SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

                                FORM 10-KSB

                              ANNUAL REPORT
                 PURSUANT TO SECTION 13 OR 15(d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended                            Commission File Number
   December 31, 1996                                   0-10825

       Exact name of small business issuer as specified in its charter

                         NEW GENERATION FOODS, INC.

State or other jurisdiction of                                  IRS Employer
incorporation or organization: Nevada          Identification No.: 36-2972588

                    Address of principal executive offices:

                      45 Graham Road, Scarsdale, New York  10583
                           Telephone No.: (914) 722-2410

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

Name of each exchange on which registered:   None

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

                        Common Stock, $.01 par value

    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-B 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-KSB
or any amendment to this Form 10-KSB.
         [   ]

  The aggregate  market value of the  registrant's  Common Stock
held by  non-affiliates  as of March 25, 1997 was $7,806 based on the average of
the high and low bid prices of such stock on March 25,  1997 as  reported by the
NASD Electronic Bulletin Board Service.1

                  The number of shares  outstanding of the  registrant's  Common
Stock as of March 25, 1997 was 399,830.

--------
1Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power,  direct or indirect,  to cause the direction of
the  management or policies of the  registrant or that such person is controlled
by or under common control with the registrant.


                  Registrant's revenues for its most recent fiscal year were $0.

<PAGE>






                                                      PART I

ITEM 1.           BUSINESS

                  New  Generation  Foods,  Inc.  (the  "Company"  or "NGF")  was
organized in February 1977 under the laws of the State of Nevada and adopted its
present name in August 1977. The Company was engaged in the development and sale
of nutritional food products until October 22, 1993, when  substantially  all of
its assets were sold (the "Asset Sale"),  as described below. As a result of the
Asset Sale, the Company is no longer an operating company. During 1994, 1995 and
1996,  the Company had no revenues and its income was derived from  interest and
dividends  and gains on the sale of its assets.  The  Company's  assets  consist
principally of cash, cash equivalents and marketable investment securities.

                  During the period 1982 - 1992, the Company  developed a family
of all natural,  nutritional  and dietetic  food products made from high protein
whole wheat  utilizing its  proprietary  process.  The Company's  principal food
product was Spicer'sR Hunger CrunchersTM  snacks, an expanded protein high fiber
food  (hereinafter  sometimes  called  "Spicer'sR"),  produced  with  a  crunchy
consistency,  presently in the form of small wagon wheel shapes and available in
eight flavors.  Spicer'sR is made from high protein whole wheat (protein content
of at least 14%) utilizing an extrusion  process  invented by Dr. Arnold Spicer,
assigned by him to the Company and patented by the Company.

THE ASSET SALE

                  As previously reported,  on October 22, 1993, the Company sold
substantially  all  of  the  Company's  assets  to  American  Pacific  Financial
Corporation  ("American Pacific") for an aggregate purchase price of $2,600,000,
payable  $150,000 in cash at the closing and the balance in secured notes of the
purchaser payable over a 30-month period. The remaining note receivable from the
Asset Sale,  in the amount of  $716,658,  was paid in full in April  1996,  with
accrued  interest.  At the  closing,  the  Company  also sold its  inventory  to
American  Pacific at cost.  The  inventory  sale was  concluded for an aggregate
price of $130,500,  of which  $25,000 was paid to the Company at the Closing and
the balance has since been paid in full.

Interest of Certain Persons and
Conflicts of Interest

                  As  described  more fully in Items 11 and 12 below,  Jerome S.
Flum, the Chairman of the Board,  Chief  Executive  Officer and President of the
Company,  individually  and through Flum Partners,  beneficially  owns 2,333,333
shares of Series A  Preferred  Stock and  310,000  shares of Series B  Preferred
Stock in  addition  to 150,054  shares of Common  Stock.  The Series A Preferred
Stock has a liquidation  preference of $0.75 per share and the Class B Preferred
Stock  has  a  liquidation  preference  of  $1.00  per  share.  Therefore,  upon
liquidation  of the Company,  Flum  Partners,  of which Mr. Flum is both general
partner  and  a  limited  partner,   would  receive,   directly  or  indirectly,
approximately $2,060,000 plus cumulative dividends, aggregating $713,700 through
December 31, 1996, prior to


<PAGE>



any  distributions to Common  Stockholders.  Flum Partners and Mr. Flum also own
approximately  37.5% of the outstanding  shares of Common Stock and,  therefore,
would be entitled to an aggregate of approximately  37.5% of such  distributions
to Common  Stockholders.  Pursuant to the  Certificates  of  Designation  of the
Preferred Stock, the sale or transfer of substantially  all of the assets of the
Company is deemed to be a liquidation,  dissolution or winding-up of the Company
for purposes of determining  when the  liquidation  preference of the holders of
Preferred Stock is to be paid.  Accordingly,  the holders of Preferred Stock are
entitled   (after  all  debts  of  the  Company   have  been  paid)  to  receive
approximately  $2,060,000 plus cumulative  dividends  before any distribution to
holders of the Common Stock.  The Company does not have sufficient cash or other
assets to make such payment. However, the Preferred Stockholders,  including Mr.
Flum, are not precluded at any time from seeking to enforce their rights to such
liquidation  payment  prior to the Company  obtaining  sufficient  funds,  which
enforcement  could force the  Company to seek  protection  under the  bankruptcy
laws.  Alternatively,  the Preferred Stockholders could seek to obtain a partial
liquidation  payment  equal to the  amount of  available  cash and other  liquid
assets of the Company  (approximately  $1,968,000 at December 31, 1996), without
causing a bankruptcy  filing,  although in such event the  Company's  activities
would be effectively  terminated.  There are no specific  circumstances of which
the Company is aware which would cause the Preferred  Stockholders  to seek such
liquidation preference payments.  However,  although it is the current intention
of  management  to apply the proceeds  from the Asset Sale in a prudent  manner,
which may  increase  the  potential  return to the  minority  Stockholders,  the
Preferred  Stockholders  have not  waived  any  legal  rights  to  receive  such
payments.

Use of Proceeds; Business of the Company
Following the Asset Sale

                  The  Company has made no  determination  with regard to use of
the remaining  proceeds of the Asset Sale. The Company will consider the options
it currently has  available to it;  namely,  (i) to reinvest the proceeds,  (ii)
make acquisitions of or merge with an operating  business or (iii) liquidate the
Company and distribute such proceeds.

                  In the event that the Company  proposes to engage primarily in
the business of investing,  reinvesting or trading in  securities,  or otherwise
reinvests the proceeds of the Asset Sale in investment securities having a value
in  excess of 40% of its  total  assets  (exclusive  of  Government  Securities,
certificates  of deposit  and other cash  items),  the  Company may be deemed an
investment  company and therefore  may be required to register  under and become
subject  to the  Investment  Company  Act of  1940.  To date  the  value  of the
Company's investment securities is well below such 40% limit.

                  In addition to considering the reinvestment of the proceeds of
the Asset Sale, the Company is considering seeking a merger, exchange of capital
stock, asset acquisition or other similar business combination with an operating
business.  The Company's potential  attraction to someone seeking an acquisition
or


<PAGE>



merger is that the Company will be a publicly held  corporation.  Thus, a merger
or  acquisition  could  enable  the other  entity to  become a  publicly  traded
corporation   without   experiencing   the  time   requirements   and  financial
expenditures  usually  associated  with going  public.  Moreover,  under certain
circumstances  it  may be  possible  for  an  entity  acquiring  less  than  the
controlling  shareholding in the Company to utilize some or all of the remaining
tax  loss  carry  forwards  of the  Company  in  connection  with  the  business
operations  of  such  entity.  See  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION AND RESULTS OF OPERATION- Federal Tax Consequences." If the
Company  decides  to  pursue  such  a  transaction  it  will  encounter  intense
competition from other entities having similar objectives.  Further,  there is a
large  number of  established  and well  financed  entities,  including  venture
capital firms,  that have  increased  their merger and  acquisition  activities.
Nearly all such entities will have significantly greater financial resources and
management  capabilities than the Company,  and consequently the Company will be
at a competitive  disadvantage  in  identifying  suitable  merger or acquisition
candidates and successfully concluding a proposed merger, acquisition or similar
transaction.

                  To the extent the Preferred Stockholders demand payment of all
or a portion  of the  amounts  due them,  the  Company's  ability  to invest the
proceeds of the Asset Sale, engage in a merger, exchange of capital stock, asset
acquisition or other similar  business  combination  will be limited,  if at all
possible. No such demand has as yet been received.

                  Another  alternative that may be considered by the Company may
be the  liquidation  of the Company with a  distribution  to its then holders of
Common Stock of all assets remaining available for distribution after payment of
liabilities  and after  having made  appropriate  provisions  for the payment of
liquidating  distributions  upon each class of stock having  preference over the
Common Stock. Since most if not all of the proceeds received from the Asset Sale
will be used to satisfy required payments to the Preferred  Stockholders,  it is
not likely that the Company will have significant  assets, if any, available for
distribution to minority stockholders following such required payments.

