RYMER FOODS INC, 10-K405, 1999-01-27

RYMER FOODS INC
10-K405, 1999-01-27
SAUSAGES & OTHER PREPARED MEAT PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year ended October 31, 1998

Commission File Number 1-6071

RYMER FOODS INC.
(Exact Name of Registrant as Specified in its Charter)

Incorporated in the State of Delaware IRS Employer Identification No.
36-1343930
4600 South Packers Avenue, Suite 400
Chicago, Illinois 60609
(773) 927-7777

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

Title of each class Name of each exchange on which registered
Common Stock, $0.04 par value Over the Counter Bulletin Board

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; and (2) has been subject to
such filing requirement 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. Yes X No

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X No

As of January 8, 1999, 4,300,000 shares of common stock were outstanding,
and the aggregate market value of the common shares held by nonaffiliates
on that date was approximately $.7 million.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for 1999 Annual Meeting of Stockholders (Part III) (to be
filed with the Securities and Exchange Commission on or before February
28, 1999). Certain exhibits are incorporated herein by reference. The
Index of Exhibits is on Page 30 of this document.
<PAGE>

PART I

Item 1. Business
The statements in this report that are forward looking are based upon
current expectations and actual results may vary. See "Cautionary
Statement" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this report.

In accordance with the AICPA Statement of Position 90-7, Financial
Reporting by entities in Reorganization Under the Bankruptcy Code, the
Company adopted fresh-start reporting as of September 20, 1997. In
accordance with fresh-start accounting, the gain on discharge of debt
resulting from the bankruptcy proceedings was reflected on the
predecessor Company's financial statements for the period ended September
20, 1997. In addition, the accumulated deficit of the predecessor
Company at September 20, 1997, was eliminated, and at September 21, 1997,
the reorganized Company's financial statements reflected no beginning
retained earnings or deficit. In addition, the Company's capital
structure was recast in conformity with its approved Plan.

As a result of the Company adopting fresh-start accounting, reporting for
the year ended October 25, 1997 is accomplished by combining the
financial results for the one-month period ended October 25, 1997 and
those of the eleven-month period ended September 20, 1997. Because of
the application of fresh-start reporting, the financial statements for
the periods after reorganization are not comparable in any respect to the
financial statements for the periods prior to reorganization.

General

Rymer Foods Inc. (Rymer Foods or the Company) through its subsidiary,
Rymer Meat Inc. (Rymer Meat), is primarily engaged in the development and
production of frozen, pre-seasoned, portion controlled meat entrees. The
Company is engaged in the production of such products for restaurants and
other foodservice customers and retail sales. Rymer Foods was
incorporated under the laws of Delaware in 1969.

The Company announced on July 8, 1997, that it had received the necessary
approvals from its creditors and stockholders for confirmation of a
prepackaged plan of reorganization under Chapter 11 of the Bankruptcy
Code (the Plan). Rymer Foods' operating subsidiary, Rymer Meat, was not
a party to the Bankruptcy proceedings. To implement the Plan, on July 8,
1997 the Company commenced a voluntary Chapter 11 case in the United
States Bankruptcy Court for the Northern District of Illinois (the
Bankruptcy Court) and filed the Plan with the Bankruptcy Court. The Plan
was confirmed by the Bankruptcy Court on August 21, 1997 and was
consummated on October 6, 1997. Although the consummation date was
October 6, 1997, fresh-start reporting was adopted on September 20, 1997.
There were no fresh-start adjustments during the period of September 21,
1997 to October 6, 1997.

Immediately following consummation of the Plan, Senior Noteholders and
certain creditors received 80% of the new common stock, existing holders
of common stock received 10% of the new common stock, and Rymer senior
management received 10% of the new common stock.
<PAGE>

The Company believes that consummation of the Plan strengthened its
capital structure and has thereby enhanced its ability to further develop
its businesses. Management believes that the Company's future success is
dependent in part upon reversing its sales decline, on the containment of
operating costs and on maintaining good credit relationships with its
lenders. However, there can be no assurance of the success of these
initiatives.

In 1998 the Company reported a loss from continuing operations of $2.0
million. The Company reduced operating expenses by $1.7 million or 30%
as compared to a combined 1997 due primarily to elimination of
restructuring costs in 1998.

On a combined basis for 1997 (the one-month period ended October 25, and
the eleven-month period ended September 20, the Company reported a loss
from continuing operations of $4.9 million.

In fiscal 1996, the Company reported a loss from continuing operations of
$7.1 million. The Company achieved reductions in operating expenses of
$5.0 million or 51% as compared to fiscal 1995 due primarily to ongoing
cost reductions at its meat processing facility and corporate office.

As discussed in Note 2 to the Consolidated Financial Statements, there is
substantial doubt about the Company's ability to continue as a going
concern.

Products, Markets and Distribution

The Company's principal products are frozen, pre-seasoned, portion
controlled meat entrees. Major beef products include commercial and
choice cut steaks. The Company also produces other meat products such as
specialty ground and breaded products and certain cooked products (e.g.,
pot roast, meat loaf). The Company engages in the development and
production of proprietary "signature" recipes for chain restaurant
customers. The Company also offers its customers services such as menu
planning, new product development and other marketing services, such as
handling and cooking procedures. These programs, products and services
are custom-designed for each chain restaurant customer.

The markets served by the Company include family-style restaurant chains
and foodservice distributors. Products are primarily sold through the
Company's own marketing staff, as well as through independent brokers and
foodservice distributors.

Raw Materials

The Company's primary raw material is beef which is available in adequate
supply. The Company is not dependent upon any one source for its primary
raw material.

The Company has agreements with certain of its suppliers to purchase raw
materials. These agreements extend for up to one year and specify the
price and quantity of materials to be purchased. The aggregate
commitment for future purchases as of October 31, 1998 was approximately
$4.3 million.
<PAGE>
Customers

Sales to two groups of the Company's customers, Bonanza and Ponderosa,
together accounted for approximately 8%, 16.7%, and 26.0% of the
Company's sales from continuing operations in fiscal 1998, 1997 and 1996,
respectively. Franchise rights for both Bonanza and Ponderosa
restaurants are owned by Metromedia, Inc. The Bonanza and certain of the
Ponderosa restaurants are independently owned and operated.

The loss of any of the Company's major customers, or a substantial
portion of these accounts, could have a material adverse effect on the
Company. The Company is pursuing new sales opportunities. However,
there can be no assurance of the success of these sales efforts.

The Company believes that it has satisfactory ongoing relationships with
its current customers. There can be no assurances, however, that such
relationships can be preserved, especially if the Company's financial
condition and results of operation do not improve.

Trademarks, Patents and Research Activities

Rymer Meat sells and markets its products under the "Rymer" trademark
label. The Company considers this trademark important in its marketing
efforts.

Research and development expenses are charged to operations as incurred.
Expenditures for the three fiscal years ending October 31, 1998, October
25, 1997, and October 26, 1996 were not material as compared to other
operational expenses.

Competitive Conditions

The Company's business is highly competitive, with a substantial number
of competitors. A large number of companies process and sell meat
products to restaurants. Every year new companies are formed and enter
the meat industry, some becoming sizeable competitors in a short period
of time.

Some of the competitors in the Company's markets are larger than the
Company and have greater resources. The Company believes that in the
markets it serves it provides its customers with a broader line of
quality products and services than many of its competitors. Competition
in the markets served by the Company is based primarily on quality,
service and price. Management believes that the Company's primary bases
for competing are its reputation for quality, service, broad menu of
products, willingness to develop proprietary recipes for specific
customers and competitive pricing.

Environmental Matters

The Company believes that it is in compliance with all applicable
federal, state and local provisions regulating the discharge of materials
into the environment, or otherwise relating to the protection of the
environment. No significant costs were incurred by the Company to comply
with environmental regulations during the three fiscal years ended
October 31, 1998, October 25, 1997, and October 26, 1996. The Company
has not received notice of, and is not aware of any claims arising under
any federal or state environmental laws.
<PAGE>

Employees

At October 31, 1998, Rymer Foods had approximately 190 employees, of whom
approximately 150 were covered by union contracts. The Company currently
enjoys stable relations with its employees.

