           <C>
          Write-off of equipment                                                         $    1,085,112
          Write-off of goodwill                                                                 744,310
          Write-off of noncompete agreements and other assets                                   215,703
          Other costs to discontinue operations                                                 365,075
                                                                                         --------------
                                                                                         $    2,410,200
                                                                                         ==============
</TABLE>

This net loss has been reflected in the accompanying consolidated statements of
operations under Loss on Disposal of Discontinued Operations.

The results of the Flying Fruit Fantasy division have been reported separately
as discontinued operations in the consolidated statements of operations for the
year ended December 31, 1995. Revenues from the Flying Fruit Fantasy division
were $549,500 for the year ended December 31, 1995. No benefit for income taxes
has been recorded in connection with these losses due to the uncertainty that
the Company will be able to offset the losses against future taxable income.

The remaining liabilities as of December 31, 1996, have been presented
separately in the accompanying consolidated balance sheets. During 1997, the
Company settled all of the remaining outstanding legal proceedings associated
with the discontinued Flying Fruit Fantasy division. As of December 31, 1997,
management believes that the Company is not subject to any additional
liabilities associated with this division.

19.    CONTINGENCIES:

Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.

20.    PRIVATE PLACEMENT:

During March 1996, the Company raised approximately $2.8 million in cash, net of
expenses, through the private sale of approximately 2.8 million shares of its
common stock. These shares are subject to certain restrictions regarding their
resale.

During July 1997, the Company raised approximately $2.4 million in cash, net of
expenses, through the private sale of approximately one million shares of its
common stock. These shares are subject to certain restrictions regarding their
resale.



                                      F-24
<PAGE>   51
21.    SUBSEQUENT EVENTS:

In March 1998, the Company acquired substantially all of the assets of J.C.
Potter Sausage Company, a food processing business based in Durant, Oklahoma, in
consideration for approximately $13.0 million in cash, plus related transaction
costs. In connection with this acquisition, the Company borrowed approximately
$6.5 million in subordinated debt from Banc One Capital Corporation. The
subordinated debt included nonvoting detachable common stock warrants which have
an exercise price equal to the market price of 3 3/8 on the date of closing. The
Company also refinanced its senior revolver and term debt through Fleet Capital
Corporation. The new senior debt facility (the "Fleet Facility") provided a term
loan of $11 million, or approximately $6.0 million greater than the balance
previously outstanding under the LaSalle Facility. The senior revolver provides
for a line of credit up to $15 million, subject to certain borrowing base
requirements.


                                      F-25


<PAGE>   52
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of
Atlantic Premium Brands, Ltd.:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Atlantic Premium Brands, Ltd. and
subsidiaries included in this Form 10-K and have issued our reports thereon
dated March 20, 1998. Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. This schedule
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.



                                                  /s/ Arthur Anderson LLP


Baltimore, Maryland,
    March 20, 1998



                                      S-1
<PAGE>   53
                                                                      SCHEDULE I

                 ATLANTIC PREMIUM BRANDS, LTD. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS




<TABLE>
<CAPTION>
                                                                 Additions
                                           ---------------------------------------------------
                                               Reserve
                              Balance at      Established        Charged to         Charged                           Balance
                              Beginning      with Business        Costs and         to Other                          at End
      Classifications           of Period    Combinations         Expenses(1)      Accounts(2)    Deductions(3)       of Period
------------------------    -----------------------------      --------------   --------------    -------------     -------------
<S>                        <C>              <C>                 <C>              <C>               <C>             <C>
Allowance for doubtful
accounts:

Year ended
    December 31, 1997       $     118,000    $          -        $    103,000     $         -       $    104,000    $    117,000
Year ended
    December 31, 1996       $      35,000    $      69,000       $     61,000     $      9,000      $     56,000    $    118,000
Year ended
    December 31, 1995       $      71,000    $          -        $     83,000     $         -       $    119,000    $     35,000
</TABLE>

(1) Current year provision for doubtful accounts.
(2) Includes recoveries on accounts previously written off.
(3) Accounts written off.