                  The Company  has made no decision to do any of the  foregoing,
although it has had preliminary  discussions with several entities relative to a
potential business  combination.  The Company will evaluate the course of action
it will take with regard to the best  interests of the Company and the Company's
stockholders. In the event the Company chooses to merge with another company, or
liquidate the Company,  it will have to obtain the approval of a majority of the
voting power of the Company  prior to taking such action.  Such approval may not
be necessary in the case of certain other  business  combinations,  including an
acquisition of stock or assets of another  company.  Any merger,  acquisition or
other business  combination  is likely to result in substantial  dilution of the
ownership interest of the current Common Stockholders in the Company.

                  Proceeds received from the Asset Sale not immediately required
for the purposes set forth above are being invested as


<PAGE>



management  of the Company  deems  prudent,  which may include,  but will not be
limited  to,  certificates  of deposit,  mutual  funds,  money-market  accounts,
stocks,  options,  bonds or United States  Government  or municipal  securities,
provided, however, that the Company will attempt to invest the net proceeds in a
manner  which will not result in the Company  being  deemed to be an  investment
company  under the  Investment  Company Act of 1940.  In this regard,  while the
foregoing  investments  are intended to be temporary (i.e. for the period during
which the Company is determining  its future course of action with regard to the
business or  liquidation  of the Company),  any such  investments  deemed by the
Securities  and  Exchange  Commission  not to be  temporary,  may  result in the
Company  being  required  to  register  as an  investment  company.  The Company
believes that to the extent a  significant  portion of such proceeds is not used
in evaluating  prospective  business options, the interest income thereon should
be sufficient to defray continuing general and administrative  expenses, as well
as costs relating to compliance with securities laws and regulations.

Employees

                  As of March 25, 1997, the Company and its subsidiaries had one
full-time  employee  who  is its  Chief  Executive  Officer  and  one  part-time
consultant who acts as its controller.  Following the closing of the Asset Sale,
substantially  all of the Company's former employees became employed by American
Pacific.  None of the Company's employees is covered by a collective  bargaining
agreement.  The  Company  believes  its  relations  with  its  employees  to  be
satisfactory and had suffered no interruption in operations.

                  The  Company has no  retirement,  pension,  profit  sharing or
similar program in effect for its employees,  but has adopted stock option plans
covering its employees.

Directors and Executive Officers of the Company

                  The  directors  and  executive  officers of the Company are as
follows:

                                                    Principal Occupation/
Name                              Age               Position Held with Company


Jerome S. Flum                    56                Chairman of the Board and
                                                     Chief Executive Officer

Richard J. James                  57                Director

Leslie Charm                      53                Director


                  The  Company's  By-Laws  provide that (a)  directors  shall be
elected to hold office until the next annual  meeting of  stockholders  and that
each director, including a director elected to fill a vacancy, shall hold office
until the  expiration of the term for which the director was elected and until a
successor  has been  elected,  and (b)  officers  shall hold office  until their
successors  are  chosen by the  Board of  Directors,  except  that the Board may
remove any officer at any time.



<PAGE>



                  Jerome S. Flum has been a director of the Company  since 1983.
He was  appointed  President  and Chief  Executive  Officer of the  Company  and
Chairman of the Board of Directors in June 1985.  Effective  December  1989,  he
resumed his position as  President.  Mr. Flum, an attorney,  has been,  for more
than five years,  the sole General Partner of Flum Partners,  a New York limited
partnership  which was organized in 1972. Since 1995, Mr. Flum has been Chairman
of China Capital  Corp., a privately  held  consulting  and  management  company
headquartered in Bethesda, Maryland.

                  Richard J. James has been a director of the Company since
April 1992.  Mr. James has been a Manager of Quality Control in the
Camera Division of Polaroid Corporation since 1983.

                  Leslie  Charm  has  been  a  director  of  the  Company  since
September 1994. Since 1972, Mr. Charm has been a partner in the firm of Youngman
& Charm,  a firm  specializing  in  assisting  companies  that are  experiencing
operating and/or financial problems. From 1977 through 1990, he was the Chairman
and  President of Doctor Pet Centers,  Inc., a major  distributor  and specialty
retail  chain.  From 1989 to the present,  he has been a director of Moto Photo,
Inc., a publicly-held international franchisor of imaging centers.

ITEM 2.           PROPERTIES.

                  The  Company's  plant  and  equipment  were  sold to  American
Pacific as part of the Asset  Sale,  and the  mortgage  which was granted to the
Company on such assets has been discharged upon payment of the purchase price of
the  Tangible  Property  Promissory  Note.  The Company  conducts  its  business
operations  from an office in the  residence  of its  Chairman and does not own,
lease or occupy any other property, plant or equipment.

ITEM 3.           LEGAL PROCEEDINGS.

                  In August 1985, an action was commenced against the Company by
a  former  employee  in the  Circuit  Court  of  Cook  County,  Illinois  County
Department,  Law Division,  alleging wrongful demotion and wrongful discharge by
the Company.  The plaintiff is seeking back pay for the period since her release
as well as reinstatement  to her position.  The claim seeks damages in excess of
$15,000, plus punitive damages in excess of $15,000.  While this matter is still
in the preliminary stages and there has been no discovery,  the Company believes
that it has meritorious defenses and that the ultimate outcome should not have a
material adverse impact on the Company.

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

                  None.



<PAGE>




                                                      PART II

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

                  Prior to May 11,  1993,  the Common  Stock of the  Company was
traded  principally on the NASDAQ  Automated  Quotation  System under the symbol
NGEN and also on the Boston Stock Exchange under the symbol NGF.B or NGF. During
the second  quarter of 1993,  the Company's  Common Stock was delisted from both
the  Boston  Stock  Exchange  and the NASDAQ  Automated  Quotation  System.  The
Company's Common Stock now trades  sporadically in the  over-the-counter  market
"Bulletin  Board  Service."  The  following  table  sets  forth the high and low
closing bid quotations for the Common Stock as reported on the  over-the-counter
market  Bulletin Board Service for each calendar  quarter of 1995 and 1996. Such
market quotations reflect inter-dealer prices without retail markup, markdown or
commission and do not necessarily represent actual transactions.

                                    High Bid             Low Bid
                                    --------             -------

1995

         First Quarter                9/64                  3/64
         Second Quarter               9/64                  1/64
         Third Quarter                3/64                  1/64
         Fourth Quarter               1/32                  1/32



1996

         First Quarter                1/32                  1/32
         Second Quarter               1/32                  1/32
         Third Quarter                1/32                  1/32
         Fourth Quarter               1/32                  1/32

                  On March 25, 1997,  there were  approximately  500  registered
holders of the Company's Common Stock.

                  The  Company  has not paid any cash  dividends  on its  Common
Stock and does not  anticipate  paying  any cash  dividends  in the  foreseeable
future  except  that such  dividends  may be paid if the Company  determines  to
liquidate  following  consummation  of the Asset Sale. See "Business - The Asset
Sale - Use of Proceeds;  Business of the Company  Following  the Asset Sale." No
dividends on the Series A Preferred  Stock have been paid. At December 31, 1996,
preferred  dividends  in arrears  amounted to  $630,000,  or $.0675 per share of
Series A Preferred Stock,  and $83,700,  or $.09 per share of Series B Preferred
Stock.



<PAGE>



ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATION.

                  Financial Condition

                  As a result  of the Asset  Sale in  October  1993,  previously
reported,  the Company has ceased its business  operations.  The remaining  note
receivable  from the Asset Sale,  in the amount of $716,658  was paid in full in
April 1996, with accrued interest.

                  The Company  intends to use a portion of its present  cash and
investment holdings (approximately  $1,968,000 as of December 31, 1996) to repay
certain  accounts  payable  and to  satisfy  other  liabilities  of the  Company
(aggregating   $56,311  at  December  31,   1996).   The  Company  has  made  no
determination  with regard to use of the  remaining  proceeds of the Asset Sale.
The Company will consider the options it currently has available to it;  namely,
(i) to reinvest  the  proceeds,  (ii) to make  acquisitions  of or merge with an
operating  business,  or (iii) to  liquidate  the  Company and  distribute  such
proceeds.

                  In the event that the Company  proposes to engage primarily in
the business of investing,  reinvesting or trading in  securities,  or otherwise
reinvests the proceeds of the Asset Sale in investment securities having a value
in  excess of 40% of its  total  assets  (exclusive  of  Government  Securities,
certificates  of deposit  and other cash  items),  the  Company may be deemed an
investment  company and therefore  may be required to register  under and become
subject to the Investment Company Act of 1940.