Seasonality

The quarterly results of the Company are affected by seasonal factors.
Sales are usually lower in the fall and winter primarily due to
consumers' dining preferences.

Item 2. Properties

At October 31, 1998, the principal physical property of Rymer Foods
consisted of the following:

Footage Ownership Expiration Facility Use
------- -------------------- ------------
Chicago, Illinois 123,000 Leased Month to Offices/Production/
Month Warehouse

The Chicago facility is considered suitable and adequate to meet the
needs of the Company. The long term lease for the Chicago meat
processing facility expired in July 1996. The Company has subsequently
negotiated for revised lease space and lower rental costs. However, a
new lease has not been finalized. Management expects to lease on a
month-to-month basis for the time being. See Note 8 to the Consolidated
Financial Statements for a summary of the Company's rental expense for
leased facilities and for production and office equipment.

Item 3. Legal Proceedings

None

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

None

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters

The Company's common stock currently trades under the symbol RFDS.
Previously, in fiscal 1997, the Company's stock traded under the symbols
RYR (NYSE), RYMR (OTCBB), and RYMRQ (OTCBB). The current symbol (RFDS)
is a result of the Company's reorganization and reflects the new common
stock issued to previous noteholders and shareholders. The new Common
Stock began trading on November 5, 1997 at an opening value of $1.00 per
share. The opening trading value reflected the new Common Stock issuance
and the 25 to 1 reverse stock split as outlined in the Company's plan of
reorganization.

Share prices for 1997 have not been restated to reflect the 25 to 1
reverse stock split. On January 9, 1999, the Company's stock price
closed at $0.19 per share.
<PAGE>

The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices of the Common Stock. As of January 9, 1999,
there were approximately 279 holders of record of Common Stock.

High Low
---- ---
1998
First Quarter $ 1.38 $ 1.00
Second Quarter 1.25 0.75
Third Quarter 0.75 0.25
Fourth Quarter 0.81 0.34

1997
First Quarter $ 0.50 $ 0.25
Second Quarter 0.28 0.01
Third Quarter 0.10 0.04
Fourth Quarter 0.09 0.06

Dividends

No dividends have been paid on the Common Stock since prior to 1983. The
ability of Rymer Foods to pay dividends on the Common Stock is
substantially limited by its bank credit agreements. The Company does
not anticipate that it will be able to pay any dividend on the Common
Stock in the foreseeable future.

<PAGE>
<TABLE>
Item 6. Selected Financial Data
(in thousands, except per share data)

Reorganized Company Predecessor Company
Twelve One Eleven
Month Month Month Fiscal Fiscal Fiscal
Period Period Period Year Year Year
Ended Ended Ended Ended Ended Ended
Oct. 31, Oct. 25, Sept. 20, Oct. 26, Oct. 28, Oct. 29,
1998 1997 1997 1996 1995 1994
------ ----- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Results from continuing
operations:
Net sales $30,203 $ 2,796 $ 31,095 $ 44,329 $ 79,920 $106,252
(Loss) income from
continuing operations
before extraordinary
item (2,017) (113) (4,828) (7,144) (29,620) 1,883
(Loss) income from
discontinued operations - - - (167) 290 121
(Loss) gain on
dispositions of
discontinued operations - - (566) 1,853) - 4,474
Extraordinary gain on
discharge of debt - - 25,603 - - -
------ ----- ------ ------ ------ -------
Net (loss) income (2,017) (113) 20,209 (9,164) (29,330) 6,478

Working capital (deficit) 1,474 2,472 (22,623) (18,202) (10,524) 16,013
Total assets 6,880 8,266 9,070 10,563 26,074 51,506
Long-term liabilities - - 1,097 806 842 19,994
Stockholders'
equity (deficit) 2,893 4,910 5,023 (15,616) (6,858) 22,464

Basic per share common
stock data:
Loss from continuing
operations $ (0.47) $ (0.03) * * * *
Net loss $ (0.47) $ (0.03) * * * *

See Notes 3 and 4 to the Consolidated Financial Statements for
information regarding the Company's Restructuring and discontinued
operations.

* Earnings per share amount as it relates to the predecessor company
is not meaningful due to the reorganization.
</TABLE>
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Cautionary Statement The statements in this Form 10-K, included in
this Management's Discussion and Analysis, that are forward looking are
based upon current expectations and actual results may differ materially.
Therefore, the inclusion of such forward looking information should not
be regarded as a representation by the Company that the objectives or
plans of the Company will be achieved. Such statements include, but are
not limited to, the Company's expectations regarding the operations and
financial condition of the Company. Forward looking statements contained
in this Form 10-K included in this Management's Discussion and Analysis,
involve numerous risks and uncertainties that could cause actual results
to differ materially including, but not limited to, the effect of
changing economic conditions, business conditions and growth in the meat
industry, the Company's ability to maintain its lending arrangements, or
if necessary, access external sources of capital, implementing current
restructuring plans and accurately forecasting capital expenditures. In
addition, the Company's future results of operations and financial
condition may be adversely impacted by various factors including,
primarily, the level of the Company's sales. Certain of these factors
are described in the description of the Company's business, operations
and financial condition contained in this Form 10-K. Assumptions
relating to budgeting, marketing, product development and other
management decisions are subjective in many respects and thus susceptible
to interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause the Company to alter
its marketing, capital expenditure or other budgets, which may in turn
affect the Company's financial position and results of operations.

General

The Company's consolidated results from continuing operations are
generated by its Meat processing operation.

In accordance with the AICPA Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code, the
Company adopted fresh-start reporting as of September 20, 1997. In
accordance with fresh-start accounting, the gain on discharge of debt
resulting from the bankruptcy proceedings was reflected on the
predecessor Company's financial statements for the period ended September
20, 1997. In addition, the accumulated deficit of the predecessor
Company at September 20, 1997, was eliminated, and at September 21, 1997,
the reorganized Company's financial statements reflected no beginning
retained earnings or deficit. In addition, the Company's capital
structure was recast in conformity with its approved Plan.

As a result of the Company's adoption of fresh-start accounting,
reporting for the year ended October 25, 1997 is accomplished by
combining the financial results for the one-month period ended October
25, 1997 and those of the eleven-month period ended September 20, 1997.
Because of the application of fresh-start reporting, the financial
statements for the periods after reorganization are not necessarily
comparable to the financial statements for the periods prior to
reorganization.
<PAGE>
The Company announced on July 8, 1997, that it had received the necessary
approvals from its creditors and stockholders for confirmation of a
prepackaged plan of reorganization under Chapter 11 of the Bankruptcy
Code (the Plan). Rymer Foods' operating subsidiary, Rymer Meat, was not
a party to the Bankruptcy proceedings. To implement the Plan, on July 8,
1997 the Company commenced a voluntary Chapter 11 case in the United
States Bankruptcy Court for the Northern District of Illinois (the
Bankruptcy Court) and filed the Plan with the Bankruptcy Court. The Plan
was confirmed by the Bankruptcy Court on August 21, 1997 and became
effective on October 6, 1997.

Fiscal 1998 Compared with Fiscal 1997

Consolidated sales for 1998 of $30.2 million decreased from 1997 by $3.7
million or 10.9%. Sales volume accounted for approximately 96% of the
sales decrease with lower prices and changes in the sales mix accounting
for the remaining decrease.

Sales decreased primarily due to reduced sales to certain major customers
during the first quarter of 1998. In addition, sales decreased partially
as a result of the Company's customers experiencing sales declines.
Many restaurant chains have experienced sales declines due to
ever-increasing competitive pressures in the casual dining segment of the
foodservice market. The decrease was primarily volume related as the
average selling price decreased by only 1.3%.

