<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                   FORM 10-K
(Mark One)

 X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---    ACT OF 1934
For the fiscal year ended June 1, 1997

                                       OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---    EXCHANGE ACT OF 1934

For the transition period from                          to 
                               ------------------------    ----------------
Commission file number      000-17896
                      -----------------------------------------------------

                          HANOVER FOODS CORPORATION
            (Exact name of Registrant as specified in its charter)


            PENNSYLVANIA                                    23-0670710
    (State or other jurisdiction)                    (IRS Employer I.D. No.)


     P.O. BOX 334, YORK STREET EXTENDED, HANOVER, PENNSYLVANIA  17331-0334
         (Address of principal executive offices)               (Zip code)

       Registrant's telephone number including area code  (717) 632-6000

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

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


                                                      Name Of Each Exchange On
           Title Of Each Class                            Which Registered
           -------------------                            ----------------

           Class A Nonvoting Common                             None
           Stock


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.     Yes    X      No 
                                           ------       ------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   X
               ------

As of August 10, 1997, the estimated aggregate market value of Class B Voting
Common Stock held by non-affiliates of the Registrant was $510,518.  As of
August 10, 1997, the estimated aggregate market value of Class A Nonvoting
Common Stock held by non-affiliates of the Registrant was  $8,547,167. (The
exclusion of the market value of shares owned by any person shall not be deemed
an admission that such person is an "affiliate" of the Registrant.)  There were
427,058 shares of Class B Voting Common Stock outstanding as of August 10,
1997.  There were 292,354 shares of Class A Nonvoting Common Stock outstanding
as of August 10, 1997.
<PAGE>   2
PART I

ITEM 1.  BUSINESS

OVERVIEW

Hanover Foods Corporation (as used herein the term "Corporation" refers to
Hanover Foods Corporation and its consolidated subsidiaries) was incorporated
on December 12, 1924 in Harrisburg, Pennsylvania.  The Corporation consists of
two (2) operating divisions:  Hanover and Myers.

In addition, the Corporation has five (5) wholly-owned subsidiaries, Tri-Co.
Foods Corp., Consumers Packing Company, d/b/a Hanover Foods - Lancaster
Division, Spring Glen Fresh Foods, Inc., Hanover Insurance Corporation, Ltd.,
and Nittany Corporation.  Tri-Co.  Foods Corp. in turn has two (2) wholly-owned
subsidiaries, Alimentos Congelados Monte Bello, S.A., and Sunwise Corporation.

Originally, the Corporation was established to provide seasonal packing of
locally grown peas, beans and other vegetables.  From this beginning, the
Corporation has grown to become one of the leading independent processors of
canned vegetables, frozen vegetables, frozen meat products, frozen entrees,
frozen soft pretzels and fresh foods in the eastern United States.  The
Company's raw materials are readily available, and the Company is not dependent
on a single supplier or a few suppliers.  This growth has resulted from the
Corporation's extended scope of operations, new product development and
acquisitions.  Currently, 52% of the Corporation's sales volume, primarily
frozen sales, is transacted during the third and fourth quarters of the
Corporation's fiscal year and 48% of the Corporation's sales volume, primarily
canned sales, is transacted during the first and second quarters of the
Corporation's fiscal year.  See "Risk Factors - Industry Conditions and Price
and Volume Fluctuations."

The Corporation is a vertically integrated processor of vegetable products in
one industry segment.  It is involved in the growing, processing, canning,
freezing, freeze-drying, packaging, marketing and distribution of its products
under its own trademarks, as well as other branded, customer and private
labels.  "See Risk Factors - General Risks of the Food Industry."

The Corporation enjoys its strongest retail sales in the mid-Atlantic states
and Florida. Introduction of frozen ethnic blends, specialty vegetables, canned
pasta and frozen soft pretzel products has enabled the Corporation to increase
and expand its distribution throughout the eastern seaboard.  Distribution in
the remainder of the United States is limited to food service, military and
industrial customers.

OPERATIONS

The Corporation has operations at five (5) plants in Pennsylvania, one (1)
plant in Delaware and





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two (2) plants in Guatemala.

PRODUCTS

The Corporation markets its products under the brand names HANOVER, HANOVER
FARMS, MYERS, PHILLIPS, GIBBS, SUPERFINE, MARYLAND CHIEF, MITCHELL'S, DUTCH
FARMS, SUNWISE, O&C (jarred onions only), and SPRING GLEN FRESH FOODS.

The products sold by the Corporation under these brand names include canned
vegetables, beans and pasta as well as frozen vegetables, frozen meat products,
food entrees, refrigerated and fresh foods.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year Ended June 1,
1997 Results of Operations Compared to Year Ended June 2, 1996."

DISTRIBUTION

The Corporation's products are marketed under its brand labels and customer
private labels to the consumer for home use and also to the food service trade
which includes restaurants, fast food chains, hospitals and schools as well as
military and other governmental uses.  The Company's ten largest customers
account for approximately 45% of the Company's net sales and accounts
receivable with no single customer accounting for more than 10% of net sales
for the fiscal years ended June 1, 1997, March 31, 1996 and April 2, 1995.  The
Corporation's products are distributed directly to its customers and indirectly
via independent distributors.  Sales activities are conducted via Corporation
employed sales personnel and independent sales brokerage firms. The Corporation
also manufactures private label food products for other food companies.

COMPETITION

The Corporation markets its food products to the retail and food service
sectors in the northeastern, mid-Atlantic, southeastern and midwestern areas of
the United States.  See "Risk Factors - Competition."

The principal methods of competition within the food processing industry are:
price, promotion, advertising, product quality and service.

TRADEMARKS

The Corporation has various registered and unregistered trademarks, service
marks and licenses which are of material importance to the Corporation's
business.

BACKLOG OF ORDERS

The Corporation manufactures against customer forecasts and orders.  While at
any given time





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there may be a backlog of orders, such backlog is not material to total sales,
nor are the changes from time to time significant.

RESEARCH AND DEVELOPMENT

The Corporation engages in research and development of new products and
improvement of existing products as well as the improvement and modernization
of its operating plants and equipment.  See Note 1 of the Notes to Consolidated
Financial Statements.

REGULATION

The Corporation's operations, as is the case of all food companies, are subject
to strict regulation by the U.S. Food and Drug Administration (FDA).  The
Corporation is also subject to inspection by the Food Safety and Quality
Service Division (USDA), for its meat and poultry products.

FDA regulates the safety of the food product, the identity of the product, its
purity and identification of ingredients therein.  USDA establishes grades for
products and regulates sanitation.  The appropriate state agencies regulate the
sanitation of the Corporation's plants and the manufacture of food products
utilizing flour in any baking process.

The Corporation is also regulated by many other federal and state governmental
agencies such as Occupational Safety and Health Administration (OSHA), Federal
Trade Commission and U.S. Environmental Protection Agency.  See "Risk Factors -
Regulations" and "Legal Proceedings."

ENVIRONMENTAL CONSIDERATIONS

In the past and currently the Corporation is making investments to comply with
all federal, state and local laws, rules and regulations.  Such expenditures
have not been material with respect to the Corporation's capital expenditures,
earnings or competitive position, and are not expected to be in the future.
See "Risk Factors - Environmental Risks" and "Legal Proceedings."

SOURCES OF SUPPLY

The Corporation maintains an intimate involvement in all phases of agricultural
crop production as well as direct procurement of fresh vegetables.  The
Corporation procures all of its fresh vegetable requirements through direct
contracts with farmers who cultivate and harvest the crops according to the
Corporation's specifications.  In addition, the Corporation directly procures
beans, tomato based products, pasta, herbs and other ingredients, as well as
containers and packaging materials from outside vendors throughout the world.

EMPLOYEES

The Corporation, its divisions and subsidiaries currently employ approximately
1,512 employees





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on a full-time and a seasonal basis.  Approximately 1,332 employees are
employed in the United States and 180 are employed in Guatemala.

A total of 714 production workers at the Hanover, PA, Centre Hall, PA and
Clayton, DE plants are members of the United Food and Commercial Workers Union
- Locals 1776, 72 and 56, respectively.  The Hanover and Centre Hall, PA
plants each have their own three (3) year contract beginning January 1, 1997
and ending December 31, 1999.  The Clayton, DE plant has its own three (3) year
contract beginning January 1, 1996 and ending December 31, 1998.  There are no
union contracts at any other plants or locations of the Corporation.  The
Corporation has never had any strikes or labor disputes interfering with its
operations.  Management considers labor relations to be excellent.

FOREIGN OPERATIONS

The Corporation's wholly-owned subsidiary, Tri-Co. Foods Corp., has two (2)
wholly-owned subsidiaries, Alimentos Congelados Monte Bello, S.A., San Jose
Pinula, Guatemala and Sunwise Corporation, Lakeland, Florida.

Alimentos Congelados Monte Bello, S.A. procures, processes and ships vegetables
produced in Guatemala.  Alimentos Congelados Monte Bello, S.A. contracts with
approximately 2,500 independent farmers in Guatemala for the growing and
harvesting of broccoli, cauliflower, okra and Brussels sprouts.  The raw
vegetable product purchased by the Corporation is frozen at one of two
Corporation plants located at San Jose Pinula, Guatemala and Teculutan,
Guatemala.

Sunwise Corporation imports and distributes the Guatemalan product to Hanover
Foods Corporation.

The business of the Corporation in Guatemala is subject to the laws of
Guatemala which may place restrictions and controls on such matters as
ownership, imports and exports, prices, product lines and transfer of funds,
and is also subject to the fluctuating exchange rate between the Guatemalan
quetzal and the U.S. dollar.  See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Impact of Events and
Commitment of Future Operations" and "Risk Factors - Risks Associated With
Foreign Operations."

Information with respect to the revenue, cost of sales and identifiable assets
for the Corporation's foreign operations is set forth in Note 10 to the
Consolidated Financial Statements entitled "Foreign Operations."

RISK FACTORS

Industry Conditions and Price and Volume Fluctuations

The Corporation's financial performance and growth are related to conditions in
the food





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processing industry.  The United States food processing industry is a mature
industry.  The Corporation's net sales are a function of product availability
and market pricing.  In the food processing industry, product availability and
market prices tend to have an inverse relationship:  market prices tend to
decrease as more product is available, whereas if less product is available,
market prices tend to increase.  Product availability is a direct result of
plantings, growing conditions, crop yields and inventories, all of which vary
from year to year.  In addition, price can be affected by the planting,
inventory level and individual pricing decisions of the three or four largest
processors in the industry.  Generally, the market prices in the food
processing industry tend to adjust more quickly to variations in product
availability than an individual processor can adjust its cost structure; thus,
in an over-supply situation, a processor's margins likely will weaken, as
suppliers generally are not able to adjust their cost structure as rapidly as
market prices adjust for the over-supply.  The Corporation typically has
experienced lower margins during times of industry over-supply.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Seasonality and Quarterly Fluctuations

The Corporation's operations are affected by the growing cycle of the
vegetables it processes. The Corporation's business can be positively or
negatively affected by weather conditions nationally and the resulting impact
on crop yields.  Favorable weather conditions can produce high crop yields and
an oversupply situation in a given year.  This oversupply typically will result
in depressed selling prices and reduced profitability to the Corporation on the
inventory produced from that year's crops.  Excessive rain or drought
conditions can produce low crop yields and a shortage situation.  This shortage
typically will result in higher selling prices and increased profitability to
the Corporation.  While the national supply situation controls the pricing, the
supply can differ regionally because of variations in weather.

Because many of the raw materials processed by the Company are agricultural
crops, production of products using these crops is predominantly seasonal.  As
a result, the Company needs access to working capital financing to meet its
production requirements during these periods.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."

Competition

All of the Corporation's products compete with those of other national, major
and small regional food processing companies under highly competitive
conditions.  Many of the Corporation's major competitors in the market are
larger and have greater financial and marketing resources than the Corporation.
Continued industry consolidation also may increase the market strength of the
Corporation's larger competitors.





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<PAGE>   7
Regulation

United States and foreign governmental laws, regulations and policies directly
affect the agricultural industry and food processing industry.  The Corporation
is subject to regulation by the FDA, the USDA, the Federal Trade Commission,
the Environmental Protection Agency and various state agencies with respect to
production, packaging, labeling and distribution of its food products.  The
application or modification of existing, or the adoption of new, laws,
regulations or policies could have an adverse effect on the Corporation's
business and results of operations.

General Risks of the Food Industry

Food processors are subject to the risks of adverse changes in general economic
conditions; evolving consumer preferences and nutritional and health-related
concerns; changes in food distribution channels and increasing buying power of
large supermarket chains and other retail outlets that tend to resist price
increases; federal, state and local food processing controls; consumer product
liability claims; and risks of product tampering.

Environmental Risks

The disposal of solid and liquid waste material resulting from the preparation
and processing of foods are subject to various federal, state and local laws
and regulations relating to the protection of the environment.  Such laws and
regulations have had an important effect on the food processing industry as a
whole, requiring substantially all firms in the industry to incur material
expenditures for modification of existing processing facilities and for
construction of upgraded or new waste treatment facilities.

The Corporation cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations will
be administered or interpreted or what environmental conditions may be found to
exist.  Enactment of more stringent laws or regulations or more strict
interpretation of existing laws and regulations may require additional
expenditures by the Corporation, some of which could be material.

Risks Associated with Foreign Operations

Foreign operations generally involve greater risks than doing business in the
United States. Foreign economies differ favorably or unfavorably from the
United States' economy in such respects as the level of inflation and debt,
which may result in fluctuations in the value of the country's currency and
real property.  Further, there may be less government regulation in various
countries, and difficulty in enforcing legal rights outside the United States.
Additionally, in some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of property
or other assets, political or social instability or diplomatic developments
which could affect the operations and assets of U.S. companies doing business
in





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that country.  Some of these are more pronounced in third world countries such
as Guatemala. At June 1, 1997, the Corporation had $10.0 million in assets
invested in its foreign operations.

ITEM 2.  PROPERTIES

The following is a list of the Corporation's manufacturing, processing and
warehousing properties.  The Corporation owns each of the properties.

UNITED STATES

Hanover, PA                        -       Canned and jarred products
                                           processing, repackaging of frozen
                                           vegetables, frozen soft pretzels
                                           manufacture, dry and frozen storage.
                                           Corporate research, new product
                                           development and quality assurance
                                           laboratory (corporate headquarters).

Centre Hall, PA                    -       Frozen vegetable processing.  Dry
                                           and frozen storage.

Lancaster, PA                      -       Frozen mushrooms, peppers, onions
                                           and celery, freeze-dried food and
                                           ice manufacture.  Dry and frozen
                                           storage.

Plumsteadville, PA                 -       Frozen food entrees, meat pies and
                                           soups manufacture.  Dry and frozen
                                           storage.

Ephrata, PA                        -       Refrigerated, fresh foods and soups
                                           manufacture.  Dry, refrigerated and
                                           frozen storage.

Clayton, DE                        -       Frozen vegetables, meat products,
                                           frozen food entrees and meat pies
                                           manufacture.  Dry and frozen
                                           storage.

GUATEMALA

San Jose Pinula                    -       Frozen vegetable processing, dry and
                                           frozen storage, research and quality
                                           assurance laboratory.

Teculutan                          -       Frozen vegetable processing, dry and
                                           frozen storage.





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ITEM 3.  LEGAL PROCEEDINGS

1995 Warehime Family Litigation

On February 1, 1995, Michael A. Warehime, J. William Warehime and Elizabeth W.
Stick, three Class B shareholders of the Corporation, filed a complaint in the
Court of Common Pleas of York County, Pennsylvania against the Corporation and
John A. Warehime (Chairman of the Corporation), in his capacity as voting
trustee of two voting trusts entitling him to vote approximately 52% of the
Class B common stock.  The Court has dismissed various claims and parties in
the lawsuit and the only remaining parties are Michael A. Warehime as
plaintiff and John A. Warehime as defendant.  The only remaining claims are (i)
a claim for breach of fiduciary duty based on exercise of powers beyond those
granted by certain voting trust agreements; (ii) a claim for breach of
fiduciary duty for use of the voting trusts in a manner harmful to their
beneficiaries, (iii) and a court requesting removal of John A. Warehime as the
voting trustee of the voting trusts.

Derivative Action

On September 13, 1996, certain Class A common stockholders filed a complaint in
equity against six of the Corporation's directors and the estate of a former
director in the Court of Common Pleas of York County, Pennsylvania.  The suit
also named the Corporation as a nominal defendant.  The suit sought various
forms of relief including, but not limited to, rescission of the board's April
28, 1995 approval of John A. Warehime's 1995 Employment Agreement and the
board's February 10, 1995 adjustment of directors' fees.  (Since the filing of
this lawsuit, John A. Warehime's 1995 Employment Agreement was amended.  See
Note 6 to Consolidated Financial Statements.)  In addition, the plaintiffs
sought costs and fees incident to bringing suit.  On November 4, 1996, the
complaint was amended to add additional plaintiffs. On June 24, 1997, the Court
dismissed the amended complaint for failure to make a prior demand.  On May 12,
1997, a written demand was received by the Corporation from the attorney for
these Class A common stockholders containing similar allegations and these
allegations are currently being investigated by a special committee of the
Board of Directors.

1997 Warehime Family Litigation

On February 21, 1997, Michael A. Warehime, a Class B shareholder, and certain
Class A shareholders filed motions for a preliminary injunction against the
Corporation and John A. Warehime, in his capacity as voting trustee, in the
Court of Common Pleas of York County, Pennsylvania against a proposal of the
Board of Directors to amend and restate the Corporation's Articles of
Incorporation in the manner hereafter described.

On February 13, 1997, the Board of Directors proposed an amendment and
restatement of the Corporation's Articles of Incorporation (the "Amended and
Restated Articles") which provides that if all of the following Class B
shareholders (or their Estates upon the death of such





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stockholders) do not agree in writing to the composition of the Board of
Directors or other important matters specified below on or after the 1998
annual shareholders meeting, the trustees of the Corporation's 401(k) Savings
Plan (or a similar employee benefit plan), acting as fiduciaries for the
employees who participate in the Plan, and the Class A shareholder may become
entitled to vote in the manner described below:  Michael A. Warehime, John A.
Warehime, Sally W. Yelland, J. William Warehime and Elizabeth W. Stick.