                  In addition to considering the reinvestment of the proceeds of
the Asset Sale, the Company is considering seeking a merger, exchange of capital
stock, asset acquisition or other similar business combination with an operating
business.  The Company's potential  attraction to someone seeking an acquisition
or merger is that the  Company  will be a publicly  held  corporation.  Thus,  a
merger or acquisition  could enable the other entity to become a publicly traded
corporation   without   experiencing   the  time   requirements   and  financial
expenditures  usually  associated  with going  public.  Moreover,  under certain
circumstances  it  may be  possible  for  an  entity  acquiring  less  than  the
controlling  shareholding in the Company to utilize some or all of the remaining
tax  loss  carry  forwards  of the  Company  in  connection  with  the  business
operations  of such other  entity.  See  "Federal  Tax  Considerations."  If the
Company  decides  to  pursue  such  a  transaction  it  will  encounter  intense
competition from other entities having similar objectives.  Further,  there is a
large  number of  established  and well  financed  entities,  including  venture
capital firms,  that have  increased  their merger and  acquisition  activities.
Nearly all such entities will have significantly greater financial resources and
management  capabilities than the Company,  and consequently the Company will be
at a competitive  disadvantage  in  identifying  suitable  merger or acquisition
candidates and successfully concluding a proposed merger, acquisition or similar
transaction.

                  To the  extent the  Preferred  Stockholders,  with  respect to
their liquidation preference, including accrued dividends, on the


<PAGE>



Series A and Series B Preferred  Stock owned by them,  as  previously  reported,
demand  payment  of all or a portion  of the  amounts  due them,  the  Company's
ability to invest the proceeds of the Asset Sale,  engage in a merger,  exchange
of capital stock,  asset acquisition or other similar business  combination will
be limited, if at all possible. No such demand has as yet been received.

                  Another  alternative that may be considered by the Company may
be the  liquidation  of the Company with a  distribution  to its then holders of
Common Stock of all assets remaining available for distribution after payment of
liabilities  and after  having made  appropriate  provisions  for the payment of
liquidating  distributions  upon each class of stock having  preference over the
Common  Stock.  Since most of the proceeds  received from the Asset Sale will be
used to satisfy  required  payments  to the  Preferred  Stockholders,  it is not
likely that the Company will have  significant  assets,  if any,  available  for
distribution to minority stockholders following such required payments.

                  The Company  has made no decision to do any of the  foregoing,
although it has had preliminary  discussions with several entities relative to a
potential business  combination.  The Company will evaluate the course of action
it will take with regard to the best  interests of the Company and the Company's
stockholders. In the event the Company chooses to merge with another company, or
liquidate the Company,  it will have to obtain the approval of a majority of the
voting power of the Company  prior to taking such action.  Such approval may not
be necessary in the case of certain other  business  combinations,  including an
acquisition of stock or assets of another company.

                  Proceeds received from the Asset Sale not immediately required
for the purposes set forth above are being invested as management of the Company
deems prudent,  which may include,  but will not be limited to,  certificates of
deposit,  mutual funds,  money-market accounts,  stock, options, bonds or United
States Government or municipal securities,  provided,  however, that the Company
will attempt to invest the net proceeds in a manner which will not result in the
Company being deemed to be an investment  company under the  Investment  Company
Act of 1940. In this regard, while the foregoing  investments are intended to be
temporary  (i.e.  for the period  during  which the Company is  determining  its
future  course of action  with  regard to the  business  or  liquidation  of the
Company),  any such investments deemed by the Securities and Exchange Commission
not to be temporary,  may result in the Company being required to register as an
investment  company.  The  Company  believes  that to the  extent a  significant
portion of such proceeds is not used in evaluating prospective business options,
the interest  income thereon should be sufficient to defray  continuing  general
and  administrative  expenses,  as well as costs  relating  to  compliance  with
securities laws and regulations.

                  At December 31, 1996, the Company had cash,  cash  equivalents
and other liquid assets of  $1,968,823,  compared to $1,293,545 of liquid assets
at December 31, 1995, and had working capital of $1,929,786, compared to working
capital of  1,462,915  at December  31,  1995.  The Company has no bank lines of
credit or other currently available credit sources. The increase in liquid


<PAGE>



assets and working  capital is due  principally  to the receipt in April 1996 of
the $716,658 final installment from the Asset Sale.


<PAGE>




Operations

                  1996 vs. 1995 and 1995 vs. 1994

                  As a result of the Asset Sale and the  operation  by  American
Pacific of the Company's  business from October 22, 1993, the Company's business
operations as a food manufacturer were terminated on that date. Accordingly,  no
operations were conducted in the fiscal years ended December 31, 1994,  December
31, 1995 and December 31, 1996.

                  In the years  ending  December 31, 1995 and December 31, 1996,
the Company  recognized  $141,722 and $543,158,  respectively,  representing the
balance of the total gain of $1,849,736 on the Asset Sale.

                  Net loss for the year ended  December 31, 1995 was ($3,573) or
($.01) per share,  reflecting  increased  selling,  general  and  administrative
expenses,  an  increased  loss on  investments  for the  year and  income  taxes
attributable to Federal alternative minimum and New York State tax, in excess of
interest and dividend  income on the Company's  liquid assets and the portion of
the gain on the Asset Sale which was  recognized  in the year.  The  increase in
selling,  general  and  administrative  expenses in 1995 (which are now the only
expenses being  incurred by the Company),  reflected the payment to the Chairman
of $34,622 of salary which had been  deferred  from 1994.  The  reduction in net
income from 1994 principally reflected the recording of the major portion of the
gain on the Asset Sale in 1994.

                  Net income for the 1996 year was $471,385, or $1.18 per share,
reflecting  interest and dividend income on the Company's  liquid assets and the
portion  of the gain on the Asset  Sale  which was  recognized  in the year,  in
excess of selling, general and administrative expenses, including the Chairman's
compensation expense.


Statement of Financial Accounting Standards No. 115

                  The marketable investment securities at December 31, 1994 must
be accounted  for in  accordance  with the  provisions of Statement of Financial
Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
Equity Securities" (SFAS 115),  effective January 1, 1994. SFAS 115 requires the
classification  of debt  and  equity  securities  into  one of  three  following
categories:

                  Held-to-Maturity-includes  investments  which the  Company has
                  the positive intent and ability to hold until  maturity.  Such
                  investments are measured at amortized cost.

                  Trading  Securities  -  includes   investments  in  securities
                  purchased and held principally for the purpose of selling them
                  in the near  term.  Unrealized  holding  gains and  losses are
                  included in income.


<PAGE>




                  Available-for-Sale  - includes  investments  in securities not
                  classified as held-to-maturity or trading.  Unrealized holding
                  gains and  losses are  reported  as a net amount as a separate
                  component of stockholders' equity until realized.

                  Marketable investment securities, which consist of options and
warrants, are all classified as trading securities.

Federal Tax Considerations

                  The Company has available net  operating  loss  carry-forwards
("NOLs") which may be used to reduce its Federal income tax liability.  However,
provisions  contained  in the  Internal  Revenue  Code of 1986,  as amended (the
"Code"),  may  impose  substantial  limitations  upon the  Company's  ability to
utilize its NOLs.  For  example,  the  Company  may be subject to the  so-called
"alternative  minimum tax" which does not always permit full utilization of NOLs
otherwise available.  In connection with the sale of assets to American Pacific,
the  Company's  NOLs may only be used to offset a maximum of 90% of  alternative
minimum  taxable   income,   which  resulted  in  a  Federal  tax  liability  of
approximately $6,600 in 1994, which was recorded in 1995.

                  In  addition,  limitations  imposed by Section 382 of the Code
upon the  availability  of NOLs would apply if certain  changes were to occur in
ownership of the Company.  Thus, the Company's utilization of its carry-forwards
in the future may be deferred and/or reduced if the Company  undertakes  further
equity  financings  or if certain  other  changes  occur in the ownership of the
Common Stock.  Finally,  if the Company becomes an investment company subject to
the Investment Company Act of 1940, it will no longer be entitled to a deduction
for NOLs.  For  information  regarding the amounts and  expiration  dates of the
Company's NOLs, see Note 4 to the Company's Consolidated Financial Statements.


ITEM 7.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                  The financial  statements and financial statement schedules of
the Company as of and for the years ended  December 31, 1996 and 1995,  together
with the report of Clifton Gunderson L.L.C.  independent auditors, are set forth
at pages F-1 to F-17 of this Report on Form 10-KSB.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE.

                  None.




<PAGE>



                                                     PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                  ACT.

                  Pursuant  to General  Instruction  E(3) for Form  10-KSB,  the
information  required  by  this  Item  9  is  contained  in  Part  I  above  and
incorporated herein by reference,  except that the information  required by Item
405 of Regulation S-B is set forth below.

Compliance with Section 16(a) of the Securities Exchange Act of
1934

                  Section 16(a) of the Securities  Exchange Act of 1934 requires
the Company's  directors and executive  officers,  and persons who own more than
10% of a registered class of the Company's equity  securities,  to file with the
Securities and Exchange Commission,  initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers,  directors  and  greater  than 10%  shareholders  are  required by SEC
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.

                  To the Company's  knowledge,  based solely on  representations
received from the officers and directors and greater than 10% shareholders,  all
Section 16(a) filing requirement reports were made on a timely basis.

ITEM 10.          EXECUTIVE COMPENSATION.

Cash Compensation of Executive Officers

                  The table set forth below shows the cash compensation paid for
services in all capacities to the Company's Chief  Executive  Officer during the
three years indicated.