As compared to 1997, consolidated cost of sales decreased by $2.8 million
or 9.1% while total gross profit decreased by $.9 million or 29.3%. As a
percentage of sales, the consolidated gross margin decreased to 7% as
compared to 8.9% in 1997.

Gross profit decreased compared to 1997 primarily due to decreased unit
sales along with mix changes in sales to national restaurant chain
accounts and higher raw material costs. In addition, the Company
experienced inefficiencies in production related to changes in personnel.

Selling, general and administrative expenses remained approximately the
same. Selling expenses increased by $.3 million primarily due to
additional promotion cost related to introduction of Angus Ranch Brand
Steaks. Administrative expenses decreased by $.3 million primarily due
to administrative headcount reductions.

Interest expense decreased by $2.1 million or 91.6% from 1997 to 1998 due
primarily to the elimination of Senior Note interest in 1998.

In 1998, no provision for income taxes was recorded due to the Company's
loss.

Fiscal 1997 Compared with Fiscal 1996

Consolidated sales for 1997 of $33.9 million decreased from 1996 by $10.4
million or 23.5%. Sales volume accounted for approximately 90% of the
sales decrease with lower prices and changes in the sales mix accounting
for the remaining 10% decrease.
<PAGE>
Sales decreased primarily due to reduced unit sales to certain national
restaurant chains. This decrease was primarily due to reduced sales
volume due to increasing competition. National restaurant chain sales
declined 15.8% versus 1996.

As compared to 1996, consolidated cost of sales decreased by $11.6
million or 27.4% while total gross profit increased by $1.2 million or
65.7%. As a percentage of sales, the consolidated gross margin increased
to 8.9% of net sales as compared to 4.1% of net sales in 1996. Gross
profit increased compared to 1996 primarily due to improvements in
operational efficiencies.

Selling, general and administrative expenses decreased by $0.8 million or
17.1%. Selling expenses of $1.6 million remained the same as 1996.
Administrative expenses decreased by $0.8 million primarily due to
administrative headcount reductions.

Interest expense decreased by $1.9 million or 44.4% as compared to 1996.
The decrease was primarily due to decreased interest expense on the
Company's 11% Senior Notes. As permitted by the Company's Prepackaged
Bankruptcy Plan, Senior Note interest no longer accrued effective upon
the filing of the Company's Chapter 11 petition on July 8, 1997.

On October 16, 1997, the Company entered into an agreement to sell its
Plant City, Florida facility, an asset remaining from the discontinued
Rymer Chicken operation which was disposed of in 1993. The agreement
requires a purchase price of $800,000. The terms of the sale are as
follows: 35% cash down payment, balance to be paid over a five-year
period. This note was paid in cash in 1998. The sale was closed in the
second fiscal quarter of 1998. As a result of the pending sale of the
facility, a $566,000 loss was incurred in the eleven month period ended
September 20, 1997. This charge is included as a loss from disposition
of discontinued operations in the Company's consolidated statement of
operations in 1997. The loss is primarily attributable to a write-down
of the facility's book value to the sales price plus estimated expenses
to repair the facility.

On July 8, 1997, the Company announced that it had received the necessary
approvals from its creditors and stockholders for confirmation of a
prepackaged plan under Chapter 11 of the Bankruptcy Code. As a result of
the Company's restructuring, the Company incurred $1.6 million in
restructuring costs. These costs included legal fees, financial advisor
costs, and other fees and expenses to consummate the Bankruptcy Plan.

In 1997, no provision for income taxes was recorded due to the Company's
loss.

Liquidity and Capital Resources

The Company makes sales primarily on a seven to thirty day balance due
basis. Purchases from suppliers have payment terms generally ranging from
wire transfer at time of shipment to fourteen days.
<PAGE>

The Company's cash management techniques involve the use of zero balance
disbursement accounts. Check clearings are covered by advances from the
Company's credit lines. Thus, in the absence of excess funds classified
as cash equivalents, the Company's cash balances are credit balance
accounts representing outstanding checks. The Company classified such
credit balances as accounts payable in the Consolidated Balance Sheet.

On April 23, 1998 the Company entered into a loan and security agreement
with FINOVA which replaced the working capital agreement with LaSalle.
The Credit facility provides up to $4 million for the Company through
April 23, 2001. The FINOVA agreement contains loan covenants that the
Company must meet. At October 31, 1998, the Company was in violation of
a covenant which FINOVA has agreed to waive. The Company may be in
violation of certain loan covenants in the future. While the Company
believes that FINOVA will waive these violations going forward, there
are no assurances in that regard.

In conjunction with its bankruptcy filing, the Company, on August 29,
1997, entered into a revised loan agreement with LaSalle. The revised
agreement provided a credit facility of up to $4 million for the Company
through April 1998 based on borrowing base availability calculations.
The agreement revised certain loan covenants and waived all prior events
of default as of the quarter ended July 25, 1997. At October 25, 1997,
the Company had a bank loan of $1.4 million outstanding under its line of
credit with LaSalle.

As permitted by the terms of its 11% Senior Notes, the December 15, 1996
interest payment was made by issuing additional Senior Notes in a
principal amount equal to the interest payment due. The Company was also
required to make an interest payment on June 15, 1997 of approximately
$1.3 million in respect to the Senior Notes. As part of the Company's
restructuring, its 11% Senior Notes were converted into equity.

As discussed in Note 2 to the Consolidated Financial Statements, there is
substantial doubt about the Company's ability to continue as a going
concern.

The Company had working capital of $1.5 million at October 31, 1998 and
$2.5 million at October 25, 1997.

The Company had total lines of credit available based on borrowing base
calculations of $2.6 million at October 31, 1998 and $2.4 million at
October 25, 1997, of which $.7 million and $1.0 million, respectively,
was unused.

The Company has agreements with certain of its customers to sell
merchandise over the next year for specified prices. The Company has
agreements with certain of its suppliers to purchase raw materials. The
agreements extend for up to one year and provide the price and quantity
of materials to be supplied. The Company had purchase commitments of
approximately $4.3 million as of October 31, 1998.

The Company anticipates spending approximately $350,000 for capital
expenditures in 1999. The expenditures are primarily for planned
improvements. There are no specific commitments outstanding related to
these planned expenditures. Such capital expenditures will be financed
with cash from operations and/or bank borrowings.
<PAGE>

The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors, leading to
disruptions in operations. In 1997, the Company developed a three-phase
program for the Y2K information systems compliance. Phase I is to
identify those systems which the Company has exposure to Y2K issues.
Phase II is the development and implementation of action plans to be Y2K
compliant in all areas by early 1999. Phase III, to be completed by mid-
1999 is the final testing of each area of exposure to ensure compliance.
The Company has identified two major areas determined to be critical for
successful Y2K compliance:

(1) financial and informational systems applications and (2) third-party
relationships.

In accordance with Phase I of the program, the Company has conducted its
review and has determined all major areas which need to be upgraded. In
the financial and information systems area, a number of applications have
been identified as Y2K compliant due to their recent implementation. The
Company's core financial reporting systems are not Y2K compliant, but
are scheduled for upgrade in early 1999. The Company has contacted most
of their major third parties, who state they intend to be Y2K compliant
by 2000.

The Company believes that the cost to update its systems is not
significant. The Company plans on completing the work with existing
personnel. The Company anticipates completion in the first half of 1999.

Seasonality

The quarterly results of the Company are affected by seasonal factors.
Sales are usually lower in the fall and winter.

Impact of Inflation

Raw materials are subject to fluctuations in price. However, the Company
does not expect such fluctuations to materially impact its competitive
position.

