<PAGE>
                                 UNITED STATES
                       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, 2002

                         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.)

          1033 Skokie Boulevard, Suite 600, Northbrook, Illinois 60062
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (847) 412-6200
              (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. | |

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES | | NO |X|

      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 19, 2003: $7,801,174

      The number of shares outstanding of the registrant's Common Stock, par
value $.01, as of March 19, 2003: 6,764,289.

                       DOCUMENTS INCORPORATED BY REFERENCE

     None.

================================================================================

<PAGE>

                                     PART I

ITEM 1. BUSINESS

                                     GENERAL

      Our company, through our subsidiaries' operations in Texas, Louisiana and
Oklahoma, processes, markets and distributes branded and unbranded food products
for customers in a ten state region. Our subsidiaries are: Carlton Foods Corp.
("Carlton"), Potter Sausage Co. ("Potter"), Prefco Corp. ("Prefco"), and
Richard's Cajun Foods Corp. ("Richard's").

      Through Carlton, we process a variety of smoked sausage products.
Approximately 50% of the total volume processed is sold through Prefco under the
Blue Ribbon(R) brand name. Approximately 18% of the total volume processed is
sold through Potter under the J.C. Potter(R) brand name. Approximately 32% of
the total volume processed reflects private label products processed for other
regional sausage brands and retail grocery chains, or is sold by Carlton under
the brand names Carlton and Country Boy(TM). These branded products are marketed
on a regional basis, principally in Texas.

      Through Prefco, we engage in the marketing and distribution of branded and
unbranded meat and frozen breakfast, lunch and dinner entrees to the retail
grocery trade. We market and distribute our branded products under the brand
name Blue Ribbon(R) and Cajun Favorites(TM). These products, which include ready
to eat entrees, smoked sausages, bacon and packaged, sliced luncheon meats,
account for approximately 29% of the sales of Prefco and are processed by
Carlton as well as by third party contract processing companies. Blue Ribbon(R)
is currently the best selling brand of bacon in the Houston market. In addition
to marketing our own branded products, we are also a leading regional
distributor of unbranded products including boxed beef, pork, chicken and
related items.

      Through Potter, we process, market and distribute premium, branded
breakfast sausage, smoked sausages and breakfast entrees, primarily in Oklahoma,
Arkansas, Missouri and Texas. These products are sold under the J.C. Potter
brand name and are generally delivered to the retail grocery trade through our
owned distribution system. In addition, Potter processes private label products
for other regional food service outlets and retail grocery chains on a
private-label basis. Potter is a supplier to Prefco and a customer of Carlton.

      Through Richard's, we process, market and distribute Cajun-style entrees,
cooked sausage products and specialty foods for customers in Louisiana under the
brand name Richard's(TM) and Richard's Cajun Favorites(TM).

                                CORPORATE HISTORY

      In September 1991, Maryland Beverage, L.P. (the "Partnership") was formed
with our company and Strategic Investment Corporation ("Strategic"), a wholly
owned subsidiary of T. Rowe Price Strategic Partners Fund, L.P., as its sole
partners. In September 1993, our company was reincorporated in Delaware and
adopted the name "Atlantic Beverage Company, Inc." In November 1993, in
connection with our initial public offering, Strategic (whose only asset was its
interest in the Partnership) merged with and into us.

      In the first quarter of 1996, a newly formed, wholly-owned subsidiary of
our company, Prefco, acquired the outstanding common stock of Prefco, Inc. Also
in the first quarter of 1996, Carlton Foods, Inc.


                                       2
<PAGE>

was merged into another newly formed, wholly-owned subsidiary of our company,
Carlton, and we changed the name of our company to Atlantic Premium Brands, Ltd.

      In August 1996, a newly formed, wholly-owned subsidiary of our company,
Richard's, acquired certain of the assets of Richard's Cajun Country Food
Processors.

      In October 1996, Grogan's Merger Corp. ("GMC"), our newly formed,
wholly-owned subsidiary, acquired and merged with the distribution and
processing business of Grogan's Sausage, Inc. and Grogan's Farm, Inc.,
respectively, based in Arlington, Kentucky. In February 2002, we sold
substantially all of this subsidiary's assets, which remained after the October
13, 2000 fire as discussed more fully in Note 16 to our Consolidated Financial
Statements.

      In March 1998, our company and Potter, a newly-formed subsidiary, acquired
substantially all of the assets of J.C. Potter Sausage Company, a branded food
processing company based in Durant, Oklahoma.

      During the end of the fourth quarter of 1998 and the beginning of the
first quarter of 1999, we completed the sale of substantially all the assets of
our beverage division. As a result of the disposition of our beverage division,
our operations now consist solely of the food businesses.

                                    INDUSTRY

      Following the disposition of our beverage division, our operations have
consisted of two business segments: food processing and food distribution. Note
17 to our Consolidated Financial Statements provides summarized financial
information by business segment for continuing operations for the last three
fiscal years. We participate in these two segments of the food industry through
our Carlton, Prefco, Richard's and Potter subsidiaries.

      The food processing segment, which includes cooking, slicing, mixing,
grinding and similar functions, is generally capital intensive. Unbranded raw
material typically comes from producers and packing companies. In some instances
in the packaged meat industry, packing and processing are vertically integrated.
In other instances, as is the case with our company, processing and distribution
are vertically integrated. Because of the cost of transportation and shelf-life
of the products, processing facilities tend to serve a regional clientele. Large
national meat companies therefore tend to establish strategically located
processing facilities in different geographic regions.

      The food distribution segment, which serves several different classes of
customers including retail, restaurant and institutional customers, is generally
not capital intensive but provides lower gross margins and is subject to intense
price competition. Product is generally invoiced and priced according to weight.
Successful distributors typically distinguish themselves through customer
service and lower prices. 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. Food
distribution companies typically serve a local or regional clientele.

      We market our branded products on a regional basis. Strong retail brands
exist at local, regional or national levels and the products include bacon, hot
dogs, cooked and uncooked sausage, cooked hams, chicken and turkey products.
Advertising and promotion are generally critical to the maintenance of brand
equity. Companies which market branded meat products can exist on a stand-alone
basis as well as


                                       3
<PAGE>

be vertically integrated with processing and/or distribution. We reflect, to a
limited extent, both forms of vertical integration.

                                    STRATEGY

      Our operating strategy is to grow our food businesses profitably, while
identifying and exploiting synergies among them. Key elements of this operating
strategy include increasing sales to existing customers, adding new customers
and identifying opportunities to add new products. In addition, we may acquire
businesses which are complementary to our existing subsidiaries.

                                    PRODUCTS

      Through Prefco, we distribute a wide variety of unbranded, boxed meat
products. We maintain an inventory of over 200 different stock keeping units,
which include beef, turkey, pork and chicken. Products are stored in our
refrigerated warehouse in Houston and are delivered on refrigerated vehicles to
several hundred customers including chain and independent supermarkets and
discount clubs. Prefco purchases products from approximately ten meat packing
companies. Purchases of the same products 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. Two suppliers
accounted for approximately 12% and 11% of our boxed meat purchases during 2002
and 15.9% and 10.7% of such purchases during 2001. No other supplier accounted
for more than 10% of such purchases during either year.

      Also through Prefco, we market and distribute our own branded sausage,
bacon, breakfast, lunch and dinner entrees and packaged, sliced luncheon meats.
These products are stored in our refrigerated warehouse in Houston. Products are
delivered on our refrigerated trucks, and customers typically include the same
retail establishments that purchase our boxed meat products. The majority of
Blue Ribbon(R) sausage product is processed by Carlton. The majority of the
breakfast, lunch and dinner entrees are processed by Richard's. The balance of
the sausage product and breakfast, lunch and dinner entrees, as well as the
bacon and luncheon meats, are purchased from a number of other contract food
processing companies.

      In addition to processing product for Prefco, Carlton processes, markets
and distributes its own branded smoked sausage products for the retail grocery
trade. Carlton processes similar products on a private label basis for other
branded food companies and retail grocery chains.

      Through Richard's, we process, market and distribute Cajun-style entrees,
cooked sausage products and specialty foods for customers in Louisiana under the
brand names Richard's(TM) and Richard's Cajun Favorites(TM).

      Through our Potter subsidiary, we process, market and distribute premium,
branded breakfast sausage, cooked sausage products and breakfast entrees
primarily in Oklahoma, Arkansas, Missouri and Texas. These products are sold
under the J.C. Potter brand name and are generally delivered to the retail
grocery trade through our distribution system. In addition, Potter processes
products for other branded food companies and retail grocery chains on a
private-label basis. Potter is a supplier to Prefco and a customer of Carlton.


                                       4
<PAGE>

                        SALES, MARKETING AND DISTRIBUTION

      Prefco 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 our
distribution facilities. We serve several hundred customers as either their
primary or secondary fresh meat supplier. Prefco's direct sales force contacts
its customers on a daily basis. We deliver product using refrigerated trucks,
generally within one to three days of receiving an order.

      Prefco also markets and distributes its own Blue Ribbon(R) bacon, sausage
and sliced luncheon meats and Cajun Favorites(TM) breakfast, lunch and dinner
entrees, to the retail grocery trade. Orders are received by the direct sales
force and from the route delivery sales force. The business has historically
engaged in significant radio and television advertising in the Houston market.

      Carlton solicits and receives customer orders for branded product through
direct salespeople as well as through third-party food brokers. Relationships
with private label customers are generally established at the senior management
level, although recurring orders from these 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 Carlton's refrigerated vehicles, by common carrier, or are picked up by
customers. Carlton's customer base resides primarily in Texas.

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

      Potter also employs a route delivery sales force. Orders are taken by the
route salespeople and filled immediately from stock on board the route sales
trucks. Potter engages in promotions, including in-store sampling, as well as in
print, radio and television advertising. Customers are located in Arkansas,
Missouri, Oklahoma and Texas.

      One food distribution customer, Sam's Club Inc., accounted for
approximately 30% of our total net sales during 2000 and 1.1% during 2001.
Another customer accounted for 14% and 19% of our total net sales during 2001
and 2002, respectively. No other customer accounted for more than 10% of total
net sales during either year. On August 22, 2000, we announced the termination
of our distribution arrangement with Sam's Club Inc. While Sam's Club Inc.
accounted for a significant percentage of net sales in 2000 and prior years, the
gross margin on sales to Sam's had been significantly lower than the gross
margins on our sales to other customers.

                                ASSET MANAGEMENT

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

      Inventory. We maintain our inventory at our distribution and processing
facilities operated by Prefco in Houston, Texas, by Carlton in New Braunfels,
Texas, by Richard's in Church Point, Louisiana and by Potter in Durant,
Oklahoma, and Malvern, Arkansas. We generally maintain an average of 7 to 9 days
of inventory on hand, which reflects approximately 6 to 8 days of inventory at
Prefco, approximately 10 to 12 days of inventory at Carlton, approximately 11 to
13 days of inventory at Richard's and approximately 15 to 21 days of inventory
at Potter. We typically place purchase orders with our suppliers by telephone
and by facsimile on a daily basis. Orders are placed both on an as-needed basis
and on a


                                       5
<PAGE>

scheduled basis in anticipation of future demand. Orders are usually filled
within one to ten days, and products are transported to our warehouses by our
own fleet or common carrier.

                                   COMPETITION

      Food Distribution. Through Prefco, we believe that we are the second
largest of four major boxed meat distributors in the Houston market. Although
this segment of the food industry is extremely competitive, we believe that we
have generally succeeded in distinguishing ourselves through a high level of
customer service.

      Food Processing. Through Potter, Prefco, Carlton and Richard's, our brands
compete with a wide variety of both regional and national brands. Among the
competitive brands are Decker, J. Bar B., Hillshire Farms, Hormel, Bryan, Bob
Evans and Jimmy Dean. Our Blue Ribbon(R) brand currently represents the best
selling brand of bacon in the Houston market. Our J.C. Potter(R) brand currently
represents the best selling brand of sausage in the state of Oklahoma. Our
Richard's(TM) and Richard's Cajun Favorites(TM) brands enjoy a strong regional
share within their respective markets. Our 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. Through Carlton and
Potter, we also process smoked sausage and meat products on a private label
basis for other branded food companies and, on a limited basis, for supermarkets
and restaurants. Although this segment of the food industry is extremely
competitive, we believe that we have generally succeeded in distinguishing
ourselves by producing a consistently high quality product and providing a high
level of customer service. We believe that we enjoy a strong reputation for
innovation and responsiveness in creating original recipes for our customers. We
compete with a wide variety of processors, many of whom are significantly larger
and may have greater processing capacity and capital.

                              GOVERNMENT REGULATION

      We are subject to various federal, state and local statutes, including
federal occupational safety and health laws. Furthermore, we and our suppliers
are 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 processing, nutritional disclosure,
labeling requirements and product names.

                         PRODUCT LIABILITY AND INSURANCE

      We believe that our present insurance coverage is sufficient for our
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 we expand our operations, or 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

      We currently have a total of approximately 485 employees, including six
corporate employees, 57 employees at Prefco, 71 employees at Carlton, 92
employees at Richard's and 259 employees at Potter. In addition, we use
temporary employees from time to time.

         We believe that our relations with employees are good. We have never
suffered a material work stoppage or slow down.


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<PAGE>

                                  RISK FACTORS

         In addition to other information contained in this Form 10-K, the
following factors should be considered in evaluating our company and our
business. These factors may have a significant impact on our business, operating
results and financial condition.

INDUSTRY RISK

      Commodity price fluctuations have a significant impact on our business.

      We are a purchaser of pork and other meat products. Pork prices have a
significant impact on our cost of goods sold. We buy pork and other meat
products based upon market prices that are established with the vendor as part
of the purchase process. The market price is determined in the marketplace based
on factors outside our control. We may not be able to pass the effect of raw
material price increases onto our customers for any extended period of time, if
at all. As a result, increases in pork prices may have a material adverse effect
on our operating results. We do not use commodity financial instruments to hedge
pork and other meat product prices.

      As a participant in the food industry, we are subject to various risks
which may affect our business.

      The food industry, and the markets within the food industry in which we
compete, are subject to various risks, including:

      -     federal, state and local food inspection and processing controls;

      -     the limited shelf life of food products;

      -     evolving consumer preferences;

      -     nutritional and health-related concerns;

      -     risks of product tampering;

      -     consumer product liability claims;

      -     the availability and expense of liability insurance; and

      -     adverse changes in general economic conditions.

      We may not compete effectively with competitors that have more resources
and greater market share than us.

      Our business is highly competitive. We compete with a wide variety of
processors, many of whom are significantly larger and may have greater
processing capacity and financial resources. Our brands also compete with a wide
variety of both regional and national brands. Some of our larger national,
regional and local competitors have multiple product lines and greater brand
name recognition. Competition in the markets we serve is based primarily on
quality, service and price. There can be no assurance that we can compete
successfully with other competitor companies and maintain adequate market share.
We do not have long term contracts with any of our customers. Competitive
pressures or other factors could cause our products to lose market share or
result in significant price erosion, which would have a material adverse effect
on our results of operations.


                                       7
<PAGE>

      As a participant in the food industry, we are subject to extensive
governmental regulations.

      Our production facilities and products are subject to numerous federal,
state and local laws and regulations concerning among other things, health and
safety matters, food processing, product labeling, advertising and the
environment. There can be no assurance that we will be able to maintain
compliance with existing laws or regulations or that we will be able to comply
with any future laws or regulations. Our failure to comply with applicable laws
and regulations would subject us to civil penalties, including withdrawal of the
necessary United States Department of Agriculture approvals, inspection, fines,
injunctions, recalls or seizures, as well as potential criminal sanctions, any
of which would have a material adverse affect on us.

      Consumer demand for our products is reduced when there are outbreaks of
illness associated with meat or poultry products.

      The meat and poultry industries have recently been subject to increasing
scrutiny due to the association of meat and poultry products with recent
outbreaks of illness, and on rare occasions even death, caused by food borne
pathogens such as E. coli, Salmonella and others which are found in raw and
improperly cooked meat. Consumer demand for meat and poultry fluctuates as the
result of such outbreaks of illness. Product recalls are sometimes required in
the meat and poultry industries to withdraw contaminated products from the
market. Product recalls would cause our expenses to be higher and the reduction
in demand for our products would adversely affect our results of operations and
financial condition.

COMPANY RISK

      If consumers do not like our products, our prospects for growth will be
limited.

      Our business is dependent upon continued growth in consumer interest in
our products. There can be no assurance that the demand for our products can be
sustained in the future. In addition, part of our operating strategy is to
identify opportunities to add new products. There can be no assurance that
consumers will accept new products we develop or that we can attain sufficient
market share for our products.

      Customer and supplier concentration subjects our company to risks related
to these third parties.

      We derive most of our sales from retail grocery customers situated near
our local and regional operations. Adverse developments affecting these
customers or a decision by a corporate owner or franchisor to revoke its
approval of us as a distributor of branded or unbranded meat products could have
a material adverse effect on our operating results. In addition, our continued
growth is dependent in part on the continued growth and expansion of our
customers. The loss of any of our major customers could have a material adverse
effect on our business.

      We purchase product from approximately ten significant meat producers and
packing companies. There can be no assurance that meat availability will be
maintained at a sufficient level or that any of our suppliers will make timely
delivery of their products to us. Failure to receive products in a timely manner
for these or other reasons could have a material adverse effect on us. We do not
have long-term contracts with our suppliers.


                                       8
<PAGE>

      Loss of services of principal members of management could make it
difficult to implement our business plan.