                                                     Annual Compensation
                                                     -------------------
Name and Principal Position                          Year         Salary
---------------------------                          ----         ------

Jerome S. Flum                                       1996         $121,506
  President and Chief                                1995         $119,856(2)
  Executive Officer                                  1994         $425,490(1)

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


(1) Includes $334,603 paid upon Asset Sale pursuant to Employment
Agreement and $34,622 of salary for 1994 which had been deferred by
the Company. See "Certain Relationships and Related Transactions-
Related Party Transactions".

(2) Excludes  $34,622 of salary for 1994 which had been  deferred by the Company
and paid in 1995. See note (1) above.

Directors' Fees

                  Directors and committee members generally serve as such


<PAGE>



without  compensation,  except  that  commencing  September  1994,  non-employee
directors  receive $450 for each Board of Directors  meeting  attended,  up to a
maximum  payment  of  $1,800  per  Director  per  calendar  year.  In  addition,
non-qualified  stock options or stock appreciation rights have been granted from
time to time to  current  and  former  directors  pursuant  to the  1985 SAR and
Non-Qualified  Option Plan,  as amended (the "1985 Plan"),  of the Company.  See
"Compensation Pursuant to Stock Option Plans".

Compensation Pursuant to Stock Option Plans

                  During the period  January 1, 1995 through  December 31, 1996,
no options were granted to executive officers or employees of the Company and no
options held by executive officers or employees were exercised.

                  No options  were granted to all current  directors  other than
executive officers as a group (two persons) or to Dr. Spicer, who died in 1995.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

                  The following table sets forth information concerning the only
persons  known to the  Company  to own  beneficially  more than 5% of the Common
Stock or more than 5% of the  Series A  Preferred  Stock or  Series B  Preferred
Stock as of March 25,  1997.  Except as indicated in the  following  notes,  the
owners have sole voting and investment power with respect to the shares.
<TABLE>
<CAPTION>

                                             Amount and Nature of
                                            Beneficial Ownership of                            Percent of
                                            -----------------------                            ----------
                                                                      Preferred                                   Preferred
                                                                       Stock                                       Stock
                                                                       Series A                                    Series A
                                            Common                        -                      Common               -
Beneficial Owners                           Stock                      Series B                  Stock(1)          Series B
-----------------                           -----                      --------                  --------          --------
<S>                                         <C>                        <C>                       <C>               <C>

Flum Partners (2)                           138,845(3)                 2,333,333(3)              27.7%             100%
c/o Jerome S. Flum                                                       310,000(3)                                100%
45 Graham Road
Scarsdale, New York 10583


Jerome S. Flum                              252,070(2)                 2,333,333(3)(4)           50.2%             100%
45 Graham Road                                     (3)(4)                310,000(3)                                100%
Scarsdale, New York 10583


All officers and
directors as a group
(3 persons)                                 255,320(2)                 2,333,333(3)              50.5%             100%
                                                   (3)(4)(5)             310,000(3)                                100%
</TABLE>


(1)      Percent of class is based on 399,830 shares of Common Stock


<PAGE>



         outstanding as of March 25, 1997,  plus the number of shares  described
         in note (4) below in the case of Flum Partners, Jerome S. Flum and Flum
         Partners/Jerome  S. Flum, as a group, and such total plus the number of
         shares  described  in note (5)  below in the case of all  officers  and
         directors as a group.

(2)      The sole general partner of Flum Partners is Jerome S.Flum, Chairman of
         the Board, President and Chief Executive Officer of the Company.

(3)      Because the shares of Series A Preferred Stock and Series B
         Preferred Stock are immediately convertible by the record
         owner at its option into 89,914 and 12,102 shares of Common
         Stock, respectively, and pending such conversion are entitled
         to 89,914 and 12,102 votes, respectively, the shares of Series
         A Preferred Stock and Series B Preferred Stock are also
         counted as 89,914 and 12,102 shares of Common Stock.

(4)      Includes 138,845 shares of Common Stock (36,829 shares of
         Common Stock and 2,333,333 shares of Series A Preferred Stock
         and 310,000 shares of Series B Preferred Stock, convertible
         into a total of 102,016 shares of Common Stock) owned
         beneficially by Flum Partners which are also deemed to be
         owned beneficially by Mr. Flum because of his power, as sole
         general partner of Flum Partners, to direct the voting of such
         shares held by the partnership.  Mr. Flum disclaims beneficial
         ownership of the shares owned by Flum Partners.  The 252,070
         shares of Common Stock, or 50.2% of the outstanding shares of
         Common Stock, and all of the 2,333,333 shares of Series A
         Preferred Stock and 310,000 shares of Series B Preferred
         Stock, may also be deemed to be owned, beneficially and
         collectively, by  Flum Partners and Mr. Flum, as a "group",
         within the meaning of Section 13(d)(3) of the Securities
         Exchange Act of 1934, as amended (the "Act").

(5)      Includes non-qualified stock options to purchase 3,250 shares
         held by two directors.  Excludes shares and options owned by
         Dr. Spicer, who died during 1995.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Certain Transactions

                  On December 27, 1988, Flum Partners purchased 2,333,333 shares
of Series A Preferred Stock of the Company and on August 21, 1989, Flum Partners
purchased 310,000 shares of Series B Preferred Stock from the Company.

                  Under the terms of the Series A  Preferred  Stock,  each share
thereof is convertible into .0297625 shares of Common Stock at the option of the
holder at any time (based on a formula  using a  conversion  price of $25.20 per
share, as adjusted) plus an amount of Special Conversion  Shares,  calculated on
June 1, 1989 and on each June 1 thereafter through June 1, 1992, and thereafter,
at the option of a majority of the holders as set forth below,  through December
1, 1995, based on an amount per share of Series A Preferred Stock of $0.0675 per
annum, divided by the conversion


<PAGE>



price then in effect; has a liquidation preference,  on a ratable basis with the
Series B Preferred Stock, of $.75 per share; is entitled to cash dividends, on a
ratable basis with the Series B Preferred Stock, commencing June 1, 1992, at the
annual rate of $0.0675 per share, which shall be cumulative,  provided that each
year until  December 1, 1995,  at the option of the holders of a majority of the
Series A Preferred Stock,  such holders may elect, in lieu of the dividends,  to
cause the  Company  to  increase  the  Special  Conversion  Shares in the annual
amounts  described  above,  plus,  in the event a dividend is paid on the Common
Stock, a special dividend on any Special Conversion Shares, in the amount of the
Common Stock dividend which would be payable if such Special  Conversion  Shares
had been converted on the record date; and has an immediate and continuing right
of registration under the Securities Act of 1933, as amended (the "Act").

                  Under the terms of the Series B  Preferred  Stock,  each share
thereof is convertible  into .0294125 share of Common Stock at the option of the
holder at any time  (based on a formula  using an  initial  conversion  price of
$34.00 per share,  as  adjusted)  plus an amount of Special  Conversion  Shares,
calculated  on June 1, 1990 and on each June 1 thereafter  through June 1, 1993,
and  thereafter,  at the option of a majority of the holders as set forth below,
through  December  1, 1996,  based on an amount per share of Series B  Preferred
Stock of $.09 per  annum,  divided  by the  conversion  price per share  then in
effect;  has a  liquidation  preference,  on a ratable  basis  with the Series A
Preferred Stock, of $1.00 per share; is entitled to cash dividends, on a ratable
basis with the Series A Preferred Stock,  commencing June 1, 1993, at the annual
rate of $.09 per share, which shall be cumulative, provided that each year until
December  1, 1996,  at the option of the  holders of a majority  of the Series B
Preferred  Stock,  such holders may elect,  in lieu of  dividends,  to cause the
Company  to  increase  the  Special  Conversion  Shares  in the  annual  amounts
described  above,  plus, in the event a dividend is paid on the Common Stock,  a
special dividend on any Special  Conversion  Shares, in the amount of the Common
Stock dividend which would be payable if such Special Conversion Shares had been
converted  on the record  date;  and has an immediate  and  continuing  right of
registration under the Act.

                  The number of shares  issuable upon conversion of the Series A
Preferred  Stock and the  Series B  Preferred  Stock and the  conversion  prices
thereof  are  subject to  adjustment  upon the  occurrence  of  certain  events,
including the issuance or sale of additional shares of Common Stock, or options,
warrants or rights  therefor,  at an effective  price lower than the  respective
conversion  prices or 80% of the market price of the Common Stock,  whichever is
lower. Pursuant to the foregoing adjustment provisions, the conversion prices of
the Series A Preferred  Stock and the Series B Preferred  Stock were adjusted to
reflect the sale to Mr. Flum of Common Stock at prices lower than the respective
conversion  prices then in effect.  Based on the  adjusted  conversion  price of
$25.20 and after giving effect to the calculation of Special  Conversion Shares,
the Series A Preferred  Stock is  currently  convertible  into 89,914  shares of
Common Stock. Based on the adjusted  conversion price of $34.00 and after giving
effect  to the  calculation  of the  Special  Conversion  Shares,  the  Series B
Preferred Stock is currently convertible into 12,102 shares of


<PAGE>



Common Stock.