                                      S-2
<PAGE>   54
                              INDEX TO EXHIBITS

Exhibit
Number    Description

2         Asset Purchase Agreement dated as of March 6, 1998 among Potter's
          Acquisition Corp., J.C. Potter Sausage Company, Potter's Farm, Inc.,
          Potter Rendering Co. and Potter Leasing Company, Ltd. (*)
3.1       Certificate of Incorporation of the Company, including all amendments
          thereto (*) 3.2 By-Laws of the Company (1) 3.3 Certificate of
          Designation of the Series A Non-Voting Convertible Preferred Stock of
          the Company (2)
4.1       Specimen Stock Certificate (1)
4.2       Certificate of Designation of the Series A Non-Voting Convertible
          Preferred Stock of the Company (see Exhibit 3.3)
4.3       Stock Option Plan (1)
4.4       Atlantic Premium Brands, Ltd. Employee Stock Purchase Plan dated
          November 1, 1997 (3)
4.5       $1.4 Million Subordinated Note made by ABEV Acquisition Corp. in favor
          of Franklin Roth and Allen Pauly (6)
4.6       6.35% Subordinated Non-Negotiable Promissory Note Due July 31, 2001
          made by Richards Cajun Foods Corp. and the Company in favor of J.L.
          Richard in the original principal amount of $850,000 (*)
4.7       8% Subordinated Non-Negotiable Promissory Note Due September 30, 2001
          made by Grogan's Merger Corp. in favor of Bobby L. Grogan and Betty R.
          Grogan in the original principal amount of $219,593 (*)
4.8       8% Subordinated Non-Negotiable Promissory Note Due December 31, 2003
          made by Grogan's Farm, Inc. in favor of Jefferson Davis and Roger
          Davis in the original principal amount of $219,593 (*)
4.9       Secured Promissory Note dated as of March 20, 1998 of the Company and
          certain of its subsidiaries payable to Fleet Capital Corporation in
          the original principal amount of $11,000,000 (*)
4.10      Loan and Security Agreement dated as of March 20, 1998 among Fleet
          Capital Corporation, the Company and certain of its subsidiaries (*)
4.11      Stock Pledge Agreement dated as of March 20, 1998 between the Company
          and Fleet Capital Corporation (*)
4.12      Atlantic Premium Brands, Ltd. and Subsidiaries Senior Subordinated
          Note and Warrant Purchase Agreement dated as of March 20, 1998 among
          the Company, certain of its subsidiaries and Banc One Capital
          Partners, LLC ("Banc One") (*)
4.13      Senior Subordinated Note due March 31, 2005 of the Company payable to
          Banc One dated as of March 20, 1998 in the original principal amount
          of $6,500,000 (*)
4.14      Atlantic Premium Brands, Ltd. Warrant Certificate Common Stock
          Purchase Warrant of Banc One dated as of March 20, 1998 (*)
4.15      Atlantic Premium Brands, Ltd. Warrant Certificate Contingent Common
          Stock Purchase Warrant of Banc One dated as of March 20, 1998 (*)
4.16      Put Option Agreement dated as of March 20, 1998 between the Company
          and Banc One (*)
4.17      Registration Rights Agreement dated as of March 20, 1998 between the
          Company and Banc One (*)
4.18      Shareholders Agreement dated as of March 20, 1998 among the Company,
          certain of its Shareholders and Banc One (*)
4.19      Preemptive Rights Agreement dated as of March 20, 1998 between the
          Company and Banc One (*)



<PAGE>   55

4.20      Debt Subordination Agreement dated as of March 20, 1998 among Banc One
          Capital Partners, LLC, the Company, certain of its subsidiaries and
          Fleet Capital Corporation (*)
4.21      Lien Subordination Agreement dated as of March 20, 1998 between Fleet
          Capital Corporation and Banc One Capital Partners, LLC (*)
10.1      Distribution Agreement dated as of November 25, 1992 between Joseph
          Victori Wines, Inc. and Maryland Beverage, L.P., as amended. (**) (1)
10.2      Non-Compete and Non-Disclosure Agreement dated September 24, 1993
          among the Company, Sterling Group, Inc., Eric D. Becker, Steven M.
          Taslitz, Douglas L. Becker and R. Christopher Hoehn-Saric (1)
10.3      Consulting Agreement dated March 15, 1996 by and between the Company,
          Sterling Advisors, L.P. and Elfman Venture Partners, Inc. (4)
10.4      Amendment to Consulting Agreement dated as of October 16, 1996 among
          the Company, Sterling Advisors, L.P. and Elfman Venture Partners, Inc.
          (*)
10.5      Second Amendment to Consulting Agreement dated as of September 7, 1997
          among the Company, Sterling Advisors, L.P. and Elfman Venture
          Partners, Inc. (*)
10.6      Form of Tax Indemnification Agreement (1)
10.7      Stock Purchase Agreement dated as of January 23, 1996 among the
          Company, ABEV Acquisition Corp., Franklin Roth and Allen Pauly (6)
10.8      Employment Agreement dated March 15, 1996 between ABEV Acquisition
          Corp. and Franklin Roth (6)
10.9      Agreement and Plan of Merger dated as of January 25, 1996 among the
          Company, Carlton Foods Corp. and Carlton Foods, Inc. (6)
10.10     $1.4 million Subordinated Note made by ABEV Acquisition Corp. in favor
          of Franklin Roth and Allen Pauly (6)


<PAGE>   56



10.11     Stock Purchase Agreement dated as of March 15, 1996 among the Company
          and Purchasers under the $2.8 million Private Placement (6)
10.12     Employment Agreement dated October 29, 1996 between the Company and
          Alan F. Sussna (7)
10.13     Asset Purchase Agreement dated as of March 6, 1998 among Potter's
          Acquisition Corp., J.C. Potter Sausage Company, Potter's Farm, Inc.,
          Potter Rendering Co. and Potter Leasing Company, Ltd. (See Exhibit 2)
11        Statement regarding computation of per share earnings (*)
21        Subsidiaries of the Company (*)
23        Consent of Independent Public Accountants (*)
27        Financial Data Schedule (*)

------------------
*    Filed herewith.
**   Confidential treatment was afforded for certain portions of these
     agreements.
(1)  Filed as an exhibit to the Company's Registration Statement No. 33-69438 or
     the amendments thereto and incorporated herein by reference.
(2)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended June 30, 1994 and incorporated herein by reference.
(3)  Filed as an exhibit to the Company's Form S-8 Registration Statement No.
     333-39561 and incorporated herein by reference.
(4)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended March 31, 1996 and incorporated herein by reference.
(5)  Filed as an exhibit to the Company's Current Report on Form 8-K dated April
     27, 1994, filed with the Securities and Exchange Commission on July 11,
     1994, and incorporated herein by reference.
(6)  Filed as an exhibit to the Company's Current Report on Form 8-K dated March
     15, 1996, filed with the Securities and Exchange Commission on April 1,
     1996, and incorporated herein by reference.
(7)  Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
     quarter ended September 30, 1996 and incorporated herein by reference.