      We are highly dependent on the principal members of our management. The
loss of certain key management personnel, in particular Thomas M. Dalton,
Franklin Roth and Steven Englander, could have a material adverse effect on us.

      Our ability to integrate acquired businesses will impact our ability to
grow.

      We have achieved a significant portion of our growth through acquisitions
and may continue to pursue acquisitions. We will have to integrate acquired
businesses into our existing business, including our prior acquisitions. There
can be no assurance that we will be able to meet performance expectations or
successfully integrate these businesses on a timely basis without disruption in
the quality and reliability of service to our customers or diversion of
management resources.

INVESTMENT RISK

      A large percentage of our common stock is concentrated in a small number
of stockholders who can influence matters requiring stockholder approval.

      Our directors and officers, and persons related to them, hold in excess of
42% of the outstanding shares of our common stock. Accordingly, these
stockholders have the ability to substantially influence the outcome of all
corporate actions requiring stockholder approval, including the election of the
directors, and to influence our policies and direction.

      It may be difficult for a stockholder to sell his or her stock due to the
illiquid market for our stock.

      Because there are relatively few stockholders and a substantial percentage
of the shares of our common stock are held by a few persons, our common stock is
relatively illiquid. As a result, a stockholder wishing to sell may find it
difficult to do so expeditiously. In addition, no predictions can be made as to
stability or volatility of our stock price.

      Our financial condition depends on our ability to comply with the terms of
our bank debt.


      Our ability to fund our working capital requirements and capital
expenditures will depend in large part on our ability to comply with covenants
in our agreements with our lender, Merrill Lynch Capital. If we fail to comply
with any covenants in the future and our lender fails to waive non-compliance,
it would have a material adverse effect on us.

         It is unlikely that any cash dividends will be paid on our common
stock.

         We anticipate that future 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 our common stock will be paid in the foreseeable future.


                                       9
<PAGE>

ITEM 2. PROPERTIES

      Prefco. We lease a 20,000 square foot refrigerated warehouse in Houston.
In addition, Prefco also leases a 6,000 square foot office facility, the lease
for which expires September 30, 2003.

      Carlton. We lease a 20,000 square foot processing facility in New
Braunfels, Texas. The lease on the processing facility expires in September
2005, with one five-year renewal option thereafter.

      Richard's. We own a 12,500 square foot processing facility in Church
Point, Louisiana.

      Potter. We own a 120,000 square foot rendering, processing, distribution,
warehouse and administrative facility in Durant, Oklahoma. In addition, we own a
6,800 square foot distribution facility in Malvern, Arkansas.

ITEM 3. LEGAL PROCEEDINGS

      None.

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 2002.





















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<PAGE>

                                     PART II

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

      Our common stock is traded on the American Stock Exchange ("AMEX") under
the symbol "ABR." The following table sets forth, for the periods indicated, the
high and low closing sales prices of our common stock as reported by AMEX.
<TABLE>
<CAPTION>
===================================================== =======================================================

    STOCK PRICES                                           STOCK PRICES
----------------------------------------------------- -------------------------------------------------------

                              High           Low                                   High            Low
------------------------ --------------- ------------ ------------------------ -------------- ---------------

2001                                                  2002
------------------------ --------------- ------------ ------------------------ -------------- ---------------
<S>                          <C>            <C>       <C>                          <C>            <C>
1st Quarter                  $1.49          $1.19     1st Quarter                  $2.95          $2.00
------------------------ --------------- ------------ ------------------------ -------------- ---------------

2nd Quarter                  $1.49          $1.06     2nd Quarter                  $2.95          $2.40
------------------------ --------------- ------------ ------------------------ -------------- ---------------

3rd Quarter                  $1.45          $1.15     3rd Quarter                  $2.59          $1.95
------------------------ --------------- ------------ ------------------------ -------------- ---------------

4th Quarter                  $2.74          $1.15     4th Quarter                  $2.27          $2.00
======================== =============== ============ ======================== ============== ===============
</TABLE>
         As of March 25, 2003, there were approximately 134 stockholders of
record of our common stock. We have not paid any cash dividends since our
initial public offering. We anticipate 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 our common stock will be paid in the
foreseeable future.















                                       11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

      The following selected financial data is based on our consolidated
financial statements. Our financial statements as of December 31, 2001 and 2002
and for each of the years in the three-year period ended December 31, 2002,
including the notes thereto and the related report of KPMG LLP, independent
certified public accountants, 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 our consolidated financial statements contained elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
                                                   (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
                                                             YEARS ENDED DECEMBER 31,

                                                1998        1999        2000       2001      2002
                                             ---------   ---------   ---------   --------  --------

<S>                                          <C>         <C>         <C>         <C>       <C>
INCOME STATEMENT DATA
Net sales                                    $ 185,006   $ 196,449   $ 177,111   $133,965  $122,311

Income (loss) from continuing operations         1,820       1,261        (856)     1,784       416

Income (loss) from discontinued operations,
   including loss on disposal                   (1,301)        (72)       (153)        --        --

Changes in accounting principles                    --          --         141      1,402        --

Net income (loss)                                  324       1,189        (868)     3,186       416

Basic income (loss) per common share from
   continuing operations                          0.25        0.18       (0.13)      0.27      0.06

Diluted income (loss) per common share from
   continuing operations                          0.24        0.18       (0.13)      0.27      0.06

Diluted income (loss) per common share            0.04        0.17       (0.13)      0.47      0.06


BALANCE SHEET DATA
Total assets                                    45,665      44,743      41,531     41,864    37,096
Long-term obligations                           18,514      17,426      12,800      9,890    10,276
</TABLE>

During the fourth quarter of 1998, we decided to dispose of our beverage
division. This disposition was completed in 1999. The beverage division has been
treated as a discontinued operation and prior years' financial statements have
been restated.


In 2002, the Company adopted Financial Accounting Standards Board's Emerging
Issues Task Force Issue 01-9, "Accounting for Consideration Given by a Vendor to
a Customer (Including a Reseller of the Vendor's Products)". This issue
addresses the income statement classification of consideration paid from a
vendor to an entity that purchases the vendor's products for resale. The Company
adopted this issue in 2002. The adoption of this issue, including required
retroactive reclassifications of amounts reported in prior periods, resulted in
a decrease of net sales and a corresponding decrease of other operating expenses
of $517, $549, $632, $624 and $705 for the years ended December 31, 1998, 1999,
2000, 2001 and 2002, respectively. These reclassifications have no impact on
income from operations or net income (loss).


                                       12
<PAGE>

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

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO  YEAR ENDED DECEMBER 31, 2001

      Net Sales. Net sales decreased by $11.7 million or 8.7% from $134.0
million for the year ended December 31, 2001 to $122.3 million for the year
ended December 31, 2002. The decrease in net sales during the year was primarily
due to the sale of the Grogan's business during the first quarter of 2002 and
lower selling prices on many products, primarily resulting from lower raw
material prices.

      Gross Profit. Gross profit decreased slightly from $23.4 million for the
year ended December 31, 2001 to $23.3 million for the year ended December 31,
2002. Gross profit as a percentage of net sales increased from 17.4% for the
year ended December 31, 2001 to 19.0% for the year ended December 31, 2002. The
increase in the gross profit percentage was primarily attributable to the
favorable raw material pricing (i.e., lower meat prices) and the sale of the
Grogan's business which historically had earned a lower gross profit percentage
than our other businesses. Profit margins relating to sausage production are
normally more favorable during periods of lower live hog costs. During fiscal
year 2002, live hog prices averaged approximately $28.00 per hundredweight as
compared to approximately $39.00 per hundredweight during 2001. We believe live
hog costs may increase during 2003.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $1.4 million or 6.5% from $21.6 million for
the year ended December 31, 2001 to $20.2 million for the year ended December
31, 2002. Selling, general and administrative expenses as a percentage of net
sales increased from 16.2% for the year ended December 31, 2001 to 16.5% for the
year ended December 31, 2002. The primary causes of the dollar decrease in the
selling, general and administrative expenses was the write-off of the goodwill
associated with the Grogan's business in 2001 and lower selling, general and
administrative expenses in 2002 due to the sale of the Grogan's business. The
increase in the selling, general and administrative expenses as a percentage of
net sales primarily resulted from the lower net sales in 2002 caused by lower
raw material prices that were partially passed along to customers through lower
selling prices.

      Income from Operations. Income from operations increased by $1.3 million
or 76% from $1.7 million for the year ended December 31, 2001 to $3.0 million
for the year ended December 31, 2002. This increase is attributable to factors
discussed above.

      Interest Expense. Interest expense decreased $0.5 million from $2.4
million for the year ended December 31, 2001 to $1.9 million for the year ended
December 31, 2002. This decrease was primarily due to a decrease in the cost of
our variable-rate borrowings and the related outstanding balances. See
discussion of the November 2002 refinancing of our long-term debt obligations in
"Liquidity and Capital Resources" below.

      Fair Value Adjustment to Put Warrants. We issued warrants with a put
option in conjunction with the debt incurred at the time of the Potter
acquisition. Commencing on January 1, 2001, we were required to mark-to-market
the estimated fair value of the put option. Any change to such value was charged
or credited to earnings as a fair value adjustment to put warrants. For purposes
of these calculations, the fair value of the warrants was estimated using a
Black-Scholes option-pricing model. During the year ended December 31, 2001, we
recorded additional expense of $0.3 million and during the year ended December
31, 2002, we recorded additional income of $0.3 million as a fair value
adjustment to the put warrants.


                                       13
<PAGE>

The warrants with a put option were acquired and cancelled by us in November
2002 as part of the refinancing of our long-term debt obligations.

      Other Income (Expense), Net. Other income decreased $4.8 million between
the year ended December 31, 2001 and the year ended December 31, 2002. On
October 13, 2000, the Grogan's manufacturing plant located in Arlington,
Kentucky was totally destroyed by fire. During 2001, the insurance settlement on
the building and equipment destroyed in the fire was finalized at $6.8 million
and we recorded a pretax gain, net of additional costs incurred in the amount of
$4.8 million.

      Loss on Extinguishment of Debt. In November 2002, we entered into a new
senior secured credit facility with Merrill Lynch Capital. As a result of the
repayment of the then existing line of credit and term debt, we recognized a
loss of $0.5 million. The loss related to the write-off of unamortized deferred
financing fees and debt discount, partially offset by the elimination of the
liability representing the fair value of the put warrants that were cancelled in
connection with the refinancing.

      Income Before Income Taxes. Income before income taxes decreased $2.9
million from $3.8 million for the year ended December 31, 2001 to $0.9 million
for the year ended December 31, 2002. This decrease is attributable to the
factors discussed above.

      Income Taxes. The effective tax rate differs from the statutory rate
primarily because of state income taxes, the exclusion of the fair value
adjustment to the put warrant from taxable income, and for the year ended
December 31, 2001, the non-deductibility of goodwill amortization.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

      Net Sales. Net sales decreased by $43.1 million or 24.3% from $177.1
million for the year ended December 31, 2000 to $134.0 million for the year
ended December 31, 2001. The decrease in net sales during the year was primarily
due to the loss of a major customer, Sam's, that built and began using its own
warehouse and distribution system in August 2000. Sam's accounted for
approximately 30% of our total net sales for 2000 as compared to 1.1% of our
total net sales during 2001.

      Gross Profit. Gross profit decreased by approximately $0.7 million or 2.9%
from $24.1 million for the year ended December 31, 2000 to approximately $23.4
million for the year ended December 31, 2001. Gross profit as a percentage of
net sales increased from 13.6% for the year ended December 31, 2000 to 17.4% for
the year ended December 31, 2001. Both the decrease in gross profit dollars and
the increase in the gross profit percentage margin are primarily attributable to
the loss of the Sam's distribution business discussed in Net Sales. That
business earned a gross margin percentage significantly lower than our sales to
other customers. Profit margins relating to sausage production are normally more
favorable during periods of lower live hog costs. During fiscal year 2001, live
hog prices averaged approximately $39.00 per hundredweight as compared to
approximately $41.00 per hundredweight during 2000.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.4 million or 1.8% from $22.1 million for
the year ended December 31, 2000 to $21.7 million for the year ended December
31, 2001. This decrease reflects a reduction in our costs resulting from the
loss of Sam's warehousing and distribution business discussed in Net Sales.
This cost reduction was offset by higher salaries and benefits, and a $1.0
million goodwill adjustment resulting from our decision to dispose of the
Grogan's business after the fire. As a percentage of net sales, selling, general
and administrative expenses increased from 12.4% for the year ended December 31,
2000 to 16.1% for the year ended December 31, 2001. In addition to the specific
items discussed above, this


                                       14
<PAGE>

increase was partially attributable to the fact that the Sam's distribution
business did not incur the same level of selling, general and administrative
expenses per sales dollar as our other customers.

      Income from Operations. Income from operations decreased $0.3 million from
$2.0 million for the year ended December 31, 2000 to $1.7 million for the year
ended December 31, 2001. This decrease is attributable to factors discussed
above.

      Interest Expense. Interest expense decreased $0.4 million from $2.8
million for the year ended December 31, 2000 to $2.4 million for the year ended
December 31, 2001. This decrease was primarily due to a decrease in our cost of
variable-rate borrowings and the related outstanding balances.

      We issued warrants with a put option in conjunction with the debt incurred
at the time of the Potter acquisition. Commencing on January 1, 2001 we were
required to mark-to-market the estimated fair value of the put option. Any
change to such value was charged or credited to earnings as a fair value
adjustment to put warrants. For purposes of these calculations, the fair value
of the warrants were estimated using a Black-Scholes option-pricing model.
During the year ended December 31, 2001, we recorded additional expense of $0.3
million as a fair value adjustment to put warrants.

      Other Income. Other income increased by $4.8 million to $4.8 million for
the year ended December 31, 2001. On October 13, 2000, the Grogan's
manufacturing plant located in Arlington, Kentucky was totally destroyed by fire
and the impacted assets net book value of $1.2 million was written off. At
December 31, 2000, we recorded a $1.4 million receivable from the insurance
carrier for the net book value of the plant and equipment destroyed plus other
related costs incurred. During 2001, the insurance settlement on the building
and equipment destroyed in the fire was finalized at $6.8 million and we
recorded a pretax gain, net of additional costs incurred, in the amount of $4.8
million.

      Income (Loss) from Continuing Operations Before Income Taxes. Income
(loss) from continuing operations before income taxes increased $4.5 million
from a loss of $0.7 million for the year ended December 31, 2000 to income of
$3.8 million for the year ended December 31, 2001. This increase is attributable
to the factors discussed above.

      Income Taxes. The effective tax rate differs from the statutory rate
primarily because of state income taxes and the non-deductibility of a portion
of the goodwill amortization.

CHANGES IN ACCOUNTING PRINCIPLES

      During the year ended December 31, 2000, we changed our method of
accounting for production parts inventory from expensing upon purchase to
capitalizing upon purchase and expensing upon installation. The $141,000
cumulative effect of the change on prior years is included in the results of
operations for the year ended December 31, 2000.

      On January 1, 2001, we adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities". On adoption of SFAS No. 133, we recorded a cumulative
effect of change in accounting principle in the amount of $1.4 million (net of
zero income taxes). The cumulative effect of change in accounting principle was
recorded to reduce the carrying value of the liability related to the put
warrants to fair value. The fair value of the warrants was estimated using a
Black-Scholes option-valuation model. Subsequent changes in the fair value of
the put warrants were recorded as a component of net income. We do not have any
other derivative instruments.


                                       15
<PAGE>

      On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 eliminates the amortization of goodwill and
indefinite-lived intangible assets, addresses the amortization of intangible
assets with finite lives and addresses impairment testing and recognition for
goodwill and intangible assets. We were required to perform an initial
impairment review of goodwill, which did not result in any change in the
carrying value of the assets. Goodwill amortization, net of $0 income taxes,
recorded in each of the years ended December 31, 2000 and 2001, totaled $0.4
million. As a result of the adoption of SFAS No. 142, no goodwill amortization
was recorded in the year ended December 31, 2002.

IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

      In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires us
to record the fair value of an asset retirement obligation as a liability in the
period in which we incur a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. We also record a corresponding
asset, which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation is
adjusted at the end of each period to reflect the passage of time and changes in
the estimated future cash flows underlying the obligation. We are required to
adopt SFAS No. 143 on January 1, 2003 and do not expect that it will have a
material impact on the financial position or results of operations of our
company.

      The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" in 2002.
Under SFAS No. 4 all gains and losses from extinguishment of debt were required
to be aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. This Statement eliminates SFAS No. 4 and thus, the
criteria in APB Opinion No. 30 should be applied to determine the classification
of gains and losses related to the extinguishment of debt. This statement is
effective beginning in fiscal year 2003. We adopted the provisions of this
statement in 2002 and classified the loss on the extinguishment of debt in the
amount of $0.5 million as a component of other income (expenses) in the
accompanying statement of operations.

      In November 2002, the FASB released FASB Interpretation ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a guarantor
recognize a liability for the fair value of an obligation assumed under a
guarantee. This interpretation also discusses additional disclosures to be made
in the interim and annual financial statements of the guarantor about
obligations under certain guarantees. The initial measurement and recognition
requirements of FIN 45 are effective for guarantees issued or modified after
December 31, 2002; however, the disclosure requirements are effective in the
consolidated financial statements for the year ended 2002. We are currently
evaluating the effects of FIN 45, however, it is not expected that the adoption
of FIN 45 will have a material effect on our financial position, results of
operations, or cash flows.

      In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Prior guidance required that a liability for an
exit cost be recognized at the date of an entity's commitment to an exit plan.
This statement also establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002.