Fourth Quarter Adjustments

1998
None.

1997
On October 16, 1997, the Company entered into an agreement to sell its
Plant City, Florida facility. As a result of the pending sale, a
$566,000 loss was incurred. This charge is included as a loss from
disposition of discontinued operations in the Company's consolidated
statement of operations. The loss is primarily attributable to a write-
down of the facility's book value to the agreed contract price plus
estimated expenses to repair the facility.
<PAGE>

1996
In December 1996, the Company had an independent appraisal performed of
the Plant City facility, an asset remaining from the discontinued Rymer
Chicken operation which was disposed of in December 1993. As a result of
the appraisal, the carrying value of the facility and land was written
down by $450,000 to the appraised value of approximately $1.2 million.
The $450,000 writedown is included as a loss from discontinued operations
in the Company's consolidated statement of operations.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Supplementary
Financial Data

Pages

Reports of Independent Accountants 13-14

Financial Statements:

Consolidated Statements of Operations for the fiscal years
ended October 31, 1998, October 25, 1997 and October 26, 1996 15

Consolidated Balance Sheets as of October 31, 1998 and
October 25, 1997 16

Consolidated Statements of Cash Flows for the fiscal years
ended October 31, 1998, October 25, 1997 and October 26, 1996 17

Consolidated Statements of Stockholders' Equity (Deficit)
for the fiscal years ended October 31, 1998, October 25, 1997
and October 26, 1996 18

Notes to Consolidated Financial Statements 19-28

Supplementary Financial Data:

Schedule II - Valuation and Qualifying Accounts and Reserves 29

Note: Reporting for the year ended October 25, 1997 is
accomplished by combining the financial results for the
one-month period ended October 25, 1997 and those of
the eleven-month period ended September 20, 1997.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
Rymer Foods Inc.

We have audited the consolidated balance sheets of Rymer
Foods Inc. and subsidiaries as of October 31, 1998 and
October 25, 1997, and the consolidated statements of
operations, stockholders' equity (deficit) and cash flows
for the year ended October 31, 1998, the one-month period
ended October 25, 1997 and the eleven-month period ended
September 20, 1997. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements.

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

In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Rymer Foods Inc. and
subsidiaries as of October 31, 1998 and October 25, 1997,
and the consolidated results of their operations and
their cash flows for the year ended October 31, 1998, the
one-month period ended October 25, 1997 and the eleven-
month period ended September 20, 1997, in conformity with
generally accepted accounting principles. We have also
audited Schedule II of Rymer Foods Inc. and subsidiaries
for the years ended October 31, 1998 and October 25,
1997. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set
forth therein.

As more fully described in Notes 1 and 5 to the
consolidated financial statements, effective October 6,
1997, the Company emerged from bankruptcy. In accordance
with an American Institute of Certified Public
Accountants' Statement of Position, the Company has
adopted "fresh start" reporting whereby its assets,
liabilities and new capital structure have been adjusted
to reflect estimated fair values as of September 20,
1997. As a result, the consolidated financial statements
for periods subsequent to September 20, 1997, reflect
this basis of reporting and are not necessarily
comparable to the Company's pre-reorganization
consolidated financial statements.
<PAGE>

The accompanying consolidated financial statements and
financial statement schedule have been prepared assuming
that Rymer Foods Inc. will continue as a going concern.
As more fully described in Notes 2 and 7 to the
consolidated financial statements, the Company's credit
facility extends through April 2001. At year end, the
Company was in violation of certain loan covenants. This
could result in termination of the Company's credit
agreements, raising substantial doubt about its ability
to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2.
The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ Grant Thornton LLP

Chicago, Illinois Grant Thornton LLP
December 11, 1998

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
Rymer Foods Inc.

We have audited the consolidated statements of
operations, stockholders' deficit and cash flows of Rymer
Foods Inc. and subsidiaries for the year ended October
26, 1996. We have also audited the financial statement
Schedule II of Rymer Foods Inc. and subsidiaries for the
year ended October 26, 1996. These financial statements
and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these financial statements and the
financial statement schedule based on our audit.

We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated results of operations and cash flows of
Rymer Foods Inc. and subsidiaries for the year ended
October 26, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the
financial statement schedule, for the year ended October
26, 1996, when considered in relation to the basic
financial statements taken as a whole, presents fairly,
in all material respects, the information set forth
therein.
<PAGE>
The accompanying consolidated financial statements and
financial statement schedule have been prepared assuming
that Rymer Foods Inc. will continue as a going concern.
As more fully described in Note 2 to the Consolidated
Financial Statements, the Company has reported recurring
losses from continuing operations, has experienced a
significant decrease in net sales in 1996 and 1995, and
at October 26, 1996 has a stockholders' deficit of $15.6
million. Additionally, the Company does not expect to
have sufficient available cash in fiscal 1997 to make the
June 15, 1997 11% Senior Note interest payment. This
will result in an event of default at which time the
Senior Notes will become due and payable. These
conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's
plans regarding these matters are also described in Note
2. The consolidated financial statements do not include
any adjustments that might result from the outcome of
this uncertainty.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois Coopers & Lybrand L.L.P.
December 16, 1996

<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended October 31, 1998, October 25, 1997 and October 26, 1996
(in thousands except share data)

Net sales $30,203 $ 2,796 $ 31,095 $ 44,329
Cost of sales 28,078 2,562 28,324 42,516
------ ------ ------- -------
Gross profit 2,125 234 2,771 1,813
Selling, general and
administrative expenses 4,001 333 3,793 4,794
Restructuring charge - - 1,608 -
------ ------ ------- -------
Operating loss (1,876) (99) (2,630) (2,981)
Interest expense 196 15 2,318 4,198
Other Income (55) (1) (120) (35)
------ ------ ------- -------
Loss from continuing
operations before
income taxes (2,017) (113) (4,828) (7,144)
------ ------ ------- -------
Provision for income taxes - - - -
Loss from continuing
operations (2,017) (113) (4,828) (7,144)
Loss from discontinued
operations, net - - - (167)
Loss on dispositions of
discontinued operations, net - - (566) (1,853)
------ ------ ------- -------
Net loss before
extraordinary item (2,017) (113) (5,394) (9,164)
Extraordinary gain on
discharge of debt - - 25,603 -
------ ------ ------- -------
Net (loss) income $(2,017) $ (113) $ 20,209 $ (9,164)
====== ====== ======= =======
<PAGE>
Per common share:
Basic:
Loss from continuing
operations $ (0.47) $ (0.03) * *
Net loss before
extraordinary item $ (0.47) $ (0.03) * *
Net loss $ (0.47) $ (0.03) * *
Diluted:
Loss from continuing
operations $ (0.47) $ (0.03) * *
Net loss before
extraordinary item $ (0.47) $ (0.03) * *
Net loss $ (0.47) $ (0.03) * *
Weighted average shares of
common stock outstanding:
Basic 4,300,000 4,300,000 * *
Diluted 4,300,000 4,300,000 * *

See accompanying notes.

* Earnings per share amount as it relates to the predecessor company is
not meaningful due to the reorganization.

</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
October 31, 1998 and October 25, 1997

ASSETS 1998 1997
------ ------
(in thousands)
<S> <C> <C>
Current assets:
Receivables, net of allowance for doubtful
accounts of $155,000 in 1998 and $141,000
in 1997 $ 1,956 $ 1,406
Inventories 3,266 4,304
Other 113 193
------ ------
Total current assets 5,335 5,903
Property, plant and equipment:
Leasehold improvements 1,001 958
Machinery and equipment 989 811
------ ------
1,990 1,769
Less accumulated depreciation and amortization 567 44
------ ------
1,423 1,725
Assets held for sale or lease - 800
Other 122 43
------ ------
$ 6,880 $ 8,471
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of borrowings $ 1,851 $ 1,394
Accounts payable 667 368
Accrued interest 21 15
Accrued liabilities 1,322 1,654
------ ------
Total current liabilities 3,861 3,431
Deferred employee benefits 126 130
------ ------
3,987 3,561

Commitments and contingencies (Note 13) - -

Stockholders' equity
Preferred stock, none outstanding - -
Common stock, $.04 par, 20,000,000 shares
authorized, 4,300,000 shares outstanding
in 1998 and 1997 172 172
Additional paid-in capital 4,851 4,851
Accumulated deficit (2,130) (113)
------ ------
Total stockholders' equity 2,893 4,910
------ ------
$ 6,880 $ 8,471
====== ======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended October 31, 1998, October 25, 1997 and October 26, 1996