The Amended and Restated Articles create a Series C Convertible Preferred Stock
and authorize the Board of Directors to issue up to 10,000 shares of such stock
to the trustees of the Corporation's 401(k) Savings Plan (or a similar employee
benefit plan).  At least a majority of the trustees of the Corporation's 401(k)
Savings Plan (or similar employee benefit plan), who are appointed by the Board
of Directors, must be "disinterested directors" of the Corporation.  If the
Class B shareholders named above cannot unanimously agree in writing on the
composition of the Board of Directors or on other important matters specified
below, the Amended and Restated Articles permit each of the 10,000 shares of
Series C Convertible Preferred Stock the right to cast 35 votes in the election
of directors, and each share of Class A Common Stock would have one-tenth
(1/10) of a vote per share, thereby enabling them to influence the ultimate
result of the election by the Cass B shares.  The Amended and Restated Articles
also permit the trustees and the Class A shareholders to similarly vote on
proposals to remove directors, and in connection with any proposal (not
previously approved by the Board of Directors) to further amend the Articles of
Incorporation or By-laws or to effectuate a merger, consolidation, division, or
sale of substantially all of the assets of the Corporation.  The voting power
of the Series C Convertible Preferred Stock would cease five (5) years after
its issuance.  Under the Amended and Restated Articles, each of the shares of
Series C Convertible Preferred Stock is convertible into one share of Class A
Common Stock and is not entitled to vote except in the event that members of
the Warehime family previously named cannot agree in writing on the composition
of the Board of Directors or on other important matters specified above.

The Amended and Restated Articles also classified the terms of the Board of
Directors commencing with the election at the 1997 annual shareholders meeting
and permit directors to be elected for four year terms as permitted by
Pennsylvania law.

The motions for a preliminary injunction were dismissed by the Court on June
24, 1997.  The Class B shareholders on June 25, 1997 approved the Amended and
Restated Articles (John A. Warehime being the sole Class B shareholder voting
affirmatively) and the Amended and Restated Articles became effective June 25,
1997.  Appeals have been filed from the denial of the plaintiffs' motion for a
preliminary injunction.

In August 1997, the Board of Directors proposed a further amendment (the
"Amendment") to the Amended and Restated Articles to expand the definition of
"disinterested directors" in the manner described below, and to approve certain
performance based compensation for John A. Warehime solely for the purpose of
making the Corporation eligible for a federal income tax deduction pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended.  A





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special meeting was scheduled for August 14, 1997 (the "Special Meeting") to
vote on these proposals.  On August 8, 1997, Michael A. Warehime filed a
motion in the Court of Common Pleas of York County, Pennsylvania to prevent
John A. Warehime, in his capacity as voting trustee from voting on these
proposals.  This motion was denied on August 11, 1997.  The Amendment and the
proposal under Section 162(m) were approved by Class B Shareholders (John A.
Warehime was the sole Class B shareholder to vote affirmatively) on August 14,
1997 and the Amendment became effective on August 14, 1997.

Under the Amendment, the definition of "disinterested directors" means the
person who, in the opinion of counsel for the Corporation, meet any of the
following criteria:  (i) disinterested directors as defined in Section 1715(e)
of the Pennsylvania Business Corporation Law of 1988, as amended; (ii) persons
who are not "interested" directors as defined in Section 1.23 of The American
Law Institute "Principles of Corporate Governance: Analysis and
Recommendations" (1994); or (iii) persons who qualify as members of the Audit
Committee pursuant to Section 303.00 of the New York Stock Exchange's Listed
Company Manual.

Other Litigation

On April 29, 1996 the Corporation settled out of court with federal and
Delaware environmental authorities regarding investigations of alleged
violations of environmental laws at its Clayton, Delaware facility.  As a
result of the settlement, the Company paid $60,000 in civil penalties and
agreed to undertake certain tasks within eighteen months including upgrading
its refrigeration system and providing refrigeration training to its personnel.
The approximate cost for training and capital expenditure is $400,000.  The
Company has made substantially all of the required capital expenditures to
upgrade the refrigeration system and has performed the required refrigeration
training at its Delaware facility.  The Corporation's actions taken as a result
of this settlement are subject to the review of the environmental authorities.

On December 12, 1996, OSHA cited the Corporation with two violations of OSHA
regulations arising out of accidents which occurred at its Clayton, Delaware
plant.  The proposed penalty for each violation is $70,000.  On December 18,
1996, the Corporation filed its Notice of Contest, contesting both alleged
violations and the proposed penalties.

On March 24, 1997, OSHA cited the Corporation with twenty-two violations of
OSHA regulations arising out of plant inspections which occurred at its
Clayton, Delaware plant.  The proposed penalty for said violations is $498,000.
On April 11, 1997, the Corporation filed its Notice of Contest, contesting all
of the alleged violations and the proposed penalties.

The Corporation is involved in various other claims and legal actions arising
in the ordinary course of business.  In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.





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

None.

PART II

ITEM 5.  MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

There is no established public trading market for any class of the
Corporation's capital stock.  No class of capital stock is listed or traded on
any stock exchange or with NASDAQ.  Since March 1989 there has been limited
trading in the outstanding shares of Class A Nonvoting Common Stock through
stockbrokers.  From March 31, 1996 to August 10, 1997, the Class A Nonvoting
Common Stock has traded at prices ranging from $31.00 to $42.00.

Due to the lack of an established public trading market, under certain
circumstances the Corporation agreed to repurchase shares of Class A Nonvoting
Common Stock purchased or owned by employees prior to April 20, 1988.  This
repurchase agreement by the Corporation is for an indefinite period of time.
As of June 1, 1997, there were 10,557 shares outstanding which would be
eligible for repurchase.  During the fiscal year ended June 1, 1997, the
Corporation purchased 1,251 shares of Class A Common Stock at an aggregate cost
of $85,068 or an average of approximately $68.00 per share.  The repurchase
price of the stock is the most recent independent appraised value.  The
appraisal was performed by Management Planning, Inc., Princeton, New Jersey, an
independent appraisal firm.  See Note 9 of the Notes to the Consolidated
Financial Statements.

In addition, on July 27, 1995, the Corporation purchased 5,148 shares of the
Company's Class B Voting Common Stock from Cyril T. Noel, individually, and
Cyril T. Noel and Frances L. Noel, jointly, at $71.40 per share, as per the
appraisal of Management Planning, Inc., Princeton, New Jersey.

On April 1, 1996, the Corporation entered into a stock purchase agreement with
John R. Miller, Jr. to purchase 1,210 shares of the Corporation's Voting Class
B Common Stock and 5,990 shares of the Corporation's Nonvoting Class A Common
Stock over a four year period.  On April 22, 1997, John R. Miller, Jr. entered
into a Voting Agreement with the Corporation's Board of Directors whereby Mr.
Miller agrees to vote all shares of the Corporation's stock held by him as
directed by the Board of Directors, provided that a majority of Directors
Rohrbach, Schaier and Noel vote in favor of the direction.  The term of the
Voting Agreement is for a period of four years commencing April 1, 1997 and
ending on March 31, 2001.

The Corporation currently has no outstanding warrants to purchase shares of any
class of its capital stock.





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The only securities convertible into common equity of the Corporation are
15,044 outstanding shares of Cumulative Convertible Preferred Stock (Series A
and B).  Subsequent to the end of fiscal 1997, the Company amended its Articles
of Incorporation to authorize Series C Convertible Preferred Stock, which is
convertible to Class A Nonvoting Common Stock at the option of the holder.  As
of the date hereof, no shares of Series C Convertible Preferred Stock have been
issued.  At any time, the holders of this class of stock have the option to
convert their shares to shares of Class A Nonvoting Common Stock based on the
book value of the Class A Nonvoting Common Stock at the time of conversion.

As of August 10, 1997, there were 427 holders of record of Class A Nonvoting
Common Stock and 41 holders of record of Class B Voting Common Stock.

During the two most recent fiscal years ending June 1, 1997 and March 31, 1996,
the Corporation paid cash dividends of $1.10 and $1.10 per share respectively
to the Class A and Class B Common stockholders.  Dividends of the Corporation
are declared at the sole discretion of the Board of Directors and will depend
upon, among other things, the Corporation's earnings, capital requirements,
financial condition and compliance with Pennsylvania law.

The December 1, 1991 $25,000,000 long-term financing agreement between the
Corporation and Allstate Life Insurance Corporation contains certain
restrictions on the Corporation's payment of dividends and purchase of its
stock.





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ITEM 6.  SELECTED FINANCIAL DATA

HANOVER FOODS CORPORATION AND SUBSIDIARIES

The consolidated financial information set forth below should be read in
conjunction with the more detailed consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.

Summary of Operations

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                   Fiscal years ended
  Dollars in thousands                --------------------------------------------------------------------------------
  (except per share data)                             Proforma                       
                                          June 1,      June 2,    March 31,      April 2,     April 3,    March 28,
                                             1997         1996         1996          1995         1994         1993
-----------------------------------------------------------------------------------------------------------------------
  <S>                                    <C>          <C>          <C>           <C>          <C>          <C>
  Net sales                              $259,439     $260,694     $262,920      $257,530     $235,189     $216,701
-----------------------------------------------------------------------------------------------------------------------
  Cost of goods sold                      195,086      213,234      213,515       199,372      179,892      166,728

  Selling expenses                         37,453       33,443       35,067        42,089       32,154       27,236

  Administrative expenses                  12,158        9,250        9,706         9,699        9,525        9,890
-----------------------------------------------------------------------------------------------------------------------
  Operating profit                         14,742        4,767        4,632         6,370       13,618       12,847

  Interest expense                          3,666        4,651        4,639         3,744        3,733        3,637

  Other (income) expense - net                 89        (516)        (640)          (60)        (343)         (58)
-----------------------------------------------------------------------------------------------------------------------
  Earnings before income taxes             10,987          632          633         2,686       10,228        9,268

  Income taxes                              4,281          219          213           798        4,067        3,672
-----------------------------------------------------------------------------------------------------------------------
  Net earnings                              6,706          413          420         1,888        6,161        5,596
-----------------------------------------------------------------------------------------------------------------------
  Net earnings applicable to common         6,675          374          389         1,855        6,127        5,562
  stock
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


Note:   Effective June 1, 1996, the Corporation's fiscal year ends at the close
of operations on the Sunday nearest to May 31.  The Corporation's past fiscal
years ended at the close of operations on the Sunday nearest to March 31.





                                      -13-
<PAGE>   15
ITEM 6.  SELECTED FINANCIAL DATA

HANOVER FOODS CORPORATION AND SUBSIDIARIES

Common Stock Data and Balance Sheet and Financial Data


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                       Fiscal years ended
 Dollars in thousands                         ----------------------------------------------------------------------
 (except per share data)                             June 1,     March 31,     April 2,     April 3,     March 28,
                                                       1997          1996         1995         1994          1993
--------------------------------------------------------------------------------------------------------------------
 <S>                                               <C>           <C>          <C>         <C>            <C>
 COMMON STOCK DATA

 Net earnings                                         $9.26         $0.53        $2.53        $8.29         $7.48

 Common dividends                                     $1.10         $1.10       $1.075        $1.00         $1.00

 Book value                                          $65.00        $58.27       $59.32       $57.89        $50.59

 Average shares outstanding                         720,811       729,608      734,252      739,026       743,732
--------------------------------------------------------------------------------------------------------------------
 BALANCE SHEET AND
 FINANCIAL DATA

 Working capital                                    $17,122       $15,044      $19,569      $22,279       $21,796

 Current ratio                                         1.32          1.25         1.32         1.44          1.52

 Total assets                                      $124,031      $128,368     $132,144     $124,646      $117,834

 Long-term debt                                     $16,219       $18,453      $20,658      $24,436       $31,056

 Capital lease obligations - long-term                    -             -         $233         $578        $1,109

 Stockholders' equity                               $47,157       $42,509      $43,920      $42,990       $37,920
--------------------------------------------------------------------------------------------------------------------
</TABLE>





                                      -14-
<PAGE>   16
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

When used in this Annual Report on Form 10-K, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"projected," or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995.  Such statements are subject to certain risks and uncertainties,
including but not limited to quarterly fluctuations in operating results,
competition, state and federal regulation, environmental considerations and
foreign operations.  Such factors, which are discussed in the Annual Report on
Form 10-K, could affect the Corporation's financial performance and could cause
the Corporation's actual results for future periods to differ materially from
any opinion or statements expressed herein with respect to future periods.  As
a result, the Corporation wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made.

OVERVIEW OF FISCAL 1997 RESULTS

The results of operations for fiscal 1997 were impacted by lower operating
expenses, increased selling prices and improved inventory management.  See
"Risk Factors."

The Corporation and its subsidiaries, in the normal course of business,
purchase and sell goods and services to related parties.  The Corporation
believes that the cost of such purchase and sales are competitive with
alternate sources of supply and markets.  See Note 5 to the Consolidated
Financial Statements.

Effective June 1, 1996, the Corporation's fiscal year ends at the close of
operations on the Sunday nearest to May 31.  The Corporation's past fiscal
years ended at the close of operations on the Sunday nearest to March 31.
Accordingly, the following discussion compares the results of operations for
the fiscal year ended June 1, 1997 to the proforma year ended June 2, 1996, the
nine weeks ended June 2, 1996 to the nine weeks ended June 4, 1995 and the
fiscal year ended March 31, 1996 to the fiscal year ended April 2, 1995.

YEAR ENDED JUNE 1, 1997 RESULTS OF OPERATIONS COMPARED TO YEAR ENDED JUNE 2,
1996

Net Sales

Consolidated net sales were $259.4 million for fiscal 1997 compared to $260.7
million for the proforma year ended June 2, 1996, a decrease of $1.3 million or
0.5%.  The 0.5% decrease in consolidated net sales was comprised of the
following volume and sales price components:





                                      -15-
<PAGE>   17
<TABLE>
<CAPTION>
                                             Year Ended June 1, 1997
                                               Increase (Decrease)
                                               -------------------

                                     Volume       Sales Price          Combined
                                     ------       -----------          --------
      <S>                            <C>               <C>               <C>
       Frozen Sales                  (5.9)%              4.2%            (1.7)%

       Canned Sales                  (2.1)%              2.7%              0.6%
 
       Prepared Foods                  0.8%            (0.2)%              0.6%
                                    -------            ------           -------

                                     (7.2)%              6.7%            (0.5)%
</TABLE>

The decreased volume in frozen sales was principally due to lower sales levels
in food service products due to management's decision to improve profit margins
by increasing unit sales prices. The decrease in volume was partially offset by
an increase in unit sales prices.

Canned sales also showed a slight decrease in fiscal 1997 due to decreased
volume in bid business.  The decrease in volume was offset by the increase in
unit sales price, which increase in sales price was planned by management to
improve profit margins.

Prepared foods showed a slight increase.

Cost of Goods Sold

Consolidated cost of goods sold represented 75.2% of consolidated net sales for
fiscal 1997 compared to 81.8% for fiscal 1996.  The consolidated cost of sales
decreased $18.1 million from fiscal 1996 to fiscal 1997 of which 68% was due to
decreased volume and 32% was due to lower operating costs and lower outside
storage costs.

Selling Expenses

Consolidated selling expenses represented 14.4% of consolidated net sales for
fiscal 1997 and 12.8% for fiscal 1996.  Promotion expense for fiscal 1997 was
$26.8 million as compared to $20.9 million for fiscal 1996.  The Corporation
spent additional promotion dollars to gain additional market share in both the
mid-Atlantic and southern region for its branded business.

In addition to promotion expense, the Corporation spent approximately $2.2
million on advertising, including $1.7 million relating to redeemed coupons,
for fiscal 1997, compared to $3.6 million in advertising, including $2.4
million for redeemed coupons, for fiscal 1996.

Management intends to continue to direct promotional dollars to gain additional
market share and increased distribution of its brand.  Management is constantly
reviewing the effectiveness of its retail promotional program in an effort to
increase profitable sales.





                                      -16-
<PAGE>   18
Administrative Expenses

Consolidated administrative expenses were $12.2 million in fiscal 1997, or 4.7%
of consolidated net sales versus $9.3 million, or 3.5% of consolidated net
sales in 1996.  The increase in consolidated administrative expenses as a
percent of net sales was the result of bonuses and outside legal and financial
services.  Included in administrative expenses for fiscal 1997 were $1.2
million in legal fees paid in connection with the litigation described under
"Legal Proceedings" in Note 9 to the Consolidated Financial Statements.

Interest Expense

Consolidated interest expense for fiscal 1997 was $985,000 lower than fiscal
1996.  Average seasonal borrowing was lower for an extended period of time to
fund lower inventory levels during the pack season and to carry reduced canned
and frozen inventory levels.  The maximum amount of seasonal borrowing was
approximately $35.0 million as compared to the maximum of $45.9 million in
fiscal 1996.  In addition, approximately $1.8 million in senior unsecured term
debt that carried higher interest rates was repaid in fiscal 1997 which
contributed to the reduction of the Corporation's interest expense for fiscal
1997.

Other Expense

Consolidated other expenses increased $605,000 for fiscal 1997 as compared to
fiscal 1996. Additional value added tax and foreign exchange and translation
adjustment losses during fiscal 1997 accounted for 41% of this additional
expense.  Interest income was reduced during fiscal 1997 which accounted for
25% of the additional charges.

Income Taxes

The provision for corporate federal and state income taxes for fiscal 1997 was
$4.3 million or 39% of pretax earnings as compared to a provision of $219,000
or 35% of pretax earnings for fiscal 1996.  The higher effective rate was due
primarily to proportionately higher domestic pretax income versus non-taxable
foreign earnings in fiscal 1997 compared to 1996.

Net Earnings

Consolidated net earnings for fiscal 1997 were $6.7 million, or 2.6% of
consolidated net sales. This compared to $413,000, or 0.2% of consolidated net
sales for fiscal 1996.  Lower operating expenses, interest expenses and
increased unit sales prices were the contributing factors to the increased net
earnings.

Earnings Per Share

Earnings per share are computed on the weighted average number of shares
outstanding after





                                      -17-
<PAGE>   19
providing for preferred stock dividends.  During fiscal 1997, 2,343 shares of
common stock were repurchased by the Corporation compared to 11,465 shares in
fiscal 1996.  The repurchase of these shares reduced the weighted average
number of shares outstanding which is used in the calculation of earnings per
share.