                                       16
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      Net cash used in operating activities for the year ended December 31, 2000
was $1.3 million. This was principally the result of a loss from continuing
operations and a decrease in accounts payable that was partially offset by
depreciation and amortization and a decrease in accounts receivable. Net cash
provided by operating activities for the year ended December 31, 2001 was $4.9
million. This amount was principally the result of net income, depreciation and
amortization and a non-cash adjustment to goodwill. This was partially offset by
an increase in prepaid expenses and other current assets and the non-cash change
in accounting principle to record the put warrants at fair value. Net cash
provided by operating activities for the year ended December 31, 2002 was $8.8
million. This amount was principally the result of net income, depreciation and
amortization, an increase in accounts payable and decreases in prepaid expenses
and accounts receivable.

      Cash used in investing activities for the years ended December 31, 2000,
2001 and 2002 was $1.7 million, $1.6 million and $1.3 million, respectively,
which was primarily related to capital expenditures. Proceeds of $0.9 million
were received in the year ended December 31, 2002 related to the sale of
Grogan's.

      Cash provided by financing activities in the year ended December 31, 2000
was $2.0 million, principally affected by borrowings under the line of credit
which were partially offset by the payments of term debt and the repurchase of
our common stock. Cash used in financing activities in the year ended December
31, 2001 was $3.7 million, principally affected by payments of term debt and
other notes payable, and a decrease in the bank overdraft. Cash used in
financing activities in the year ended December 31, 2002 was $6.7 million,
principally affected by the repayments of the borrowings under the line of
credit, repayment of all the term debt and other notes payable to Fleet Capital
("the Fleet Facility") and repayment of the portion of the senior subordinated
debt owed to Banc One Capital Partners LLC ("Banc One Capital Partners"). This
was partially offset by the borrowings under the new term debt and line of
credit facility with Merrill Lynch Capital ("the Merrill Facility").

      As of December 31, 2001, we had outstanding under the Fleet Facility
approximately $4.9 million in term debt and approximately $5.0 million in
line-of-credit borrowings. We owed $6.5 million of senior subordinated debt to
Banc One Capital Partners and Sterling BOCP, LLC, now known as BOCP ABR Mezz,
LLC, an entity owned by some of our directors, officers and 5% shareholders (the
"LLC"), and approximately $2.7 million of junior subordinated debt to former
owners of Prefco, Richard's, Grogan's and Partin's. The interest on the senior
subordinated debt was 10% per annum for the years ended December 31, 2000 and
2001. Under the terms of an amendment to the senior subordinated debt dated
April 13, 2001 and effective January 17, 2001, this interest rate was increased
to 15% per annum. The incremental increase of 5% was accrued and compounded
monthly. The junior subordinated debt carried an average interest rate of
approximately 9.7% per annum. The term debt and line of credit agreement under
the Fleet Facility bore annual interest at either the bank's prime rate plus 1%
(5.75% at December 31, 2001) or adjusted LIBOR plus 2.5%, at our option.

      In November 2002, we entered into the Merrill Facility. As of December 31,
2002 we had outstanding under the Merrill Facility approximately $8.2 million in
term debt and approximately $2.5 million in line-of-credit borrowings. A portion
of the funds provided under the Merrill Facility were used to pay off the Fleet
Facility and the senior subordinated debt owed to Banc One Capital Partners. The
terms of the $0.7 million in senior subordinated debt owed to the LLC were
amended concurrently with the refinancing. In connection with the refinancing,
the LLC and Banc One Capital Partners agreed to cancel the warrants with a put
option to purchase 1.1 million shares of our common stock, which were granted in
connection with the issuance of the senior subordinated debt. In addition to
canceling the


                                       17
<PAGE>

warrants, the amended terms of the senior subordinated debt owed to the LLC
changed the maturity date from March 31, 2005 to December 31, 2007 and increased
the interest rate from 15% to 18%, with 10% interest paid quarterly and the
remaining 8% interest compounded monthly and paid at maturity. The senior
subordinated debt owed to the LLC continues to be secured by substantially all
of our assets, but is subordinated to the Merrill Facility. The line of credit
agreement bears annual interest at either the bank's prime rate plus 1.25% (5.5%
at December 31, 2002) or adjusted LIBOR plus 3.00%, at our option. The term debt
is comprised of two notes, Term Loan A and Term Loan B. They bear interest at
either the bank's prime rate plus 1.5% and 2.0%, (5.75% and 6.25%, respectively,
at December 31, 2002) or adjusted LIBOR plus 3.25% and 3.75%, respectively, at
our option.

      As part of the refinancing transaction, three of the notes comprising the
junior subordinated debt in the amounts of $1.4 million, $0.9 million and
$0.2 million, which were earning interest at the rates of 11%, 8.35% and 10%,
respectively, were amended to reset the maturity dates on each note to
February 2008 and to reset the stated interest rate on the $0.9 million note
to 11%.

      In 2002, we received $5.0 million as part of the Grogan's fire insurance
settlement, which will be used to pay the federal and state taxes and other
expenses associated with the settlement and the remainder was applied to the
Fleet Facility.

      We believe that cash generated from operations and bank borrowings will be
sufficient to fund our debt service, working capital requirements and capital
expenditures as currently contemplated for 2003. However, our ability to fund
our working capital requirements and capital expenditures will depend in large
part on our ability to continue to comply with debt covenants under the Merrill
Facility. Our ability to continue to comply with these covenants will depend on
a number of factors, certain of which are beyond our control, including but not
limited to, implementation of our business strategy, prevailing economic
conditions, uncertainty as to evolving consumer preferences, sensitivity to such
factors as weather and raw material costs, the impact of competition and the
effect of each of these factors on our future operating performance. No
assurance can be given that we will remain in compliance with such covenants
throughout the term of the Merrill Facility.

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


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are subject to certain market risks. These risks relate to commodity
price fluctuations, interest rate changes and credit risk.

      We are a purchaser of pork and other meat products. We buy pork and other
meat products based upon market prices that are established with the vendor as
part of the purchase process. The operating results of our company are
significantly impacted by pork prices. We do not use commodity financial
instruments to hedge pork and other meat product prices.

      Our exposure to interest rate risk relates primarily to our debt
obligations and temporary cash investments. We do not use, and have not in the
past year used, any derivative financial instruments relating to the risk
associated with changes in interest rates.


                                       18
<PAGE>

      We are exposed to credit risk on certain assets, primarily accounts
receivable. We provide credit to customers in the ordinary course of business
and perform ongoing credit evaluations. We currently believe our allowance for
doubtful accounts is sufficient to cover customer credit risks.

CRITICAL ACCOUNTING POLICIES

      Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.

      On an on-going basis, we evaluate our estimates and judgments, including
those related to bad debts, inventories, intangible assets, income tax, assets
and liabilities, and contingencies and litigation. We base our estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. We believe the
following critical accounting policies, among others, affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

      Our critical accounting policies are as follows:

- valuation of accounts receivable;

- valuation of inventories;

- accounting for income taxes; and

- valuation of long-lived assets, intangible assets and goodwill.

VALUATION OF ACCOUNTS RECEIVABLE

      We must make estimates of the uncollectability of our accounts receivable.
We specifically analyze accounts receivable and analyze historical bad debts,
customer concentrations, customer credit-worthiness, and current economic trends
when evaluating the adequacy of the allowance for doubtful accounts. A
significant change in the liquidity or financial position of any of our
significant customers could have a material adverse impact on the collectibility
of our accounts receivable and future operating results. Our accounts receivable
balance was $6.3 million, net of allowance for doubtful accounts of $0.2 million
as of December 31, 2002.

VALUATION OF INVENTORIES

      We must make estimates as to the amount of the obsolete or excess
inventory. We specifically analyze historical write-offs, the age and condition
of the inventory, and current economic trends when assessing the valuation of
inventory. Significant management judgments and estimates must be made and used
in connection with valuing these inventories in any accounting period.

ACCOUNTING FOR INCOME TAXES

      As part of the process of preparing our consolidated financial statements
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves us


                                       19
<PAGE>

estimating our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheets. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations. In the event that
actual results differ from our estimates of future taxable income or we adjust
those estimates in future periods, we may need to revise the valuation allowance
which could materially impact our financial position and results of operations.
At December 31, 2001 and 2002, we had not established a valuation allowance as
we believe it is more likely than not that our deferred tax assets will be
realized.

VALUATION OF LONG-LIVED ASSETS, INTANGIBLE ASSETS AND GOODWILL

      We assess the potential impairment of long-lived assets, intangible assets
and goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important which could
trigger an impairment review include the following:

- significant underperformance relative to historical or projected future
operating results;

- significant changes in the manner of our use of the acquired assets or the
strategy for our overall business; and

- significant negative long term industry or economic trends.

      When we determine that the carrying value of goodwill may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, we measure any impairment based on a projected discounted cash flow
method using a discount rate determined by management to be commensurate with
the risk inherent in our current business model. Net long-lived assets,
intangible assets and goodwill amounted to $23.1 million as of December 31,
2002.

      In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" became
effective and as a result, we ceased amortizing approximately $11.4 million of
goodwill. We had recorded approximately $0.4 million of amortization of this
goodwill during 2001 and would have recorded approximately $0.4 million of
amortization during 2002. In lieu of amortization, we performed an initial
impairment review of our goodwill in the second quarter of 2002 and a second
impairment review in the fourth quarter of 2002. No impairment was identified as
a result of the reviews. We will perform an annual impairment review of goodwill
hereafter.

RELATED PARTY TRANSACTIONS

      In November 2002, we entered into the Merrill Facility. A portion of the
funds provided under the Merrill Facility was used to pay off the senior
subordinated debt owed to Banc One Capital Partners. The $0.7 million in senior
subordinated debt owed to the LLC remains outstanding, but the terms of this
debt were amended in connection with the refinancing. Also in connection with
the refinancing, the LLC and Banc One Capital Partners agreed to cancel the
warrants with a put option for 1.1 million shares of our common stock which
were issued in connection with the senior subordinated debt. The amended terms
of the senior subordinated debt included a change in the maturity date from
March 31, 2005 to December 31, 2007 and an increase in the interest rate from
15% to 18%, with 10% interest paid quarterly and the


                                       20
<PAGE>

remaining 8% interest compounded monthly and paid at maturity. The senior
subordinated debt owed to LLC continues to be secured by substantially all of
our assets, but is subordinated to the Merrill Facility.

      Also in connection with the refinancing of our long term obligations
through the Merrill Facility in November 2002, a group of individuals, including
Eric Becker (a director and 5% beneficial owner), Thomas Dalton (an executive
officer and 5% beneficial owner), Merrick M. Elfman (an executive officer,
director and 5% beneficial owner), Bruce Goldman (a 5% beneficial owner), John
Miller (a director), Alan Sussna (a former director and officer and current 5%
beneficial owner) and Steven Taslitz (a director and 5% beneficial owner),
purchased $0.8 million of the junior subordinated debt owed to former owners. As
a result of the purchase, we now owe this $0.8 million of junior subordinated
debt to this group of individuals on the same terms and conditions as we owe the
remainder of this junior subordinated debt to the former owners.

      In November 2002, we also entered into a consulting agreement with
Sterling Advisors LP, an entity owned by Messrs. Douglas Becker (a 5% beneficial
owner), Eric Becker (a director and 5% beneficial owner), Rudolf Christopher
Hoehn-Saric (a 5% beneficial owner) and Steven Taslitz (a director and 5%
beneficial owner). The initial two-year term of the consulting agreement begins
January 1, 2003, with one year renewal periods thereafter, unless it is
terminated by either party twelve months prior to the applicable termination
date. Under the terms of the consulting agreement, commencing January 1, 2003,
Sterling Advisors LP will be paid $0.2 million per year for consulting services
relating to financial, strategic and operational matters. In addition, Sterling
Advisors LP received $0.15 million for services rendered in connection with
procurement of the Merrill Facility and the related transactions.

RESIGNATION OF CHIEF EXECUTIVE OFFICER

      Alan Sussna resigned from the position of Chief Executive Officer and
President of our company on January 9, 2003. In connection with his resignation,
we agreed to pay Mr. Sussna $183,796.50 over six months in accordance with our
payroll policies (the "Resignation Payment") and continued employee benefits for
the maximum period permitted by law. In addition, Mr. Sussna shall receive
$367,593, less any amounts already received pursuant to the Resignation Payment,
if there is a change of control of our company within 120 days of January 9,
2003. Mr. Sussna has agreed not to compete with our company for a period of 120
days following his resignation, nor will he solicit for employment any director,
stockholder or certain employees of our company during such period.

COMMERCIAL COMMITMENTS

      The future maturities of long-term debt as of December 31, 2002, are as
follows (in thousands):


2003     $ 1,416
2004       1,183
2005       1,155
2006       1,132
Thereafter 6,806
           -----
         $11,692


                                       21
<PAGE>

      As of December 31, 2002, future minimum lease payments under operating
leases are as follows (in thousands):

2003        $ 853
2004          442
2005          140
2006           24
Thereafter     24
               --
           $1,483


      We have issued letters of credit totaling $0.5 million, all of which
expire in less than 1 year, all in the ordinary course of business to various
vendors and regulatory agencies. These letters of credit are routinely renewed
upon expiration.

FORWARD LOOKING STATEMENTS

      We want to provide stockholders and investors with meaningful and useful
information. Therefore, this Annual Report on Form 10-K contains forward-looking
information and describes our belief concerning future business conditions and
our outlook based on currently available information. Whenever possible, we have
identified these forward looking statements by words such as "believe,"
"expect," "will depend" and similar expressions. These forward-looking
statements are subject to risks and uncertainties that would cause our 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 our business strategy; uncertainty as
to evolving consumer preferences; customer and supplier concentration; the
impact of competition; our ability to raise additional capital; sensitivity to
such factors as weather and raw material costs; and the factors discussed above
under the caption "Quantitative and Qualitative Disclosures About Market Risk."
Readers are encouraged to review information in Item 1 under the heading "Risk
Factors" for a more complete description of these factors. We assume no
obligation to update the information contained in this Annual Report on Form
10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      See discussion under the caption "Quantitative and Qualitative Disclosures
about Market Risk" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Our 2002 Consolidated Financial Statements and the related Report of
Independent Auditors are set forth on page F-1 through F-24 of this Form
10-K.

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

      None.



                                       22
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

CLASS I -- DIRECTORS TO BE ELECTED AT THE 2003 ANNUAL MEETING:

      Eric D. Becker. Mr. Becker, age 40, served as Chairman of our company from
September 1993 through July 1996, and he has been a director since 1991, the
year our company's business was purchased from a predecessor. Mr. Becker is also
a co-founder and Managing Principal of Sterling Capital, Ltd., a private
investment firm which was founded in 1984 ("Sterling Capital"), and since 1984,
Mr. Becker has also been Chairman and Vice President of Sterling Group, Inc., an
affiliate of Sterling Capital ("Sterling Group"). Mr. Becker is also Chairman of
Becker Group, Ltd., a privately-held company in the mall decorations business
("Becker Group"). Mr. Becker has also been a Principal of Sterling Advisors, LP
("Sterling Advisors") since 1984 and Managing Principal of Sterling Venture
Partners, a venture capital fund, since 1999. Additionally, Mr. Becker currently
serves as a director and member of the compensation committee of Argent Trading,
a venture backed private barter trade company, and as a director of Cognitive
Concepts, an education software company. Mr. Becker was also a director of U.S.
Technologies, a public company that develops and operates a network of
technology and related companies, for five months in 2001.


      Brian Fleming. Mr. Fleming, age 56, has served as a director of our
company since December 1997 and is currently a member of the Compensation and
Executive Committees. Mr. Fleming is Vice Chairman of Knauss Foods, a
privately-held processor of meat products specializing in dried beef and meat
snacks, a position he has held since June 2001. From 1998 to 2001, Mr. Fleming
was the President of Knauss Foods. Prior to 1998, Mr. Fleming was the President
and Chief Operating Officer of Knauss Snack Food Company, a privately-held meat
snack company. Mr. Fleming is presently a director of The Decal Source, which
designs and distributes decals for use in Nascar motor sports, a position he has
held since 1998.

      G. Cook Jordan, Jr. Mr. Jordan, age 51, has served as a director of our
company since September 1993 and he is a member of the Audit and Compensation
Committees. Mr. Jordan is a co-founder and Managing Principal of Jordan, Knauff
& Company, a private investment bank. From 1998 to 2000, Mr. Jordan was a
general partner at CID Equity Partners, a venture capital investment fund. From
1996 through 1998, Mr. Jordan was a principal at C3 Holdings, LLC, a private
investment firm. From 1988 through 1996, Mr. Jordan served as a Manager of
Allstate Venture Capital, which was affiliated with Allstate Insurance Company.
Mr. Jordan has also been a director at Day's Molding and Machinery, a plastic
injection molder, since 1998.

CLASS II -- DIRECTORS SERVING UNTIL 2004 ANNUAL MEETING:

      Merrick M. Elfman. Mr. Elfman, age 44, is Chairman of our company, a
position he has held since July 1996, and he has been a director of our company
since 1993. Mr. Elfman is also a member of the Executive Committee. Mr. Elfman
has been Chairman of Ecom Group, Inc., a privately-held distributor of specialty
lighting products ("Ecom"), since 1998. He is also a Managing Partner of
Sterling Capital Partners L.P., a private investment firm with which he has been
involved since 1987.