                  Pursuant to the terms of the Series A Preferred  Stock and the
Series  B  Preferred  Stock,  the  Asset  Sale is  deemed  to be a  liquidation,
dissolution or winding up of the Company. Accordingly, Flum Partners is entitled
to receive  approximately  $2,060,000 plus cumulative dividends in the amount of
$713,700 (after all debts of the Company have been paid) before any distribution
to holders of Common Stock.  The Company does not have  sufficient cash or other
assets to make such payment.  See  "Business-Sale of  Assets-Interest of Certain
Persons and Conflicts of Interest".

Related Party Transactions

                  The Company  entered  into an  employment  agreement  with Mr.
Flum,  effective as of July 1, 1992. The employment  agreement  provides for Mr.
Flum to serve as the Chairman and Chief  Executive  Officer of the Company until
June 30, 1999,  unless sooner terminated by the Company for cause, or upon death
or permanent disability.  Mr. Flum will be entitled to a base salary of $112,000
per year,  increasing to $135,000  immediately  following the achievement by the
Company of a pre-tax  operating  profit for any fiscal year,  with the foregoing
salary levels to be increased each year based on increases in the Consumer Price
Index.  Mr. Flum will be entitled to a bonus based on a percentage of annual net
pre-tax  profits  for each year.  Mr. Flum is  entitled  to  participate  in all
employee  benefit  plans made  available  by the Company to its other  executive
officers,  as well as the use of an  automobile  and coverage  under a policy of
disability income  insurance,  as and when the Company's cash flow is sufficient
to defray the premium cost thereof.  Pursuant to such employment agreement, upon
the occurrence of a change in control of the Company,  Mr. Flum will be entitled
to receive a lump sum  payment  equal to three  times his  current  annual  base
salary,  but not to exceed any amount  which the  Company  shall be  entitled to
deduct as a  compensation  expense  under the Code.  A change of  control of the
Company shall be deemed to have occurred if (1) a third person  acquires  shares
of the Company having  twenty-five  percent or more of the total number of votes
that may be cast for the election of  directors of the Company,  (2) a merger or
consolidation of the Company with another  corporation  shall occur,  unless the
Company shall be the surviving entity, (3) a sale of all or substantially all of
the Company's  assets shall be made, or (4) the composition of a majority of the
Board of Directors of the Company shall change under certain circumstances.

                  Following the Asset Sale, the amount of $334,603, which
was accrued in 1993, was paid to Mr. Flum in 1994 as the lump-sum
payment due him under the Employment Agreement.  See "Business-Sale
of Assets-Interest of Certain Persons and Conflict of Interest."

                  Effective July 1, 1992, through September 1994, Mr. Flum
had voluntarily agreed to a temporary reduction in his base salary
to $110,000 per year and, since April, 1992, to a further temporary
reduction at the rate of $1,500 per month ($300 per month effective
November 1992) to offset the fees and salary paid to Barbara
Schwartz.   Effective October 1, 1994, Ms. Schwartz is no longer
employed by the Company.  Effective January 1, 1996, Mr. Flum's


<PAGE>



current annual base salary is $121,506 per year.



                                                      PART IV

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits

         3-A      -        Copy of the Company's Restated Articles of
                           Incorporation. (1)
         3-B      -        Copy of the Company's Certificate of Amendment to
                           the Articles of Incorporation, dated August 31,
                           1987. (2)
         3-C      -        Copy of the Company's By-Laws as amended April 27,
                           1987. (2)
         3-D      -        Certificate of Designations for Series A Preferred
                           Stock, together with Certificate of Amendment
                           thereto and Second Certificate of Amendment
                           thereto. (3)
         3-E      -        Certificate of Designations for Series B Preferred
                           Stock. (4)
         10-A     -        Copy of Company's 1992 Stock Option Plan.(7)
         10-B     -        Copy of Company's 1985 SAR and Non-Qualified Stock
                           Option Plan. (3)
         10-C     -        Copy of Employment Agreement dated as of July 1,
                           1992 between the Company and Jerome Flum.(7)
         10-D     -        Copy of 1988 Amendments to Company's 1985 SAR and
                           Non-qualified Stock Option Plan. (5)
         10-E     -        Letter Agreement dated November 12, 1990 by and
                           between New Generation Foods, Inc. and Jerome S.
                           Flum. (6)
         10-F     -        Letter Agreement dated November 27, 1990 by and
                           between New Generation Foods, Inc. and Jerome S.
                           Flum. (6)
         10-G     -        Registration Rights Agreement dated November 12,
                           1990 by and between New Generation Foods, Inc. and
                           Jerome S. Flum. (6)
         11       -        Statements regarding computation of per share
                           earnings.
         22       -        Subsidiaries of the Company.

                  Exhibits as  indicated  above are not  included  with the Form
10-KSB.  They are  available  upon  request  and  payment  of a  reasonable  fee
approximating  the  Registrant's  cost of  providing  and mailing the  exhibits.
Inquiries should be directed to:

                                            New Generation Foods, Inc.
                                     Office of the President (10-KSB Exhibits)
                                                  45 Graham Road
                                            Scarsdale, New York  10583


         (b)      Reports on Form 8-K

                  No Reports on Form 8-K were filed during 1996.



<PAGE>





(1)      Filed as an Exhibit to Registrant's Registration Statement on
         Form S-18 (File No. 1-67055C) and incorporated herein by
         reference thereto.
(2)      Filed as an Exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ending   December  31,  1988  (File  No.  0-  10825)  and
         incorporated herein by reference thereto.
(3)      Filed as an Exhibit to Registrant's Registration Statement on
         Form S-2 (File No. 33-17446) and incorporated herein by
         reference.
(4)      Filed as an Exhibit to Registrant's Registration Statement on
         Form S-8 (File No. 33-17446) filed October 25, 1989 and
         incorporated herein by  reference.
(5)      Filed as an Exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ending   December   31,  1989  (File  No.   0-10825)  and
         incorporated herein by reference thereto.
(6)      Filed as an Exhibit to Registrant's Post-Effective Amendment
         No. 3 to Registration Statement on Form S-3 filed November 15,
         1991 (File No. 33-17446) and incorporated herein by reference
         thereto.
(7)      Filed as an Exhibit to Registrant's Annual Report on Form
         10-KSB for the fiscal year ending December 31, 1992 (File No.
         0-10825) and incorporated herein by reference thereto.

<PAGE>



                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                        PAGE

INDEPENDENT AUDITOR'S REPORT............................................F-2


FINANCIAL STATEMENTS

         Consolidated Balance Sheets - December 31, 1996 and 1995.......F-3

         Consolidated Statements of Operations - Years Ended
              December 31, 1996 and 1995................................F-5

         Consolidated Statements of Stockholders' Equity - Years Ended
              December 31, 1996 and 1995................................F-6

         Consolidated Statements of Cash Flows - Years Ended
              December 31, 1996 and 1995................................F-8

         Notes to Consolidated Financial Statements -
              December 31, 1996 and 1995................................F-9


                                                 F-1
<PAGE>


                          Independent Auditor's Report

The Board of Directors and Stockholders
New Generation Foods, Inc.

We have audited the accompanying  consolidated  balance sheets of New Generation
Foods,  Inc. and  Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  years  then  ended.  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  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of New  Generation
Foods,  Inc. and  Subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.


CLIFTON GUNDERSON L.L.C.


Peoria, Illinois
March 17, 1997

                                              F-2
<PAGE>







                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                     ASSETS




                                                                                       1996              1995
                                                                                       ----              ----
<S>                                                                               <C>               <C>

CURRENT ASSETS
     Cash and cash equivalents                                                    $    1,963,394   $    1,265,756
     Marketable investment securities, at market value                                     5,429           27,789
     Notes receivable, less deferred gain of $543,158
         in 1995 (Note 1)                                                                     -           223,501
     Interest receivable                                                                  16,090            6,808
     Other receivables                                                                     1,184               -
                                                                                       ----------       ----------

                  Total current assets                                                 1,986,097        1,523,854
                                                                                       ---------        ----------


EQUIPMENT, at cost (Note 3)                                                               36,649           30,816
     Less accumulated depreciation                                                        19,988           18,669
                                                                                       ----------       ----------
                  Net equipment                                                           16,661           12,147
                                                                                       ----------       ----------





TOTAL ASSETS                                                                      $    2,002,758    $    1,536,001
                                                                                  ==============    ==============


</TABLE>


                                        F-3

<PAGE>




                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                          1996              1995
                                                                          ----              ----

<S>                                                                       <C>              <C>
CURRENT LIABILITIES
     Accrued franchise taxes                                              $  45,200       $  45,200
     Accrued compensation                                                    10,125          11,500
     Accrued expenses                                                           986           4,239
                                                                            -------        --------
                  Total current liabilities                                  56,311          60,939
                                                                            -------        --------

STOCKHOLDERS' EQUITY (Notes 5 and 6)
     Cumulative Convertible Voting Preferred Stock, $.01
         par value:
         Series A (stated at liquidation value of $.75 per
              share).  Authorized 2,333,333 shares; issued
              and outstanding 2,333,333                                   1,750,000       1,750,000
         Series B (stated at liquidation value of $1.00 per
              share).  Authorized 350,000 shares; issued and
              outstanding 310,000                                           310,000         310,000
     Common stock, $.01 par value.  Authorized 25,000,000
         shares; issued and outstanding 399,830                               3,998           3,998
     Additional paid-in capital                                          22,818,930      22,818,930
     Retained deficit                                                   (22,936,481)    (23,407,866)
                                                                        ------------    ------------
                  Total stockholders' equity                              1,946,447       1,475,062
                                                                        ------------     -----------


TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                                             $ 2,002,7580     $1,536,001
                                                                        ============     ===========
</TABLE>


 These consolidated financial statements should be read only in connection
        with the accompanying notes to consolidated financial statements.