NINE WEEKS ENDED JUNE 2, 1996 RESULTS OF OPERATIONS COMPARED TO NINE WEEKS
ENDED JUNE 4, 1995

Net Sales

Consolidated net sales were $34.6 million for the nine week period ended June
2, 1996.  This represents a decrease of 6.0% over the nine week period ended
June 4, 1995 consolidated net sales of $36.8 million.  The decrease of $2.2
million was primarily due to decreased canned and frozen retail sales offset by
increases in private label sales and was consistent with the Corporation's
business plan.

Cost of Goods Sold

Cost of goods sold were $28.8 million, or 83.3% of consolidated net sales in
the nine week period ended June 2, 1996 and $29.1 million, or 79.1%, of
consolidated net sales for the corresponding period in 1995.  The increase in
cost of goods sold as a percentage of net sales resulted primarily from a
decrease in the average selling prices per case of product in the nine week
period ended June 2, 1996 compared to the same period in 1995 due to continued
intense competition in retail sales.

Selling Expenses

Selling expenses were $5.5 million or 15.8% of consolidated net sales for the
nine week period ended June 2, 1996 as compared to $7.1 million, or 19.3% of
consolidated net sales during the corresponding period in 1995.  The decrease
in selling expenses as a percentage of net sales reflects the lower expenses
related to promotional programs, advertising and customer allowances in the
nine week period ended June 2, 1996 compared to 1995.

Administrative Expenses

Administrative expenses as a percentage of consolidated net sales were 4.1% for
the nine week period ended June 2, 1996 compared to 5.1% for the corresponding
period of 1995.  This decrease was attributed to reductions in personnel
related costs.

Interest Expense

Interest expense was $596,000 for the nine week period ended June 2, 1996 as
compared to $584,000 for the same period in 1995.  The increase in interest was
primarily due to higher





                                      -18-
<PAGE>   20
average borrowings during the 1996 period as compared to the prior period.

YEAR ENDED MARCH 31, 1996 RESULTS OF OPERATIONS COMPARED TO YEAR ENDED APRIL 2,
1995

Net Sales

Consolidated net sales were $262.9 million for fiscal 1996 compared to $257.5
million for fiscal 1995, an increase of $5.4 million or 2.1%.  The 2.1%
increase in consolidated net sales was comprised of the following volume and
sales price components:

<TABLE>
<CAPTION>
                                            Year Ended March 31, 1996
                                               Increase (Decrease)
                                               -------------------

                                     Volume       Sales Price          Combined
                                     ------       -----------          --------
      <S>                              <C>             <C>                 <C>
       Frozen Sales                    2.4%            (1.7)%              0.7%

       Canned Sales                    3.1%            (2.4)%              0.7%

       Prepared Foods                  0.5%              0.2%              0.7%
                                     ------           -------            ------

                                       6.0%            (3.9)%              2.1%
</TABLE>

The increased volume in frozen sales was principally due to higher sales levels
in direct retail and food service products.  The reduction in unit sales prices
was caused by intense competition to lower unit prices.

Canned sales also showed a slight increase for fiscal 1996.  Increased volume
in food service and private label canned sales more than offset decreased
volume in retail sales.  The reduction in unit sales price was caused by
intense competition to lower prices in the private label and food service
sector.

Cost of Goods Sold

Consolidated cost of goods sold was 81.2% of consolidated net sales for fiscal
1996 compared to 77.4% for fiscal 1995.  Total consolidated cost of sales
increased $14.1 million over fiscal 1995 of which 92% was due to increased
volume and 8% was due to increased raw material costs and outside frozen
storage costs.

Selling Expenses

Consolidated selling expenses were 13.3% of consolidated net sales for fiscal
1996 and 16.3% for fiscal 1995.  The Corporation's frozen products faced
intense competition in the mid-Atlantic





                                      -19-
<PAGE>   21
region from national branded companies attempting to gain market share.
Promotion expense for fiscal 1996 was $23.2 million versus $31.9 million for
fiscal 1995.

In addition to promotion expense, the Corporation spent approximately $3.6
million on advertising, including $2.4 million relating to redeemed coupons,
for fiscal 1996, compared to $3.1 million in advertising, including $2.0
million to redeemed coupons, for fiscal 1995.

Administrative Expenses

Consolidated administrative expenses were $9.7 million in fiscal 1996, or 3.7%
of consolidated net sales versus $9.7 million, or 3.8% of consolidated net
sales in 1995.  The slight decrease in consolidated administrative expenses as
a percent of net sales was the net result of reductions in personnel costs
offset by increases in other expenses.  Included in administrative expenses for
fiscal 1996 are $300,000 in legal fees paid in connection with the litigation
described in Item 3 above and Notes 5 and 9 to the Consolidated Financial
Statements.

Interest Expense

Consolidated interest expense increased for fiscal 1996 $895,000 as compared to
fiscal 1995. Average seasonal borrowing was higher for an extended period of
time to fund inventory levels during the fresh pack season and to carry the
increased frozen inventory.  The maximum amount of seasonal borrowing was
approximately $45.9 million as compared to the maximum of $31.2 million in
1995.

The additional expense due to increased average borrowing was partially offset
by reduced cost of funds for short-term borrowings.  Approximately $1.8 million
in senior unsecured term debt that carried higher interest rates was repaid in
1996.

Income Taxes

The provision for corporate federal and state income taxes for fiscal 1996 was
$213,000, or 34% of pretax earnings, as compared to a provision of $798,000, or
30% of pretax earnings for fiscal 1995.  The higher effective rate was due
primarily to proportionately lower non-taxable foreign source earnings in
fiscal 1996 offset by a reduction of deferred tax liabilities due to a change
in state income tax rates.

Net Earnings

Consolidated net earnings for fiscal 1996 were $420,000 or 0.2% of consolidated
net sales as compared to $1.9 million or 0.7% of consolidated net sales for
fiscal 1995.  The reduced unit sales prices and higher interest expense
described above were the contributing factors to the reduced net earnings.





                                      -20-
<PAGE>   22
Earnings Per Share

Earnings per share are computed on the weighted average number of shares
outstanding after providing for preferred stock dividends.  During fiscal 1996,
10,937 shares of common stock were repurchased by the Corporation compared to
2,152 shares in fiscal 1995.  The repurchase of these shares reduces the
weighted average number of shares outstanding which is used in the calculation
of earnings per share.

LIQUIDITY AND FINANCIAL RESOURCES

The discussion and analysis of the Corporation's liquidity and financial
resources should be read in conjunction with the Consolidated Statements of
Cash Flows.

Net cash provided by operations for the fiscal year ended June 1, 1997 was
$12.3 million, compared to $4.8 million for the proforma year ended June 2,
1996.  Sources of funds totaled $19.1 million consisting of net earnings of
$6.7 million, decreased inventory of $5.6 million, decreased prepaid items of
$0.3 million, decreased deferred income taxes of $0.2 million, an increase in
tax and other liabilities of $0.7 million and depreciation and amortization of
$5.6 million.  The funds generated from these sources were applied towards the
increase in accounts receivable of $6.6 million and the reduction in accounts
payable and accrued expenses of $0.2 million.

Net cash provided by operations for the fiscal year ended March 31, 1996 was
$1.4 million, compared to $10,000 for the fiscal year ended April 2, 1995.
Sources of funds totaled $11.6 million consisting of net earnings of $0.4
million, decreased accounts receivable of $0.4 million, decreased inventory of
$2.8 million, decreased prepaid items of $1.9 million, an increase in other
liabilities of $0.4 million and depreciation and amortization of $5.6 million.
The funds generated from these sources were applied towards the reduction in
accounts payable and accrued expenses of $9.7 million.

Net cash used by investing activities for the fiscal year ended June 1, 1997
was $6.5 million as compared to $4.8 million for the fiscal year ended June 2,
1996.  The principal use of funds was the upgrade and acquisition of property,
plant and equipment.  During the period ended June 1, 1997, $6.6 million was
spent on development and modernization of equipment as compared to $4.7 million
in the fiscal year ended June 2, 1996.  These projects were funded by
internally generated funds.  The Corporation also uses operating leases to meet
other equipment needs. The lease expense for the fiscal year ended June 1, 1997
was $3.6 million, down $0.4 million from the fiscal year ended June 2, 1996.

Net cash used by investing activities for the fiscal year ended March 31, 1996
was $6.1 million as compared to $5.6 million for the fiscal year ended April 2,
1995.  The principal use of funds was the upgrade and acquisition of property,
plant and equipment.  During fiscal 1996, $5.5 million was spent on development
and modernization of equipment as compared to $6.2 million





                                      -21-
<PAGE>   23
in fiscal 1995.  These projects were funded by internally generated funds and
external borrowing. The Corporation also uses operating leases to meet other
equipment needs.  The lease expense for fiscal 1996 was $4.0 million, up $0.4
million from fiscal 1995.  During the first quarter for fiscal 1996, the
Corporation purchased a facility located in Teculutan, Guatemala for $250,000
from ARWCO Corporation, a related party, and purchased a tract of land near the
Corporation's Centre Hall, Pennsylvania plant for $250,00 from Centre Foods
Enterprises, Inc., a related party. See "Transactions With Management and
Others" and Note 5 of the Notes to the Consolidated Financial Statements.

Net cash used for financing activities was $3.6 million for the fiscal year
ended June 1, 1997, compared to cash provided by financing activities of
$154,000 for the fiscal year ended June 2, 1996.  Seasonal borrowing amounting
to $220.7 million was used throughout the fiscal year to fund operational
needs.  Seasonal borrowing, plus the cash overdraft, did not increase during
the fiscal year, while term debt and other obligations had been reduced by $2.7
million. Management continues to monitor and evaluate the most cost effective
means to finance its operations.  The weighted average cost of seasonal
borrowings was 6.1% for the fiscal year ended June 1, 1997 compared to 6.2% for
the fiscal year ended June 2, 1996.

Net cash provided by financing activities was $5.0 million for the fiscal year
ended March 31, 1996 compared to $4.0 million for the fiscal year ended April
2, 1995.  Seasonal borrowing was used throughout the period to fund operational
needs.  Seasonal borrowing, plus the cash overdraft, was $9.5 million higher at
year end, while term debt and other obligations had been reduced by $3.3
million.  The weighted average cost of seasonal borrowing was 6.2% for the
fiscal year ended March 31, 1996 compared to 7.5% for the fiscal year ended
April 2, 1995.  See Notes 2 and 3 of the Notes to Consolidated Financial
Statements.

At June 1, 1997 the Corporation has commitments from financial institutions to
provide seasonal lines of credit in the amount of $80 million.  Additional
borrowing is permitted within prescribed parameters in existing debt agreements
which contain certain performance covenants.  At June 1, 1997 the Corporation
was in compliance with all the provisions of its debt agreements.

The Corporation paid dividends of $824,000 during fiscal 1997 compared to
$831,000 in fiscal 1996.  In addition, the Corporation repurchased 2,343 shares
of Common Stock at a cost of $132,000 during the year ended June 1, 1997.

IMPACT OF EVENTS AND COMMITMENTS OF FUTURE OPERATIONS

Competition in the Marketplace

The Corporation faced stiff competition from national and regional branded
companies during the entire fiscal 1997 in all of its market areas, and
management anticipates this competitive environment to continue throughout
fiscal year 1998.  See "Risk Factors - Competition."





                                      -22-
<PAGE>   24
New Accounting Standards

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share" which establishes standards for computing and presenting earnings per
share and will be effective for periods ending after December 15, 1997.  Also
in February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" and establishes standards for disclosing information
about a company's capital structure, including pertinent rights and privileges
of various securities outstanding and will be effective for periods ending
after December 15, 1997.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information."  These statements establish standards for reporting and display
of comprehensive income and its components and for reporting information about
business segments and products in financial statements and are effective for
years beginning after December 15, 1997.

Adoption of the above standards is not expected to have a material effect on
the Corporation's financial statements.

Impact of Inflation and Changing Prices

The changes in cost and prices within the Company's business due to inflation
were not significantly different from inflation in the United States economy as
a whole.  Levels of capital investment, pricing and inventory investment were
not materially affected by the moderate inflation.





                                      -23-
<PAGE>   25
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements                                             Pages
                                                                          -----

     Financial Statements

     Reports of Independent Certified Public Accountants                    26

     Consolidated Balance Sheets as of June 1, 1997, June 2, 1996
     and March 31, 1996                                                     28

     Consolidated Statements of Earnings for Year Ended June 1, 1997,
     Nine Weeks Ended June 2, 1996, Years Ended March 31, 1996 and
     April 2, 1995 and Proforma Year Ended June 2, 1996 (unaudited)         29

     Consolidated Statements of Stockholders' Equity for Year Ended
     June 1, 1997, Nine Weeks Ended June 2, 1996 and the Years Ended
     March 31, 1996 and April 2, 1995                                       30

     Consolidated Statements of Cash Flows for Year Ended June 1, 1997,
     Nine Weeks Ended June 2, 1996, Years Ended March 31, 1996 and
     April 2, 1995 and Proforma Year Ended June 2, 1996 (unaudited)         32

     Notes to Consolidated Financial Statements                             34 

     Quarterly Financial Data (Unaudited)                                   57






                                      -24-
<PAGE>   26
INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Hanover Foods Corporation:


We have audited the accompanying consolidated balance sheets of Hanover Foods
Corporation and subsidiaries as of June 1, 1997, June 2, 1996, and March 31,
1996 and the related consolidated statements of earnings, stockholders' equity,
and cash flows for the year ended June 1, 1997, the nine-week period ended June
2, 1996, and the year ended March 31, 1996. These consolidated financial
statements are the responsibility of the Corporation'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 audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe 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 Hanover Foods
Corporation and subsidiaries as of June 1, 1997, June 2, 1996, and March 31,
1996 and the results of their operations and their cash flows for the year
ended June 1, 1997, the nine-week period ended June 2, 1996, and the year ended
March 31, 1996, in conformity with generally accepted accounting principles.


/s/ KPMG Peat Marwick LLP
-------------------------------


Harrisburg, Pennsylvania
July 24, 1997

<PAGE>   27
        REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Hanover Foods Corporation


We have audited the consolidated statements of earnings, stockholders' equity
and cash flows of Hanover Foods Corporation and subsidiaries for the year ended
April 2, 1995. These financial statements are the responsibiity of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audit. 

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

In our opinion, the statements referred to above present fairly, in all
material respects, the consolidated results of operations of Hanover Foods
Corporation and subsidiaries and their consolidated cash flows for the year
ended April 2, 1995, in conformity with generally accepted accounting
principles. 


Harry Ness & Company

York, Pennsylvania
May 26, 1995
<PAGE>   28



HANOVER FOODS CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

June 1, 1997, June 2, 1996, and March 31, 1996


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                                                       
                                                                 June 1,        June 2,      March 31, 
ASSETS                                                              1997           1996           1996 
-------------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>            <C>         
Current assets:                                                                                        
     Cash and cash equivalents                            $    3,312,000      1,112,000        914,000 
     Accounts and notes receivable - net                      22,954,000     17,249,000     25,216,000 
     Accounts receivable from related parties - net              890,000         61,000         18,000 
     Inventories:                                                                                      
        Finished goods                                        27,446,000     31,506,000     33,930,000 
        Raw materials and supplies                            13,978,000     15,561,000     13,227,000 
     Prepaid corporate income taxes                                    -        581,000        541,000 
     Prepaid expenses                                          2,064,000      1,796,000      1,294,000 
     Deferred income taxes                                       733,000        885,000        885,000 
-------------------------------------------------------------------------------------------------------
                                                                                                       
Total current assets                                          71,377,000     68,751,000     76,025,000 
-------------------------------------------------------------------------------------------------------
                                                                                                       
Property, plant, and equipment - at cost:                                                              
     Land and buildings                                       33,398,000     32,115,000     31,847,000 
     Machinery and equipment                                  82,037,000     77,399,000     77,210,000 
     Leasehold improvements                                      349,000        349,000        349,000 
-------------------------------------------------------------------------------------------------------
                                                                                                       
                                                             115,784,000    109,863,000    109,406,000 
     Less accumulated depreciation and amortization           66,822,000     61,273,000     60,262,000 
-------------------------------------------------------------------------------------------------------
                                                                                                       
                                                              48,962,000     48,590,000     49,144,000 
                                                                                                       
     Construction in progress                                    760,000        176,000         61,000 
-------------------------------------------------------------------------------------------------------
                                                                                                       
                                                              49,722,000     48,766,000     49,205,000 
-------------------------------------------------------------------------------------------------------
                                                                                                       
Other assets:                                                                                          
     Intangible assets - less accumulated amortization                                            
        of $2,019,000, $2,004,000, and $2,002,000                441,000        456,000        458,000 
     Other assets                                              2,491,000      2,407,000      2,680,000 
                                                                                                       
                                                                                                       
                                                                                                       
                                                                                                       
                                                                                                       
                                                                                                       
                                                                                                       
-------------------------------------------------------------------------------------------------------
                                                                                                       
Total assets                                              $  124,031,000    120,380,000    128,368,000 
=======================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2

<PAGE>   29


                                     HANOVER FOODS CORPORATION AND SUBSIDIARIES

                                                    Consolidated Balance Sheets


<TABLE>
<CAPTION>

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

                                                                               June 1,        June 2,      March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY                                              1997           1996           1996
---------------------------------------------------------------------------------------------------------------------

<S>                                                                      <C>             <C>            <C>
Current liabilities:
     Accounts payable                                                      $21,038,000     23,916,000     24,792,000
     Notes payable - banks                                                  24,114,000     24,097,000     29,421,000
     Accrued expenses                                                        6,511,000      4,052,000      3,966,000
     Current maturities of long-term debt                                    2,234,000      2,499,000      2,499,000
     Current maturities of capital lease obligations                                 -        152,000        210,000
     Income taxes payable                                                      358,000        110,000         93,000
---------------------------------------------------------------------------------------------------------------------

Total current liabilities                                                   54,255,000     54,826,000     60,981,000

Long-term debt, less current maturities                                     16,219,000     18,453,000     18,453,000
Deferred income taxes                                                        5,174,000      5,170,000      5,689,000
Other liabilities                                                            1,226,000        805,000        736,000
---------------------------------------------------------------------------------------------------------------------