                                       23
<PAGE>

      John T. Hanes. Mr. Hanes, age 66, has served as a director of our company
since December 1997 and is a member of the Audit and Executive Committees. From
1994 to the present, Mr. Hanes has served as President of The John T. Hanes
Company, a management consulting firm, and he has been a director of Premier
Valley Foods, a privately-held processor and marketer of the DelMonte brand of
dried fruits, since 1998. From 1991 to 1994, Mr. Hanes served as the Chairman
and President of Doskocil Companies/Wilson Foods Corporation, Incorporated, a
publicly-held processor of pizza and other processed meat products, and he
retired as its Chief Executive Officer.

      Steven M. Taslitz. Mr. Taslitz, age 44, has served as a director of our
company since 1991. Mr. Taslitz is a co-founder and Managing Principal of
Sterling Capital and Sterling Group, as well as a partner of Sterling Advisors.
He also sits on the investment committees of Sterling Venture Partners,
Sterling's venture capital fund, and Sterling Real Estate Partnership. He has
served as the President of Sterling Group since 1984. Mr. Taslitz is a director
of Ecom and Becker Group.

CLASS III -- DIRECTORS SERVING UNTIL 2005 ANNUAL MEETING:

      John A. Miller. Mr. Miller, age 49, has served as a director of our
company since September 1993 and is currently a member of the Audit and
Compensation Committees. Mr. Miller has served as President of North American
Corporation of Illinois, a multi-divisional distributor, since 1988. Mr. Miller
has also been a director of Sylvan Learning Systems, Inc. since 2001, where he
is a member of the Audit Committee, a director of the Becker Group since 1998
and a director of Alberto- Culver Company, a consumer products company, since
2002.

      Franklin M. Roth. Franklin M. Roth, age 62, was appointed to our board of
directors in August 2001. Mr. Roth was employed by Blue Ribbon Packing Co. in
Houston, Texas, for 23 years. In 1986, Mr. Roth resigned as executive vice
president of Blue Ribbon Packing Co. to become founder and president of Prefco
Inc., a meat distribution company in Houston. In 1996, Mr. Roth was appointed
president of Prefco Corp. in connection with our acquisition of Prefco, Inc.

EXECUTIVE OFFICERS

      In addition to Merrick M. Elfman and Franklin M. Roth, whose biographies
are listed in the directors section above, our company currently has the
following two executive officers:

      Thomas M. Dalton. Mr. Dalton, age 54, has served our company as Chief
Financial Officer since April 1998. In March 2001, he was also elected to the
additional position of Chief Operating Officer. In January 2003, he was
appointed to the additional post of President. From 1994 through 1998, Mr.
Dalton served as a director, Chief Executive Officer and Chief Financial Officer
of SNA Inc., a food processing and distribution company, and he has been a
director of Duo-Fast Corporation, a privately-held processor and distributor of
tools and fasteners since 1997. Mr. Dalton also served as a director, Executive
Vice President and Chief Financial Officer of the Richelieu Group, a
privately-held company with nine operating subsidiaries in food processing and
distribution, from 1985 to 1993.

      Steven E. Englander. Mr. Englander, age 47, has served as our Senior Vice
President - Marketing since August 1998. Prior to his employment with our
company, Mr. Englander was Vice President of Marketing with Morningstar Foods, a
position he held from September 1995 through March 1998. From September 1991
through June 1995, he was Vice President of Marketing and Sales at Eagle Snacks,
a division of Anheuser Busch.


                                       24
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the 1934 Act requires our officers, directors and certain
beneficial holders of our common stock to file reports about their beneficial
ownership of our common stock. Specific due dates for these reports have been
established and we are required to disclose in this Form 10-K any failure to
file by these dates during 2002. All of these filing requirements were timely
satisfied, except Mr. Taslitz failed to timely report one transaction in
November 2002. In making these disclosures, we have relied solely upon written
representations of our directors and executive officers and copies of the
reports they filed with the SEC.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

      The following table sets forth annual and long-term compensation for the
fiscal years ended December 31, 2000, 2001 and 2002 for services in all
capacities to our company of (i) our chairman, (ii) our current and former chief
executive officer, and (iii) our next two most highly compensated executive
officers (collectively, the "Named Officers").

<TABLE>
                           SUMMARY COMPENSATION TABLE
<CAPTION>
                                                                                LONG TERM
                                               ANNUAL COMPENSATION             COMPENSATION
                                               -------------------             -------------
                                                                               SECURITIES         ALL OTHER
                                                                               UNDERLYING       COMPENSATION
NAME AND PRINCIPAL POSITION             YEAR      SALARY($)     BONUS($)       OPTIONS(#)          ($)(3)
---------------------------             ----      ---------     --------       -------------    ------------
<S>                                     <C>       <C>           <C>             <C>             <C>
Merrick M. Elfman,
Chairman (1)                             2002     123,761             --         19,000                 --
                                         2001     120,000             --         19,000                 --
                                         2000      25,385         42,500         10,000                 --

Alan F. Sussna,                          2002     375,551         40,435             --             44,527
Former President and Chief               2001     364,820             --             --             44,100
Executive Officer (2)                    2000     348,007        100,000             --             44,250

Thomas M. Dalton, President, Chief
Operating Officer and Chief
Financial Officer (2)                    2002     190,045         53,070             --             25,737
                                         2001     183,171             --        120,000             24,837
                                         2000     172,048         50,000             --             23,625

Steven E. Englander,
Senior Vice President - Marketing        2002     123,868         20,000             --             16,076
                                         2001     118,373         20,000             --             15,911
                                         2000     112,144          6,500             --             15,724

Franklin M. Roth,
President of Prefco Corp.                2002     175,812         58,900             --              6,352
                                         2001     168,980         65,000             --             11,441
                                         2000     154,348         77,352         25,000             15,066
</TABLE>


                                       25
<PAGE>

(1)   Effective October 1, 2000, we entered into an employment agreement with
      Mr. Elfman pursuant to which Mr. Elfman is compensated for his services.
      Prior to October 1, 2000, Mr. Elfman was a non-employee director and was
      compensated for his services as director and chairman in the same manner
      as other non-employee directors.

(2)   Mr. Sussna resigned as President and Chief Executive Officer effective
      January 9, 2003. At that time, Mr. Dalton was appointed to the additional
      position of President.

(3)   These amounts represent $5,250, $5,100 and $5,527 contributed by us in
      2000, 2001 and 2002, respectively, to our 401(k) Plan on behalf of Mr.
      Sussna; $39,000, $39,000 and $40,435 paid to Mr. Sussna in 2000, 2001 and
      2002, respectively, as an allowance for transportation costs and health
      related benefits; $19,500, $19,500 and $19,500 paid to Mr. Dalton in 2000,
      2001 and 2002, respectively, as an allowance for transportation costs and
      health related benefits; $12,000, $12,000 and $12,000 paid to Mr.
      Englander in 2000, 2001 and 2002, respectively, as an allowance for
      transportation costs and health related benefits; $10,556, $6,592 and
      $1,047 paid to Mr. Roth in 2000, 2001 and 2002, respectively, as an
      allowance for transportation costs and health related benefits; $4,125,
      $3,724 and $4,510 contributed by us in 2000 to our 401(k) Plan on behalf
      of Mr. Dalton, Mr. Englander and Mr. Roth, respectively; $5,337, $3,911
      and $4,849 contributed by us in 2001 to our 401(k) Plan on behalf of Mr.
      Dalton, Mr. Englander and Mr. Roth, respectively; and $6,237, $4,076 and
      $5,306 contributed by us in 2002 to our 401(k) Plan on behalf of Mr.
      Dalton, Mr. Englander and Mr. Roth, respectively.

OPTION GRANTS

      The following table sets forth certain information concerning option
grants to the Named Officers during 2002:

<TABLE>
                              OPTION GRANTS IN 2002
<CAPTION>
                                                                                           POTENTIAL REALIZABLE
                                                                                             VALUE AT ASSUMED
                                                                                              ANNUAL RATES OF
                                                                                                STOCK PRICE
                                                                                             APPRECIATION FOR
                                    INDIVIDUAL GRANTS                                           OPTION TERM
                                    -----------------                                       -------------------

                                                    PERCENT OF
                                                      TOTAL
                                                     OPTIONS
                                   NUMBER OF        GRANTED TO
                                  SECURITIES        EMPLOYEES     EXERCISE     EXPIRATION
          NAME AND                UNDERLYING        IN FISCAL     PRICE(4)       DATE          5%         10%
     PRINCIPAL POSITION         OPTIONS GRANTED      YEAR(3)       ($/SH)                     ($)         ($)
     ------------------         ---------------     ----------    --------     -----------    ---         ---
<S>                             <C>                 <C>           <C>          <C>         <C>         <C>
Merrick M. Elfman, Chairman        10,000(1)           53%          2.40        1/01/12    $15,100     $38,200

Merrick M. Elfman, Chairman        9,000(2)            47%          2.40        1/01/12    $13,590     $34,380
</TABLE>

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

(1)   These options vest 2,500 each quarter so long as the holder remains a
      director of our company. As a result, by December 31 of the year in which
      they were granted, all 10,000 of theses options are exercisable.

(2)   These options vest one-fourth at the end of each calendar quarter in the
      year in which they were granted so long as the holder remains a director
      of our company. As a result, by December 31 of the year in which they were
      granted, all of these options are exercisable.

(3)   Based on 19,000 options granted to all of our employees in 2002.

(4)   Based on the market price on the date of grant.




                                       26
<PAGE>

      There were no option exercises by our Named Officers in 2002. Shown below
is information with respect to outstanding options held by our Named Officers as
of December 31, 2002. All options reflected in the chart below were granted
under our option plan.


<TABLE>
                     AGGREGATED 2002 YEAR-END OPTION VALUES

<CAPTION>
                                 NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                                UNDERLYING UNEXERCISED           IN-THE-MONEY
                                  OPTIONS AT 12/31/02        OPTIONS AT 12/31/02
          NAME                EXERCISABLE/UNEXERCISABLE  EXERCISABLE/UNEXERCISABLE (1)
          ----                -------------------------  -----------------------------
<S>                           <C>                        <C>
     Thomas M. Dalton                  320,000/0                   $112,800/$0

    Merrick M. Elfman                  122,500/0                    $52,598/$0

   Steven E. Englander               40,000/5,000                  $3,968/$850

     Franklin M. Roth                  75,000/0                     $13,500/$0

      Alan F. Sussna                500,000/250,000                $192,500/$0
</TABLE>

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

(1)   Based on the closing price of $2.27 per share of our Common Stock on
      December 31, 2002, as reported by the American Stock Exchange.

DIRECTORS' FEES

      Under our option plan, non-employee directors receive options to purchase
10,000 shares of common stock on January 1 of each year. In addition, in 2002,
the members of our Audit Committee each received options to purchase 1,500
shares, the members of our Compensation Committee each received options to
purchase 2,500 shares and the members of our Executive Committee each received
options to purchase 9,000 shares. On October 1, 2000, we entered into an
employment agreement with our chairman, Merrick M. Elfman. Mr. Elfman's
compensation for his services as chairman pursuant to this agreement are
included above in the "Summary Compensation Table" and a description of the
material terms of this agreement is set forth below.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      The members of our Compensation Committee are John Miller, G. Cook Jordan,
Jr. and Brian Fleming. In April 2001, we restructured our then existing senior
subordinated debt owed to Banc One Capital Partners. In connection with that
restructuring, the LLC, as more fully described in Item 13, Certain
Relationships and Related Transactions, purchased a 10% interest in the then
existing senior subordinated debt owed to Banc One Capital Partners, including a
corresponding 10% interest in the warrants with a put option which were issued
in connection with the senior subordinated debt. The LLC is in part owned by
John Miller.

      In connection with the refinancing of our long term obligations through
the Merrill Facility in November 2002, as more fully described in Item 13,
Certain Relationships and Related Transactions, a group of individuals,
including John Miller, purchased $0.8 million of the subordinated debt owed to
former owners.


                                       27
<PAGE>

EMPLOYMENT AGREEMENTS

      We have employment agreements with the following Named Officers who are
currently employed by our company: Mr. Dalton, Mr. Elfman and Mr. Englander.

      Mr. Dalton's employment agreement is currently in effect until April 6,
2004, and extends for additional one year periods unless terminated by written
notice given by either party to the other six months prior to April 5 of each
year. Pursuant to the employment agreement, Mr. Dalton's base compensation is
subject to normal cost of living increases, as well as those increases permitted
by our Compensation Committee. Mr. Dalton's employment agreement provides that
if his employment is terminated either (1) by us without cause, or (2) by the
executive due to a reduction in responsibility without his consent, a reduction
in his base salary, relocation of his office from the Chicagoland area, our
failure to comply with the terms of the employment agreement, or if the
aggregate beneficial ownership of the following individuals is reduced to less
than 15% of the number of shares of common stock outstanding: Douglas L. Becker,
Eric D. Becker, Merrick M. Elfman, Bruce L. Goldman, Rudolf Christopher
Hoehn-Saric and Steven M. Taslitz, as well as their spouses and dependent
children or trusts established for their benefit (a "Stockholder Exit"), then
Mr. Dalton will receive his full base salary, the annual bonus to which the
executive would have been entitled but for the termination, and continued
employee benefits for the maximum period permitted by law.

      Mr. Elfman's employment agreement is currently in effect until April 30,
2004, and extends for additional one year periods thereafter, unless terminated
by written notice given by either party to the other three months prior to each
April 30th. The employment agreement provides for a signing bonus of $42,500
which was paid upon execution of the employment agreement in October 2000, and a
salary of $115,000 per year, which increases by 5% on May 1 of each year,
beginning May 1, 2002. If Mr. Elfman's employment terminates for any reason
prior to a scheduled expiration date, we remain obligated to pay all amounts and
provide all benefits provided for in his employment agreement through the
scheduled expiration date. In addition, all amounts due under Mr. Elfman's
employment agreement will be immediately due in the event that our company is
sold, whether through a change of control or a sale of substantially all of our
assets, or we are taken private through a transaction with unaffiliated third
parties.

      Mr. Englander's employment agreement may be terminated by Mr. Englander or
us at any time, subject in some circumstances to our obligation to pay Mr.
Englander's compensation for a period of up to six months after the termination,
which period depends upon the reason for the termination and the duration of Mr.
Englander's employment with us prior to termination. The employment agreement
provides for Mr. Englander's base compensation, which is subject to normal cost
of living increases, and an annual bonus of up to 30% of his base salary, 50% of
which will be based on our overall performance and 50% of which will be based
upon management objectives described by our chief executive officer on an annual
basis.

      The employment agreements for Mr. Dalton, Mr. Elfman and Mr. Englander
also contain certain non-competition and confidentiality provisions pursuant to
which they agree not to compete with our company for a period of two years
following termination of their employment with us, nor will they solicit for
employment any director, stockholder or certain employees of our company during
such period. The employment agreements also provide that Mr. Dalton, Mr. Elfman
and Mr. Englander will not disclose any confidential information concerning our
company and our business to any other person or entity except as may be required
by law.


                                       28
<PAGE>

      Mr. Sussna resigned from the position of Chief Executive Officer and
President of our company on January 9, 2003. In connection with his resignation,
we agreed to pay Mr. Sussna the Resignation Payment, as previously defined in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and continued employee benefits for the maximum period permitted by
law. In addition, Mr. Sussna shall receive $367,593, less any amounts already
received pursuant to the Resignation Payment, if there is a change of control of
our company within 120 days of January 9, 2003. Mr. Sussna has agreed not to
compete with our company for a period of 120 days following his resignation, nor
will he solicit for employment any director, stockholder or certain employees of
our company during such period.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS



      The following table sets forth certain information regarding securities
authorized for issuance under our option plan and our employee stock purchase
plan (ESPP), our only equity compensation plans as of December 31, 2002.
<TABLE>
<CAPTION>

                                      EQUITY COMPENSATION PLAN INFORMATION                   NUMBER OF SECURITIES
                                      ------------------------------------                  REMAINING AVAILABLE FOR
                                NUMBER OF SECURITIES TO BE    WEIGHTED AVERAGE EXERCISE      FUTURE ISSUANCE UNDER
                                  ISSUED UPON EXERCISE OF       PRICE OF OUTSTANDING       EQUITY COMPENSATION PLANS
                                   OUTSTANDING OPTIONS,         OPTIONS, WARRANTS AND        (EXCLUDING SECURITIES
        PLAN CATEGORY               WARRANTS AND RIGHTS                RIGHTS              REFLECTED IN COLUMN (A))
        -------------           --------------------------    -------------------------    -------------------------
                                            (a)                          (b)                            (c)
<S>                             <C>                           <C>                          <C>
  EQUITY COMPENSATION PLANS             ESPP - N/A                   ESPP - N/A                  ESPP - 52,096
 APPROVED BY SECURITY HOLDERS     Option Plan - 2,016,637        Option Plan - $2.65       Option Plan - 983,363 (1)

EQUITY COMPENSATION PLANS NOT              None                          N/A                         None
 APPROVED BY SECURITY HOLDERS

            TOTAL                        2,016,637                      $2.65                      1,035,459
</TABLE>












                                       29
<PAGE>

         The following table sets forth certain information regarding the
ownership of our common stock as of March 19, 2003, by each person known by us
to be the beneficial owner of more than five percent (5%) of the outstanding
shares of our common stock, each director of our company, each Named Officer,
and all current executive officers (as of March 19, 2003) and directors as a
group. The information presented in the table is based upon the most recent
filings with the Securities and Exchange Commission, the "SEC", by such persons
or upon information otherwise provided by such persons to us.

         Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days are deemed outstanding for purposes of
computing the percentage ownership of the person holding such option or warrant
but are not deemed outstanding for purposes of computing the percentage
ownership of any other person. Except where indicated otherwise, and subject to
community property laws where applicable, the persons named in the table below
have sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Unless otherwise noted, the address for
each shareholder is c/o 1033 Skokie Boulevard, Suite 600, Northbrook, IL 60062.

                        BENEFICIAL OWNERSHIP INFORMATION
<TABLE>
<CAPTION>
                                                         SHARES BENEFICIALLY
             NAMES OF BENEFICIAL OWNERS                         OWNED             PERCENTAGE OWNED
             --------------------------                  -------------------      ----------------
<S>                                                      <C>                      <C>
Eric D. Becker......................................               528,457(1)           7.70%
Thomas M. Dalton....................................               382,438(2)           5.40%
Merrick M. Elfman...................................               576,859(3)           8.38%
Steven Englander....................................                54,716(4)             *
Brian T. Fleming....................................                82,000(5)           1.20%
John T. Hanes.......................................                78,400(6)           1.15%
G. Cook Jordan, Jr..................................               119,607(7)           1.75%
John A. Miller......................................               238,905(8)           3.49%
Franklin M. Roth....................................               173,000(9)           2.53%
Steven M. Taslitz...................................              535,934(10)           7.80%
All directors and current executive officers as a
group (10 persons)..................................            2,770,316(11)           35.29%

Other Five Percent Stockholders:
Douglas L. Becker...................................              405,957(12)           5.97%
Philip L. Glass.....................................              424,268(13)           6.27%
Bruce L. Goldman....................................              647,076(14)           9.57%
Rudolf Christopher Hoehn-Saric......................              436,699(15)           6.43%
Alan F. Sussna......................................             730,215 (16)           10.05%
</TABLE>

-------------------
*Less than one percent


(1)   Includes 392,293 shares held by Mr. Becker's wife and 102,500 shares
      underlying currently exercisable options or options exercisable within 60
      days.

(2)   Includes 320,000 shares underlying currently exercisable options or
      options exercisable within 60 days.

(3)   Includes 122,500 shares underlying currently exercisable options or
      options exercisable within 60 days. Of the remaining 454,359 shares,
      433,805 are held by Mr. Elfman and his wife jointly.

(4)   Includes 40,000 shares underlying currently exercisable options or options
      exercisable within 60 days.

(5)   Includes 75,500 shares underlying currently exercisable options or options
      exercisable within 60 days.

(6)   Includes 73,500 shares underlying currently exercisable options or options
      exercisable within 60 days.


                                       30
<PAGE>

(7)   Includes 85,000 shares underlying currently exercisable options or options
      exercisable within 60 days. Also includes 19,607 shares held by Mr.
      Jordan's IRA.

(8)   Includes 85,000 shares underlying currently exercisable options or options
      exercisable within 60 days.

(9)   Includes 75,000 shares underlying currently exercisable options or options
      exercisable within 60 days.

(10)  Includes 144,923 shares held by Mr. Taslitz as trustee of the Kathy J.
      Taslitz Trust and 250,346 shares held by Mr. Taslitz and Mr. Goldman as
      co-trustees of the KJT Gift Trust. Mr. Taslitz disclaims beneficial
      ownership of the 250,346 shares held by him as co-trustee of the KJT Gift
      Trust. Also includes 107,000 shares underlying currently exercisable
      options or warrants or options exercisable within 60 days.

(11)  Includes 1,086,000 shares underlying currently exercisable options or
      options exercisable within 60 days.

(12)  Includes 30,000 shares underlying currently exercisable options.

(13)  Includes 145,740 shares held by the Glass International Ltd. Profit
      Sharing Plan and Trust dated July 1, 1983 (the "Trust"). Mr. Glass and his
      wife, Ellen V. Glass, are co-trustees and also the beneficiaries of the
      Trust. The remaining 278,528 shares are held by Mr. Glass and his wife
      jointly, either as joint tenants or tenants in common. The address for
      this shareholder is 20 N. Wacker, #3400, Chicago, IL 60606-3102.

(14)  Includes 250,346 shares held by Mr. Goldman and Mr. Taslitz as co-trustees
      of the KJT Gift Trust. Mr. Goldman disclaims beneficial ownership of the
      shares held by the KJT Gift Trust.

(15)  Includes 24,593 shares held by Mr. Hoehn-Saric as Trustee for the benefit
      of Gabriella Hoehn-Saric and 21,519 shares held by him as Trustee for the
      benefit of Rudolph Christopher Hoehn-Saric, Jr. Also includes 30,000
      shares underlying currently exercisable options or options exercisable
      within 60 days.

(16)  Includes 175,528 shares held by Mr. Sussna as trustee of the Alan F.
      Sussna Trust and 9,803 shares held by Mr. Sussna's wife, Brenda B. Sussna,
      as trustee of the Brenda B. Sussna Trust. Mr. Sussna disclaims beneficial
      ownership of all 9,803 shares held by his wife as trustee of the Brenda B.
      Sussna Trust. Also includes 500,000 shares underlying currently
      exercisable options or options exercisable within 60 days, which are held
      by Mr. Sussna as Trustee of the Alan F. Sussna Trust.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In April 2001, we restructured our then existing senior subordinated debt
owed to Banc One Capital Partners. In connection with that restructuring, BOCP
ABR Mezz, LLC, formerly known as Sterling BOCP, LLC, and referred to in this
document as the LLC, purchased a 10% interest in the then existing senior
subordinated debt owed to Banc One Capital Partners, including a corresponding
10% interest in the warrants with a put option which were issued in connection
with the senior subordinated debt. The LLC is owned by Messrs. Douglas Becker (a
5% beneficial owner), Eric Becker (a director and 5% beneficial owner), Merrick
Elfman (an executive officer, director and 5% beneficial owner), Bruce Goldman
(a 5% beneficial owner), Rudolf Christopher Hoehn-Saric (a 5% beneficial owner),
John Miller (a director) and Steven Taslitz (a director and 5% beneficial
owner).

      In November 2002, we entered into the Merrill Facility, as previously
defined in Management's Discussion and Analysis of Financial Condition and
Results of Operations, with Merrill Lynch Capital. A portion of the funds
provided under the Merrill Facility was used to pay off the senior subordinated
debt owed to Banc One Capital Partners. The $0.7 million in senior subordinated
debt owed to the LLC remains outstanding, but the terms of this debt were
amended in connection with the refinancing. Also in connection with the
refinancing, the LLC and Banc One Capital Partners agreed to cancel the warrants
with a put option which were issued in connection with the senior subordinated
debt. The amended terms of the senior subordinated debt owed to the LLC changed
the maturity date from March 31, 2005 to December 31, 2007 and increased the
interest rate from 15% to 18%, with 10% interest paid quarterly and the
remaining 8% interest compounded monthly and paid at maturity. The senior
subordinated debt owed to the LLC continues to be secured by substantially all
of our assets, but is subordinated to the Merrill Facility.

      Also in connection with the refinancing of our long term obligations
through the Merrill Facility in November 2002, a group of individuals, including
Eric Becker (a director and 5% beneficial owner), Thomas Dalton (an executive
officer and 5% beneficial owner), Merrick Elfman (an executive officer, director
and 5% beneficial owner), Bruce Goldman (a 5% beneficial owner), John Miller (a
director), Alan Sussna (a former director and officer and current 5% beneficial
owner) and Steven Taslitz (a director and 5% beneficial owner), purchased
$0.8 million of the junior


                                       31
<PAGE>

subordinated debt owed to former owners. As a result of the purchase, we now owe
this $0.8 million of junior subordinated debt to this group of individuals on
the same terms and conditions as we owe the remainder of this junior
subordinated debt to the former owners.

      In November 2002, we also entered into a consulting agreement with
Sterling Advisors LP an entity owned by Messrs. Douglas Becker (a 5% beneficial
owner), Eric Becker (a director and 5% beneficial owner), Rudolf Christopher
Hoehn-Saric (a 5% beneficial owner) and Steven Taslitz (a director and 5%
beneficial owner). The initial two-year term of the consulting agreement begins
January 1, 2003, with one year renewal periods thereafter, unless it is
terminated by either party twelve months prior to the applicable termination
date. Under the terms of the consulting agreement, commencing January 1, 2003,
Sterling Advisors LP will be paid $0.2 million per year for consulting services
relating to financial, strategic and operational matters. In addition, Sterling
Advisors LP received $0.15 million for services rendered in connection with
procurement of the Merrill Facility and the related transactions.

ITEM 14. CONTROLS AND PROCEDURES

      We maintain a system of disclosure controls and procedures designed to
provide reasonable assurance as to the reliability of the financial statements
and other disclosures included in this report, as well as to safeguard assets
from unauthorized use or disposition. Within 90 days prior to the filing date of
this report, an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures was performed under the supervision of
our management, including the principal executive and financial officer. Based
on that evaluation, our management, including the principal executive and
financial officer, concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic Securities and Exchange Commission filings. There have
been no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date of the
evaluation described above.


















                                       32
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
         ON FORM 8-K

      (a)   The following documents are filed as part of this Form 10-K:
<TABLE>
            1. The consolidated financial statements of the Company and its
            subsidiaries, together with the applicable reports of independent
            public accountants:
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
                  Independent Auditors' Report                                          F-1

                  Consolidated Balance Sheets - as of December 31, 2001 and 2002        F-2

                  Consolidated Statements of Operations - for the years ended
                  December 31, 2000, 2001 and 2002                                      F-3

                  Consolidated Statements of Stockholders' Equity - for the
                  years ended December 31, 2000, 2001 and 2002                          F-4

                  Consolidated Statements of Cash Flows - for the years ended
                  December 31, 2000, 2001 and 2002                                      F-5

                  Notes to Consolidated Financial Statements                            F-6

                  2. Schedules have been omitted because the information
                  required to be shown in the schedules is not applicable or is
                  included elsewhere in our financial statements or accompanying
                  notes.

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

Exhibit
Number        Description
------        -----------

3.1           Certificate of Incorporation of Atlantic Premium Brands, Ltd. (the
              "Company"), including all amendments thereto (7)

3.2           By-Laws of the Company (1)

4.1           Specimen Stock Certificate (1)

4.2           Credit Agreement dated as of November 20, 2002 among the Company,
              its subsidiaries, Merrill Lynch Capital, a Division of Merrill
              Lynch Business Financial Services Inc., as Agent and as a Lender,
              and the Additional Lenders from time to time party thereto (10)

4.3           Subordination Agreement dated November 20, 2002 by and
              between BOCP ABR Mezz, LLC and Merrill Lynch Capital, a Division
              of Merrill Lynch Business Financial Services Inc., as Agent for
              certain lenders (10)

4.4           Amended and Restated Security Agreement dated November 20, 2002 by
              and among the Company, its subsidiaries and BOCP ABR Mezz, LLC
              (10)


                                       33
<PAGE>
4.5           Amended and Substituted Senior Subordinated Note, dated November
              20, 2002, in favor of BOCP ABR Mezz, LLC, a Delaware limited
              liability company formerly known as Sterling BOCP, LLC, in the
              original principal amount of $709,048.89 (10)

4.6           Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Franklin Roth,
              in the original principal amount of $475,000

4.7           Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Allen Pauly, in the
              original principal amount of $475,000

4.8           Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of J.L. Richard, in the
              original principal amount of  $574,786

4.9           Amended and Restated 10% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Bobby L. Grogan and Betty
              R. Grogan, in the original principal amount of $200,000 (10)

4.10          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 (3)

4.11          11% Subordinated Non-Negotiable Promissory Note due February
              15, 2008, in favor of Merrick M. Elfman, as agent for the
              individuals listed on Schedule A attached thereto, in the original
              principal amount of $450,000

4.12          Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Merrick M. Elfman, as
              agent for the individuals listed on Schedule A attached 4.12
              thereto, in the original principal amount of $300,000

10.1          Form of Tax Indemnification Agreement (1)

10.2          Stock Purchase Agreement dated April 23, 1999 among the Company
              and Bobby L. Grogan and Betty Ruth Grogan (4)

10.3          Atlantic Premium Brands, Ltd. Employee Stock Purchase Plan dated
              November 1, 1997 (2)

10.4          The Company's 1999 Amended and Restated Stock Option Plan (5)

10.5          Amended and Restated Employment Agreement dated January 10, 2002
              between the Company and Alan. F. Sussna (9)

10.6          Employment Agreement dated as of April 6, 1998 between the Company
              and Thomas M. Dalton (6)

10.7          Employment Agreement dated August 10, 1998 between the Company and
              Steven Englander (7)

10.8          Employment Agreement dated October 1, 2000 between the Company and
              Merrick M. Elfman. (8)

10.9          Consulting Agreement dated November 20, 2002 by and between the
              Company and Sterling Advisors, L.P. (10)

10.10         Note and Warrant Purchase Agreement dated as of April  13, 2001
              among the Company, certain of its subsidiaries, Banc One  Capital
              Partners, LLC, Sterling BOCP, LLC and Fleet Capital Corporation
              (8)*

21            Subsidiaries of the Company (9)

23            Consent of KPMG LLP

99            Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
              2002

------------------
*No longer in effect

(1)   Filed as an exhibit to the Company's Registration Statement No. 33-69438
      or the amendments thereto and incorporated herein by reference.


                                       34
<PAGE>

(2)   Filed as an exhibit to the Company's Registration Statement No. 33-39561
      and incorporated herein by reference.

(3)   Filed as an exhibit to the Company's Annual Report on Form 10-K for the
      year ended December 31, 1997, and incorporated herein by reference.

(4)   Filed as an exhibit to the Company's Current Report on Form 8-K dated May
      21, 1999, filed with the Securities and Exchange Commission on May 24,
      1999, and incorporated herein by reference.

(5)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1999, and incorporated herein by reference.

(6)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1998, 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, 1998, and incorporated herein by reference.

(8)   Filed as an exhibit to the Company's Annual Report on Form 10-K for the
      year ended December 31, 2000, and incorporated herein by reference.

(9)   Filed as an exhibit to the Company's Annual Report on Form 10-K for the
      year ended December 31, 2001, and incorporated herein by reference.

(10)  Filed as an exhibit to the Company's Current Report on Form 8-K dated
      November 20, 2002, filed with the Securities and Exchange Commission on
      November 26, 2002, and incorporated herein by reference.

      (b)   Reports on Form 8-K:

      On November 26, 2002, we filed a Current Report on Form 8-K dated November
20, 2002 disclosing in Item 5 that we entered into a new credit facility with
Merrill Lynch Capital and related transactions.












                                       35
<PAGE>

                                   SIGNATURES

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

                                ATLANTIC PREMIUM BRANDS, LTD.

                                By:     /s/ Thomas M. Dalton
                                   --------------------------------------------
                                         Thomas M. Dalton
                                         President, Chief Financial Officer and
                                         Chief Operating Officer


Dated as of March 28, 2003.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
             SIGNATURE                                        TITLE                                    DATE
             ---------                                        -----                                    ----
<S>                                        <C>                                               <C>
/s/ Thomas M. Dalton                       President, Chief Financial Officer and
--------------------------------           Chief Operating Officer (principal
Thomas M. Dalton                           executive, financial and accounting officer)      March 28, 2003


                                                             Director                        March __, 2003
--------------------------------
Eric D. Becker

/s/ Merrick M. Elfman                                        Director                        March 28, 2003
--------------------------------
Merrick M. Elfman

/s/ Brian Fleming                                            Director
--------------------------------
Brian Fleming                                                                                March 25, 2003

/s/ John T. Hanes                                            Director                        March 28, 2003
--------------------------------
John T. Hanes

/s/ G. Cook Jordan, Jr.                                      Director                        March 26, 2003
--------------------------------
G. Cook Jordan, Jr.

--------------------------------                             Director                        March __, 2003
John A. Miller

/s/ Franklin M. Roth                                         Director                        March 25, 2003
--------------------------------
Franklin M. Roth


--------------------------------                             Director                        March __, 2003
Steven M. Taslitz

</TABLE>




                                       36
<PAGE>

                                  CERTIFICATION
                                  -------------

I, Thomas M. Dalton, President, Chief Financial Officer and Chief Operating
Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Atlantic Premium Brands,
Ltd.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:

      a) designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
      procedures as of a date within 90 days prior to the filing date of this
      annual report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
      of the disclosure controls and procedures based on our evaluation as of
      the Evaluation Date;

5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):

      a) all significant deficiencies in the design or operation of internal
      controls which could adversely affect the registrant's ability to record,
      process, summarize and report financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal
      controls; and

6. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


Date: March 28, 2003


                                     /s/ Thomas M. Dalton
                                  --------------------------
                                       Thomas M. Dalton
                President, Chief Financial Officer and Chief Operating Officer


                                       37
<PAGE>

                          Independent Auditors' Report
                          ----------------------------

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, 2001
and 2002, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2002.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated 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, 2001 and 2002, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 6 to the consolidated financial statements, the Company
changed it method of accounting for goodwill and these consolidated financial
statements have been revised to include the transitional disclosures required by
Statement of Financial Standards No. 142, "Goodwill and Other Intangible
Assets", which was adopted by the Company as of January 1, 2002.