                              F-4
<PAGE>


                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>


                                                                                   1996             1995
                                                                                   ----             ----
<S>                                                                               <C>               <C>

OPERATING EXPENSES
     Selling, general, and administrative                                        $   36,583        $   25,892
     Chairman's compensation expense                                                121,506           154,478
                                                                                   --------          --------
                  Total operating expenses                                          158,089           180,370
                                                                                   --------          --------
                  Operating loss                                                   (158,089)         (180,370)
                                                                                   --------          --------

OTHER INCOME (DEDUCTIONS)
     Interest and dividend income                                                   105,972           116,158
     Interest expense                                                                    -               (160)
     Gain on sale of assets (Note 1)                                                543,158           141,722
     Loss on investments                                                            (22,373)          (71,105)
     Miscellaneous                                                                    2,982              (110)
                                                                                    -------           --------
                                                                                    629,739           186,505
                                                                                    -------           --------
                  Income before income taxes                                        471,650             6,135


INCOME TAXES (Note 4)                                                                   265             9,708
                                                                                    -------           --------

NET INCOME (LOSS) $                                                                 471,385     $      (3,573)
                                                                                    ========         ==========

NET INCOME (LOSS) PER SHARE                                                        $   1.18     $        (.01)
                                                                                     =======         ==========

AVERAGE NUMBER OF SHARES
     OUTSTANDING                                                                    399,830           399,830
                                                                                   =========         =========

</TABLE>

These consolidated financial statements should be read only in connection
     with the accompanying notes to consolidated financial statements.



                                       F-5



<PAGE>

                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                          Preferred Stock
                                                                                          ---------------
                                                                                          Series A
                                                                                          --------


                                                                                       Shares           Amount
                                                                                       ------           ------
<S>                                                                                   <C>          <C>

BALANCE AT DECEMBER 31, 1994                                                           2,333,333   $     1,750,000

     Net loss for year ended December 31, 1995                                                -                 -
                                                                                      -----------        ---------

BALANCE AT DECEMBER 31, 1995                                                           2,333,333         1,750,000

     Net income for year ended December 31, 1996                                              -                 -
                                                                                      -----------        ---------

BALANCE AT DECEMBER 31, 1996                                                           2,333,333   $     1,750,000
                                                                                      ===========        ==========

</TABLE>

(continued on next page F-7)

                                       F-6

<PAGE>




<TABLE>


<CAPTION>
         Preferred Stock                                       Additional          Retained        Total
         ---------------                                       ----------           --------       -----
         Series B                     Common Stock              Paid-in            Earnings        Stockholders'
         --------                     ------------              -------            --------        -------------
         Shares        Amount          Shares       Amount      Capital            (Deficit)       Equity
         ------        ------          ------       ------      -------            ---------       ------
<S>      <C>         <C>              <C>           <C>         <C>               <C>              <C>
(cont'd)
         310,000     $  310,000       399,830       $  3,998    $22,818,930       $ (23,404,293)  $ 1,478,635

            -              -             -              -              -                 (3,573)       (3,573)
         --------       -------       --------        -------    -----------         ----------     ---------

         310,000        310,000       399,830          3,998     22,818,930         (23,407,866)    1,475,062

            -              -             -              -              -                471,385       471,385
         --------       -------       --------        -------    -----------         ----------     ---------

         310,000     $  310,000       399,830      $   3,998    $22,818,930       $ (22,936,481)  $ 1,946,447
         ========     =========       ========        =======    ===========        ===========     ==========

</TABLE>



    These consolidated financial statements should be read only in connection
      with the accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>


                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 1996 and 1995


<TABLE>
<CAPTION>

                                                                                   1996         1995
                                                                                   ----         ----
<S>                                                                             <C>             <C>

CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss)                                                          $  471,385      $   (3,573)
     Adjustments to reconcile net income (loss) to net cash                        --------       ---------
         provided by (used in) operating activities:
         Depreciation                                                                4,274           5,908
         Loss on sale of marketable investment securities                           61,077           5,358
         Unrealized holding (gains) losses on marketable investment
              securities                                                           (38,704)         65,747
         Proceeds from sale of marketable investment securities                        (13)      1,002,120
         Purchase of marketable investment securities                                  -           (37,213)
         Gain on sale of assets                                                   (543,158)       (141,722)
         Gain on sale of fixed assets                                                  (34)              -
         Change in assets and liabilities:
              Increase in receivables                                               10,466)         (1,205)
              Decrease in accounts payable, accrued compensation,
                  accrued expenses, and other current accruals                      (4,628)         (30,867)
                                                                                    -------         --------
                  Total adjustments                                                531,652)         868,126
                                                                                   --------         --------
                  Net cash provided by (used in) operating activities              (60,267)         864,553
                                                                                   --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES
     Capital expenditures                                                          (13,954)              -
     Proceeds from notes receivable                                                766,659          200,004
     Proceeds from sale of fixed assets                                              5,200               -
                                                                                   --------         --------
                  Net cash provided by investing activities                        757,905          200,004
                                                                                   --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES
     Principal payments on notes payable                                                -           (23,928)
                                                                                    -------         --------
                  Net cash used in financing activities                                 -           (23,928)
                                                                                    -------         --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                          697,638        1,040,629


CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                   1,265,756          225,127
                                                                                 ---------          --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                        $1,963,394      $ 1,265,756
                                                                                ==========        ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
     INFORMATION
     Cash paid during the year for interest                                     $       -       $       160
                                                                                 ==========      ===========
     Cash paid during the year for taxes                                        $      265      $     9,708
                                                                                 ==========      ===========

</TABLE>

 These consolidated financial statements should be read only in connection
      with the accompanying notes to consolidated financial statements.



                                      F-8


<PAGE>


                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 1 - BASIS OF PRESENTATION AND SALE OF OPERATING ASSETS

The  consolidated  financial  statements  include the accounts of New Generation
Foods, Inc. and its wholly owned subsidiaries,  Spicers International,  Inc. and
NGF Services,  Inc. All significant  intercompany balances and transactions have
been eliminated in consolidation.  The Company  manufactured a food product from
expanded  whole wheat,  which was its only line of business,  until  October 22,
1993 when  substantially all of the operating assets of the Company were sold as
described below. As a result, the Company is no longer an operating company.

On October 22, 1993, the Company sold  substantially all of the Company's assets
(Asset Sale) to American Pacific Financial Corporation (American Pacific) for an
aggregate  purchase price of $2,600,000  payable $150,000 at the closing and the
balance in secured notes of the purchaser as described  below.  The Company also
sold its inventory to American Pacific at its cost of $130,509.

The total gain on the Asset Sale was  $1,849,736  of which  $1,306,578  had been
recognized  at December 31, 1995.  The deferred gain of $543,158 at December 31,
1995 was offset against the notes  receivable and was recognized  during 1996 as
the remaining balance of the notes receivable was collected.

Components of the notes receivable entered into October 22, 1993, which required
monthly payments of interest at 6 percent per annum, were as follows:

Note receivable of $55,509 at December 31, 1993 for the sale of inventory,
plus accrued interest,  was paid April 22, 1994.

Note  receivable  of $1,300,000 at December 31, 1993 for the sale of property,
plus accrued  interest,  was paid May 9, 1994.

Note  receivable  of $766,659 and $966,663 at December 31, 1995 and 1994,
respectively,  for the sale of intangible assets required monthly payments
of principal in the amount of $16,667,  plus  interest,  through  February
1996. The scheduled unpaid balance of $716,658, plus accrued interest, was
received  on April 9, 1996.  The note  receivable  was secured by the sold
intangible assets and by certain real estate parcels of the purchaser.

A summary of notes receivable at December 31, 1995 follows:

1995:
     Notes receivable                     $     766,659
     Deferred gain                             (543,158)
                                               ---------
Net notes receivable                      $     223,501
                                               =========


                                    F-9

<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)    Use of Estimates in Preparing Financial Statements

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 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.

(b)    Equipment

Equipment is stated at cost.  Depreciation  on equipment  is  calculated  on the
straight-line method over the estimated useful lives of the assets.

(c)    Net Income (Loss) Per Share

Net income  (loss) per share is computed by  dividing  net income  (loss) by the
weighted average number of shares of common stock outstanding  during each year.
The  computation  excludes  the common  stock  equivalents  consisting  of stock
options  because their  inclusion  would have had an  antidilutive  effect.  The
cumulative  convertible  voting preferred stocks are not considered common stock
equivalents.