Total liabilities                                                           76,874,000     79,254,000     85,859,000
---------------------------------------------------------------------------------------------------------------------

Stockholders' equity:
     8-1/4% cumulative convertible preferred - $25 par value,
        issuable in series; 120,000 shares authorized; 31,536
        at June 1, 1997, June 2, 1996, and March 31, 1996
        shares issued; 15,044 at June 1, 1997, June 2, 1996,
        and March 31, 1996 shares outstanding                                  788,000        788,000        788,000
     Common stock, Class A - non-voting - $25 par value;
        800,000 shares authorized; 349,210 at June 1, 1997,
        June 2, 1996, and March 31, 1996 shares issued;
        292,600 at June 1, 1997, 294,824 at June 2, 1996,
        and 295,649 at March 31, 1996 shares outstanding                     8,729,000      8,729,000      8,729,000
     Common stock, Class B - voting - $25 par value;
        880,000 shares authorized; 493,123 at June 1, 1997,
        June 2, 1996, and March 31, 1996 shares issued;
        427,131 at June 1, 1997, 427,350 at June 2, 1996,
        and 427,459 at March 31, 1996 shares outstanding                    12,328,000     12,328,000     12,328,000
     Capital paid in excess of par value                                     1,623,000      1,623,000      1,623,000
     Retained earnings                                                      31,570,000     25,688,000     27,026,000
     Treasury stock, at cost                                                (7,887,000)    (7,755,000)    (7,708,000)
     Other                                                                       6,000       (275,000)      (277,000)
---------------------------------------------------------------------------------------------------------------------

                                                                            47,157,000     41,126,000     42,509,000
---------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                $124,031,000    120,380,000    128,368,000
---------------------------------------------------------------------------------------------------------------------
</TABLE>





                                       3

<PAGE>   30


HANOVER FOODS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings

Fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995 and
the nine weeks ended June 2, 1996



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------

                                                                                                            (Unaudited)
                                                              Nine weeks                                       Proforma
                                              Year ended           ended     Year ended      Year ended      year ended
                                                 June 1,         June 2,      March 31,        April 2,         June 2,
                                                    1997            1996           1996            1995            1996
------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>                 <C>           <C>             <C>             <C>
Net sales                                 $  259,439,000      34,569,000    262,920,000     257,530,000     260,694,000
Cost of goods sold                           195,086,000      28,805,000    213,515,000     199,372,000     213,234,000
------------------------------------------------------------------------------------------------------------------------

Gross profit                                  64,353,000       5,764,000     49,405,000      58,158,000      47,460,000

Selling expenses                              37,453,000       5,465,000     35,067,000      42,089,000      33,443,000
Administrative expenses                       12,158,000       1,433,000      9,706,000       9,699,000       9,250,000
------------------------------------------------------------------------------------------------------------------------

Operating profit (loss)                       14,742,000      (1,134,000)     4,632,000       6,370,000       4,767,000

Interest expense                               3,666,000         596,000      4,639,000       3,744,000       4,651,000
Other (income) expenses - net                     89,000         (66,000)      (640,000)        (60,000)       (516,000)
------------------------------------------------------------------------------------------------------------------------

Earnings (loss) before income taxes           10,987,000      (1,664,000)       633,000       2,686,000         632,000
Income taxes                                   4,281,000        (533,000)       213,000         798,000         219,000
------------------------------------------------------------------------------------------------------------------------

Net earnings (loss)                            6,706,000      (1,131,000)       420,000       1,888,000         413,000
Dividends on preferred stock                      31,000           8,000         31,000          33,000          39,000
------------------------------------------------------------------------------------------------------------------------

Net earnings (loss) applicable to
     common stock                         $    6,675,000      (1,139,000)       389,000       1,855,000         374,000
------------------------------------------------------------------------------------------------------------------------

Earnings (loss) per common share          $         9.26           (1.58)          0.53           $2.53            0.51
------------------------------------------------------------------------------------------------------------------------

Average common shares
     outstanding                                 720,811         722,667        729,608         734,252         728,677
------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.




                                       4

<PAGE>   31

HANOVER FOODS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995 and
the nine weeks ended June 2, 1996




<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                    Cumulative
                                                            convertible preferred stock           Common stock
                                              Total           Series A and Series B                  Class A
                                      shareholders'      --------------------------------  ---------------------------
                                             equity           Shares            Amount        Shares           Amount
----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                  <C>              <C>           <C>            <C>
Balance, April 3, 1994                  $42,990,000           32,936          $823,000       348,561       $8,714,000

Net earnings                              1,888,000                -                 -             -                -
Cash dividends per share:
     Preferred - $2.0625 annually           (33,000)               -                 -             -                -
     Common - $1.075 annually              (789,000)               -                 -             -                -
Common stock issuance                         3,000                -                 -            46                -
Redemption of common stock                 (142,000)               -                 -             -                -
Unrealized gain on investments                3,000                -                 -             -                -
Conversion of preferred for
     Class A common                               -           (1,120)          (28,000)          483           12,000
----------------------------------------------------------------------------------------------------------------------

Balance, April 2, 1995                   43,920,000           31,816           795,000       349,090        8,726,000

Net earnings                                420,000                -                 -             -                -
Cash dividends per share:
     Preferred - $2.0625 annually           (31,000)               -                 -             -                -
     Common - $1.10 annually               (800,000)               -                 -             -                -
Redemption of common stock -
     Class A 5,789 shares,
     Class B 5,148 shares                  (760,000)               -                 -             -                -
Conversion of preferred for
     Class A common                               -             (280)           (7,000)          120            3,000
Minimum pension liability
      adjustment (net of taxes
     of $235,000)                          (351,000)               -                 -             -                -
Unrealized gain on investments              111,000                -                 -             -                -
----------------------------------------------------------------------------------------------------------------------

Balance, March 31, 1996                  42,509,000           31,536           788,000       349,210        8,729,000
</TABLE>




<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                       Common stock
                                          Class B             Capital paid                       Treasury stock
                                 --------------------------   in excess of       Retained    ------------------------
                                   Shares           Amount       par value       earnings     Shares          Amount      Other
---------------------------------------------------------------------------------------------------------------------------------

<S>                               <C>          <C>              <C>           <C>            <C>         <C>           <C>
Balance, April 3, 1994            493,123      $12,328,000      $1,603,000    $26,371,000    122,632     ($6,809,000)  ($40,000)

Net earnings                            -                -               -      1,888,000          -               -          -
Cash dividends per share:
     Preferred - $2.0625 annually       -                -               -        (33,000)         -               -          -
     Common - $1.075 annually           -                -               -       (789,000)         -               -          -
Common stock issuance                   -                -               -              -        (46)          3,000          -
Redemption of common stock              -                -               -              -      2,152        (142,000)         -
Unrealized gain on investments          -                -               -              -          -               -      3,000
Conversion of preferred for
     Class A common                     -                -          16,000              -          -               -          -
---------------------------------------------------------------------------------------------------------------------------------

Balance, April 2, 1995            493,123       12,328,000       1,619,000     27,437,000    124,738      (6,948,000)   (37,000)

Net earnings                            -                -               -        420,000          -               -          -
Cash dividends per share:
     Preferred - $2.0625 annually       -                -               -        (31,000)         -               -          -
     Common - $1.10 annually            -                -               -       (800,000)         -               -          -
Redemption of common stock -
     Class A 5,789 shares,
     Class B 5,148 shares               -                -               -              -     10,937        (760,000)         -
Conversion of preferred for
     Class A common                     -                -           4,000              -          -               -          -
Minimum pension liability
      adjustment (net of taxes
     of $235,000)                       -                -               -              -          -               -   (351,000)
Unrealized gain on investments          -                -               -              -          -               -    111,000
---------------------------------------------------------------------------------------------------------------------------------

Balance, March 31, 1996           493,123       12,328,000       1,623,000     27,026,000    135,675      (7,708,000)  (277,000)
</TABLE>



                                                                    (Continued)



                                       5

<PAGE>   32

HANOVER FOODS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity, Continued



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                          Cumulative
                                                    convertible preferred stock        Common stock               Common stock
                                            Total     Series A and Series B              Class A                     Class B
                                    shareholders'  ---------------------------   -------------------------   ----------------------
                                           equity      Shares         Amount      Shares           Amount     Shares        Amount
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                   <C>              <C>          <C>          <C>           <C>           <C>       <C>
Balance, March 31, 1996               $42,509,000      31,536       $788,000     349,210       $8,729,000    493,123   $12,328,000

Net earnings (loss)                    (1,131,000)          -              -           -                -          -             -
Cash dividends per share:
     Preferred - $.515                     (8,000)          -              -           -                -          -             -
     Common - $.275                      (199,000)          -              -           -                -          -             -
Redemption of common stock -
     Class A 825 shares,
     Class B 109 shares                   (47,000)          -              -           -                -          -             -
Unrealized gain on investments              2,000           -              -           -                -          -             -
-----------------------------------------------------------------------------------------------------------------------------------

Balance, June 2, 1996                  41,126,000      31,536        788,000     349,210        8,729,000    493,123    12,328,000

Net earnings                            6,706,000           -              -           -                -          -             -
Cash dividends per share:
     Preferred - $2.0625 annually         (31,000)          -              -           -                -          -             -
     Common - $1.10 annually             (793,000)          -              -           -                -          -             -
Redemption of common stock -
     Class A 2,124 shares,
     Class B 219 shares                  (132,000)          -              -           -                -          -             -
Minimum pension liability
     adjustment (net of taxes
     of $129,000)                         193,000           -              -           -                -          -             -
Unrealized gain on investments             88,000           -              -           -                -          -             -
-----------------------------------------------------------------------------------------------------------------------------------

Balance, June 1, 1997                 $47,157,000      31,536       $788,000     349,210       $8,729,000    493,123   $12,328,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------


                                      Capital paid                           Treasury stock
                                      in excess of         Retained    ----------------------------
                                         par value         earnings      Shares            Amount         Other
-----------------------------------------------------------------------------------------------------------------

<S>                                     <C>             <C>             <C>          <C>            <C>
Balance, March 31, 1996                 $1,623,000      $27,026,000     135,675      $ (7,708,000)  $  (277,000)

Net earnings (loss)                              -       (1,131,000)          -                 -             -
Cash dividends per share:
     Preferred - $.515                           -           (8,000)          -                 -             -
     Common - $.275                              -         (199,000)          -                 -             -
Redemption of common stock -
     Class A 825 shares,
     Class B 109 shares                          -                -         934           (47,000)            -
Unrealized gain on investments                   -                -           -                 -         2,000
-----------------------------------------------------------------------------------------------------------------

Balance, June 2, 1996                    1,623,000       25,688,000     136,609        (7,755,000)     (275,000)

Net earnings                                     -        6,706,000           -                 -             -
Cash dividends per share:
     Preferred - $2.0625 annually                -          (31,000)          -                 -             -
     Common - $1.10 annually                     -         (793,000)          -                 -             -
Redemption of common stock -
     Class A 2,124 shares,
     Class B 219 shares                          -                -       2,343          (132,000)            -
Minimum pension liability
     adjustment (net of taxes
     of $129,000)                                -                -           -                 -       193,000
Unrealized gain on investments                   -                -           -                 -        88,000
-----------------------------------------------------------------------------------------------------------------

Balance, June 1, 1997                   $1,623,000      $31,570,000     138,952       ($7,887,000)       $6,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.





                                       6

<PAGE>   33

HANOVER FOODS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995 and the nine
weeks ended June 2, 1996


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------

                                                                                                               (Unaudited)
                                                                   Nine weeks                                     Proforma
                                                    Year ended          ended     Year ended     Year ended     year ended
                                                       June 1,        June 2,      March 31,       April 2,        June 2,
                                                          1997           1996           1996           1995           1996
---------------------------------------------------------------------------------------------------------------------------

<S>                                               <C>            <C>               <C>          <C>              <C>
Cash flows from operating activities:
   Net earnings (loss)                              $6,706,000     (1,131,000)       420,000      1,888,000        413,000
   Adjustments to reconcile net
     earnings (loss) to net cash
     provided by operating activities:
       Depreciation and amortization                 5,595,000      1,013,000      5,582,000      5,652,000      5,666,000
       (Gain) loss on sale of
         property, plant, and
         equipment                                     (21,000)             -        (25,000)       (10,000)       (25,000)
       Deferred income taxes                           156,000       (519,000)      (369,000)        22,000       (319,000)
       Change in assets and liabilities:
         Accounts receivable                        (6,534,000)     7,924,000        388,000        187,000      2,335,000
         Inventory                                   5,643,000         90,000      2,795,000     (7,887,000)     3,414,000
         Prepaid items                                 313,000       (542,000)     1,947,000     (1,892,000)     3,737,000
         Accounts payable and
            accrued expenses                          (226,000)      (790,000)    (9,736,000)     2,680,000    (10,838,000)
         Dividends payable                                   -              -              -       (192,000)             -
         Income taxes payable                          248,000         17,000        (24,000)      (577,000)       (23,000)
         Other liabilities                             421,000         69,000        444,000        139,000        479,000
---------------------------------------------------------------------------------------------------------------------------

Net cash provided by operating
   activities                                       12,301,000      6,131,000      1,422,000         10,000      4,839,000
---------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Decrease (increase) in other current
     assets                                                  -              -        263,000              -        263,000
   Decrease (increase) in other
     noncurrent assets, net                             19,000        275,000       (884,000)       600,000       (373,000)
   Acquisitions of property, plant, and
     equipment                                      (6,565,000)      (572,000)    (5,527,000)    (6,235,000)    (4,683,000)
   Proceeds from dispositions of
     property, plant, and equipment                     35,000              -         31,000         30,000         31,000
---------------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities               (6,511,000)      (297,000)    (6,117,000)    (5,605,000)    (4,762,000)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                    (Continued)



                                       7


<PAGE>   34


HANOVER FOODS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------

                                                                                                              (Unaudited)
                                                                  Nine weeks                                     Proforma
                                                   Year ended          ended     Year ended     Year ended     year ended
                                                      June 1,        June 2,      March 31,       April 2,        June 2,
                                                         1997           1996           1996           1995           1996
--------------------------------------------------------------------------------------------------------------------------

<S>                                              <C>             <C>            <C>            <C>            <C>
Cash flows from financing activities:
   Proceeds from notes payable                   $220,739,000              -    131,244,000    119,109,000    126,545,000
   Payment on notes payable                      (220,722,000)    (5,324,000)  (121,749,000)  (107,849,000)  (121,749,000)
   Payment on long-term debt                       (2,499,000)             -     (2,989,000)    (5,838,000)    (2,989,000)
   Payment on long-term capital
     lease obligations                               (152,000)       (58,000)      (323,000)      (474,000)      (202,000)
   Payment of dividends                              (824,000)      (207,000)      (831,000)      (822,000)    (1,038,000)
   Common stock redemptions                          (132,000)       (47,000)      (392,000)      (142,000)      (413,000)
   Common stock issuance                                    -              -              -          3,000              -
--------------------------------------------------------------------------------------------------------------------------

Net cash provided by (used in)
   financing activities                            (3,590,000)    (5,636,000)     4,960,000      3,987,000        154,000
--------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash
   and cash equivalents                             2,200,000        198,000        265,000     (1,608,000)       231,000

Cash and cash equivalents, beginning
   of period                                        1,112,000        914,000        649,000      2,257,000        881,000
--------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end
   of period                                       $3,312,000      1,112,000        914,000        649,000      1,112,000
--------------------------------------------------------------------------------------------------------------------------

Supplemental disclosure of cash
   flow information:
     Cash paid during the period for:
       Interest                                    $3,653,000        310,000      4,660,000      3,721,000      4,386,000
       Income taxes                                 3,134,000         16,000        462,000      3,452,000        416,000
     Non-cash financing activities:
       The Corporation entered into
         a note payable agreement
         to purchase 5,148 shares of
         Class B common stock for
         $368,000 from a director of
         the Corporation during the
         year ended March 31, 1996
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.




                                       8

<PAGE>   35


HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements

June 1, 1997, June 2, 1996 and March 31, 1996

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

   (1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

         DESCRIPTION OF BUSINESS

         Hanover Foods Corporation is a processing, manufacturing, and
         distribution concern. The Company's principal line of business is the
         processing and sales of canned and frozen vegetables, frozen entrees,
         and prepared foods primarily in the Eastern United States. The
         Company's primary customers include regional grocery and other
         wholesale and retail food outlets and other food processors and
         distributors. The Company's ten largest customers account for
         approximately 45% of the Company's net sales and accounts receivable
         with no single customer accounting for more than 10% of net sales for
         the fiscal years ended June 1, 1997, March 31, 1996, and April 2, 1995.
         The Company's raw materials are readily available, and the Company is
         not dependent on a single supplier or a few suppliers. Revenue is
         recognized from sales when products are shipped.

         PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
         of Hanover Foods Corporation and its subsidiaries, which are Consumers
         Packing Company (T/A Hanover Foods - Lancaster Division), Spring Glen
         Fresh Foods, Inc., Hanover Insurance Company, Ltd., The Nittany
         Corporation, and Tri-Co. Foods Corp. and its subsidiaries - Alimentos
         Congelados Monte Bellos, S.A. (ALCOSA) and Sunwise Corporation, all of
         which are wholly-owned. All significant intercompany balances and
         transactions have been eliminated.

         CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject the Corporation to
         credit risk consist of trade receivables. Wholesale and retail food
         distributors comprise a significant portion of the trade receivables;
         collateral is not required. The risk associated with the concentration
         is limited due to the large number of wholesalers and retailers and
         their geographic dispersion.

         CASH AND CASH EQUIVALENTS

         Cash equivalents of $1,028,000, $392,000, and $796,000 at June 1, 1997,
         June 2, 1996, and March 31, 1996, respectively, consist of short-term
         interest-bearing investments with maturities of less than three months.
         For purposes of the statements of cash flows, the Company considers all
         highly liquid debt instruments with original maturities of three months
         or less to be cash equivalents.

         INVESTMENTS

         Investments of $2,187,000, $1,255,000, and $1,195,000 at June 1, 1997,
         June 2, 1996, and March 31, 1996, respectively, classified as
         available-for-sale securities, are included in other noncurrent assets
         and measured at fair value. Net unrealized gains and losses are
         reported as a separate component of stockholders' equity until
         realized, and amount to gains of $164,000, $76,000, and $74,000 at June
         1, 1997, June 2, 1996, and March 31, 1996, respectively.