/s/ KPMG LLP

Chicago, Illinois
March 14, 2003

                                      F-1
<PAGE>

                          ATLANTIC PREMIUM BRANDS, LTD.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                               December 31,
                                                            2001           2002
                                                          --------       --------
                          ASSETS
<S>                                                       <C>            <C>
Current assets:
  Cash                                                    $    560       $  1,336
  Accounts receivable, net of allowance for doubtful
    accounts of $203 and $170, respectively                  7,184          6,322
  Inventory                                                  5,291          5,362
  Prepaid expenses and other current assets                  5,982          1,041
                                                           -------        -------
      Total current assets                                  19,017         14,061

Property, plant and equipment, net                          11,152         11,707
Goodwill                                                    11,378         10,478
Other assets, net                                              317            850
                                                           -------        -------
      Total assets                                        $ 41,864       $ 37,096
                                                           =======        =======
           LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Checks outstanding                                      $  1,293       $  1,441
  Notes payable under line of credit                         4,976          2,527
  Current maturities of long-term debt                       5,127          1,416
  Deferred income taxes                                        742            742
  Accounts payable                                           5,561          5,997
  Accrued expenses                                           2,288          1,883
                                                           -------        -------
      Total current liabilities                             19,987         14,006

Long-term debt, net of current maturities                    9,561         10,276
Deferred income taxes                                          463            845
Put warrants                                                   329             --
                                                           -------        -------
      Total liabilities                                     30,340         25,127

Stockholders' equity:
  Preferred stock, $.01 par value; 5,000,000 shares
    authorized; none issued or outstanding                      --             --
  Common stock, $.01 par value; 30,000,000 shares
    authorized; 6,734,391 and 6,764,289 shares
    issued and outstanding, respectively                        67             67
  Additional paid-in-capital                                10,452         10,481
  Retained earnings                                          1,005          1,421
                                                           -------        -------
      Total stockholders' equity                            11,524         11,969
                                                           -------        -------
      Total liabilities and stockholders' equity          $ 41,864       $ 37,096
                                                           =======        =======
</TABLE>

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

                                      F-2
<PAGE>
                          ATLANTIC PREMIUM BRANDS, LTD.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        2000             2001              2002
                                                   -----------       -----------       -----------
<S>                                                <C>               <C>               <C>
Net sales                                          $   177,111       $   133,965       $   122,311
Cost of goods sold                                     153,008           110,598            99,032
                                                    ----------        ----------        ----------

   Gross profit                                         24,103            23,367            23,279

Selling, general and administrative expenses:

 Salaries and benefits                                  10,479             9,967             9,802
 Other operating expenses                                9,350             8,559             8,598
 Depreciation and amortization                           2,258             2,073             1,837
 Goodwill adjustment                                        --             1,044                --
                                                    ----------        ----------        ----------
   Total selling, general and
     administrative expenses                            22,087            21,643            20,237
                                                    ----------        ----------        ----------
   Income from operations                                2,016             1,724             3,042

Other income (expense):
 Interest expense                                       (2,788)           (2,443)           (1,883)
 Fair value adjustment to put warrants                      --              (296)              257
 Loss on extinguishment of debt                             --                --              (545)
 Other income, net                                          41             4,808                30
                                                    ----------        ----------        ----------
   Income (loss) from continuing operations
    before income taxes                                   (731)            3,793               901
Income tax expense                                        (125)           (2,009)             (485)
                                                    ----------        ----------        ----------
   Income (loss) from continuing
    operations                                            (856)            1,784               416
Loss from discontinued operations                         (153)             --                 --
                                                    ----------        ----------        ----------
   Income (loss) before changes in accounting
     principles                                         (1,009)            1,784               416
Changes in accounting principles                           141             1,402               --
                                                    ----------        ----------        ----------

   Net income (loss)                               $     (868)       $     3,186       $       416
                                                    ==========        ==========        ==========

Weighted average common shares:

  Basic                                              6,707,908         6,671,451         6,734,474
                                                    ----------        ----------        ----------
  Diluted                                            6,707,908         6,709,071         7,040,229
                                                    ----------        ----------        ----------

Income (loss) per common share:
 Basic:
  Income (loss) from continuing
   operations                                      $     (0.13)      $      0.27       $      0.06
  Loss from discontinued operations                      (0.02)              --                --
  Changes in accounting principles                        0.02              0.21               --
                                                    ----------        ----------        ----------

 Net income (loss)                                 $     (0.13)      $      0.48       $      0.06
                                                    ==========        ==========        ==========

 Diluted:
  Income (loss) from continuing
   operations                                      $     (0.13)      $      0.27       $      0.06
  Loss from discontinued operations                      (0.02)              --                --
  Changes in accounting principles                        0.02              0.20               --
                                                    ----------        ----------        ----------

 Net income (loss)                                 $     (0.13)       $     0.47       $      0.06
                                                    ==========        ==========        ==========
</TABLE>

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

                                      F-3
<PAGE>

                          ATLANTIC PREMIUM BRANDS, LTD.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                              Retained
                                                                               Additional     Earnings        Total
                                                        Common Stock            Paid-In     (Accumulated   Stockholders'
                                                    Shares         Amount       Capital       Deficit)        Equity
                                                   --------       --------      --------      --------       --------
<S>                                              <C>            <C>            <C>          <C>            <C>
Balance, December 31, 1999                          6,845             68         10,898         (1,313)         9,653

  Repurchase and retirement of Common Stock          (241)            (2)          (578)            --           (580)
  Issuance of Common Stock in
    connection with employee stock
    purchase plan                                      55              1             57             --             58
  Net loss                                             --             --             --           (868)          (868)
                                                 --------       --------       --------       --------       --------
Balance, December 31, 2000                          6,659             67         10,377         (2,181)         8,263

  Issuance of Common Stock in
    connection with employee stock
    purchase plan                                      75             --             75             --             75
  Net income                                           --             --             --          3,186          3,186
                                                 --------       --------       --------       --------       --------
Balance, December 31, 2001                          6,734      $      67      $  10,452      $   1,005      $  11,524

  Issuance of Common Stock in
     connection with employee stock
     purchase plan                                     30             --             29            --              29
  Net income                                           --             --             --           416             416
                                                 --------       --------       --------       --------       --------
Balance, December 31, 2002                          6,764      $     67       $  10,481      $  1,421       $  11,969
                                                 ========       ========       ========       ========       ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.



                                      F-4
<PAGE>

                          ATLANTIC PREMIUM BRANDS, LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                      2000       2001         2002
                                                    -------     -------     -------
<S>                                                 <C>         <C>        <C>

Cash flows from operating activities:

  Net income (loss)                                  $  (868)   $ 3,186    $   416
  Adjustments to reconcile net
      income (loss) to net cash provided
      by (used in) operating activities
    Depreciation and amortization                      2,258      2,073      1,837
    Goodwill adjustment                                   --      1,044         --
    Amortization of debt discount                        250        245        170
    Fair value adjustment to put warrant                  --        296       (257)
    Loss on extinguishment of debt                        --         --        545
    Changes in accounting principles                    (141)    (1,402)        --
    Deferred income taxes                                106      1,727        382
    Decrease in accounts receivable, net               1,832        607        862
    Decrease (increase) in inventory                     298        162        (71)
    Decrease (increase) in prepaid expenses and
        other current assets                             (12)    (4,275)     4,941
    Decrease (increase) in income taxes receivable      (412)       802         --
    Increase (decrease) in accounts payable           (4,927)       (84)       436
    Increase (decrease) in accrued expenses
       and other current liabilities                     307        527       (406)
                                                      ------     ------     ------
Net cash provided by (used in)
  operating activities                                (1,309)     4,908      8,855
                                                      ------     ------     ------

Cash flows from investing activities:
  Acquisition of property, plant and
    equipment                                         (1,254)    (1,400)    (2,252)
  Investment in plant construction in progress          (524)       (82)        --
  Proceeds from disposition of plant,
    property and equipment                                69         65        900
  Other                                                  (28)      (155)        43
                                                      ------     ------     ------
      Net cash used in investing activities           (1,737)    (1,572)    (1,309)
                                                      ------     ------     ------

Cash flows from financing activities:

  Increase (decrease) in checks outstanding              204     (1,874)       148
  Net borrowings (repayments)under line of credit      4,302        (77)    (2,449)
  Payments of Fleet term and debt notes payable       (1,953)    (2,554)    (6,118)
  Payments of subordinated debt                           --         --     (5,801)
  Proceeds from new term debt                             --         --      8,160
  Proceeds from financing of capital items                --        750        103
  Debt refinancing costs                                  --         --       (842)
  Issuance of common stock                                58         75         29
  Repurchase of common stock                            (580)        --         --
                                                      ------     ------     ------
      Net cash provided by (used in)
       financing activities                            2,031     (3,680)    (6,770)
                                                      ------     ------     ------
Net cash provided by (used in) discontinued
   operations                                            (46)       124         --
                                                      ------     ------     ------

Net increase (decrease) in cash                       (1,061)      (220)       776

Cash, beginning of period                              1,841        780        560
                                                      ------     ------     ------
Cash, end of period                                  $   780    $   560    $ 1,336
                                                      ======     ======     ======
</TABLE>


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


                                      F-5


<PAGE>

                          ATLANTIC PREMIUM BRANDS, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (in thousands, except share and per share data)

1. BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY:

The accompanying consolidated financial statements present the accounts of
Atlantic Premium Brands, Ltd. and subsidiaries (the Company). All significant
inter-company transactions have been eliminated in consolidation. The Company is
engaged in the processing, marketing and distribution of packaged meat and other
food products in Texas, Louisiana, Oklahoma and surrounding states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REVENUE RECOGNITION

The Company records sales when product is delivered to the customers. Discounts
provided, principally based on volume, are recorded as reductions of sales at
the time of the sale.

In April 2001, the Financial Accounting Standards Board's (FASB) Emerging Issues
Task Force (EITF) reached a consensus on Issue 2 of Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products", as codified by EITF 01-9, "Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor's
Products)". This issue addresses the income statement classification of
consideration paid from a vendor to an entity that purchases the vendor's
products for resale. The Company adopted the consensus in 2002. The adoption of
this consensus, including required retroactive adjustments of prior periods,
resulted in a decrease of net sales and a corresponding decrease of other
operating expenses of $632, $624 and $705 for the years ended December 31, 2000,
2001 and 2002, respectively. The above reclassifications have no impact on
income from operations or net income (loss).

SHIPPING AND HANDLING COSTS

Shipping and handling costs are included in salaries and benefits and other
operating expenses. These costs totaled $3,944, $3,075 and $2,645 the years
ended December 31, 2000, 2001 and 2002, respectively.

CASH

Cash consists of cash held in various deposit accounts with financial
institutions.

INVENTORY

Inventory is stated at the lower of cost or market and is comprised of raw
materials, finished goods, production parts and packaging supplies. Cost is
determined using the first-in, first-out method. See Note 12 for information
concerning the change in accounting for production parts in 2000.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, net of applicable
depreciation. Depreciation is computed using the straight-line method at annual
rates of 3% to 20% for buildings and building improvements, and 10% to 20% for
equipment, furniture and vehicles. Leasehold improvements are amortized over the
lesser of the lease term or asset life. Additions and improvements that
substantially extend the useful life of a particular asset are capitalized.
Repair and maintenance costs are charged to expense. Upon sale, the cost and
related accumulated depreciation are removed from the accounts.


                                      F-6
<PAGE>

OTHER ASSETS

Other assets consist mainly of cash surrender value of life insurance and
deferred financing costs. Deferred financing costs are being amortized over 5
years, representing the term of the related debt, using the effective interest
method.

GOODWILL

Goodwill represents the excess of costs over fair value of assets of businesses
acquired. The Company adopted the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets", as of January 1, 2002. Goodwill and intangible assets
acquired in a purchase business combination and determined to have an indefinite
useful life are not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets".

In connection with SFAS No. 142's transitional goodwill impairment evaluation,
the Statement required the Company to perform an assessment of whether there was
an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company was required to identify its reporting units, which
consist of food processing and food distribution, and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of
January 1, 2002. The Company was required to determine the fair value of each
reporting unit and compare it to the carrying amount of the reporting unit
within six months of January 1, 2002. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit, the Company would
be required to perform the second step of the transitional impairment test, as
this is an indication that the reporting unit goodwill may be impaired. The
second step was not required for the Company's reporting units. The fair value
of the reporting units exceeded their carrying amounts and the Company was not
required to recognize an impairment loss.

Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line
basis over the expected periods to be benefited, generally 40 years, and
assessed for recoverability by determining whether the amortization of the
goodwill balance over its remaining life could be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, was measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.

ADVERTISING

Advertising expenditures are expensed in the period in which the advertising
occurs. Advertising expenditures for the years ended December 31, 2000 and 2001
were approximately $2,100, and approximately $2,600 for the year ended December
31, 2002.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.


                                      F-7
<PAGE>

INCOME PER COMMON SHARE

Basic income per common share is based upon the weighted-average number of
common shares outstanding. Diluted income per common share assumes the exercise
of all options which are dilutive, whether exercisable or not. The dilutive
effect of stock options is measured under the treasury stock method.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company does not use nor hold derivative positions for trading purposes. In
1998, however, the Company entered into a derivative financial instrument in
connection with the issuance of put warrants to purchase shares of common stock.
On January 1, 2001, the Company was required to adopt the provisions of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". On adoption
of SFAS No. 133, the Company recorded a cumulative effect of change in
accounting principle of $1,402 (net of zero income taxes) to reduce the carrying
value of the liability related to the put warrants to fair value. Subsequent
changes in the fair value of the put warrants, estimated using the Black-Scholes
option valuation model, were recorded as components of net income. The put
warrants were cancelled in November 2002 in connection with the debt refinancing
described in Note 9.

RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" in 2002. Under
SFAS No. 4, all gains and losses from extinguishment of debt were required to be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. This statement eliminates SFAS No. 4 and thus, the criteria
in APB Opinion No. 30 should be applied to determine the classification of gains
and losses related to the extinguishment of debt. This statement is effective
beginning in fiscal year 2003. The Company adopted the provisions of this
statement in 2002 and classified the loss on the extinguishment of debt in the
amount of $0.5 million as a component of other income (expense) in the
accompanying statement of operations.


In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Prior guidance required that a liability for an exit cost
be recognized at the date of an entity's commitment to an exit plan. This
statement also establishes that fair value is the objective for initial
measurement of the liability. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002.


In November 2002, the FASB released FASB Interpretation (FIN) 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 requires that a guarantor
recognize a liability for the fair value of an obligation assumed under a
guarantee. This interpretation also discusses additional disclosures to be made
in the interim and annual financial statements of the guarantor about
obligations under certain guarantees. The initial measurement and recognition
requirements of FIN 45 are effective for guarantees issued or modified after
December 31, 2002. However the disclosure requirements are effective in the
consolidated financial statements for the year ended December 31, 2002. The
Company is currently evaluating the effects of FIN 45, however it is not
expected that the adoption of FIN 45 will have a material effect on our
financial position, results of operations, or cash flows.


In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". This Statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.


                                      F-8
<PAGE>
STOCK-BASED COMPENSATION

The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation", an
interpretation of APB Opinion No. 25, issued in March 2000, to account for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeds the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation", established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic-value-based method of accounting described above, and has adopted
only the disclosure requirements of SFAS No. 123. The following table
illustrates the effect on net income if the fair-value-based method had been
applied to all outstanding and unvested awards in each period.

<TABLE>
<CAPTION>
                                                        2000        2001        2002
                                                        ----        ----        ----
<S>                                                    <C>         <C>          <C>
Net income (loss), as reported                         $(868)      $3,186       $416

Deduct total stock-based employee
compensation expense determined under fair-
value-based method for all rewards, net of tax           (28)         (46)       (17)
                                                       -----       ------       ----
Pro forma net income (loss)                            $(896)      $3,140       $399
                                                       =====       ======       ====
</TABLE>




      The following assumptions were used for option grants:
<TABLE>
<CAPTION>
                                        2000           2001         2002
                                     ----------    ----------    ----------
<S>                                  <C>           <C>           <C>
      Risk-free interest rate(range)  5.35%-6.25%  3.90%-5.13%   3.65-5.13%
      Expected dividend yield           0.00%         0.00%         0.00%
      Expected lives                 5-6 years       5-6 years    5-6 years
      Expected volatility               51.5%         51.5%         51.5%
</TABLE>

SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                  CASH PAID    CASH PAID
                                                  FOR TAXES   FOR INTEREST

<S>                                               <C>           <C>
                Year ended December 31, 2000
                  Related parties                     --        $215
                  Other                             $373       2,320
                Year ended December 31, 2001
                  Related parties                     --         262
                  Other                              114       1,937
                Year ended December 31, 2002
                  Related parties                     --         327
                  Other                              374       1,386
</TABLE>

                                      F-9
<PAGE>


RECLASSIFICATIONS

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

3. INVENTORY:

Inventory consisted of the following as of December 31:


<TABLE>
<CAPTION>
                                    2001           2002
                                    ----           ----
<S>                                <C>            <C>
Raw materials                      $  343         $  324
Finished goods                      3,077          3,240
Packaging supplies                  1,348          1,216
Production parts                      523            582
                                    -----          -----
  Total                            $5,291         $5,362
                                    =====          =====
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment as of December 31, 2001 and 2002 are summarized as
follows:
<TABLE>
<CAPTION>
                                                          2001          2002
                                                      --------       --------
<S>                                                   <C>            <C>
Land                                                  $    664       $    644
Buildings and building improvements                      7,277          8,617
Equipment and furniture                                  6,468          7,421
Leasehold improvements                                     507            507
Vehicles                                                 2,325          2,224
Construction in process                                     82             --
                                                       -------        -------
                                                        17,323         19,413
Less - accumulated depreciation and amortization        (6,171)        (7,706)
                                                       -------        -------
Property, plant and equipment, net                    $ 11,152       $ 11,707
                                                       =======        =======
</TABLE>
Depreciation expense for the years ended December 31, 2000, 2001 and 2002 was
$1,760, $1,559 and $1,677, respectively.