(d)    Cash Equivalents

The  Company   considers  all  highly  liquid  debt  instruments  with  original
maturities of three months or less to be cash equivalents.

(e)    Marketable Investment Securities

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards  No.  115,  Accounting  for  Certain  Investments  in Debt and  Equity
Securities,  (SFAS  115)  effective  January  1,  1994.  SFAS 115  requires  the
classification  of debt and equity  securities  into one of the three  following
categories:

       Held-to-maturity  -  includes  investments  which  the  Company  has  the
       positive intent and ability to hold until maturity.  Such investments are
       measured at amortized cost.

       Trading  securities - includes  investments  in securities  purchased and
       held  principally  for the  purpose  of  selling  them in the near  term.
       Unrealized holding gains and losses are included in income.

       Available-for-sale - includes investments in securities not classified as
       held-to-maturity  or  trading.  Unrealized  holding  gains and losses are
       reported as a net amount as a separate component of stockholders'  equity
       until realized.

Marketable investment securities, which consist of options and warrants, are all
classified as trading securities.

                                     F-10

<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(f)    Income Taxes

Deferred income taxes are provided on temporary  differences  between  financial
statement  and income  tax  reporting.  Temporary  differences  are  differences
between the amounts of assets and liabilities  reported for financial  statement
purposes  and their tax bases.  Deferred  tax  liabilities  are  recognized  for
temporary  differences  that will be  taxable  in  future  years'  tax  returns.
Deferred  tax assets  are  recognized  for  temporary  differences  that will be
deductible in future  years' tax returns and for  operating  loss and tax credit
carryforwards. Deferred tax assets are reduced by a valuation allowance if it is
deemed more likely than not that some or all of the deferred tax assets will not
be realized.


NOTE 3 - EQUIPMENT

A summary of equipment at December 31 follows:

                                                      1996          1995
                                                      ----          ----
Office furniture and equipment                  $    22,695    $   22,695
Automobile                                           13,954         8,121
                                                     ------        ------
                                                $    36,649    $   30,816
                                                     =======       =======
Useful  lives of assets  for  financial  statement  purposes  are 3 years  for
automobile  and 5 years for  office  furniture and equipment.


NOTE 4 - INCOME TAXES

Components of income tax expense are as follows:

                                         Federal        State         Total
                                         -------        -----         -----
1996:
     Current                         $       -     $      265     $      265
     Deferred                                -             -              -
                                         -------        ------        -------
Total                                $       -     $      265     $      265
                                         =======        ======        =======
1995:
     Current                         $    6,600    $    3,108     $    9,708
     Deferred                                -             -              -
                                         -------        ------        -------
Total                                $    6,600    $    3,108     $    9,708
                                         =======       =======        =======

                                       F-11
<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 4 - INCOME TAXES (CONTINUED)

The actual tax expense for 1996 and 1995 differs from the "expected" tax expense
for those years  (computed  by applying the  applicable  United  States  federal
corporate tax rate to income (loss) before income taxes) as follows:

<TABLE>

<CAPTION>

                                                                                      1996           1995
                                                                                      ----           ----
<S>                                                                                   <C>            <C>

Computed "expected" tax expense                                                       $ 160,361      $  2,086
Surtax benefit                                                                             -           (1,166)
Expiration of net operating loss carryforward                                           457,161       407,281
Expiration of investment tax carryforward                                                12,147         8,090
Underaccrual of prior year taxes                                                            265         9,708
Decrease in valuation allowance                                                        (629,669)     (417,129)
Other                                                                                      -              838
                                                                                       --------      --------
Income tax expense                                                                    $     265      $  9,708
                                                                                       ========      =========
</TABLE>

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>

                                                                                      1996           1995
                                                                                      ----           ----
<S>                                                                                  <C>          <C>

Deferred tax assets:
     Net operating loss carryforwards                                             $  6,092,344    $ 6,696,707
     Investment tax credit carryforwards                                                64,648         76,795
     Unrealized loss on marketable investment securities                                11,049         24,208
     Alternative minimum tax carryforward                                                6,002          6,002
                                                                                     ---------      ---------
                  Total gross deferred tax assets                                    6,174,043      6,803,712

Less valuation allowance                                                            (6,174,043)    (6,803,712)
                                                                                     ---------      ----------
Net deferred tax assets                                                           $       -      $        -
                                                                                   ===========    ============
</TABLE>

A valuation  allowance  is provided to reduce the deferred tax assets to a level
which, more likely than not, will be realized.  The net deferred assets reflects
management's  estimate  of  the  amount  which  will  be  realized  from  future
profitability which can be predicted with reasonable certainty.

The net change in the total  valuation  allowance for the years ended
December 31, 1996 and 1995 was a decrease of $629,669 and $417,129,
respectively.

                                   F-12

<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 4 - INCOME TAXES (CONTINUED)

At December  31,  1996,  the Company has net  operating  loss  carryforwards  as
follows which are available to offset future  federal  taxable  income,  if any,
through  2008.  The Company  also has  investment  tax credit  carryforwards  as
follows  which are  available to reduce future  federal  income  taxes,  if any,
through 2000.

                     Net                      Investment             Year of
               Operating Loss                 Tax Credit            Expiration
               --------------                 ----------            ----------

              $     1,920,000               $    14,000                1997
                    2,238,000                    32,000                1998
                    2,332,000                    25,000                1999
                    3,436,000                    28,000                2000
                    1,750,000                      -                   2001
                    1,434,000                      -                   2002
                    1,512,000                      -                   2003
                    1,131,000                      -                   2004
                      805,000                      -                   2005
                      547,000                      -                   2006
                      574,000                      -                   2007
                      238,000                      -                   2008
                   ----------                  --------
              $    17,917,000               $    99,000
                   ==========                  =========

NOTE 5 - PREFERRED STOCK

During 1987, 5,000,000 shares of preferred stock $.01 par value, were authorized
by the stockholders.

The sale or transfer of substantially all of the assets of the Company is deemed
to be a  liquidation,  dissolution or winding-up of the Company for the purposes
of determining  when the  liquidation  preference of the holders of the Series A
and Series B Preferred Stock is to be paid.  Accordingly,  upon  consummation of
the Asset  Sale,  the  holders of the  Preferred  Stock are  entitled to receive
preference in liquidation  before any  distribution to the holders of the common
stock.

                                   F-13
<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 5 - PREFERRED STOCK (CONTINUED)

(a)    Series A Preferred Stock

During  1988,  2,333,333  shares  of  Series  A  Cumulative  Convertible  Voting
Preferred  Stock (Series A Preferred  Stock) were  authorized  and issued.  Each
share of the Series A Preferred Stock is convertible into .0297625 common shares
based  upon a ratio  utilizing  a  conversion  price of  $25.20  per  share,  as
adjusted,  plus an amount of Special Conversion  Shares,  calculated each June 1
through June 1, 1992,  based on an amount per share of Series A Preferred  Stock
of $0.0675 per annum, divided by the then conversion price. The conversion price
was  $25.20  at June 1,  1996 and  1995.  The  conversion  price is  subject  to
adjustment in certain events,  including the issue or sale of common stock for a
consideration  per share  less than the  lesser  of the  conversion  price or 80
percent of the market price  immediately prior to such issue or sale (except for
Series A Preferred Stock conversion,  exercise of warrants,  options, or similar
rights  outstanding  on the date the Series A Preferred  Stock was  issued).  At
December 31, 1996, the Series A Preferred  Stock is convertible in the aggregate
into  89,914  shares  of  common  stock.  The  Series A  Preferred  Stock  has a
liquidating  preference  of $.75 per share and shall be  entitled  to no further
payments  or  distributions  after the  payment  of all  declared  but unpaid or
cumulative dividends with respect to such shares of Series A Preferred Stock.

Each share of Series A Preferred  Stock has voting  rights equal in all respects
to those of the  common  stock  into  which  the  Series  A  Preferred  Stock is
convertible on the record date for the vote in question.

Dividends  on the Series A  Preferred  Stock are payable  annually  each June 1,
commencing  June 1,  1993,  to holders  of record on the May 1st  preceding  the
dividend  payment  date.  Dividends  are to be paid upon the  discretion  of the
Board;  however,  if not paid, the dividends are  cumulative  from June 1, 1992.
Dividends  are paid at the rate of $0.0675 per share per year and are payable in
cash. No dividends have been declared on the Series A Preferred Stock. Dividends
in arrears at December 31, 1996  totaled  $630,000 or $0.0675 per share for four
years.