                                                                     (Continued)


                                       9

<PAGE>   36



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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


   (1)   CONTINUED

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying value of cash and cash equivalents, accounts and notes
         receivable, accounts payable and notes payable approximates fair values
         due to the short-term maturities of these instruments.

         The fair values of each of the Company's long-term debt instruments are
         based on the amount of future cash flows associated with each
         instrument discounted using the Company's current borrowing rate for
         similar debt instruments of comparable maturity. The amount reported in
         the consolidated balance sheet for long-term debt approximates fair
         value.

         INVENTORIES

         Inventories are stated at the lower of cost (determined by average cost
         which approximates the first-in, first-out method of accounting) or
         market.

         PROPERTY, PLANT, AND EQUIPMENT

         Property, plant, and equipment are stated at cost. Plant and equipment
         under capital leases are stated at the present value of minimum lease
         payments. Expenditures for maintenance and repairs are charged to
         expense as incurred; additions and betterments that materially increase
         the lives of the related assets are capitalized. Upon retirement, sale,
         or other disposition of buildings and equipment, cost and accumulated
         depreciation are eliminated from the accounts and gain or loss is
         included in operations.

         Depreciation on property, plant, and equipment is calculated on the
         straight-line method over the estimated useful lives of the assets.
         Estimated useful lives range from approximately 3 years to 12 years for
         equipment and up to 40 years for buildings. Accelerated methods are
         used for tax reporting purposes. Plant and equipment held under capital
         leases are amortized straight-line over the shorter of the lease term
         or estimated useful life of the asset.

         INTANGIBLE ASSETS

         It is the Corporation's policy to amortize intangible assets, primarily
         covenants not to compete, purchased trademarks and goodwill, over
         periods not in excess of 40 years. The Company assesses the
         recoverability of intangible assets by determining whether the
         amortization of the balance over its remaining life can be recovered
         through undiscounted future operating cash flows. The amount of
         impairment, if any, is measured based on projected discounted future
         operating cash flows using a discount rate reflecting the Company's
         average cost of funds. The assessment of the recoverability will be
         impacted if estimated future operating cash flows are not achieved.



                                                                     (Continued)


                                       10

<PAGE>   37


HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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


   (1)   CONTINUED

         INSURANCE

         The Company, through its wholly-owned insurance subsidiary, is
         self-insured with respect to certain general liability and workers'
         compensation claims. Excess insurance coverage is maintained for
         general liability and workers' compensation claims. Accrued expenses
         include provision for unpaid claims reported and claims incurred but
         not reported.

         INCOME TAXES

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

         RESEARCH AND DEVELOPMENT

         Research and development costs are expensed as incurred. Research and
         development costs amounted to $728,000, $134,000, $725,000, $691,000,
         and $716,000 (unaudited) for the periods ended June 1, 1997, June 2,
         1996, March 31, 1996, April 2, 1995, and the pro forma year ended June
         2, 1996, respectively.

         PROMOTIONAL COSTS

         Promotional costs are expensed as incurred. Accounts and notes
         receivable are presented net of allowances for bad debts and
         promotional programs.

         ADVERTISING COSTS

         Advertising costs are expensed as incurred. Manufacturer coupons are
         expensed when payable by the Company (note 9). Advertising expenses
         amounted to $2,181,000, $842,000, $3,565,000, $3,122,000, and
         $3,580,000 (unaudited) for the periods ended June 1, 1997, June 2,
         1996, March 31, 1996, April 2, 1995, and the pro forma year ended June
         2, 1996, respectively (including manufacturer coupon expense of
         $1,655,000, $542,000, $2,407,000, $2,026,000, and $2,358,000
         (unaudited), respectively).



                                                                     (Continued)


                                       11

<PAGE>   38

HANOVER FOODS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements


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

   (1)   CONTINUED

         EARNINGS PER SHARE

         Earnings per common share are computed on the weighted average number
         of common shares outstanding during each period after providing for
         preferred stock dividend requirements. The dilutive effect on earnings
         per share for conversion of preferred stock is not presented because it
         results in either dilution of less than 3% or anti-dilution.

         FISCAL YEAR END

         Effective June 1, 1996 the Corporation's fiscal year ends at the close
         of operations on the Sunday nearest to May 31.

         The Corporation's past fiscal years ended at the close of operations on
         the Sunday nearest to March 31. The fiscal years ended June 1, 1997,
         March 31, 1996, and April 2, 1995 and the proforma unaudited results
         for the year ended June 2, 1996 were comprised of 52 weeks.

         USE OF ESTIMATES

         Management of the Company has made a number of estimates and
         assumptions relating to the reporting of assets, liabilities, revenue
         and expenses, and the disclosure of contingent assets and liabilities
         to prepare these financial statements in conformity with generally
         accepted accounting principles. Actual results could differ from those
         estimates.

         RECLASSIFICATIONS

         Certain prior amounts have been reclassified to conform to
         classifications adopted in the current year.


   (2)   NOTES PAYABLE - BANKS

         The Corporation maintains short-term unsecured lines of credit with
         various banks providing credit availability amounting to $80,000,000,
         of which $24,114,000 was borrowed (including an overdraft of
         $1,413,000) at June 1, 1997 $24,097,000 was borrowed at June 2, 1996,
         and $29,421,000 was borrowed (including an overdraft of $5,164,000) at
         March 31, 1996. The Corporation borrows funds under these lines of
         credit under two methods of cost of funds. The first method used to
         price the cost of short-term borrowings is based upon LIBOR plus fifty
         to seventy-five basis points. The second method is based upon the
         financial institution's "calculated cost of funds" plus an earnings
         modification. The weighted-average interest rate on short-term
         borrowings at June 1, 1997, June 2, 1996, and March 31, 1996 was 6.2%,
         6.1%, and 6.2%, respectively. The maximum amount of borrowings
         outstanding under short-term lines of credit at any one time during the
         years ended June 1, 1997 and March 31, 1996 was approximately
         $35,024,000 and $45,900,000, respectively, and $29,400,000 for the
         nine-week period ended June 2, 1996.


                                                                     (Continued)


                                       12

<PAGE>   39


HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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

   (3)   LONG-TERM DEBT

         The long-term debt of the Corporation and its subsidiaries consists of:

<TABLE>
<CAPTION>
                                                                          June 1,      June 2,     March 31,
                                                                             1997         1996          1996
-------------------------------------------------------------------------------------------------------------

<S>                                                                  <C>           <C>           <C>
8.74% - 9.24% unsecured senior notes payable to
     an insurance company, due fiscal years
     ending 1997-2007                                                 $17,857,000   19,643,000    19,643,000

8.5% installment obligation payable to a municipality,
     due fiscal year ending 1997                                                -      140,000       140,000

Installment obligation payable to a related party, due in
     equal annual installments in fiscal years
     ending 1996-2000; interest at prime rate (8.5% at
     June 1, 1997)                                                        221,000      294,000       294,000

6.33% installment obligation payable to a related party,
     due fiscal years ending 1997-1998                                    375,000      875,000       875,000
-------------------------------------------------------------------------------------------------------------

Total long-term debt                                                   18,453,000   20,952,000    20,952,000
Less current maturities                                                 2,234,000    2,499,000     2,499,000
-------------------------------------------------------------------------------------------------------------

Long-term debt, excluding current maturities                          $16,219,000   18,453,000    18,453,000
-------------------------------------------------------------------------------------------------------------
</TABLE>

         The term loan agreements with the insurance company and seasonal
         borrowing with financial institutions (note 2), contain various
         restrictive provisions including those relating to mergers and
         acquisitions, additional borrowing, guarantee of obligations, lease
         commitments, limitations to declare or pay dividends, repurchase stock,
         and the maintenance of working capital and certain financial ratios.
         Based on the requirements of the agreements, at June 1, 1997,
         $23,499,000 of retained earnings are restricted from distribution. The
         Corporation is in compliance with the restrictive provisions in the
         agreements.

         Property, plant, and equipment at cost of approximately $2,500,000 was
         pledged to secure $375,000 of the long-term obligations at June 1,
         1997.


                                                                     (Continued)


                                       13


<PAGE>   40


HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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

   (3)   CONTINUED

         The aggregate long-term debt maturities follow:

<TABLE>
<CAPTION>
            For the fiscal year ending:
                <S>                                       <C>
                1998                                      $    2,234,000
                1999                                           1,859,000
                2000                                           1,859,000
                2001                                           1,786,000
                2002                                           1,786,000
                Thereafter                                     8,929,000
            -------------------------------------------------------------

            Total                                         $   18,453,000
            -------------------------------------------------------------
</TABLE>

   (4)   LEASES

         The Company was obligated under a noncancelable capital lease for
         machinery and equipment that expired in 1997. At June 2, 1996 and March
         31, 1996, the gross amount of plant and equipment and related
         accumulated amortization recorded under the capital lease were as
         follows:

<TABLE>
<CAPTION>
                                                               June 2,     March 31,
                                                                  1996          1996
-------------------------------------------------------------------------------------

<S>                                                      <C>               <C>
Machinery and equipment                                  $   2,383,000     2,383,000
Less accumulated amortization                                  918,000       894,000
-------------------------------------------------------------------------------------

                                                         $   1,465,000     1,489,000
-------------------------------------------------------------------------------------
</TABLE>


         Amortization of assets held under capital leases is included with
         depreciation expense.


                                                                    (Continued)


                                       14

<PAGE>   41

HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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

   (4)   CONTINUED

         The Company has several noncancelable operating leases, primarily for
         equipment, that expire over the next three years. These leases
         generally contain renewal options for periods ranging from three to
         five years and require the Company to pay all executory costs such as
         maintenance and insurance. Rental expense for operating leases (except
         those with lease terms of a month or less that were not renewed) during
         the periods ended June 1, 1997, June 2, 1996, March 31, 1996, and April
         2, 1995 consisted of the following:

<TABLE>
<CAPTION>
                                                                                    (Unaudited)
                                                                                       proforma
                              June 1,      June 2,      March 31,     April 2,          June 2,
                                 1997         1996           1996         1995             1996
------------------------------------------------------------------------------------------------

<S>                        <C>             <C>          <C>          <C>              <C>
Minimum rentals            $3,586,000      653,000      3,964,000    3,480,000        3,997,000
Contingent rentals                  -            -              -       89,000                -
------------------------------------------------------------------------------------------------

Rental expense             $3,586,000      653,000      3,964,000    3,569,000        3,997,000
------------------------------------------------------------------------------------------------
</TABLE>

         Future minimum lease payments under noncancelable operating leases
         (with initial or remaining lease terms in excess of one year) as of
         June 1, 1997 are:

<TABLE>
<CAPTION>
                                                                 Operating
                                                                    leases
            ---------------------------------------------------------------
            <S>                                             <C>
            For the fiscal year ending:
                1998                                        $    1,184,000
                1999                                               877,000
                2000                                               671,000
                2001                                               385,000
                2002                                               178,000
                Thereafter                                          36,000
            ---------------------------------------------------------------

            Total minimum lease payments                    $    3,331,000
            ---------------------------------------------------------------
</TABLE>




                                                                    (Continued)

                                       15

<PAGE>   42

HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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


   (5)   RELATED PARTY TRANSACTIONS

         The Corporation and its subsidiaries, in the normal course of business,
         purchase and sell goods and services to related parties. The
         Corporation believes that the cost of such purchases and sales are
         competitive with alternative sources of supply and markets.
         Transactions with related parties are summarized below:

<TABLE>
<CAPTION>
                                                                                                              (Unaudited)
                                                                 Nine-weeks                                      proforma
                                                 Year ended           ended     Year ended      Year ended     Year ended
                                                    June 1,         June 2,      March 31,        April 2,        June 2,
                                                       1997            1996           1996            1995           1996
--------------------------------------------------------------------------------------------------------------------------

<S>                                        <C>                   <C>           <C>             <C>            <C>
Revenues:
     Food Service East, Inc.                $             -               -              -           9,000              -
     Park 100 Foods, Inc.                         3,155,000         118,000              -               -        118,000

Corporate charges:
     Warehime Enterprises, Inc.                           -               -          2,000           3,000          2,000
     Snyder's of Hanover, Inc.                      175,000          29,000        175,000         337,000        148,000

Expenditures:
     The Cannery Press, Inc.                         14,000          14,000        346,000         387,000        296,000
     Patti & John's, Inc.                            10,000           4,000         29,000          30,000         28,000
     Lippy Brothers, Inc.                         1,044,000               -        752,000       1,350,000        749,000
     James G. Sturgill                              135,000          15,000         65,000               -         80,000
     ARWCO Corporation                               29,000          24,000         43,000               -         34,000
     Warehime Enterprises, Inc.                     177,000           1,000        227,000               -        192,000
     John A. and Patricia M.
        Warehime                                     52,000           7,000         42,000               -         39,000
     Snyder's of Hanover, Inc.                            -               -         17,000               -              -
     George E. Lawrence                                   -               -         70,000               -         65,000
     Park 100 Foods, Inc.                           283,000               -              -               -              -

Accounts receivable:
     Snyder's of Hanover, Inc.                       15,000          11,000         24,000          23,000
     Patti & John's, Inc.                                 -           4,000          3,000           3,000
     Food Service East Inc.                               -               -              -           3,000
     Park 100 Foods, Inc.                           906,000          56,000              -               -

Accounts payable:
     Warehime Enterprises, Inc.                       1,000               -          5,000               -
     The Cannery Press, Inc.                              -           4,000          4,000          13,000
     Pattie & John's, Inc.                                -           6,000              -               -
     Park 100 Foods, Inc.                            30,000               -              -               -

Notes payable:
     Warehime Enterprises, Inc.                     375,000         875,000        875,000       1,375,000
     Cyril T. Noel                                  221,000         294,000        294,000               -
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                    (Continued)



                                       16
<PAGE>   43



HANOVER FOODS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements



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



   (5)   CONTINUED

         The Corporation purchased the Teculutan, Guatemala plant property from
         ARWCO Corporation on April 5, 1995 for $250,000. On June 20, 1995, the
         Corporation purchased real estate near the Centre Hall facility from
         Centre Foods Enterprises, Inc. for $250,000.

         In 1994, the Corporation entered into a one year lease with Food
         Service East, Inc. to lease 20,931 square feet of dry warehouse and
         production, refrigerated and frozen storage space. Pursuant to the
         lease, the Corporation has two unilateral options to extend the term of
         the lease for two successive one year terms or until May 31, 1997 and
         an option to purchase based on an independent appraisal. On October 1,
         1994 the Corporation increased the rental space to 28,501 square feet
         for a total annual rent of $96,703. On June 1, 1996, the Corporation
         exercised its unilateral option to purchase for $904,000 approximately
         10.3 acres of land improved by an office/warehouse facility free and
         clear of all liens, encumbrances and security interests.

         In connection with the amended complaint filed by Michael A. Warehime
         versus John A. Warehime (note 9), pursuant to applicable state law, the
         Corporation has agreed to pay directly all expenses (including
         attorney's fees) and costs in advance of the final disposition of the
         litigation or any substantially similar or related action, suit, or
         proceeding. The Corporation has received an undertaking from John A.
         Warehime to repay all costs and expenses if it is ultimately determined
         that he is not entitled to be indemnified by the Corporation. The
         amount paid and expensed by the Corporation under this arrangement for
         the years ended June 1, 1997 and March 31, 1996 was approximately
         $303,000 and $300,000, respectively.

         On April 1, 1996, the Corporation entered into a stock purchase
         agreement with John R. Miller, Jr. to purchase 1,210 shares of the
         Company's Voting Class B Common Stock and 5,990 shares of the Company's
         Nonvoting Class A Common Stock over a four year period. The agreement
         provides that John R. Miller, Jr. give a proxy to John A. Warehime,
         Chairman, to vote all shares of both classes of common stock beginning
         April 1, 1996 and ending March 31, 2001. At June 1, 1997, the
         Corporation has purchased 328 shares of the Company's Voting Class B
         Common Stock for $25,000 and 1,720 shares of the Company's Nonvoting
         Class A Common Stock for $72,000.




                                                                    (Continued)


                                       17
<PAGE>   44



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (5)   CONTINUED

         A portion of rental expense included in note 4 was paid to ARWCO
         Corporation, Warehime Enterprises, Inc., Centre Foods Enterprises,
         Inc., and Food Service East, Inc., all of which are related companies
         through common control. The amounts were $307,000, $340,000, and
         $654,000 for the years ended June 1, 1997, March 31, 1996, and April 2,
         1995, respectively. The portion of rental commitments included in note
         4 due these companies is summarized as follows:

<TABLE>
<CAPTION>
            For the fiscal years ending:
                <S>                                       <C>
                1998                                      $    24,000
                1999                                           14,000
                2000                                           15,000
                2001                                           15,000
                ------------------------------------------------------
</TABLE>

   (6)   BENEFIT PLANS

         FROZEN DEFINED BENEFIT RETIREMENT PLANS

         The Corporation previously amended its noncontributory, defined benefit
         plans to freeze benefit accruals effective August 31, 1992 and also
         took action to terminate the plans effective August 31, 1992. On
         November 12, 1993, the Board of Directors rescinded its previous action
         to terminate the plans and has placed the plans in a frozen status.