                                      F-10
<PAGE>

5. OTHER ASSETS:

Other assets are comprised of the following as of December 31, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                 2001      2002
                                                                 ----      ----
<S>                                                             <C>       <C>
Deferred financing costs, and
 other intangible assets                                        $ 668     $ 780
Cash surrender value of life insurance and other assets           129       114
                                                                 ----      ----
                                                                  797       894
Less - accumulated amortization                                  (480)      (44)
                                                                 ----      ----
Other assets, net                                               $ 317     $ 850
                                                                 ====      ====
</TABLE>
Amortization of deferred financing costs, and other intangible assets of $133,
$152, and $160, is included within depreciation and amortization expense in the
accompanying consolidated statements of operations for the years ended December
31, 2000, 2001, and 2002, respectively.

6. GOODWILL:

The Company was required to perform an initial impairment review of goodwill by
June 30, 2002 and is required to perform an annual impairment review thereafter.
No impairment charges resulted from the initial impairment review in the second
quarter or annual review in the fourth quarter. The decrease in goodwill of $900
during the year ended December 31, 2002 relates to the February 2002 sale of
Grogan's assets which was included in the Company's food processing segment.

As a result of adopting SFAS No. 142, the Company ceased to record annual
goodwill amortization of approximately $0.4 million in 2002. Operating results
excluding goodwill amortization for the years ended December 31, 2000, 2001 and
2002 are as follows:
<TABLE>
<CAPTION>
                                                         2000          2001       2002
                                                         ----          ----       ----
<S>                                                    <C>         <C>          <C>
Reported net income (loss)                             $  (868)    $   3,186    $   416
Add back: goodwill amortization, net of taxes of $0        365           365         --
                                                        ------      --------     ------
Adjusted net income  (loss)                            $  (503)    $   3,551    $   416
                                                        ======      ========     ======

BASIC EARNINGS (LOSS) PER COMMON SHARE:
Reported net income (loss)                             $ (0.13)         0.48    $  0.06
Add back: goodwill amortization                           0.05          0.05         --
                                                        ------     ---------     ------
Adjusted net income (loss)                             $ (0.08)         0.53    $  0.06
                                                        ======      ========     ======

DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Reported net income (loss)                             $ (0.13)         0.47    $  0.06
Add back: goodwill amortization,                          0.05          0.05         --
                                                        ------     ---------     ------
Adjusted net income (loss)                             $ (0.08)         0.52    $  0.06
                                                        ======      ========     ======
</TABLE>






                                      F-11
<PAGE>

7. SIGNIFICANT SUPPLIERS AND CUSTOMERS:

For the year ended December 31, 2000, two suppliers provided approximately 12%
and 11%, respectively, of the Company's total product purchases. A single
customer accounted for approximately 30% of the Company's net sales.

For the year ended December 31, 2001, two suppliers provided approximately 16%
and 11%, respectively, of the Company's total product purchases. A single
customer accounted for approximately 14% of the Company's net sales.

For the year ended December 31, 2002, two suppliers provided approximately 13%
and 10%, respectively, of the Company's total product purchases. A single
customer accounted for approximately 19% of the Company's net sales.

8. INCOME TAXES:

Income tax (expense) benefit for the years ended December 31, 2000, 2001 and
2002, was allocated as follows:


<TABLE>
<CAPTION>
                                                            2000           2001         2002
                                                            ----           ----         ----
<S>                                                        <C>           <C>           <C>
Income tax expense of continuing operations                $  (125)      $(2,009)      $  (485)
Income tax benefit included in loss from
      discontinued operations                                   73            --            --
                                                            ------        ------        -------
                                                           $    52       $(2,009)      $  (485)
                                                            ======        ======        =======
</TABLE>

Income tax (expense) benefit of continuing operations consisted of the
following:


<TABLE>
<CAPTION>
                                         2000       2001         2002
                                         ----       ----         ----
<S>                                    <C>         <C>        <C>
Current:
         Federal                       $   141     $   --     $    --
         State                            (160)      (282)       (104)
Deferred:
         Federal                           (85)    (1,616)       (332)
         State                             (21)      (111)        (49)
                                        ------     ------      ------
Income tax expense of continuing
  operations                           $  (125)   $(2,009)    $  (485)
                                        ======     ======      ======
</TABLE>






                                      F-12
<PAGE>

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 2001 and 2002 are
presented below:


<TABLE>
<CAPTION>
                                                        2001         2002
                                                        ----         ----
<S>                                                   <C>          <C>
Deferred tax assets attributable to:
     Net operating loss carryforwards                 $   654      $   444
     Inventory                                             78           85
     Accrued expenses                                      69           64
     Accounts receivable                                   79           66
     Other                                                363          275
                                                       ------       ------
           Deferred tax assets                          1,243          934
                                                       ------       ------
Deferred tax liabilities attributable to:
     Property, plant and equipment                        522          252
     Net gain from insurance settlement                 1,715        1,832
     Other                                                211          437
                                                       ------       ------
           Deferred tax liabilities                     2,448        2,521
                                                       ------       ------
           Net deferred tax liabilities               $(1,205)     $(1,587)
                                                       ======       ======
</TABLE>

As of December 31, 2002, the Company has approximately $1,290 of net operating
loss carryforwards for Federal tax purposes, expiring through 2011.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities and projected future taxable
income in making this assessment. Based upon the level of projected future
taxable income over the periods prior to the expiration of the net operating
loss carryforwards and in which the temporary differences that give rise to the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences
at December 31, 2002. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the net operating loss carryforward periods are reduced.

The items which gave rise to differences between income tax expense (benefit) of
continuing operations and income taxes (benefit) computed at the Federal
statutory rate are summarized below:

<TABLE>
<CAPTION>
                                              2000        2001        2002
                                              ----        ----        ----
<S>                                          <C>          <C>        <C>
Statutory Federal income tax rate            (34.0)%      34.0%       34.0%
State income taxes, net of
  Federal income tax effect                   20.4         6.8        11.3
Nondeductible goodwill amortization
  and write-off                               26.0        10.3        24.4
Change in value of put warrants                 --         2.7        (9.7)
Other                                          4.7        (0.8)       (6.2)
                                              ----        ----       -----
Total                                         17.1%       53.0%       53.8%
                                              ====        ====       =====
</TABLE>



                                      F-13
<PAGE>

9. DEBT:

Long-term debt as of December 31, 2001 and 2002, consisted of the following:


<TABLE>
<CAPTION>
                                                                    2001           2002
                                                                  --------       --------
<S>                                                               <C>            <C>
      Junior subordinated promissory notes due February 2008,
         bearing interest at 11% annually,
         interest payable in quarterly installments               $  1,400       $  1,400
      Junior subordinated promissory notes due February 2008,
         bearing interest at 11% annually,
         interest payable in quarterly installments                    875            875
      Junior subordinated promissory note due February 2008,
         bearing interest at 10% annually,
         interest payable in quarterly installments                    200            190
      Junior subordinated promissory note due December 2003,
         bearing interest at 8% annually,
         interest payable in quarterly installments                    225            225
      Senior subordinated note due December 2007,
         bearing interest at 18% annually,
         with 10% payable in quarterly installments and
         8% payable at maturity                                      6,500            709
      Term note due November 2007 bearing interest at
         prime rate plus 2% or adjusted LIBOR plus 3.75%                --          2,500
      Term note bearing interest at prime rate plus 1% or adjusted
         LIBOR plus 2.5%, principal paid off in November 2002        4,934             --
      Term note bearing interest at prime rate plus 1.5% or
         adjusted LIBOR plus 3.25%, principal due in varying
         amounts payable quarterly through November, 2007               --          5,660
      Capital lease obligations and other                            1,214            133
                                                                   -------        -------
         Total                                                      15,348         11,692
      Less: Current maturities                                      (5,127)        (1,416)
            Unamortized debt discount                                 (660)           --
                                                                   -------        -------
      Long-term debt, net of current maturities and
         unamortized debt discount                                $  9,561       $ 10,276
                                                                   =======        =======
</TABLE>


The future maturities of long-term debt as of December 31, 2002, are as follows:


<TABLE>
<CAPTION>
<S>                                                              <C>
2003                                                             $ 1,416
2004                                                               1,183
2005                                                               1,155
2006                                                               1,132
2007 and beyond                                                    6,806
                                                                  ------
                                                                 $11,692
                                                                  ======
</TABLE>

                                      F-14
<PAGE>

At December 31, 2002, the Company's credit facility consists of a $5,660 term
note, a $2,500 term note, a $8,500 line of credit, a $709 senior subordinated
note and $2,690 in junior subordinated notes.

As of December 31, 2001, the Company had outstanding under an agreement with
Fleet Capital (the Fleet Facility) approximately $4.9 million in term debt and
approximately $5.0 million in line-of-credit borrowings. The Company owed $6.5
million of senior subordinated debt to Banc One Capital Partners and Sterling
BOCP, LLC, now known as BOCP ABR Mezz, LLC, an entity owned by some of our
directors, officers and 5% shareholders (the LLC), and approximately $2.7
million of junior subordinated debt to former owners of Prefco, Richard's,
Grogan's and Partin's. The interest on the senior subordinated debt was 10% per
annum for the years ended December 31, 2000 and 2001. Under the terms of an
amendment to the senior subordinated debt dated April 13, 2001 and effective
January 17, 2001, this interest rate was increased to 15% per annum. The
incremental increase of 5% was accrued and compounded monthly. The junior
subordinated debt carried an average interest rate of approximately 9.7% per
annum. The term debt and line of credit agreement under the Fleet Facility bore
annual interest at either the bank's prime rate plus 1% (5.75% at December 31,
2001) or adjusted LIBOR plus 2.5%, at our option.


In November 2002, the Company entered into a new senior secured credit facility
with Merrill Lynch Capital (the Merrill Facility). As of December 31, 2002 the
Company had outstanding under the Merrill Facility approximately $8.2 million in
term debt and approximately $2.5 million in line-of-credit borrowings. A portion
of the funds provided under the Merrill Facility was used to pay off the Fleet
Facility and the senior subordinated debt owed to Banc One Capital Partners. The
terms of the $0.7 million in senior subordinated debt owed to the LLC were
amended concurrently with the refinancing. In connection with the refinancing,
the LLC and Banc One Capital Partners agreed to cancel the warrants with a put
option to purchase 1.1 million shares of our common stock, which were granted in
connection with the issuance of the senior subordinated debt. In addition to
canceling the warrants, the amended terms of the senior subordinated debt owed
to the LLC changed the maturity date from March 31, 2005 to December 31, 2007
and increased the interest rate from 15% to 18%, with 10% interest paid
quarterly and the remaining 8% interest compounded monthly and paid at maturity.
The senior subordinated debt owed to the LLC continues to be secured by
substantially all of our assets, but is subordinated to the Merrill Facility.
The line of credit agreement under the Merrill Facility bears annual interest at
either the bank's prime rate plus 1.25% (5.5% at December 31, 2002) or adjusted
LIBOR plus 3.00% at our option. The term debt is comprised of two notes, Term
Loan A and Term Loan B. They bear interest at either the bank's prime rate plus
1.5% and 2.0% (5.75% and 6.25%, respectively, at December 31, 2002), or adjusted
LIBOR plus 3.25% and 3.75%, respectively, at our option. At December 31, 2002,
the Company is in compliance with the covenants contained in the Merrill
Facility.


As part of the refinancing transaction, three of the notes comprising the junior
subordinated debt in the amounts of $1.4 million, $0.9 million and $0.2 million,
which were earning interest at the rates of 11%, 8.35% and 10%, respectively,
were amended to reset the maturity dates on each note to February 2008 and to
reset the stated interest rate on the $0.9 million note to 11%.


As a result of the extinguishment of the previous line of credit and term debt,
the Company recognized a loss of $545 for the year ended December 31, 2002. The
loss related to the write-off of unamortized deferred financing fees and debt
discount, partially offset by the write-off of the liability representing the
fair value of put options that were cancelled in connection with the
refinancing.


In 2002, the Company received $5 million as part of the Grogan's fire insurance
settlement. These monies will be used to pay the federal and state taxes and
other expenses associated with the settlement and the remainder was applied to
the Fleet Facility.


                                      F-15
<PAGE>

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amounts reported in the Consolidated Balance Sheets for accounts
receivable and accounts payable 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 value of the
Company's long-term debt as of December 31, 2001 and 2002, was $15,348 and
$11,692, respectively. The face amount of the Company's long-term debt
approximated its fair value as of December 31, 2001 and 2002.

11. INCOME PER COMMON SHARE:

The weighted average shares used to calculate basic and diluted income per
common share for the years ended December 31, 2000, 2001 and 2002 are as
follows:


<TABLE>
<CAPTION>
                                               2000           2001           2002
                                               ----           ----           ----
<S>                                          <C>            <C>            <C>
    Weighted average shares outstanding
       for basic income per common share     6,707,908      6,671,451      6,734,474

    Dilutive effect of stock options             --            37,620        305,755
                                             ---------      ---------      ---------
    Weighted average shares outstanding
       for diluted income per common share   6,707,908      6,709,071      7,040,229
                                             =========      =========      =========
</TABLE>

As a result of the loss from continuing operations for the year ended December
31, 2000, the impact of options with an exercise price that was less than the
average weighted market price of the common stock during the year was excluded
due to their antidilutive effect.

Options to purchase 1,722,042, 1,654,718 and 1,111,137 shares of common stock at
prices ranging from $1.50 to $6.50 per share were outstanding during 2000, 2001
and 2002, respectively, but were not included in the computation of diluted
income per common share because the options' exercise price was greater than the
average weighted market price of the common stock during the year.

Put warrants to purchase up to a maximum of 1,095,700 shares of common stock at
$3.38 per share were outstanding as of December 31, 2000 and 2001, but were not
included in the computation of diluted income per common share because the
warrants' exercise price was greater than the weighted average market price of
the common stock during the year. These put warrants were cancelled in
connection with the November 2002 debt refinancing.

12. EMPLOYEE BENEFIT PLANS:

Under the terms of the Company's Amended and Restated Stock Option Plan (the
Option Plan), the Company may issue up to 3,000,000 options to directors,
officers, advisors, full-time employees and other eligible individuals. In
general, the option exercise price equals the stock's market price on the date
of grant and the options vest during periods of up to ten years. Under the terms
of the Option Plan, the Company issues 10,000 options to eligible outside
directors at the beginning of each year of service. These options vest quarterly
over one year. No compensation expense was recognized for the issuance of
options under the Option Plan during 2000, 2001 and 2002.


                                      F-16
<PAGE>

The following table summarizes option activity and related information.


<TABLE>
<CAPTION>
                                         2000                         2001                         2002
                                              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                       1,704,659      $ 2.66       1,722,042       $ 2.57       1,939,718       $ 2.40

Granted                           113,000        2.05         235,000         1.19         109,000         2.40
Exercised                               -           -               -            -               -            -

Forfeited or expired              (95,617)       2.74         (17,324)        2.74         (32,081)        2.15
                                ---------       -----       ---------        -----       ---------        -----

Outstanding, end
  of year                       1,722,042      $ 2.57       1,939,718       $ 2.40       2,016,637       $ 2.65
                                =========       =====       =========        =====       =========        =====

Exercisable, end
  of year                       1,236,363      $ 2.46       1,630,639       $ 2.39       1,736,687       $ 2.50

Weighted average
 fair value of
  options granted                              $ 1.37                       $  .79                       $  .98
</TABLE>

<TABLE>
<CAPTION>
                                                         AVERAGE               WEIGHTED
RANGE OF                          REMAINING              AVERAGE               OPTIONS
EXERCISE          OPTIONS      CONTRACTUAL LIFE          EXERCISE           EXERCISABLE  at
PRICES          OUTSTANDING       (IN YEARS)              PRICE             December 31, 2002
--------        -----------     ----------------       ---------         -----------------
<S>             <C>            <C>                      <C>                 <C>
$0.88 - 1.50      546,000          6.0                  $1.33                   545,000
$1.51 - 3.00      919,637          6.5                  $2.59                   919,637
$3.01 - 4.50      243,100          5.0                  $3.49                   243,100
$4.51 - 6.00      250,950          5.0                  $4.63                       950
$6.01 - 7.50       28,000          1.0                  $6.50                    28,000
------------   -----------                                                    ---------
$0.88 - 7.50    2,016,637                                                     1,736,687
===========    ===========                                                    =========
</TABLE>

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 50% of employee
contributions, subject to certain limitations. The Company's matching
contributions during 2000, 2001 and 2002 were $235, $194 and $202, 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, as defined, of the Company (including officers) 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. The Stock Purchase Plan allows the
eligible employees to purchase common stock of the Company, through payroll
deductions, at a discounted price from the market price. The exercise price
under the plan is 85% of the lesser of the market value of the Company's common
stock on two defined dates during the plan year.



                                      F-17
<PAGE>

13. CHANGES IN ACCOUNTING PRINCIPLES:

During the year ended December 31, 2000, the Company changed its method of
accounting for production parts inventory from expensing upon purchase to
capitalization upon purchase and expensing upon installation. In prior years,
the Company had a low level of production parts inventory on hand. However, as
production capacity increased, as well as the necessity of reducing equipment
down-time, the Company chose to maintain a larger amount of production parts
inventory. Accordingly, the Company believes that the capitalization of
production parts inventory results in a better measurement of operating results
by expensing production parts at the time they are placed into service and start
generating revenues. The $141 cumulative effect of the change is included in the
Consolidated Statement of Operations for the year ended December 31, 2000.

