Stockholder's Report Third Quarter 1998

May 20, 1998

Dear Stockholder:

The third quarter of fiscal 1998 continued improved results over fiscal 1997. Net sales were basically even with last year's third quarter with $58.1 million in the third quarter of fiscal 1998 compared to $58.5 million last year. However, the net loss was reduced to approximately $<106> thousand or $<.01> per share in the third quarter of fiscal 1998 versus a net loss of approximately $<192> thousand or $<.02> per share. At the end of nine months in fiscal 1998, net sales increased 5.6% to approximately $248.1 million compared to approximately $235.0 million at the end of nine months in fiscal 1997. Year to date performance continues to be led by consumer and food service business.

Gross margins increased to 18.7% for the third quarter of fiscal 1998 from 16.3% in 1997. Year to date, after nine months, gross margins are 17.8% in fiscal 1998 versus 13.3% in the same time period for fiscal 1997. Selling and administrative expenses were 15.0% of net sales in the third quarter of fiscal 1998 compared to 13.6% of net sales in the preceding year. Fiscal 1998 year to date selling and administration expenses were 12.3% versus 11.6% at the end of the comparable time period in fiscal 1997. Increased promotional spending for consumer volume was the primary factor in the increase for the 1998 fiscal third quarter and year to date results.

Income from operations for the third quarter of fiscal 1998 was approximately $2.2 million or 3.7% of net sales which represented an increase over the fiscal 1997 third quarter results of approximately $1.6 million or 2.8% of net sales. At the end of nine months, income from operations increased to approximately $13.7 million or 5.5% of net sales in fiscal 1998 from approximately $4.0 million or 1.7% of net sales in fiscal 1997. Fiscal 1998 third quarter working capital requirements resulted in interest expense of approximately $2.4 million versus approximately $2.0 million in the fiscal 1997 third quarter. For the nine months of fiscal 1998 interest expense of approximately $6.3 million was basically even with the prior year.

On March 31, 1998, we entered into a new unsecured $70 million credit facility with U.S. Bancorp Ag Credit, LaSalle National Bank, and Key Bank. We look forward to a banking relationship to complement our needs.

The company's senior management and I believe the fiscal 1998 results represent a significant improvement over the prior year. We look forward to continued success.

Jasper B. Sanfilippo
Chairman and Chief Executive Officer

Consolidated Statements of Operations & Balance Sheets