                                                                    (Continued)


                                       18
<PAGE>   45



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (6)   CONTINUED

         The following table sets forth the plans' funded status and amounts
         recognized in the Company's consolidated balance sheet as of:

<TABLE>
<CAPTION>
                                                   June 1, 1997            June 2, 1996          March 31, 1996
                                           ----------------------------------------------------------------------
                                                   Fully     Under      Fully       Under      Fully       Under
                                                  funded    funded     funded      funded     funded      funded
                                                    plan      plan       plan        plan       plan        plan
-----------------------------------------------------------------------------------------------------------------

<S>                                          <C>          <C>        <C>       <C>          <C>       <C>
Actuarial present value of
   benefit obligations:
      Accumulated benefit
        obligation:
          Vested                             $(7,168,000) (655,000)  (628,000) (6,621,000)  (623,000) (6,594,000)
-----------------------------------------------------------------------------------------------------------------

Projected benefit obligation
   for service rendered to
   date                                      $(7,168,000) (655,000)  (628,000) (6,621,000)  (623,000) (6,594,000)
Plan assets at fair value                      7,750,000   598,000    631,000   6,526,000    669,000   6,508,000
-----------------------------------------------------------------------------------------------------------------

Plan assets in excess of
   (less than) projected
   benefit obligation                            582,000   (57,000)     3,000     (95,000)    46,000     (86,000)
Unrecognized (gains) losses                      140,000   262,000    230,000     586,000    162,000     586,000
Adjustment to recognize
   required minimum
   liability                                           -  (264,000)         -    (586,000)         -    (586,000)
-----------------------------------------------------------------------------------------------------------------

Prepaid (accrued) pension
   cost                                         $722,000   (59,000)   233,000     (95,000)   208,000     (86,000)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

         Net periodic pension cost (income) included the following components:

<TABLE>
<CAPTION>
                                                                     Nine-week
                                                 Year ended       period ended      Year ended       Year ended
                                                    June 1,            June 2,       March 31,         April 2,
                                                       1997               1996            1996             1995
----------------------------------------------------------------------------------------------------------------

<S>                                              <C>                  <C>             <C>                <C>
Interest cost                                      $520,000            205,000         496,000          440,000
Actual return on plan assets (gain) loss         (1,330,000)          (156,000)       (464,000)          80,000
Amortization of unrecognized loss                    11,000              1,000           6,000            6,000
Deferral of asset gain (loss)                       823,000            (42,000)        (15,000)        (580,000)
----------------------------------------------------------------------------------------------------------------

Net pension cost (income)                           $24,000              8,000          23,000          (54,000)
----------------------------------------------------------------------------------------------------------------
</TABLE>

         The plans' assets include mutual funds, bonds, cash, and cash
         equivalents. The Corporation funding policy is to contribute annually
         those amounts necessary to meet ERISA funding requirements.


                                                                    (Continued)


                                       19
<PAGE>   46



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (6)   CONTINUED

         Assumptions used in accounting for the pension plans as of June 1,
         1997, June 2, 1996, and March 31, 1996 were:

<TABLE>
<CAPTION>
                                                      June 1,        June 2,       March 31,
                                                         1997           1996            1996
---------------------------------------------------------------------------------------------

<S>                                                       <C>            <C>             <C>
Discount rates                                            7.09 %         7.25  %         7.25  %
Expected long-term rate of return on assets                7.0            7.0             7.0
---------------------------------------------------------------------------------------------
</TABLE>

         The assumed rates used above have a significant effect on the amounts
         reported. For example, decreasing the assumed discount rates by one
         percentage point at June 1, 1997 would increase the projected benefit
         obligation by approximately $1,113,000.

         DEFINED CONTRIBUTION PLAN

         The Corporation offers a 401(k) plan covering certain of its employees.
         The Corporation contributes an amount equal to 100% of each employee's
         deferral up to 5%. The Corporation's contribution to the 401(k) plan
         for the periods ended June 1, 1997, June 2, 1996, March 31, 1996, and
         April 2, 1995 was $557,000, $90,000, $539,000, and $506,000,
         respectively.




                                                                    (Continued)


                                       20
<PAGE>   47



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (6)   CONTINUED

         POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

         Certain employees receive postretirement benefits other than pensions.
         This plan is currently not funded. The Company accounts for these costs
         by accruing for them over the employee service period. The status of
         the plan, based on the most recent measurement dates, is as follows:

<TABLE>
<CAPTION>
                                                         June 1,       June 2,      March 31,
                                                            1997          1996           1996
----------------------------------------------------------------------------------------------

<S>                                                <C>              <C>           <C>
Actuarial present value of accumulated
     postretirement benefit obligation:
        Actives eligible to retire                 $    (129,000)   $ (123,000)   $  (117,000)
        Other actives                                   (271,000)     (228,000)      (254,000)
----------------------------------------------------------------------------------------------

        Total actives                                   (400,000)     (351,000)      (371,000)
        Current retirees and disableds                (1,174,000)   (1,214,000)    (1,306,000)
----------------------------------------------------------------------------------------------

        Total obligation                              (1,574,000)   (1,565,000)    (1,677,000)
        Plan assets at fair value                              -             -              -
----------------------------------------------------------------------------------------------

        Funded status                                 (1,574,000)   (1,565,000)    (1,677,000)
        Unrecognized net (gain) loss                    (222,000)     (189,000)       (75,000)
        Unrecognized transition liability,
            amortized over 20 years                    1,226,000     1,299,000      1,311,000
----------------------------------------------------------------------------------------------

        Accrued postretirement benefit cost        $    (570,000)  $  (455,000)   $  (441,000)
----------------------------------------------------------------------------------------------
</TABLE>

         A discount rate of 7.50%, 7.50%, and 7.25% for June 1, 1997, June 2,
         1996, and March 31, 1996, respectively, was used in determining the
         actuarial present value of the accumulated postretirement benefit
         obligation.

         The cost of postretirement benefits other than pensions consisted of
         the following components:

<TABLE>
<CAPTION>
                                                               Nine-week
                                           Year ended       period ended      Year ended       Year ended
                                              June 1,            June 2,       March 31,         April 2,
                                                 1997               1996            1996             1995
----------------------------------------------------------------------------------------------------------

<S>                                      <C>                      <C>            <C>              <C>
Service cost                             $     22,000              4,000          16,000           20,000
Interest cost                                 113,000             19,000         121,000          124,000
Amortization of transition
     obligation                                73,000             12,000          73,000           73,000
Other amortization and deferral                (1,000)                 -               -                -
----------------------------------------------------------------------------------------------------------

                                         $    207,000             35,000         210,000          217,000
----------------------------------------------------------------------------------------------------------
</TABLE>

         The assumed postretirement health care cost trend rate used in
         measuring the accumulated postretirement benefit obligation was 8.3%
         for fiscal year June 1, 1997, decreasing each year to an ultimate rate
         of 5% in 2002 and thereafter.


                                                                    (Continued)


                                       21
<PAGE>   48



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (6)   CONTINUED

         The health care cost trend rate assumption has a significant effect on
         the amounts reported. For example, increasing the assumed health care
         cost trend rates by one percentage point in each year would increase
         the accumulated postretirement benefit obligation as of June 1, 1997 by
         $61,000 and the aggregate of the service and interest cost components
         of net periodic postretirement benefit cost for the year ended June 1,
         1997 by $4,000.

         EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS

         On June 12, 1995, the Corporation entered into a five year employment
         agreement with its Chief Executive Officer, John A Warehime, at an
         annual base salary of $650,000 with such compensation payable
         retroactively from April 1, 1994 (the "1995 Employment Agreement"). The
         1995 Employment Agreement was amended on February 13, 1997 (the
         "Amended Employment Agreement") to, among other things, reduce the
         annual base salary payable under the agreement to $498,866, which
         modification was applied retroactively to April 1, 1994 (the effective
         date of the 1995 Employment Agreement) and modified the method of
         calculating bonuses payable to the employee under such agreement. As a
         result of these retroactive changes, Mr. Warehime is required to
         reimburse the Corporation for $83,024 in excess compensation previously
         paid to him through the deduction of such amount from annual base
         salary increases provided for under the terms of the Amended Employment
         Agreement and to waive accrued bonuses payable for fiscal 1997 under
         the 1995 Employment Agreement which would have equaled $2,250,000. The
         principal terms of Mr. Warehime's employment arrangements with the
         Corporation as amended by the Amended Employment Agreement are set
         forth below.

         The Amended Employment Agreement provides for annual increases (but not
         decreases) in the employee's annual salary equal to the greater of 5%
         of the prior year's salary or the annual percentage increase in the
         Consumer Price Index (CPI). Mr. Warehime's annual base salary for
         fiscal 1997 was $550,000. Unless terminated by either party, the
         Amended Employment Agreement automatically renews annually on each
         anniversary date so that five years always remain on the term of the
         agreement. In the event the employee is terminated without cause, or in
         the event the employee terminates his employment after a reduction
         (without his written consent) of his duties or authority, compensation,
         or similar events, the Amended Employment Agreement provides for the
         payment of the salary and bonus (including all other benefits) over the
         remaining term of the agreement. In the event of termination due to
         death or disability, the Amended Employment Agreement provides for the
         same payment to the employee (or in the event of the death of the
         employee, his spouse, or descendants) for one year and thereafter the
         payment of supplemental pension benefits as described below. In
         addition, the Amended Employment Agreement provides for the
         reimbursement by the Corporation of the employee's legal and accounting
         fees up to $75,000 per year and reasonable business expenses incurred
         by the employee in connection with the business of the Corporation. The
         Amended Employment Agreement also provides the employee with various
         other benefits including the use of an automobile, disability and life
         insurance, and a club membership.


                                                                    (Continued)


                                       22
<PAGE>   49



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (6)   CONTINUED

         The annual bonus payable to the employee under the Amended Employment
         Agreement is equal to $100,000 plus 10% of the Corporation's pretax
         earnings over $5.0 million provided that no annual bonus is payable if
         pretax earnings of the Corporation are less than $5.0 million. The
         Amended Employment Agreement limits salary and the annual bonus payment
         described above to an aggregate of not more than $1.0 million annually.
         Annual bonuses can be paid in cash or Class A Common (nonvoting) stock
         at the option of the employee. For the periods ended June 1, 1997,
         March 31, 1996, and April 2, 1995, the bonus accrued under this
         agreement was $450,000, $0, and $659,000, respectively.

         The Amended Employment Agreement also provides for the annual payment
         of a long-term performance bonus based upon the Corporation's
         performance over the prior five year period as measured by its average
         sales growth and average increase in operating profits as compared to
         an industry peer group over the same period. The bonus payable is
         calculated based upon a formula matrix set forth in the Amended
         Employment Agreement, with such calculations performed by an
         independent management consulting firm retained by the Corporation. For
         the period ended June 1, 1997, the long-term performance bonus accrued
         under this agreement was $175,000.

         The Amended Employment Agreement provides for annual supplemental
         pension benefits, commencing upon the earlier of (a) five years after
         termination of the employee (or one year following his death or
         disability) or (b) the date of retirement, payable during the life of
         the employee and upon his death for the life of his spouse. Such annual
         supplemental pension benefits are equal to 60% of average total
         compensation (including bonuses) over the latest three year period
         prior to retirement, assuming retirement at age 65 or later.
         Supplemental pension benefits are reduced based upon an established
         formula to the extent the employee retires prior to age 65. The net
         present value of the cost of providing this future benefit is
         recognized by the Corporation over the remaining expected years of
         service. The expense recognized under this agreement was approximately
         $350,000 and $295,000 for the years ended May 31, 1997 and March 31,
         1996, respectively, and $67,000 for the nine-week period ended May 31,
         1996. Based on the estimated present value of the deferred
         compensation, the estimated present value at retirement (assuming
         retirement at age seventy) is approximately $9,800,000.


                                                                    (Continued)


                                       23
<PAGE>   50



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (6)   CONTINUED

         On January 23, 1997, the Corporation entered into a five year
         employment agreement with Gary T. Knisely, Executive Vice President,
         Secretary, and Counsel of the Corporation, at an annual salary of
         $175,000 with such compensation payable retroactively from June 1, 1996
         (the "Knisely Agreement"). Unless terminated by either party, the
         Knisely Agreement automatically renews annually on each anniversary
         date so that five years always remain on the term of the agreement. The
         Knisely Agreement provides for annual salary increases (but not
         decreases) equal to the greater of 5% of the prior year's salary or the
         annual percentage increase in the CPI, as well as incentive bonuses and
         various other benefits. As of June 1, 1997, the aggregate liability of
         the Corporation under this agreement for the next five years is
         estimated to be $1,000,000, excluding annual performance bonuses. In
         the event the employee is terminated without cause, or in the event the
         employee terminates his employment after a reduction (without his
         written consent) of his duties or authority, compensation, or similar
         events, the Knisely Agreement provides for the payment of the salary
         and bonus (including all other benefits) over the remaining term of the
         agreement. In the event of termination due to death or disability, the
         Knisely Agreement provides for the payment of salary and bonus
         (including all other benefits) to the employee (or his spouse or other
         descendants in the event of the employee's death) for the later of one
         year from the date of such termination or the death of the employee.

         The agreement also provides for annual supplemental pension benefits
         equal to 60% of the employee's average annual compensation (including
         bonuses but excluding other benefits) over the three most recent fiscal
         years prior to the employee's termination if the employee is no longer
         employed by the Corporation and the employee has attained the age of
         55. Such annual supplemental pension benefits are payable for the
         remainder of the lifetime of the employee. The net present value of the
         cost of providing this future pension benefit is recognized by the
         Corporation over Mr. Knisely's expected remaining years of service. The
         expense recognized for supplemental pension benefits under this
         agreement was approximately $47,000 for the year ended June 1, 1997.
         Based on the estimated present value of the supplemental pension
         benefit, the estimated present value at retirement (assuming retirement
         at age sixty-five) could amount to approximately $3,100,000.

         The Corporation also entered into change in control severance
         agreements with Clement A. Calabrese and Alan T. Young, which provide
         termination compensation to the employees upon the occurrence of
         certain events.

         The Corporation is also committed to another employee, Patricia H.
         Townsend, under a previous employment contract, which provides for
         minimum salary levels, annual adjustments, as well as incentive bonuses
         and for a term which ends in March 2004. Provisions contained in the
         agreement provide for continuation of the remuneration for the
         remainder of the term of the agreement in the event of termination,
         incapacity, death, or disability. The estimated commitment for future
         salaries through the duration of the agreement as of June 1, 1997 was
         approximately $480,000.



                                                                    (Continued)


                                       24
<PAGE>   51



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (7)   INCOME TAXES

         Total income taxes (benefit) for the year ended June 1, 1997, the
         nine-week period ended June 2, 1996, the year ended March 31, 1996 and
         April 2, 1995, were attributable to the following:

<TABLE>
<CAPTION>
                                      June 1,       June 2,     March 31,      April 2,
                                         1997          1996          1996          1995
----------------------------------------------------------------------------------------

<S>                             <C>                <C>            <C>           <C>
Income from operations          $   4,281,000      (533,000)      213,000       798,000
Minimum pension liability
     adjustment                       129,000             -      (235,000)            -
----------------------------------------------------------------------------------------

                                $   4,410,000      (533,000)      (22,000)      798,000
----------------------------------------------------------------------------------------
</TABLE>

         Income tax expense (benefit) attributable to income from operations
         consists of:

<TABLE>
<CAPTION>
                                                                                Years ended
                        Year ended          Nine-weeks ended    -------------------------------------------
                       June 1, 1997           June 2, 1996         March 31, 1996        April 2, 1995
                   ---------------------- --------------------- --------------------- ---------------------
                       Federal     State     Federal     State    Federal      State    Federal      State
-----------------------------------------------------------------------------------------------------------

<S>            <C>             <C>        <C>        <C>        <C>        <C>        <C>         <C>
Current          $   3,644,000   610,000     (14,000)        -    448,000    134,000    696,000     80,000
Deferred                47,000   (20,000)   (464,000)  (55,000)  (205,000)  (164,000)    86,000    (64,000)
-----------------------------------------------------------------------------------------------------------

                 $   3,691,000   590,000    (478,000)  (55,000)   243,000    (30,000)   782,000     16,000
-----------------------------------------------------------------------------------------------------------
</TABLE>

         There is no income tax attributable to the income from foreign
         subsidiaries since the foreign entities were not subject to taxes on
         income in 1997, 1996, and 1995.

         The significant components of deferred income tax expense attributable
         to income (loss) from operations for the year ended June 1, 1997, the
         nine-week period ended June 2, 1996, the years ended March 31, 1996 and
         April 2, 1995 are as follows:

<TABLE>
<CAPTION>

                                                                               Nine-week        Year ended
                                                             Year ended     period ended   ----------------------
                                                                June 1,          June 2,     March 31,  April 2,
                                                                   1997             1996          1996      1995
-----------------------------------------------------------------------------------------------------------------

<S>                                                         <C>                 <C>           <C>         <C>
Deferred tax expense (exclusive of the effects
     of other components below)                             $    27,000         (519,000)     (248,000)   22,000
Effect of change in state tax rate on deferred taxes                  -                -      (121,000)        -
-----------------------------------------------------------------------------------------------------------------

                                                            $    27,000         (519,000)     (369,000)   22,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>



                                                                    (Continued)


                                       25
<PAGE>   52



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (7)   (CONTINUED)

         A reconciliation of the Corporation's effective tax rate to the amount
         computed by applying the federal income tax rate of 34% to income
         (loss) before taxes expressed in percentages, follows:

<TABLE>
<CAPTION>

                                                               Nine-week          Year ended
                                           Year ended       period ended   --------------------------
                                              June 1,            June 2,     March 31,    April 2,
                                                 1997               1996          1996        1995
-----------------------------------------------------------------------------------------------------

<S>                                             <C>               <C>            <C>         <C>
Federal income tax rate                            34.0   %          (34.0)   %     34.0   %    34.0   %
Increase (decrease) in taxes:
     State taxes - net of federal tax               3.5                -             9.5         3.4
     Effect of change in state tax rate
        on deferred taxes                           -                  -           (12.6)        -
     Loss (income) in foreign subsidiary
        with no current tax                        (1.7)               2.0           2.8       (10.9)
     Other items - net                              3.2                -            (0.1)        3.2
-----------------------------------------------------------------------------------------------------

Effective income tax rate                          39.0   %          (32.0)   %     33.6   %    29.7   %
-----------------------------------------------------------------------------------------------------
</TABLE>

         The tax effects of temporary differences that give rise to significant
         portions of deferred tax liabilities and deferred tax assets at June 1,
         1997, June 2, 1996, March 31, 1996, and April 2, 1995, are as follows:

<TABLE>
<CAPTION>
                                                   June 1,       June 2,      March 31,      April 2,
                                                      1997          1996           1996          1995
------------------------------------------------------------------------------------------------------

<S>                                        <C>              <C>            <C>           <C>
Deferred tax liabilities:
     Depreciation                            $  (5,836,000)   (5,576,000)    (5,630,000)   (5,334,000)
     Employee benefit obligations                 (115,000)     (129,000)      (146,000)     (183,000)
     Capital lease obligations                    (510,000)     (529,000)      (519,000)     (432,000)
     Other                                        (172,000)     (159,000)      (147,000)     (591,000)
------------------------------------------------------------------------------------------------------

Total gross deferred tax liabilities            (6,633,000)   (6,393,000)    (6,442,000)   (6,540,000)
------------------------------------------------------------------------------------------------------

Deferred tax assets:
     Package design costs                          182,000       190,000        185,000        93,000
     Inventory valuation                            41,000       102,000        102,000       112,000
     Group insurance expense                       358,000       462,000        400,000       162,000
     Compensated absences                          205,000       200,000        229,000       213,000
     Pension and postretirement benefits           215,000       371,000        420,000       123,000
     Compensation expense                          498,000       327,000        236,000       405,000
     Net operating loss and credit
        carryforwards                              539,000       398,000              -             -
     Other                                         154,000        58,000         66,000        24,000
------------------------------------------------------------------------------------------------------

Total gross deferred tax assets                  2,192,000     2,108,000      1,638,000     1,132,000
------------------------------------------------------------------------------------------------------

Net deferred tax liability                   $  (4,441,000)   (4,285,000)    (4,804,000)   (5,408,000)
------------------------------------------------------------------------------------------------------
</TABLE>


                                                                    (Continued)


                                       26
<PAGE>   53



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (7)   (CONTINUED)

         In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion or all
         of the deferred tax assets will not be realized. The ultimate
         realization of deferred tax assets is dependent upon the generation of
         future taxable income during the periods in which those temporary
         differences become deductible. Management considers the scheduled
         reversal of deferred tax liabilities, projected future taxable income,
         and tax planning strategies in making this assessment. Based upon the
         level of historical taxable income and projections for future taxable
         income over the periods in which the deferred tax assets are
         deductible, management believes it is more likely than not the Company
         will realize the benefits of these deductible differences. The amount
         of the deferred tax asset considered realizable, however, could be
         reduced in the near term if estimates of future taxable income during
         the carryforward period are reduced.