Reorganized Company Predecessor Company
Twelve One Eleven
Month Month Month Fiscal
Period Period Period Year
Ended Ended Ended Ended
Oct. 31, Oct. 25, Sept. 20, Oct. 26,
1998 1997 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (2,017) $ (113) $ (4,828) $ (7,144)
Non-cash adjustments to loss:
Depreciation and amortization 523 44 579 1,077
Restructuring charge - - 1,608 -
Deferred compensation expense - - - (26)
Provision for bad debts 60 10 110 53
Payment in kind interest on Senior Notes - - - 3,621
Changes in assets and liabilities:
Net (increase) decrease to accounts receivable (610) 179 1,024 1,896
Net (increase) decrease to inventories 1,038 58 (1,090) 8,847
Net (increase) decrease to other current
and other long-term assets 1 (17) 95 663
Net (decrease) increase to accounts
payable and accrued expenses (257) 40 1,128 (1,385)
------- ------ ------- -------
Net cash flows from operating activities
of continuing operations (1,262) 201 (1,374) 7,602
Net cash flows from operating activities
of discontinued operations - (7) (196) 3,077
------- ------ ------- -------
Net cash flows from operating activities (1,262) (194) (1,571) 10,679
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of Rymer Seafood - - 950 1,500
Capital expenditures (221) (6) (609) (529)
Other - - 1 1
Net cash flows from investing activities
of discontinued operations 800 - - (5)
------- ------ ------- -------
Net cash flows from investing activities 579 (6) 342 967
------- ------ ------- -------
<PAGE>

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in cash overdraft 226 38 (181) (348)
Repayments under line-of-credit facility (33,689) (3,051) (27,021) (49,991)
Borrowings under line-of-credit facility 34,146 2,825 28,431 42,075
Principal payments on debt - - - (267)
------- ------ ------- -------
Net cash flows from financing activities
of continuing operations 683 (188) 1,229 (8,531)
Net cash flows from financing activities of
discontinued operations - - - (3,115)
------- ------ ------- -------
Net cash flows from financing activities 683 (188) 1,229 (11,646)
------- ------ ------- -------
Net change in cash - - - -
Cash and cash equivalents balance at
beginning of fiscal year - - - -
------- ------ ------- -------
Cash and cash equivalents balance at end
of fiscal year $ - $ - $ - $ -
======= ====== ======= =======
See accompanying notes.

</TABLE>
<PAGE>
<TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the fiscal years ended October 31, 1998, October 25, 1997 and October 26, 1996

Additional Notes Receivable Total
Common Paid-In Accumulated from Sale of Stockholders'
Stock Capital Deficit Common Stock Equity (Deficit)
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Balance at October 28, 1995 $ 10,754 $ 44,363 $(61,569) $ (406) $ (6,858)
Net loss - - (9,164) (9,164)
Repayment of notes
receivable - - - 406 406
------- ------- ------- ------ -------
Balance at October 26, 1996 10,754 44,363 (70,733) (15,616)
Net income for the eleven
month period ended
September 20, 1997 - - 20,209 - 20,209
Effect of reorganization and
fresh start accounting:
Cancellation of predecessor
deficit (10,599) (39,925) 50,524 - -
Issuance of new shares pursuant
to plan of reorganization 17 413 - - 430
------- ------- ------- ------ -------
Balance at September 20, 1997 172 4,851 - - 5,023
Net loss for one month period
ended October 25, 1997 - - (113) - (113)
------- ------- ------- ------ -------
Balance at October 25, 1997 172 4,851 (113) - 4,910
Net loss - - (2,017) - (2,017)
------- ------- ------- ------ -------
Balance at October 31, 1998 $ 172 $ 4,851 $ (2,130) $ - $ 2,893
======= ======= ======= ====== =======

See accompanying notes.

</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Fiscal Year and Basis of Presentation

The fiscal year of the Company ends the last Saturday in October. For
all years presented, the fiscal year was 52 weeks except 1998 which was
53 weeks.

As a result of the Company adoption of fresh-start accounting, reporting
for the year ended October 25, 1997 is accomplished by combining the
financial results for the one-month period ended October 25, 1997 and
those of the eleven-month period ended September 20, 1997. Because of
the application of fresh-start reporting, the financial statements for
the periods after reorganization are not comparable in any respect to the
financial statements for the periods prior to reorganization.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all of its subsidiaries after elimination of all significant
intercompany accounts and transactions. The Company is engaged in the
development and production of frozen, pre-seasoned, portion controlled
meat entrees for restaurants and other foodservice customers, primarily
in the United States.

Cash Equivalents

The Company considers short-term investments purchased with maturities of
ninety days or less to be cash equivalents.

Inventories

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

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is
recognized on a straight-line basis over the estimated useful lives of
the related assets generally from 3 years to 7 years. Expenditures for
maintenance and repairs are charged to operations as incurred. Gains or
losses on the disposition of assets are reflected in results of
operations.
<PAGE>

Revenue Recognition

The Company recognizes sales revenues at the time of shipment.

Income Taxes

Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the basis of assets and liabilities
for income tax and for financial reporting purposes. In addition, the
amount of any future tax benefits is reduced by a valuation allowance to
the extent such benefits are not expected to be fully realized.

Earnings (Loss) Per Share

Since there is a net loss, common stock equivalents are excluded from the
diluted earnings per share calculation since they would be antidilutive.

Amounts for the predecessor company are not presented as the data is not
meaningful due to the Company's reorganization.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at October 31, 1998
and October 25, 1997, and the reported amounts of revenues and expenses
during the three year period ended October 31, 1998. Actual results
could differ from those estimates.

2. Going Concern

The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern.

In 1998, the Company reported a decrease in net sales from continuing
operations as compared to 1997 of 10.9% principally due to lower sales to
certain national restaurant chains. Also in 1998, the Company reported a
loss from continuing operations of $2.0 million, the sixth loss from
continuing operations before extraordinary item in the last seven years.

At year end, the Company was in violation of certain loan covenants. The
Company's lender, FINOVA, has agreed to waive the covenant violation at
year end. The Company may be in violation in the future and this could
cause termination of the Company's credit agreement. This situation
raises substantial doubt about the Company's ability to continue
operating as a going concern. The fiscal 1998 consolidated financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.

Management believes that the Company's future success is dependent in
part upon reversing its sales decline, on the containment of operating
costs, and on the success of relationships with its lenders. The Company
is pursuing new sales opportunities while continuing to streamline its
production process and to reduce other costs.
<PAGE>

3. Restructuring and Restructuring Charges

During the 1997 fiscal year, the Company recorded a Restructuring charge
of $1.6 million related to its Senior Note restructuring plan. These
costs included legal fees, financial consultants, and other costs
associated with the conversion process of the Company's Senior Notes to
equity.

4. Discontinued Operations and Assets Held for Sale

The accompanying consolidated financial statements reflect the operations
of the Company's Rymer Seafood and Rymer Plant City subsidiaries as
discontinued operations for accounting purposes.

Rymer International Seafood

On August 28, 1996, the Company completed the sale of substantially all
of the assets of its Seafood subsidiary to BGL I, Inc., an entity formed
by the then current President of Rymer Seafood who is also the son of one
of the Company's then Board members. The Company's shareholders approved
the transaction at a special meeting on August 28, 1996. Consummation of
the sale was subject to certain conditions, including approval by the
holders of 66 2/3% of the outstanding Common Stock of the Company and
approval from the holders of Rymer's outstanding 11% Senior Notes.
Senior noteholder approval was received prior to the shareholder meeting
of August 28, 1996. The sales price was approximately $8.5 million,
consisting of $1.5 million in cash, $1.0 million in a ten year
subordinated note from the buyer and the assumption by the buyer of $5.1
million in bank debt and $0.9 million of other current liabilities. The
Company recorded a loss on the sale of Rymer Seafood of approximately
$1.9 million, which was recorded as of the measurement date (August 28,
1996) in the fourth quarter of 1996. On November 11, 1996, the Company
received a payment of $950,000 in full settlement of its ten year
subordinated note from the buyer of its Seafood operation. The proceeds
from the note were used to pay down the Company's then existing loan
balance with LaSalle.