On January 1, 2001, the Company adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". On adoption of
the SFAS No. 133, the Company recorded a cumulative effect of change in
accounting principle in the amount of $1,402 (net of zero income taxes). The
cumulative effect of change in accounting principle was recorded to reduce the
carrying value of the liability related to the put warrants to fair value. The
fair value of the warrants is estimated using a Black-Scholes option-valuation
model. Subsequent changes in the fair value of the put warrants are recorded as
a component of net income. The warrants were cancelled in connection with the
November 2002 debt refinancing. The Company does not have any other derivative
instruments.

14. COMMITMENTS:

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, 2000, 2001 and 2002 was $1,648, $1,263 and $1,260, respectively. As
of December 31, 2002, future minimum lease payments under these operating leases
are as follows:


<TABLE>
<CAPTION>
<S>                                                           <C>
2003                                                          $  733
2004                                                             322
2005                                                              50
2006                                                              24
2007 and thereafter                                               24
                                                               -----
                                                              $1,153
                                                               =====
</TABLE>

It is expected that in the normal course of business most leases that expire
will be renewed or replaced by leases on the same or similar properties; thus,
it is anticipated that future annual rent expense will not be materially less
than the amount reported for 2002.

15. RELATED PARTY TRANSACTIONS:

In November 2002, the Company entered into the Merrill Facility. A portion of
the funds provided under the Merrill Facility was used to pay off the senior
subordinated debt owed to Banc One Capital Partners. The $0.7 million in senior
subordinated debt owed to the LLC, an entity owned by some of our directors,
officers and 5% shareholders, remains outstanding, but the terms of this debt
were amended in connection with the refinancing. Also in connection with the
refinancing, the LLC and Banc One Capital Partners agreed to cancel the warrants
with a put option for 1.1 million shares of our common stock which were issued
in connection with the senior subordinated debt. The amended terms of the senior
subordinated debt included a change in the maturity date from March 31, 2005 to
December 31, 2007 and an increase in the interest rate from 15% to 18%, with 10%
interest paid quarterly and the remaining 8% interest compounded monthly and
paid at maturity. The senior subordinated debt owed to LLC continues to be
secured by substantially all of our assets, but is subordinated to the Merrill
Facility.


                                      F-18
<PAGE>

Also in connection with the refinancing of our long term obligations through the
Merrill Facility in November 2002, a group of individuals, including Eric Becker
(a director and 5% beneficial owner), Thomas Dalton (an executive officer and 5%
beneficial owner), Merrick M. Elfman (an executive officer, director and 5%
beneficial owner), Bruce Goldman (a 5% beneficial owner), John Miller (a
director), Alan Sussna (a former director and officer and current 5% beneficial
owner) and Steven Taslitz (a director and 5% beneficial owner), purchased
$0.8 million of the junior subordinated debt owed to former owners. As a result
of the purchase, the Company now owes this $0.8 million of junior subordinated
debt to this group of individuals on the same terms and conditions as we owe the
remainder of this junior subordinated debt to the former owners.


In November 2002, the Company also entered into a consulting agreement with
Sterling Advisors LP, an entity owned by Messrs. Douglas Becker (a 5% beneficial
owner), Eric Becker (a director and 5% beneficial owner), Rudolf Christopher
Hoehn-Saric (a 5% beneficial owner) and Steven Taslitz (a director and 5%
beneficial owner). The initial two-year term of the consulting agreement begins
January 1, 2003, with one-year renewal periods thereafter, unless it is
terminated by either party twelve months prior to the applicable termination
date. Under the terms of the consulting agreement, commencing January 1, 2003,
Sterling Advisors LP will be paid $0.2 million per year for consulting services
relating to financial, strategic and operational matters. In addition, Sterling
Advisors LP received $0.15 million for services rendered in connection with
procurement of the Merrill Facility and the related transactions.

16. GROGAN'S FIRE AND GOODWILL ADJUSTMENT:

On October 13, 2000, the Grogan's manufacturing plant located in Arlington,
Kentucky was totally destroyed by fire and the impacted assets' net book value
of $1,200 was written off. At December 31, 2000, the Company recorded a $1,400
receivable from the insurance carrier for the net book value of the plant and
equipment destroyed plus other related costs incurred. During fiscal 2001, the
insurance settlement on the building and equipment destroyed in the fire was
finalized at $6,800 and the Company recorded a pretax gain, net of costs
incurred, in the amount of $4,800. The Company had collected $1,800 of the
settlement as of December 31, 2001 and recorded a receivable in the amount of
$5,000 which is included in prepaid expenses and other assets at December 31,
2001. This amount was collected in February 2002. Additionally, the Company has
outstanding claims, continuing expenses, business interruption and other
coverages which are in process.

As a result of the fire, the Company began to explore its options relative to
the Grogan's business. The Company made the decision to divest the Grogan's
business which consisted of certain intangible assets, accounts receivable,
inventory, fixed assets, and certain liabilities. In connection with this
decision, the Company performed a review of the goodwill associated with the
Grogan's business for possible impairment. The Company estimated its future cash
flows from the sale of the business and compared the future cash flows to the
carrying value of the goodwill. The future cash flows utilized in this analysis
were realized upon the sale of the Grogan's business in February 2002. This
analysis resulted in the write-down of goodwill in the amount of $1,044, which
is classified as Goodwill adjustment in the accompanying statement of operations
for the year ended December 31, 2001.

17. BUSINESS SEGMENT INFORMATION:

The Company's operations have been classified into two business segments: food
processing and food distribution. The food processing segment includes the
processing and sales of branded food products to distributors and retailers in
Oklahoma, Louisiana, Texas, 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-19
<PAGE>

Summarized financial information, by business segment, for continuing operations
in 2000, 2001 and 2002 is as follows (corporate overhead not specifically
associated with a segment has been presented separately):


<TABLE>
<CAPTION>
                                        2000          2001            2002
<S>                                   <C>           <C>             <C>
Net sales:
      Food processing                 $ 71,330      $ 72,274        $ 61,876
      Food distribution                119,660        75,414          69,201
                                       -------       -------         -------
                                      $190,965      $147,673        $131,077
                                      ========      ========        ========

Depreciation and amortization:
      Food processing                 $  1,847      $  1,676        $  1,595
      Food distribution                    277           240              69
                                       -------       -------         -------
                                      $  2,124      $  1,916        $  1,664
                                      ========      ========        ========

Interest expense:
      Food processing                 $    156      $    152        $    129
      Food distribution                    130           151             156
                                       -------       -------         -------
                                      $    286      $    303        $    285
                                      ========      ========        ========

Income from continuing
   operations before income taxes:
      Food processing                 $  2,296      $  7,010        $  4,287
      Food distribution                  2,598         1,888           1,038
                                       -------       -------         -------
                                      $  4,894      $  8,898        $  5,325
                                      ========      ========        ========

Capital expenditures:
      Food processing                 $  1,712      $  1,465        $  2,243
      Food distribution                     61            -               -
                                       -------       -------         -------
                                      $  1,773      $  1,465        $  2,243
                                      ========      ========        ========

Segment assets:
      Food processing                $  27,510      $ 29,971        $ 25,016
      Food distribution                 11,631        10,322          10,039
                                       -------       -------         -------
                                     $  39,141      $ 40,293        $ 35,055
                                       =======       =======         =======
</TABLE>

Inter-segment sales and related receivables and payables among the segments
during 2000, 2001, and 2002, for the purpose of this presentation, have not been
eliminated.


                                      F-20
<PAGE>

The following are reconciliations of reportable segment net sales, profit or
loss, assets, and other significant items to the Company's consolidated totals:
<TABLE>
<CAPTION>
                                            2000            2001             2002
<S>                                      <C>             <C>             <C>
Net sales:
      Total for reportable
        segments                         $ 190,965       $ 147,673       $ 131,077
      Elimination of inter-segment
        net sales                          (13,854)        (13,708)         (8,766)
                                          --------        --------        --------
      Total consolidated net sales       $ 177,111       $ 133,965       $ 122,311
                                         =========       =========       =========

Depreciation and amortization:
      Total for reportable
        segments                         $   2,124       $   1,916       $   1,664
      Corporate                                134             157             173
                                          --------        --------        --------
      Consolidated depreciation
        and amortization                 $   2,258       $   2,073       $   1,837
                                         =========       =========       =========
Interest expense
      Total for
        reportable segments              $     286       $     303       $     285
      Corporate                              2,502           2,140           1,598
                                          --------        --------        --------
      Consolidated interest expense      $   2,788       $   2,443       $   1,883
                                         =========       =========       =========

Income (loss) from continuing
  operations before income taxes:
      Total for reportable
       segments                          $   4,894       $   8,898       $   5,325
      Corporate                             (5,625)         (5,105)         (4,424)
                                         ---------       ---------       ---------
      Total consolidated income (loss)
       from continuing operations        $    (731)      $   3,793       $     901
                                         =========       =========       =========

Capital expenditures:
      Total for
        reportable segments              $   1,773       $   1,465       $   2,243
      Corporate                                  5              17               9
                                         ---------       ---------       ---------
      Consolidated capital
         expenditures                    $   1,778       $   1,482       $   2,252
                                         =========       =========       =========

Assets:
      Total for reportable segments                      $  40,293       $  35,055
      Corporate                                              1,571           2,041

                                                         ---------       ---------
      Consolidated total assets                          $  41,864       $  37,096
                                                         =========       =========
</TABLE>


                                      F-21
<PAGE>

18. 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.

19. ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31:


<TABLE>
<CAPTION>
                                     2001        2002
<S>                                <C>        <C>
Compensation and benefits          $  783     $   572
Other                               1,505       1,311
                                   ------     -------
Total                              $2,288     $ 1,883
                                   ======     =======
</TABLE>

20. RESIGNATION OF CHIEF EXECUTIVE OFFICER:

Alan F. Sussna resigned from the position of Chief Executive Officer and
President of the Company on January 9, 2003. In connection with his resignation,
the Company agreed to pay Mr. Sussna $183,796.50 over six months in accordance
with our payroll policies, and continued employee benefits for the maximum
period permitted by law. In addition, Mr. Sussna shall receive $367,593, less
any amounts already received as part of his resignation payment, if there is a
change of control of the Company within 120 days of January 9, 2003. Mr. Sussna
has agreed not to compete with the Company for a period of 120 days following
his resignation, nor will he solicit for employment any director, stockholder or
certain employees of the Company during such period.


                                      F-22
<PAGE>

21. QUARTERLY FINANCIAL DATA (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE
DATA):



<TABLE>
<CAPTION>
                                                      Quarter Ended
                                                      -------------

        2002                          March 31      June 30      September 30     December 31
        ----                          --------      -------      ------------     -----------
<S>                                   <C>           <C>            <C>            <C>
        Net sales ..............      $ 29,863      $ 29,937       $ 30,142       $ 32,369
                                      ========      ========       ========       ========
        Gross profit............      $  5,853      $  5,853       $  5,556       $  6,017
                                      ========      ========       ========       ========

        Net income (loss).......      $    152      $    451       $    119       $   (306)
                                      ========      ========       ========       ========
        Weighted average shares:
        Basic ...................        6,734         6,734          6,734          6,734
        Effect of stock options.           304           394            273            306
                                      --------      --------       --------       --------
        Diluted ................         7,038         7,128          7,007          7,040
                                      ========      ========       ========       ========

        Basic and diluted income
           (loss) per share:
        Net income (loss) ......      $    .02      $    .06       $    .02       $   (.04)
                                      ========      ========       ========       ========
</TABLE>


                                      F-23
<PAGE>
<TABLE>
<CAPTION>
                                                      Quarter Ended
                                                      -------------

        2001                           March 31      June 30     September 30   December 31
        ----                           --------      -------     ------------   -----------
<S>                                    <C>           <C>           <C>            <C>
        Net sales ...............      $ 31,128      $ 33,333      $ 34,653       $ 34,851
                                       ========      ========      ========       ========

        Gross profit ............      $  5,874      $  5,281      $  5,199       $  7,013
                                       ========      ========      ========       ========

        Income (loss) before change
           in accounting principle.    $     81      $  1,109      $   (266)      $    860
        Change in accounting
           principle ............         1,402            --            --             --
                                       --------      --------      --------       --------
        Net income ..............      $  1,483      $  1,109      $   (266)      $    860
                                       ========      ========      ========       ========
        Weighted average shares:
        Basic....................         6,659         6,659         6,659          6,671
        Effect of stock options .            32            32            --             38
                                       --------      --------      --------       --------
        Diluted .................         6,691         6,691         6,659          6,709
                                       ========      ========      ========       ========

        Basic and diluted income (loss) per share:

        Income (loss) before change
            in accounting principle... $    .01      $    .17      $   (.04)      $    .13
        Change in accounting principle      .21            --            --             --
                                       --------      --------      --------       --------
        Net income (loss) .......      $    .22      $    .17      $   (.04)      $    .13
                                       ========      ========      ========       ========
</TABLE>

The sum of the quarterly income per share amounts do not equal the annual income
per share amount due to rounding.


                                      F-24
<PAGE>

                                INDEX TO EXHIBITS


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

3.1           Certificate of Incorporation of Atlantic Premium Brands, Ltd. (the
              "Company"), including all amendments thereto (7)

3.2           By-Laws of the Company (1)

4.1           Specimen Stock Certificate (1)

4.2           Credit Agreement dated as of November 20, 2002 among the Company,
              its subsidiaries, Merrill Lynch Capital, a Division of Merrill
              Lynch Business Financial Services Inc., as Agent and as a Lender,
              and the Additional Lenders from time to time party thereto (10)

4.3           Subordination Agreement dated November 20, 2002 by and between
              BOCP ABR Mezz, LLC and Merrill Lynch Capital, a Division of
              Merrill Lynch Business Financial Services Inc., as Agent for
              certain lenders (10)

4.4           Amended and Restated Security Agreement dated November 20, 2002 by
              and among the Company, its subsidiaries and BOCP ABR Mezz, LLC
              (10)

4.5           Amended and Substituted Senior Subordinated Note, dated November
              20, 2002, in favor of BOCP ABR Mezz, LLC, a Delaware limited
              liability company formerly known as Sterling BOCP, LLC, in the
              original principal amount of $709,048.89 (10)

4.6           Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Franklin Roth, in the
              original principal amount of $475,000

4.7           Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Allen Pauly, in the
              original principal amount of $475,000

4.8           Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of J.L. Richard, in the
              original principal amount of $574,786

4.9           Amended and Restated 10% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Bobby L. Grogan and Betty
              R. Grogan, in the original principal amount of $200,000 (10)

4.10          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 (3)

4.11          11% Subordinated Non-Negotiable Promissory Note due February 15,
              2008, in favor of Merrick M. Elfman, as agent for the individuals
              listed on Schedule A attached thereto, in the original principal
              amount of $450,000

4.12          Amended and Restated 11% Subordinated Non-Negotiable Promissory
              Note, due February 15, 2008, in favor of Merrick M. Elfman, as
              agent for the individuals listed on Schedule A attached thereto,
              in the original principal amount of $300,000

10.1          Form of Tax Indemnification Agreement (1)

10.2          Stock Purchase Agreement dated April 23, 1999 among the Company
              and Bobby L. Grogan and Betty Ruth Grogan (4)

10.3          Atlantic Premium Brands, Ltd. Employee Stock Purchase Plan dated
              November 1, 1997 (2)

10.4          The Company's 1999 Amended and Restated Stock Option Plan (5)


10.5          Amended and Restated Employment Agreement dated January 10, 2002
              between the Company and Alan. F. Sussna (9)

10.6          Employment Agreement dated as of April 6, 1998 between the Company
              and Thomas M. Dalton (6)

<PAGE>

10.7          Employment Agreement dated August 10, 1998 between the Company and
              Steven Englander (7)

10.8          Employment Agreement dated October 1, 2000 between the Company and
              Merrick M. Elfman. (8)

10.9          Consulting Agreement dated November 20, 2002 by and between the
              Company and Sterling Advisors, L.P. (10)

10.10         Note and Warrant Purchase Agreement dated as of April 13, 2001
              among the Company, certain of its subsidiaries, Banc One Capital
              Partners, LLC, Sterling BOCP, LLC and Fleet Capital Corporation
              (8)*

21            Subsidiaries of the Company (9)

23            Consent of KPMG LLP

99            Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
              2002

------------------
*No longer in effect

(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 Registration Statement No. 33-39561
      and incorporated herein by reference.

(3)   Filed as an exhibit to the Company's Annual Report on Form 10-K for the
      year ended December 31, 1997, and incorporated herein by reference.

(4)   Filed as an exhibit to the Company's Current Report on Form 8-K dated May
      21, 1999, filed with the Securities and Exchange Commission on May 24,
      1999, and incorporated herein by reference.

(5)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended June 30, 1999, and incorporated herein by reference.

(6)   Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1998, 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, 1998, and incorporated herein by reference.

(8)   Filed as an exhibit to the Company's Annual Report on Form 10-K for the
      year ended December 31, 2000, and incorporated herein by reference.

(9)   Filed as an exhibit to the Company's Annual Report on Form 10-K for the
      year ended December 31, 2001, and incorporated herein by reference.

(10)  Filed as an exhibit to the Company's Current Report on Form 8-K dated
      November 20, 2002, filed with the Securities and Exchange Commission on
      November 26, 2002, and incorporated herein by reference.