         The Company has not recognized a deferred tax liability for the
         undistributed earnings and tax basis differences of its investment in
         foreign subsidiaries since the earnings and investment are considered
         to be permanently invested in the businesses and, under the tax laws,
         are not subject to such taxes until distributed. The accumulated amount
         of such undistributed earnings was approximately $2,840,000 at June 1,
         1997.


   (8)   CUMULATIVE CONVERTIBLE PREFERRED STOCK

         The Company has outstanding 15,044 shares of cumulative convertible
         preferred stock. Cumulative dividends of $.515625 per share are payable
         quarterly. Each share of preferred stock may be converted at the option
         of the holder into Class A common stock based on the book value of the
         common stock at the time of the conversion. At June 1, 1997, the
         outstanding preferred stock could be converted into 5,786 shares of
         common stock.



                                                                    (Continued)


                                       27
<PAGE>   54



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (9)   COMMITMENTS AND CONTINGENCIES

         LETTER OF CREDIT

         As of June 1, 1997, the Corporation's wholly-owned reinsurance company
         had outstanding two letters of credit in the amount of $1,150,000 and
         $728,000 as security for the reimbursement of losses arising from the
         reinsurance assumed by the company.

         LEGAL MATTERS

         On February 1, 1995, Michael A. Warehime, J. William Warehime, and
         Elizabeth W. Stick, three shareholders of the Corporation, filed a
         Complaint against the Corporation and its Chairman in the Court of
         Common Pleas of York County, Pennsylvania. The suit, when filed, sought
         various forms of relief including, but not limited to, an order that
         the court invalidate the Corporation's October 18, 1994 election of
         directors and reinstate the Board of Directors that existed prior to
         that date. In addition, the plaintiffs sought all costs and fees
         incident to bringing suit. On August 16, 1995, the court dismissed J.
         William Warehime and Elizabeth W. Stick as plaintiffs and the
         Corporation as a defendant in this case.

         On September 13, 1996, certain Class A common stockholders filed a
         complaint in equity against six of the Corporation's directors and the
         estate of a former director in the Court of Common Pleas of York
         County, Pennsylvania (the complaint). This suit also names the
         Corporation as a nominal defendant. The suit seeks various forms of
         relief including, but not limited to, rescission of the board's April
         28, 1995 approval of John A. Warehime's 1995 Employment Agreement and
         the board's February 10, 1995 adjustment of directors' fees. (Since the
         filing of this lawsuit, John A. Warehime's 1995 Employment Agreement
         was amended. See note 6). In addition, the plaintiffs seek costs and
         fees incident to bringing suit. On November 4, 1996, the complaint was
         amended to add additional plaintiffs. On June 24, 1997, the Court
         dismissed the Complaint as amended for failure to make a prior demand.
         However, on May 12, 1997, a written demand was received by the
         Corporation from the attorney for these Class A common stockholders
         containing similar allegations and these allegations are currently
         being investigated by a committee of the Board of Directors.


                                                                    (Continued)


                                       28
<PAGE>   55



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (9)   CONTINUED

         On February 21, 1997, certain holders of the Corporation's common stock
         filed motions for a preliminary injunction in the Court of Common Pleas
         of York County, Pennsylvania against a proposal of the Board of
         Directors to amend and restate the Corporation's Articles of
         Incorporation to, among other things, establish a procedure for
         electing the Corporation's Board of Directors on or after the 1998
         annual meeting in the event designated members of the Warehime family
         who are Class B common stockholders do not agree on the Board's
         composition (the "Proposed Amendments"). The motions were dismissed by
         the Court on June 24, 1997 and the Proposed Amendments became effective
         June 25, 1997. Appeals have been filed from the denial of the
         plaintiff's motion for a preliminary injunction.

         On April 29, 1996 the Corporation settled out of court with federal and
         Delaware environmental authorities regarding investigations of alleged
         violations of environmental laws at its Clayton, Delaware facility. As
         a result of the settlement the Corporation paid $60,000 in civil
         penalties and agreed to undertake certain tasks within eighteen months
         including upgrading its refrigeration system and providing
         refrigeration training to its personnel. The approximate cost for
         training and capital expenditure is $400,000. The Corporation has made
         substantially all of the required capital expenditures to upgrade the
         refrigeration system and has performed the required refrigeration
         training at its Delaware facility. The Corporation's actions taken as a
         result of this settlement are subject to the review of the
         environmental authorities.

         On December 12, 1996, the Occupational Safety and Health Administration
         (OSHA) cited the Corporation with two violations of OSHA regulations
         arising out of accidents which occurred at its Clayton, Delaware plant.
         The proposed penalty for each violation is $70,000. On December 18,
         1996 the Corporation filed its Notice of Content, contesting both
         alleged violations and the proposed penalties. On March 24, 1997, the
         Occupational Safety and Health Administration (OSHA) cited the
         Corporation with twenty-two violations of OSHA regulations arising out
         of plant inspections which occurred at its Clayton, Delaware plant. The
         proposed penalty for said violations is $498,000. On April 11, 1997,
         the Corporation filed its Notice of Contest, contesting all of the
         alleged violations and the proposed penalties. In the opinion of
         management, the ultimate disposition of these matters will not have a
         material adverse effect on the Corporation's consolidated financial
         position, results of operations or liquidity.

         The Corporation is involved in various other claims and legal actions
         including environmental matters arising in the ordinary course of
         business. In the opinion of management, the ultimate disposition of
         these matters will not have a material adverse effect on the
         Corporation's consolidated financial position, results of operations or
         liquidity.


                                                                    (Continued)


                                       29
<PAGE>   56



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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



   (9)   CONTINUED

         MANUFACTURER COUPONS

         The Corporation is contingently liable for unredeemed manufacturer
         coupons on various products at June 1, 1997 which will expire during
         1997.

         STOCK REPURCHASE PLAN

         The Corporation has agreed to purchase Hanover Foods Corporation Class
         A Common Stock purchased or owned by employees prior to April 20, 1988.
         This guarantee of repurchase by Hanover Foods Corporation is for an
         indefinite period of time. Shares repurchased under this plan amounted
         to 1,251; 5,789; and 2,152 during the years ended June 1, 1997, March
         31, 1996, and April 2, 1995, respectively. As of June 1, 1997, there
         are 10,557 shares outstanding which would be eligible for this plan.
         The maximum commitment, if requested, for all eligible shares would be
         approximately $718,000, based on the most recent appraised value per
         share.


  (10)   FOREIGN OPERATIONS AND EXCHANGE RESTRICTIONS

         FOREIGN OPERATIONS

         The Corporation's foreign subsidiary, Alimentos Congelados Monte Bello,
         S.A.. (ALCOSA) produces food products in Guatemala which are sold to
         Sunwise Corporation in the United States. The revenues generated by the
         operations in Guatemala and the assets employed in generating those
         revenues are as follows:

<TABLE>
<CAPTION>
                                  June 1,        June 2,      March 31,       April 2,
                                     1997           1996           1996           1995
---------------------------------------------------------------------------------------

<S>                      <C>                 <C>           <C>            <C>
Revenues                   $   13,991,000      1,442,000     18,155,000     20,320,000
Cost of goods sold             12,162,000      1,686,000     17,311,000     17,674,000
Assets                          9,968,000     10,734,000     10,756,000     10,760,000
---------------------------------------------------------------------------------------
</TABLE>





                                                                    (Continued)


                                       30
<PAGE>   57



HANOVER FOODS CORPORATION AND SUBSIDIARIES


Notes to Consolidated Financial Statements



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

  (10)   CONTINUED

         ALCOSA maintains its accounting records in quetzales, although, for
         financial reporting purposes, the accounting records have been
         remeasured to be expressed in U.S. dollars. The financial statements of
         ALCOSA have been translated to their U.S. dollar equivalents prior to
         being consolidated. Assets and liabilities have been translated to
         their U.S. dollar equivalents based on rates of exchange prevailing at
         the end of the period except for inventories, fixed assets, deferred
         and prepaid expenses, and other assets, which have been translated at
         historical rates. Revenue and expense accounts have been translated at
         average exchange rates during the period except for depreciation of
         fixed assets, which is based on the historical rate. The aggregate
         exchange gains and losses arising from the translation of foreign
         assets and liabilities and from foreign currency transactions are
         included in income under the caption of Other Expenses, Net and amount
         to a loss of $78,000, a gain of $44,000, a loss of $190,000, and a gain
         of $9,000 for the periods ended June 1, 1997, June 2, 1996, March 31,
         1996, and April 2, 1995, respectively. At June 1, 1997, the prevailing
         exchange rate was Q6.00 to U.S. $1.00.


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




                                       31

<PAGE>   58

HANOVER FOODS CORPORATION AND SUBSIDIARIES

Quarterly Financial Data

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands                                         First               Second               Third               Fourth
(except per share)                                         quarter              quarter             quarter              quarter 
---------------------------------------------------------------------------------------------------------------------------------
1997

<S>                                                        <C>                  <C>                 <C>                  <C>
Net sales                                                  $56,119              $69,036             $65,780              $68,504

Gross profit                                                12,879               17,582              15,067               18,825

Net earnings                                                 1,251                2,314               1,474                1,667

Net earnings per common share                                 1.72                 3.21                2.03                 2.30

Cash dividends per common share                              0.275                0.275               0.275                0.275 
---------------------------------------------------------------------------------------------------------------------------------
1996

Net sales                                                  $51,717              $74,850             $70,365              $63,762

Gross profit                                                11,017               11,981              12,789               11,673

Net earnings (loss)                                           (79)                  703                 657                (868)

Net earnings (loss) per common share                        (0.12)                 0.95                0.89               (1.21)

Cash dividends per common share                              0.275                0.275               0.275                0.275 
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


Note:   Effective June 1, 1996, the Corporation's fiscal year ends at the close
of operations on the Sunday nearest to May 31.

                                      -57-
<PAGE>   59
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.

                                      -58-
<PAGE>   60
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF CORPORATION

(a)  DIRECTORS OF THE CORPORATION (AS OF AUGUST 10, 1997)

<TABLE>
<CAPTION>
NAME, AGE AND TERM                                 PRINCIPAL OCCUPATION DURING
OF OFFICE                                          PAST FIVE (5) YEARS                        
------------------                                 ---------------------------                

<S>                                                <C>
JOHN A. WAREHIME                                   Chairman - 1989 to Present; Director - 1985-Present. Mr.
Director - 1985-Present;                           Warehime has 46 years' experience in the food processing
Chairman - 1989-Present                            industry.
Age:  59

CLAYTON J. ROHRBACH, JR.                           Retired Businessman; Vice President - Marketing - CPC
Director - 1984-Present                            International - 1984-1985
Age:  77

JAMES G. STURGILL, CPA                             Managing Partner - Sturgill & Associates - 1993- Present;
Director - 1994-Present                            1980-1993 - Sturgill, Rager & Lehman - Chartered and
Age:  56                                           Consultants

ARTHUR S. SCHAIER                                  Owner/Vice President and General Manager - Earnhardt's Gilbert
Director - 1994-Present                            Dodge, Inc. - 1981-Present
Age:  55

T. EDWARD LIPPY                                    Vice President - Lippy Brothers, Inc., Hampstead, MD -
Director                                           1994-Present, President - 1992-1994; Vice Chairman & Director
Age:  67                                           - Farmers & Merchants Bank - 1989-Present; Director - Ag First
                                                   Farm Credit Bank - 1988-Present; Chairman - Baltimore Farm
                                                   Credit Bank - 1990-1992; Chairman - Farm Credit Council,
                                                   Washington, D.C. - 1993-Present

CYRIL T. NOEL                                      Retired Businessman; Vice President - Finance - Hanover Foods
Director                                           - 1985-1991
Age:  72

JAMES A. WASHBURN                                  Chairman & Chief Executive Officer - Park 100 Foods, Tipton,
Director                                           IN - 1991-Present; President & Chief Executive Officer -
Age:  47                                           Hamilton Medaris Corporation, Fishers, IN; President & Chief
                                                   Executive Officer - H.M.C. Transportation, Fishers, IN
</TABLE>


                                      -59-
<PAGE>   61
(b)      EXECUTIVE OFFICERS OF THE CORPORATION WHO ARE NOT ALSO DIRECTORS (AS
         OF AUGUST 10, 1997)

<TABLE>
<CAPTION>
NAME, AGE AND TERM                                 PRINCIPAL OCCUPATION DURING
OF OFFICE                                          PAST FIVE (5) YEARS                        
------------------                                 ---------------------------                

<S>                                                <C>
GARY T. KNISELY, ESQUIRE                           Executive Vice President - 1995-Present; Vice President -
Executive Vice President & Secretary               Administration - 1989-1995; Counsel - 1987-Present; Secretary
1995-Present                                       - 1987-Present.  Mr. Knisely also acts as Chief Financial
Age:  48                                           Officer of the Corporation (January 1996-Present).


CLEMENT A. CALABRESE                               Vice President - Sales & Trade Marketing - 1995- Present; Vice
Vice President - Sales & Trade Marketing           President - Sales - American Home Foods, Inc. - 1993-1995;
1995-Present                                       Vice President - Retail Sales - Sunshine Biscuits, Inc. -
Age:  54                                           1988-1993

PIETRO D. GIRAFFA, JR.                             Vice President - Controller - 1996-Present; Controller -
Vice President - Controller                        1984-1996.  Mr. Giraffa also acts as Chief Accounting Officer
1984-Present                                       of the Corporation (1996- Present).
Age:  51

WHITNEY J. COOMBS                                  Vice President - Marketing - 1987-Present; Vice President of
Vice President - Marketing                         Marketing - Progresso Foods Division - Ogden Foods, Inc. -
1987-Present                                       1984-1987; Mr. Coombs has 17 years of marketing experience in
Age:  56                                           the food processing industry.

ALAN T. YOUNG                                      Vice President - Transportation - 1996-Present; Vice President
Vice President - Purchasing & Transportation       - Operations - 1991-1996; Director of Corporate Logistics -
1996-Present                                       1990-1991; Manager of Corporate Systems - 1986-1990
Age:  54

EDWARD L. BOECKEL, JR.                             Treasurer - July 1997-Present; Banking & Insurance Manager -
Treasurer (Elected July 25, 1997)                  1995-1997; Vice President - CoreStates Bank - 1992-1995
1997-Present
Age:  46
</TABLE>





                                      -60-
<PAGE>   62
(d)      FAMILY RELATIONSHIPS OF DIRECTORS AND EXECUTIVE OFFICERS

         None.

(h)      SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires that
         directors and certain officers of the Corporation file reports of
         ownership and changes in ownership with the Securities and Exchange
         Commission as to the shares of Corporation Common Stock beneficially
         owned by them.

         Based solely on its review of copies of such forms received by it, the
         Corporation believes that during the Corporation's fiscal year ended
         June 1, 1997, all filing requirements applicable to its directors and
         officers were complied with in a timely fashion.

ITEM 11. EXECUTIVE COMPENSATION

(b)      The following table shows, for the fiscal years ended April 2, 1995,
         March 31, 1996 and June 1, 1997, the cash compensation paid or
         accrued, as well as certain other compensation paid or accrued, to the
         Chief Executive Officer and the next four highly compensated executive
         officers of the Corporation in all capacities in which they served.




                                      -61-
<PAGE>   63
                     Table 1:  Summary Compensation Table


                             Annual Compensation
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
(a)                               (b)         (c)                  (d)                   (e)                    (i)            
-------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>                 <C>              <C>                     <C>                 
                                  Fiscal                                            Other Annual             All Other         
Name and Principal Position       Year        Salary ($'s)        Bonus ($'s)       Compensation ($'s)       Compensation ($'s)
                                                                                                                               
                                                                                                                               
                                                                                                                               
-------------------------------------------------------------------------------------------------------------------------------
John A. Warehime                  1997        633,348  (1)        625,000 (11)        86,269 (8)           389,120 (7)         
Chairman                          1996        650,000                 -0-             62,146               332,983             
                                  1995        350,000             659,500                -0-                32,982             
-------------------------------------------------------------------------------------------------------------------------------
Gary T. Knisely                   1997        171,250  (2)        175,000                -0-                54,729 (3)(9)      
Executive Vice President,         1996        129,900                 -0-                -0-                 7,191             
Secretary & Counsel               1995        117,000              18,428                -0-                 7,700             
-------------------------------------------------------------------------------------------------------------------------------
Clement A. Calabrese (10)         1997        140,969             180,000                -0-                   -0- (4)         
V.P. - Sales & Trade              1996         67,346                 -0-                -0-                   -0-             
Marketing                         1995            -0-                 -0-                -0-                   -0-             
-------------------------------------------------------------------------------------------------------------------------------
Alan T. Young                     1997        115,240             115,240                -0-                 5,762 (5)         
V.P. - Purchasing &               1996        113,800                 -0-                -0-                 6,424             
Transportation                    1995        106,700              16,805                -0-                 6,887             
-------------------------------------------------------------------------------------------------------------------------------
Pietro D. Giraffa, Jr.            1997         95,000              95,000                -0-                 4,472 (6)         
V.P. - Controller                 1996         89,948                 -0-                -0-                 4,458             
                                  1995         78,500               8,831                -0-                 5,299             
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>    


                                      -62-
<PAGE>   64
FOOTNOTES:

<TABLE>
<S>                        <C>
(1)                        Pursuant to the June 12, 1995 Employment Agreement, as amended 
                           February 13, 1997 and August 1, 1997, between the Corporation and John 
                           A. Warehime, Chairman.