Rymer Chicken - Plant City

During 1992, the Company decided to place its idle Plant City, Florida
chicken facility and equipment for sale.

During 1993, the Company recognized a loss of $344,000 to reduce the
carrying value of the Plant City property to an estimated net realizable
value of $1.6 million. This loss was partially offset by income of
$272,000 from the elimination of reserves established during 1992 for
Plant City losses. In December 1996, the Company had an independent
appraisal performed of the Plant City facility. As a result of the
appraisal, the carrying value of the facility and land was written down
by $450,000 to the appraised value of approximately $1.2 million. The
$450,000 writedown is included as a loss from discontinued operations in
the Company's consolidated statement of operations.

During the final quarter of 1997, the Company entered into an agreement
to sell its Plant City, Florida facility. The contract called for a
purchase price of $800,000. The terms of the selling agreement were as
follows: 35% down payment, balance to be paid over a five-year note.
The five year note was paid off in cash in 1998. The sale was closed in
the second fiscal quarter of 1998. As a result of the sale of the
facility, a $566,000 loss was incurred. This charge is included as a
loss from disposition of discontinued operations in the Company's
consolidated statement of operations prior to the reorganization in 1997.
The loss is primarily attributable to a write-down of the plant's book
value to the agreed contract price plus estimated expenses to repair the
facility.
<PAGE>

Other Discontinued Operations

The following summarizes the results of the various discontinued
operations reflected in the accompanying Consolidated Statements of
Operations (in thousands):

Reorganized Company Predecessor Company
Twelve One Eleven
Month Month Month Fiscal
Period Period Period Year
Ended Ended Ended Ended
Oct. 31, Oct. 25, Sept. 20, Oct. 26,
1998 1997 1997 1996
------- ------- ------- -------
Sales:
Rymer Seafood $ - $ - $ - $ 52,547
Rymer Chicken - - - -
------- ------- ------- -------
Total sales $ - $ - $ - $ 52,547
======= ======= ======= =======
Income (loss) from
discontinued
operations:
Rymer Seafood $ - $ - $ - $ 283
Rymer Chicken - - - (450)
------- ------- ------- -------
$ - $ - $ - $ (167)
======= ======= ======= =======
Loss on dispositions
of discontinued
operations:
Rymer Seafood $ - $ - $ - $ (1,853)
Rymer Chicken - - (566) -
------- ------- ------- -------
$ - $ - $ (566) $ (1,853)
======= ======= ======= =======

5. Reorganization Plan

The Company adopted "fresh-start reporting" on September 20, 1997 in
accordance with Statement of Position ("SOP") 90-7 issued by the American
Institute of Certified Public Accountants. SOP 90-7 calls for the
adoption of "fresh-start reporting" if the reorganization value of the
emerging entity immediately before the date of confirmation is less than
the total of all postpetition liabilities and prepetition allowed claims,
and if holders of existing voting shares immediately before confirmation
receive less than 50 percent of the voting shares of the emerging entity,
both conditions of which were satisfied by the Company. Although the
consummation date was October 6, 1997, fresh-start reporting was adopted
on September 20, 1997. There were no fresh-start related adjustments
during the period September 21, 1997 to October 6, 1997.

Under fresh-start accounting, all assets and liabilities are restated to
reflect their reorganization value, which approximates book value at date
of reorganization. Therefore, no reorganization value has been allocated
to the assets and liabilities. In addition, the amount of debt
forgiveness was $25.6 million and the accumulated deficit of the
predecessor company at September 20, 1997 totalling $50.4 million was
eliminated, and at September 21, 1997, the reorganized company's
financial statements reflected no beginning retained earnings or deficit.

The effect of the plan of reorganization on the Company's Consolidated
Balance Sheet as of September 20, 1997 is as follows (in thousands):
<PAGE>

Pre-
Reorganization Adjustment Reorganized
Balance Sheet to Record Fresh-Start Balance Sheet
September 20, Plan of Accounting September 21,
1997 Reorganization Adjustments 1997
------ ------ -------- ------
ASSETS
Current assets $ 5,875 $ (144) $ - $ 5,731

Non-current assets 3,363 (764) - 2,599
------ ------ ------- ------
$ 9,238 $ (908) $ - $ 8,330

LIABILITIES

Other liabilities $ 4,645 $(1,338) $ - $ 3,307
Liabilities subject
to Chapter 11 25,603 (25,603) - -

Stockholder equity:
Common stock 10,754 17 (10,599) 172
Paid-in capital 44,363 413 (39,925) 4,851
Accumulated deficit (76,127) 25,603 50,524 -
------ ------ ------- ------
(21,010) 26,033 - 5,023
------ ------ ------- ------
$ 9,238 $ (908) $ - $ 8,330
====== ====== ======= ======
6. Inventories

Inventories consist of the following (in thousands):

Oct. 31, Oct. 25,
1998 1997
------ ------
Raw materials $ 2,166 $ 2,651
Finished goods 1,100 1,653
------ ------
$ 3,266 $ 4,304
====== ======
7. Borrowings

Current borrowings consisted of the following (in thousands):

October 31, October 25,
1998 1997
----- -----
Banks, with interest of 2% over
prime in 1998 and 1 1/2% over
prime in 1997 $ 1,851 $ 1,394
====== ======

The prime rate applicable to the Company's outstanding bank notes payable
was 8% at October 31, 1998 and 8.5% at October 25, 1997. The weighted
average interest rate relating to these borrowings was 10.1% and 10.0%
during fiscal 1998 and 1997 respectively.
<PAGE>

The Company on April 23, 1998 entered into a loan agreement with FINOVA
that replaced the loan agreement with LaSalle. The credit facility
provides up to $4 million for the Company through April 23, 2001. The
FINOVA agreement contains loan covenants that the Company must meet. At
October 31, 1998, the Company was in violation of a covenant which FINOVA
has agreed to waive. The Company may be in violation of certain loan
covenants in the future. While the Company believes that FINOVA will
waive those violations going forward, there can be no assurances in that
regard.

Under the agreement noted above the Company's Rymer Meat subsidiary had
total lines of credit available of $2.6 million at October 31, 1998 and
$2.4 million at October 25, 1997, of which $.7 million and $1.0 million,
respectively, was unused.

The Company's bank agreements contain certain restrictive covenants
which, among other things, limit the amount of indebtedness incurred by
the Company and its subsidiaries and require the maintenance of certain
financial ratios by the Company and its subsidiaries. Substantially all
of the Company's property, plant and equipment and certain current
assets are pledged as collateral under its bank agreement.

8. Leases

The Company and its subsidiaries lease certain facilities and equipment
used for offices and manufacturing. Total rental expense from continuing
operations under all operating leases was approximately $476,000,
$476,000, and $683,000, in fiscal 1998, fiscal 1997 and fiscal 1996,
respectively. The above lease costs do not include the costs of taxes,
insurance, maintenance and utilities which the Company and its
subsidiaries are required to pay.

The lease for the Chicago meat processing facility expired in July 1996.
The Company has subsequently negotiated for revised lease space and
lower rental costs and leases the facility on a month-to-month basis.

Property, plant and equipment recorded under lease commitments under non-
cancelable leases are not material.
<PAGE>

9. Income Taxes

The Company's deferred tax asset is related primarily to its operating
loss carryforward for tax reporting purposes which approximated $9.0
million and $18.0 million at October 31, 1998 and October 25, 1997,
respectively. The Company recorded a valuation allowance amounting
to the entire deferred tax asset balance because the Company's financial
condition, its lack of a history of consistent earnings, possible
limitations on the use of carryforwards, and the expiration dates of
certain of the net operating loss carryforwards give rise to uncertainty
as to whether the deferred tax asset is realizable.