                              F-14

<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 5 - PREFERRED STOCK (CONTINUED)

(b)    Series B Preferred Stock

During 1989,  350,000 shares of Series B Preferred Stock,  $.01 par value,  were
authorized by the Board of Directors.  During 1989,  310,000  shares of Series B
Cumulative  Convertible  Voting  Preferred Stock (Series B Preferred Stock) were
issued.  Each share of the Series B Preferred Stock is convertible into .0294125
common  shares  based upon a ratio  utilizing a  conversion  price of $34.00 per
share, as adjusted,  plus an amount of Special Conversion Shares,  calculated on
June 1, 1990 and on each June 1  thereafter  through  June 1, 1993,  based on an
amount per share of Series B Preferred  Stock of $.09 per annum,  divided by the
then conversion price. The conversion price was $34.00 at June 1, 1996 and 1995.
The conversion  price is subject to adjustment in certain events,  including the
issue or sale of  common  stock  for a  consideration  per  share  less than the
conversion  price or less than an amount equal to 80 percent of the market price
immediately  prior to such  issue or sale  (except  for  conversion  of Series B
Preferred Stock,  any other series of preferred stock of the Corporation  issued
prior to the  issuance of the Series B Preferred  Stock;  exercise of  warrants,
options or similar rights  outstanding on the date the Series B Preferred  Stock
was issued).  At December 31, 1996, the Series B Preferred  Stock is convertible
in the  aggregate  into 12,102  shares of common  stock.  The Series B Preferred
Stock has a  liquidating  preference of $1.00 per share and shall be entitled to
no further  payments  or  distributions  after the payment of all  declared  but
unpaid or cumulative dividends with respect to such shares of Series B Preferred
Stock.

Each share of Series B Preferred  Stock has voting  rights equal in all respects
to those of the  common  stock  into  which  the  Series  B  Preferred  Stock is
convertible on the record date for the vote in question.

Dividends  on the Series B  Preferred  Stock are payable  annually  each June 1,
commencing  June 1,  1994,  to holders  of record on the May 1st  preceding  the
dividend  payment  date.  Dividends  are to be paid upon the  discretion  of the
Board;  however,  if not paid, the dividends are  cumulative  from June 1, 1993.
Dividends  are paid at the rate of $.09 per  share per year and are  payable  in
cash,  provided  that during the period ended  December 1, 1996 the holders of a
majority of the Series B Preferred  Stock may elect, in lieu of entitlement to a
cash dividend, to cause the Company to increase the number of Special Conversion
Shares in the annual amounts  described above.  This election was not exercised.
No dividends  have been declared on the Series B Preferred  Stock.  Dividends in
arrears at December 31, 1996 totaled $83,700 or $0.09 per share for three years.


NOTE 6 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS

(a)    Common Stock

At December 31, 1996,  105,269 shares of the Company's  authorized  common stock
were  reserved for issuance  under stock option  plans,  common stock  warrants,
Series A Preferred Stock (convertible) outstanding, and Series B Preferred Stock
(convertible) outstanding.

                                    F-15

<PAGE>





                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 6 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (CONTINUED)

(b)    Stock Options and Stock Appreciation Rights

The Company has two stock option plans, the 1992 Incentive Stock Option Plan and
the 1985 SAR and  Nonqualified  Stock Option Plan.  The Company's 1992 Incentive
Stock Option Plan  authorizes the grant of incentive  stock options to employees
of the Company.  The total number of the Company's  shares that may be issued or
transferred  pursuant to options  granted under the Incentive Stock Option Plan,
as amended,  is 150,000 shares of common stock. At December 31, 1996, there were
no options  outstanding for shares of common stock under this plan. The exercise
price of each option  shall not be less than the fair market value of the common
stock at the date of grant. Options expire on the date determined,  but not more
than ten years  from the date of grant.  No option may be  exercised  unless the
holder is then an employee of the Company,  provided  that such  exercise may be
made for no more than three months  following  termination  of employment or one
year after death while being employed. No options may be granted under this plan
after June 12, 2002.

The Company's 1985 SAR and  Nonqualified  Stock Option Plan authorizes the grant
of stock incentives in the form of stock options and stock  appreciation  rights
to key service  personnel  of the  Company.  The total  number of the  Company's
shares that may be issued or transferred  pursuant to stock  incentives  granted
under the plan, as amended,  is 62,500  shares of common stock.  At December 31,
1996, there were options outstanding for 3,250 shares of common stock under this
plan. The plan authorizes the grant of two categories of stock incentives:

 (1)   Stock  Options.  The exercise  price of each option is determined by
       the Board of Directors.  Options expire on the date determined, but
       not more than ten years from the date of grant.

 (2)   Stock Appreciation Rights.  Stock appreciation rights (SARs) may be
       granted in one of three forms:

        i)    In  combination  with any option  granted under the plan, in which
              event the  exercise  of the SAR has the  effect of  canceling  the
              related option,  and exercise of the related option has the effect
              of canceling the related SAR;

       ii)    Independently of a stock option; or

      iii)    In addition to a stock option,  entitling the optionee to exercise
              the SAR and, in  addition,  either to exercise  the related  stock
              option or  surrender  it and  receive in return a number of shares
              equal to the excess of the fair market value of the option  shares
              on the date of exercise over the option price.

       No stock  incentives  may be granted under this Plan after  September 20,
       1995.

       There  have been no  transactions  with  respect to the  Company's  stock
       appreciation  rights  during the years ended  December 31, 1996 and 1995,
       nor are there any stock  appreciation  rights outstanding at December 31,
       1996 and 1995.

                                       F-16

<PAGE>






                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1996 and 1995


NOTE 6 - COMMON STOCK, STOCK OPTIONS, AND STOCK APPRECIATION RIGHTS (CONTINUED)

Transactions with respect to the Company's stock option plans for the years
ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>

                                                                                 Range of           Number of
                                                                                 Price Per          Shares Under
                                                                                 Share              Options
                                                                                 -----              -------
<S>                                                                             <C>                 <C>

Outstanding at December 31, 1994                                                                      6,750
     Expired                                                                    $  .102              (1,000)
                                                                                                     -------
Outstanding at December 31, 1995                                                                      5,750
     Expired                                                                    $10.64               (2,500)
                                                                                                     -------
Exercisable at December 31, 1996                                                $  .102-2.1875        3,250
                                                                                                      ======
</TABLE>

NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The  following  methods  were  used to  estimate  the fair  value  of  financial
instruments at December 31, 1996 and 1995:

Cash and Cash Equivalents, Note Receivable, and Interest Receivable

Because  of  their  short  maturity,   the  carrying  amounts  reported  in  the
consolidated balance sheet approximates fair value.

Marketable Investment Securities

Estimates of the fair values of marketable  investment  securities  are based on
quoted market  prices.  As the Company  classifies  its  investments  as trading
securities,  the carrying  amount  reported in the  consolidated  balance sheets
approximates fair value.


            This information is an integral part of the accompanying
                       consolidated financial statements.



                          F-17



<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, thereto duly authorized.



                                            NEW GENERATION FOODS, INC.


                                   By:      /s/ Jerome S. Flum
                                            ------------------
                                                Jerome Flum
                                                Chairman of the Board, Chief
                                                Executive Officer and Principal
                                                Financial Officer
                                                March 25, 1997




<PAGE>


                                                 POWER OF ATTORNEY


                  KNOW ALL  PERSONS BY THESE  PRESENTS  that each  person  whose
signature  appears below  constitutes  and appoints  Jerome S. Flum and David I.
Schaffer his true and lawful  attorney-in-fact,  with full power of substitution
and resubstitution,  to act for him and in his name, place and stead, in any and
all  capacities  to sign any and all  amendments  to this Annual  Report on Form
10-KSB,  and to file the same with all exhibits thereto,  and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said  attorneys-in-fact  and agents,  full power and authority to do and
perform  each and every act and thing  requisite  or necessary to be done in and
about the  premises,  and fully to all intents and purposes as he might or could
do  in  person,   hereby   ratifying  and  confirming  all  that  each  of  such
attorneys-in-fact and agents, or his substitute or substitutes,  may lawfully do
or cause to be done by virtue thereof.

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



         Name                   Position                           Date



/s/ Jerome S. Flum           Chairman of the Board,             March 25, 1997
---------------------
Jerome S. Flum               Chief Executive Officer,
                             Principal Financial Officer


/s/ Leslie Charm             Director                           March 25, 1997
---------------------
Leslie Charm


/s/ Richard J. James         Director                           March 25, 1997
---------------------
Richard J. James


/s/ Janice Page              Controller                         March 25, 1997
---------------------
Janice Page



<PAGE>

EXHIBITS
--------

11- Statements regarding computation of per share earnings.
22- Subsidiaries of the Company.


<PAGE>

  Exhibit 11
                   NEW GENERATION FOODS, INC. AND SUBSIDIARIES

Net Loss Per Share

Net loss per share is  computed  by dividing  net loss by the  weighted  average
number of shares of common stock and common stock equivalents outstanding during
each year. The computation  excludes the common stock equivalents  consisting of
stock options because their inclusion would have had an antidilutive effect. The
cumulative  convertible  voting  preferred stock is not considered  common stock
equivalents.


                   Primary Loss Per Share Computation
                   For the Year Ended December 31, 1996

Net Loss                                               $ 471,385

Weighted average shares outstanding      (divided by)    399,830
                                                        ---------
Loss per share                                         $    1.18
                                                        =========

<PAGE>

 Exhibit 22

                    SUBSIDIARIES OF
                    NEW GENERATION FOODS, INC.


                                                      % of Ownership
                       State of                       By New Generation
Name                  Incorporation                    Foods, Inc.
----                  -------------                    -----------

Spicer's                 Nevada                        100%
International, Inc.

NGF Services, Inc.       New York                      100%