The components of the net deferred tax asset recorded in the accompanying
consolidated balance sheets as of October 31, 1998 and October 25, 1997
are as follows (in thousands):

1998 1997
------ ------
Deferred tax assets:
Accounts receivable $ 53 $ 48
Inventories 94 88
Property, plant and equipment 352 888
Other liabilities and reserves 97 405
Alternative minimum tax credits 68 33
Net operating loss carryforwards 3,152 6,067
Investment tax credits 512 174
Contribution carryover 10 0
------ ------
Total deferred tax assets 4,338 7,703
Less: Valuation allowance (4,338) (7,703)
------ ------
Net deferred tax asset $ - $ -
====== ======

The following table accounts for the difference between the actual tax
provision attributable to loss before income taxes and the amounts
obtained by applying the statutory U.S. Federal income tax rate of 34% to
the loss before income taxes.

Fiscal Years Ended
October 31, October 25, October 26,
1998 1997 1996
------- ------- -------
(Loss) income before income taxes:
Loss from continuing operations $ (2,017) $ (4,941) $ (7,144)
(Loss) income from discontinued
operations - (566) (167)
Loss on dispositions of
discontinued operations - - (1,853)
------- ------- -------
Total loss before income taxes $ (2,017) $ (5,507) $ (9,164)
======= ======= =======
Total (benefit) provision computed
by applying the U.S. statutory
rate (34%) $ (686) $ (1,872) $ (3,116)
Increases (decreases) in taxes due to:
Loss which provides no current
tax benefit 686 1,872 3,052
Other differences, net - - 64
------- ------- -------
Actual tax provision $ - $ - $ -
======= ======= =======
<PAGE>

The Company's Federal income tax returns are subject to review by the
Internal Revenue Service, the results of which cannot be predicted with
certainty. At October 31, 1998, the Company had an operating loss
carryforward for tax reporting purposes approximating $9 million which is
available to offset future Federal taxable income which begins to expire
in 2007. Additional restrictions under Section 382 may apply to limit
the amount of net operating loss carryforward which can be utilized in
the future.

10. Stockholders' Equity

The Company has authorized 20,000,000 shares of common stock with a par
value of $0.04 per share and 400,000 shares of preferred stock with a par
value of $10 per share.

At October 31, 1998, there were 430,000 stock shares reserved for the
exercise of stock options.

11. Capital Stock, Stock Options and Warrants

In 1994, the Company adopted the 1994 Stock Plan (the 1994 Plan). The
1994 Plan permitted the issuance to key employees and directors options
to purchase up to 580,000 shares of common stock.

Options granted under the 1994 Plan were exercisable at the fair market
value of the Common Stock on the date the option was granted. At October
26, 1996, 293,250 options were outstanding under the 1994 Plan. In
connection with the Company's restructuring, the options under the 1994
Plan were cancelled.

No compensation expense has been recognized by the Company as all options
were granted at the market price of the stock at the date of the grant.

A summary of stock option activity and other related information is as
follows:

1998 1997 1996
------- ------- -------

Shares under option at beginning of
year - 624,750 799,500
Options granted (at $.44 to $1.00 in
in 1998, at prices of $1.50 in 1996) 348,000 - 175,000
Options cancelled and expired - (624,750) (681,250)
------- ------- -------

Shares under option at the end of the
year
No shares exercised at October 31,
1998 348,000 - 293,250
======= ======= =======
Shares available for option at
end of year 82,000 - 624,750
======= ======= =======

<PAGE>

In October 1995, the Company engaged the financial advisory and
turnaround firm of Kirkland Messina, Inc. (KM) to assist the Company in
developing a plan to return the Company to profitability. As part of
KM's compensation, the Company issued KM 500,000 warrants to purchase
common stock of the Company at an exercise price in cash of $1.675 per
share. The warrants issued to KM expire October 1, 1998, however, these
warrants were cancelled as the result of the Company's restructuring.

On November 8, 1995, the Company announced that it had hired P. E. (Ed)
Schenk as its President and Chief Executive Officer. As part of Mr.
Schenk's compensation, he was issued 750,000 warrants to purchase common
stock of the Company at an exercise price of $1.00 per share. The
warrants issued to Mr. Schenk expire November 8, 1998. These warrants
also were cancelled as the result of the Company's restructuring.

In connection with the reorganization, the Company issued 430,000 common
shares to senior management. The estimated fair value of the shares was
recorded as expense for the eleven month period ended September 20, 1997.

Effective with the Company's reorganization, a new stock option plan was
put into place. As of October 25, 1997, there were no shares granted or
exercised under the new plan.

During 1998, the Company issued options to key employees and board
members for the purchase of 348,000 shares of common stock. The options
vest either immediately or equally over a four year period, commencing
with the date of grant. The exercise price ranges from $0.44 per share
to $1.00 per share, the market price on the date of grant. The options
will expire five years from the date of grant. The pro forma affect of
applying the fair value based method to this option would not have a
material affect on the reported net earnings (loss) and would not change
the net earnings (loss) per share for the year ended October 31, 1998.
The fair value of this option was computed by applying the following
assumptions to the Black Scholes options pricing model: no dividends;
risk-free interest rate of 5.76%; volatility of 26.0%; and an average
term of 4 years.

12. Employee Benefit Plans

The Company currently sponsors a Company-wide 401(k) savings plan. The
plan covers all salaried personnel at the Chicago processing plant and
the Company's corporate headquarters who have completed 6 months of
service. The Company makes matching contributions to the 401(k) savings
plan of up to 5% of each participants' compensation.

Contributions and costs expensed under the 401(k) savings plan for
employees relating to the Company's continuing operations amounted to
approximately $86,000, $96,000 and $91,000 for fiscal 1998, fiscal 1997,
and fiscal 1996, respectively.

13. Commitments and Contingencies

The amounts of liability, if any, for claims and actions against the
Company and its subsidiaries at October 31, 1998 are not determinable
but, in the opinion of management, such liability, if any, would not have
a material effect upon the Company's financial position or results of
operations.
<PAGE>

The Company has agreements with certain of its customers to sell
merchandise over the next year for specified prices. The Company also
has agreements with certain of its suppliers to purchase raw materials.
The agreements extend for up to one year and provide the price and
quantity of materials to be supplied. The Company had purchase
commitments of $4.3 million as of October 31, 1998.

14. Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

1998 1997 1996
---- ---- ----
Cash paid for:
Interest $190 $128 $423

Federal, state and local
income taxes (net of tax refunds) $ 10 $ 10 $(32)

15. Concentration of Credit Risk and Supplemental Sales Information

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable.

The Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its trade accounts receivable credit
risk exposure is limited. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends, and other information.

Sales to customers outside the United States were less than 10% of
consolidated sales in each year presented.

Sales to two groups of the Company's other customers, Bonanza and
Ponderosa, together accounted for approximately 8%, 16.7% and 26.0% of
the Company's sales from continuing operations in fiscal 1998, 1997 and
1996, respectively. Franchise rights for both Bonanza and Ponderosa are
owned by Metromedia, Inc. The Bonanza and certain of the Ponderosa
restaurants are independently owned and operated.

The loss of any of the Company's major customers, or a substantial
portion of these accounts, could have a material adverse effect on the
Company.

16. Fourth Quarter Adjustments

1998

None

1997

During the final quarter of 1997, the Company entered into an agreement
to sell its Plant City, Florida facility. As a result of the pending
sale, a $566,000 loss was incurred. This charge is included as a loss
from disposition of discontinued operations in the Company's consolidated
statement of operations. The loss is primarily attributable to a write-
down of the facility's book value to the agreed contract price plus
estimated expenses to repair the facility.
<PAGE>

1996

In December 1996, the Company had an independent appraisal performed of
the Plant City facility, an asset remaining from the discontinued Rymer
Chicken operation which was disposed of in December 1993. As a result of
the appraisal, the carrying value of the facility and land was written
down by $450,000 in the fourth quarter of fiscal 1996 to the appraised
value of approximately $1.2 million. The $450,000 writedown is included
as a loss from discontinued operations in the Company's consolidated
statement of operations.

17. New Accounting Pronouncements

In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, Reporting Comprehensive Income. This statement, effective for
fiscal years beginning after December 15, 1997, would require the company
to report components of comprehensive income in a financial statement
that is displayed with the same prominence as other financial statements.
Comprehensive income is defined by Concepts Statement No. 6, Elements of
Financial Statements as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to
owners. The Company has not yet determined its comprehensive income.

Also in June 1997, the FASB issued Statement of Financial Accounting
Standard No. 131, Disclosure about Segments of an Enterprise and Related
Information. This statement, effective for financial statements for
periods beginning after December 15, 1997, requires that a public
business enterprise reports financial and descriptive information about
its reportable operating segments. Generally, financial information is
required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company is evaluating this pronouncement and will make any
segment disclosures as necessary.

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

None

PART III

Item 10. Directors and Executive Officers of the Registrant

The disclosure required by Item 10 is set forth in, and is incorporated
by reference to, the Company's Proxy Statement relating to the 1998
Annual Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or before February 28, 1999 (the 1999 Proxy
Statement).

Item 11. Executive Compensation

The disclosure required by Item 11 is set forth in, and is incorporated
by reference to, the 1999 Proxy Statement.
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

The disclosure required by Item 12 is set forth in, and is incorporated
by reference to, the 1999 Proxy Statement.

Item 13. Certain Relationships and Related Transactions

The disclosure required by Item 13 is set forth in, and is incorporated
by reference to, the 1999 Proxy Statement.

PART IV

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

(a) 1. The following audited consolidated financial statements of Page
the Company are included in Part II, Item 8:

Consolidated Statements of Operations for the fiscal years
ended October 31, 1998, October 25, 1997 and October 26,
1996 15

Consolidated Balance Sheets as of October 31, 1998 and
October 25, 1997 16

Consolidated Statements of Cash Flows for the fiscal years
ended October 31, 1998, October 25, 1997 and October 26,
1996 17

Consolidated Statements of Stockholders' (Deficit)
Equity for the fiscal years ended October 31, 1998,
October 25, 1997 and October 26, 1996 18

Notes to Consolidated Financial Statements 19-28

Note: Reporting for the year ended October 25,
1997 is accomplished by combining the financial
results for the one-month period ended October 25,
1997 and those of the eleven-month period ended
September 20, 1997.

(a) 2. Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts and
Reserves 29

Schedules, other than those listed above, are omitted
as they are not applicable or required or equivalent
information has been included in the financial
statements or notes thereto.
<PAGE>

(a) 3. Exhibits:

2 Plan of Reorganization *

11 Computation of Earnings Per Share 31

21 Subsidiaries of the Company 32

27 Financial Data Schedule (EDGAR filing version) N/A

NOTE: With the exception of Exhibit Nos. 2, 11, 21
and 27, the registrant will furnish copies of such
other Exhibits upon written request to the Secretary at
the address on the cover of the Form 10-K Annual Report.
A reasonable copying and handling fee will be charged.

(b) Reports on Form 8K

None

* Included as an exhibit in the Company's S-4
filing; incorporated herein by reference.

<PAGE>

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1998, OCTOBER 25, 1997 AND OCTOBER 26,
1996
RYMER FOODS INC. AND SUBSIDIARIES

Additions
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions end
Description of Year Expenses (describe) (describe) of Year
----- ------ ------ ------- -----
(in thousands)

Deducted in the
balance sheets
from the assets
to which they
apply:

Allowance for
doubtful accounts-
current:

For the fiscal
year ended
October 31, 1998 $ 141 $ 60 $ 46 (a) $ 155

For the fiscal year
ended October 25,
1997 200 120 179 (a) 141

For the fiscal year
ended October 26,
1996 353 53 206 (a) 200

(a) Accounts written off, net of recoveries
<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.

Rymer Foods Inc.
(Registrant)

By /s/ P. Edward Schenk
P. Edward Schenk, Chairman of the Board,
Chief Executive Officer, and President

Date: January 25, 1999

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 date indicated.

/s/ P. Edward Schenk Chairman of the Board, 1/25/99
P. Edward Schenk Chief Executive Officer and President
(Principal Executive Officer)

/s/ Edward M. Hebert Director, Senior Vice President, Chief 1/25/99
Edward M. Hebert Financial Officer, Treasurer and Secretary

/s/ Michael Bowen Director 1/25/99
Michael Bowen

/s/ Michael J. Brinati Director 1/25/99
Michael J. Brinati

/s/ John W. Elting Director 1/25/99
John W. Elting

/s/ Barry Spector Director 1/25/99
Barry Spector

<TABLE>
Exhibit 11
Rymer Foods Inc.
Computation of Earnings Per Share
for the periods ended October 31, 1998 and October 25, 1997
(in thousands, except per share data)

Fiscal Year One Period
Ending Ending
Oct. 31, Oct. 25,
1998 1997
Basic Diluted Basic Diluted
------ ------ ------ ------
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
1 Average shares outstanding 4,300 4,300 4,300 4,300
2 Net additional shares outstanding
assuming exercise of stock
options* - - - -
3 Net additional shares assuming
conversion of preferred stock not
considered a common stock
equivalent at issuance - - - -
------ ------ ------ ------
4 Average number of common
shares outstanding 4,300 4,300 4,300 4,300
====== ====== ====== ======

EARNINGS
5 Loss from continuing operations $ (2,017) $ (2,017) $ (113) $ (113)
====== ====== ====== ======

6 Net loss $ (2,017) $ (2,017) $ (113) $ (113)
====== ====== ====== ======

PER SHARE AMOUNTS
Loss from continuing operations
(line 5 / line 4) $ (0.47) $ (0.47) $ (0.03) $ (0.03)
====== ====== ====== ======
Net loss
(line 6 / line 4) $ (0.47) $ (0.47) $ (0.03) $ (0.03)
====== ====== ====== ======

Note: Earnings per share amounts for all other reporting periods as it
relates to the predecessor company is not meaningful due to the
reorganization.

* Since there is a net loss, common stock equivalents are excluded
from the diluted earnings per share calculations since they
would be antidilutive.

</TABLE>

Exhibit 21

RYMER FOODS INC.

SUBSIDIARIES OF THE COMPANY

OCTOBER 31, 1998

State of Percent
Subsidiary Name Incorporation Owned Owner

Rymer Meat Inc. Illinois 100 Rymer Foods Inc.

Rymer Chicken Inc. (1) Arkansas 100 Rymer Meat Inc.

Rymer International
Seafood Inc. (2) Illinois 100 Rymer Meat Inc.

Rymer Chicken Inc. - Plant City (3) Florida 100 Rymer Meat Inc.

Queen City Foods Inc. Georgia 100 Rymer Meat Inc.

(1) Substantially all of the assets of Rymer Chicken Inc. were sold on
December 10, 1993. See Item 1 and Note 4 to the Consolidated
Financial Statements.

(2) Substantially all of the assets of Rymer Seafood were sold on August
28, 1996. See Item 1 and Note 4 to the Consolidated Financial
Statements.

(3) Facility was sold in 1998. See Note 4 to the Consolidated Financial
Statements.

<ARTICLE> 5
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,111
<ALLOWANCES> 155
<INVENTORY> 3,266
<CURRENT-ASSETS> 5,335
<PP&E> 1,990
<DEPRECIATION> 567
<TOTAL-ASSETS> 6,880
<CURRENT-LIABILITIES> 3,861
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 4,851
<TOTAL-LIABILITY-AND-EQUITY> 6,880
<SALES> 30,203
<TOTAL-REVENUES> 30,203
<CGS> 28,078
<TOTAL-COSTS> 4,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> (2,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,017)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)

</TABLE>