(2)                        Pursuant to the January 23, 1997 Employment Agreement between the 
                           Corporation and Gary T. Knisely.

(3) (4) (5) (6)            Represents corporate matching contributions to the Corporation's 401(k) 
                           Savings Plan.

(7)                        Represents Corporation's payment for premiums of $29,620 for Split-
                           Dollar life insurance policy and the accrual of $350,000 for deferred 
                           compensation to be paid pursuant to the June 12, 1995 Warehime 
                           Employment Agreement, as amended February 13, 1997.

(8)                        Legal and accounting fees in the amount of $86,269 and other perquisites 
                           paid pursuant to the June 12, 1995 Employment Agreement.

(9)                        Accrual of $47,000 for deferred compensation to be paid pursuant to the 
                           Knisely January 23, 1997 Employment Agreement.

(10)                       Compensation information is not provided for fiscal year 1995 as Mr. 
                           Calabrese was not employed by the Corporation at that time.

(11)                       See "Employment Agreements."
</TABLE>



                                      -63-
<PAGE>   65
(f)      COMPENSATION PURSUANT TO PLANS

         (1)      RETIREMENT BENEFITS

                  The Corporation currently provides retirement benefits via a
                  frozen non- contributory defined benefit pension plan
                  ("Pension Plan") and a 401(k) defined contribution benefit
                  plan.

                  PENSION PLAN

                  On June 5, 1992, the Corporation amended its Pension Plan to
                  freeze benefit accruals effective August 31, 1992 and also
                  took action to terminate the Pension Plan effective August
                  31, 1992.  On November 12, 1993 the Board of Directors
                  rescinded its previous action to terminate the Pension Plan.
                  The Pension Plan continues to be maintained as a frozen plan
                  with benefits frozen as of August 31, 1992.  The frozen
                  Pension Plan provides for the payment of a retirement benefit
                  upon attainment of the normal retirement age of 65 and actual
                  retirement from the Corporation and is not subject to offset
                  by Social Security benefits.  The normal form of benefit
                  under the frozen Pension Plan is a qualified joint and
                  survivor annuity for a married participant and a single life
                  annuity for an unmarried participant.  Certain optional
                  methods of payment are also available.  If a participant dies
                  after having met the service requirements for a vested
                  retirement benefit, a survivor benefit is payable under
                  certain conditions.  The executive officers of the
                  Corporation listed in the Summary Compensation Table have the
                  following frozen credited years of service and frozen accrued
                  benefits (single life) under the frozen Pension Plan:

<TABLE>
<CAPTION>
                                                          YEARS OF                ACCRUED
                                                          CREDITED                MONTHLY
EXECUTIVE OFFICER                                          SERVICE               BENEFITS
-----------------                                          -------               --------

<S>                                                          <C>                   <C>
John A. Warehime                                             22.67                 $4,629

Gary T. Knisely                                              12.00                  1,457

Clement A. Calabrese                                           -0-                    -0-

Alan T. Young                                                 6.50                    638

Pietro D. Giraffa, Jr.                                       18.33                  1,637
</TABLE>


                  On January 23, 1997, the Board of Directors took action to
                  terminate its Pension Plan, effective April 15, 1997.  The
                  frozen accrued benefits of the participants are calculated as
                  of August 31, 1992.  On June 26, 1997, Internal Revenue
                  Service

                                      -64-
<PAGE>   66
                  issued a determination letter indicating that the termination
                  of the Pension Plan does not adversely affect its
                  qualification for federal tax purposes.  Distribution of the
                  plan assets is anticipated in September 1997.

                  401(k) PLAN

                  The 401(k) defined contribution benefit plan, known as the
                  Corporation's Retirement Savings Plan, was instituted on
                  April 2, 1990, and amended June 5, 1992, April 4, 1994, April
                  28, 1995 and July 25, 1997.  Certain full-time domestic
                  employees are eligible to participate after completion of one
                  (1) year of service. Each eligible employee has the option to
                  defer up to sixteen (16%) percent of his or her total annual
                  cash compensation per year.  On December 31st of each year,
                  the Corporation makes a one hundred (100%) percent matching
                  contribution in cash and or securities of the Corporation to
                  each contributing employee's account for the first five (5%)
                  percent deferred by each employee.  Each employee has various
                  investment options.  The Plan does permit loans but does not
                  permit early withdrawals.

(g)               DIRECTOR FEES

                  During fiscal year  1997, the policy of Board compensation
                  was as follows:  the directors of the Corporation are paid an
                  annual retainer of $12,000 payable in equal monthly
                  installments of $1,000 and a fee of $1,500 in person or $750
                  by telephone for each quarterly Board Meeting attended, plus
                  an annual fee of $1,000 per year for service as a committee
                  chairman and a fee of $1,000 in person or $500 by telephone
                  for each Committee Meeting attended.

                  The directors of the Corporation were paid $195,755 as a
                  group for fiscal year 1997 for attendance at fifteen (15)
                  meetings of the Board and Board Committees, including
                  reimbursement for air travel.

(h)               EMPLOYMENT AGREEMENTS

                  On June 12, 1995, the Corporation entered into a five year
                  employment agreement with its Chief Executive Officer, John
                  A. Warehime, at an annual base salary of $650,000 with such
                  compensation payable retroactively from April 1, 1994 (the
                  "1995 Employment Agreement").  The 1995 Employment Agreement
                  was amended on February 13, 1997 (the "Amended Employment
                  Agreement") to, among other things, reduce the annual base
                  salary payable under the agreement to $498,866, which
                  modification was applied retroactively to April 1, 1994 (the
                  effective date of the 1995 Employment Agreement) and modified
                  the method of calculating bonuses payable to the employee
                  under such agreement.  As a result of these retroactive
                  changes, Mr. Warehime is required to reimburse the
                  Corporation

                                      -65-
<PAGE>   67
                  for $83,024 in excess compensation previously paid to him
                  through the deduction of such amount from annual base salary
                  increases provided for under the terms of the Amended
                  Employment Agreement and to waive accrued bonuses payable for
                  fiscal 1997 under the 1995 Employment Agreement which would
                  have equaled $2,250,000.  The principal terms of Mr.
                  Warehime's employment arrangements with the Corporation as
                  amended by the Amended Employment Agreement are set forth
                  below.

                  The Amended Employment Agreement provides for annual
                  increases (but not decreases) in the employee's annual salary
                  equal to the greater of 5% of the prior year's salary or the
                  annual percentage increase in the Consumer Price Index (CPI).
                  Mr. Warehime's annual base salary for fiscal 1997 was
                  $550,000.  Unless terminated by either party, the Amended
                  Employment Agreement automatically renews annually on each
                  anniversary date so that five years always remain on the term
                  of the agreement.  In the event the employee is terminated
                  without cause, or in the event the employee terminates his
                  employment after a reduction (without his written consent) of
                  his duties or authority, compensation or similar events, the
                  Amended Employment Agreement provides for the payment of the
                  salary and bonus (including all other benefits) over the
                  remaining term of the agreement.  In the event of termination
                  due to death or disability, the Amended Employment Agreement
                  provides for the same payment to the employee (or in the
                  event of the death of the employee, his spouse or
                  descendants) for one year and thereafter the payment of
                  supplemental pension benefits as described below.  In
                  addition, the Amended Employment Agreement provides for the
                  reimbursement by the Corporation of the employee's legal and
                  accounting fees up to $75,000 per year and reasonable
                  business expenses incurred by the employee in connection with
                  the business of the Corporation.  The Amended Employment
                  Agreement also provides the employee with various other
                  benefits including the use of an automobile, disability and
                  life insurance and a club membership.

                  The annual bonus payable to the employee under the Amended
                  Employment Agreement is equal to $100,000 plus 10% of the
                  Corporation's pretax earnings over $5.0 million provided that
                  no annual bonus is payable if pretax earnings of the
                  Corporation are less than $5.0 million.  The Amended
                  Employment Agreement limits salary and the annual bonus
                  payment described above to an aggregate of not more than $1.0
                  million annually.  Annual bonuses can be paid in cash or
                  Class A Common (nonvoting) stock at the option of the
                  employee.  For the periods ended June 1, 1997, March 31, 1996
                  and April 2, 1995, the bonus accrued under this agreement was
                  $450,000, $0 and $659,000, respectively.

                  The Amended Employment Agreement also provides for the annual
                  payment of a long-term performance bonus based upon the
                  Corporation's performance over the prior five year period as
                  measured by its average sales growth and average

                                      -66-
<PAGE>   68
                  increase in operating profits as compared to an industry peer
                  group over the same period.  The bonus payable is calculated
                  based upon a formula matrix set forth in the Amended
                  Employment Agreement, with such calculation performed by an
                  independent management consulting firm retained by the
                  Corporation.  For the period ended June 1, 1997, the
                  long-term performance bonus accrued under this agreement was
                  $175,000.

                  The Amended Employment Agreement was revised effective as of
                  August 1, 1997 to make certain clarifying changes and to
                  require that bonus payments to Mr. Warehime in any taxable
                  year in excess of $1.0 million would be subject to
                  shareholder approval.  At a meeting of the Class B
                  Shareholders held on August 14, 1997, John A. Warehime, in
                  his capacity as voting trustee of approximately 52% of the
                  Class B Common Stock, approved such bonus payments.

                  The Amended Employment Agreement provides for annual
                  supplemental pension benefits, commencing upon the earlier of
                  (a) five years after termination of the employee (or one year
                  following his death or disability) or (b) the date of
                  retirement, payable during the life of the employee and upon
                  his death, for the life of his spouse.  Such annual
                  supplemental pension benefits are equal to 60% of average
                  total compensation (including bonuses) over the latest three
                  year period prior to retirement, assuming retirement at age
                  65 or later.  Supplemental pension benefits are reduced based
                  upon an established formula to the extent the employee
                  retires prior to age 65.  The net present value of the cost
                  of providing this future benefit is recognized by the
                  Corporation over the remaining expected years of service.
                  The expense recognized under this agreement was approximately
                  $350,000 and $295,000 for the years ended June 1, 1997 and
                  March 31, 1996, respectively, and $67,000 for the nine-week
                  period ended May 31, 1996.  Based on the estimated present
                  value of the deferred compensation, the estimated present
                  value at retirement (assuming retirement at age seventy) is
                  approximately $9,800,000.

                  On January 23, 1997, the Corporation entered into a five year
                  employment agreement with Gary T. Knisely, Executive Vice
                  President, Secretary and Counsel of the Corporation, at an
                  annual salary of $175,000 with such compensation payable
                  retroactively from June 1, 1996 (the "Knisely Agreement").
                  Unless terminated by either party, the Knisely Agreement
                  automatically renews annually on each anniversary date so
                  that five years always remain on the term of the agreement.
                  The Knisely Agreement provides for annual salary increases
                  (but not decreases) equal to the greater of 5% of the prior
                  year's salary or the annual percentage increase in the CPI,
                  as well as incentive bonuses and various other benefits.  As
                  of June 1, 1997, the aggregate liability of the Corporation
                  under this agreement for the next five years is estimated to
                  be $1,000,000, excluding annual performance bonuses.  In the
                  event the employee is terminated without cause, or

                                      -67-
<PAGE>   69
                  in the event the employee terminates his employment after a
                  reduction (without his written consent) of his duties or
                  authority, compensation or similar events, the Knisely
                  Agreement provides for the payment of the salary and bonus
                  (including all other benefits) over the remaining term of the
                  agreement.  In the event of termination due to death or
                  disability, the Knisely Agreement provides for the payment of
                  salary and bonus (including all other benefits) to the
                  employee (or his spouse or other descendants in the event of
                  the employee's death) for the later of one year from the date
                  of such termination or the death of the employee.

                  The agreement also provides for annual supplemental pension
                  benefits equal to 60% of the employee's average annual
                  compensation (including bonuses but excluding other benefits)
                  over the three most recent fiscal years prior to the
                  employee's termination if the employee is no longer employed
                  by the Corporation and the employee has attained the age of
                  55.  Such annual supplemental pension benefits are payable
                  for the remainder of the lifetime of the employee.  The net
                  present value of the cost of providing this future pension
                  benefit is recognized by the Corporation over Mr. Knisely's
                  expected remaining years of service.  The expense recognized
                  for supplemental pension benefits under this agreement was
                  approximately $47,000 for the year ended June 1, 1997.  Based
                  on the estimated present value of the supplemental pension
                  benefit, the estimated present value at retirement (assuming
                  retirement at age sixty-five) could amount to approximately
                  $3,100,000.

                  The Corporation also entered into change in control severance
                  agreements with Clement A. Calabrese and Alan T.  Young,
                  which provide termination compensation to the employees upon
                  the occurrence of certain events.

                  The Corporation is also committed to another employee,
                  Patricia H. Townsend, under a previous employment contract,
                  which provides for minimum salary levels, annual adjustments,
                  as well as incentive bonuses and for a term which ends in
                  March 2004.  Provisions contained in the agreement provide
                  for continuation of the remuneration for the remainder of the
                  term of the agreement in the event of termination,
                  incapacity, death or disability.  The estimated commitment
                  for future salaries through the duration of the agreement as
                  of June 1, 1997 was approximately $480,000.

(j)               COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

                  James G. Sturgill served as a member of the Compensation
                  Committee until January 1997.  During the 1997 fiscal year,
                  the Corporation retained James G. Sturgill as a financial
                  consultant.  See "Certain Relationships and Related
                  Transactions - Transactions with Management and Others."



                                      -68-
<PAGE>   70
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS

The following table sets forth information regarding beneficial ownership of
all classes of capital stock of the Corporation by the directors, executive
officers and owners of five (5%) percent or more of any class of capital stock,
as well as any future rights of ownership by such individuals, as of August 10,
1997.

AS OF AUGUST 10, 1997

(a)      BENEFICIAL OWNERS
<TABLE>
<CAPTION>
                                                                AMOUNT & NATURE
                       NAME AND ADDRESS OF                       OF BENEFICIAL                     % OF
CLASS                  BENEFICIAL OWNER                             INTEREST                      CLASS
-----                  ----------------                             --------                      -----
                                                                
<S>                    <C>                                        <C>                             <C>
Common A               J. William Warehime                            8,834                        3.0%
Common B               257 Frederick Street                          78,408                       18.4%
                       Hanover, Pennsylvania 17331              
                                                                
Common A               Elizabeth W. Stick                            15,002                        5.1%
Common B               35 Peyton Road                                44,244                       10.4%
                       York, Pennsylvania 17403                 
                                                                
Common A               Centre Foods Enterprises, Inc.                19,607                        6.7%
                       120 Paul Street                          
                       Hanover, Pennsylvania 17331              
                                                                
Common A               Meta L. Frey                                   3,872                         1.3%
Common B               425 Westminster Avenue, Cottage 22            27,720                         6.5%
                       Hanover, Pennsylvania 17331              
                                                                
Common A               Heartland Advisors, Inc.                      50,500                        17.2%
                       790 N. Milwaukee Street                  
                       Milwaukee, WI 53202                      
</TABLE>                                                        
                                                                
(b)      MANAGEMENT                                             
                                                                
<TABLE>                                                         
<CAPTION>                                                       
DIRECTORS                                                       
---------                                                       
                                                                
<S>                    <C>                                        <C>                             <C>
Common A               John A. Warehime                                  44                         .01%
Common B               RD 3, Box 281                               223,079(1)                      52.2%
                       Hanover, Pennsylvania 17331
</TABLE>


                                      -69-
<PAGE>   71

<TABLE>
<CAPTION>
                                                                AMOUNT & NATURE
                       NAME AND ADDRESS OF                       OF BENEFICIAL                       % OF 
CLASS                  BENEFICIAL OWNER                             INTEREST                         CLASS
-----                  ----------------                             --------                         -----
                                                                
<S>                                                                    <C>                            <C>
Common A               Clayton J. Rohrbach, Jr.                         88(2)                         .03%
                       The Barclay, Apartment 724               
                       3546 South Ocean Boulevard               
                       Palm Beach, Florida 33480                
                                                                
Common A               Cyril T. Noel                                   301(2)                         .10%
                       344-1/2 North Street                     
                       McSherrystown, Pennsylvania 17344        
                                                                
Common A               T. Edward Lippy                                    385                         .13%
                       209 Lees Mill Road                       
                       Hampstead, Maryland 21074                
                                                                
Common A               Arthur S. Schaier                               500(2)                         .17%
                       890 West San Marcos Drive                
                       Chandler, Arizona 85224                  
                                                                
None                   James G. Sturgill                                    0                            0
                       4833 Wentz Road                          
                       Manchester, Maryland 21102               
                                                                
None                   James A. Washburn                                    0                            0
                       12643 Royce Court                        
                       Carmel, Indiana 46033                    
                                                                
EXECUTIVE OFFICERS (NOT DIRECTORS)                              
----------------------------------                              
                                                                
Common A               Gary T. Knisely, Esq.                            1,688                          .6%
                       Executive Vice President                 
                       1051 Cherry Orchard Road                 
                       Dover, Pennsylvania 17315                
                                                                
None                   Pietro D. Giraffa, Jr.                               0                            0
                       Vice President - Controller              
                       281 Mt. Pleasant Road                    
                       Hanover, Pennsylvania 17331              
                                                                
None                   Clement A. Calabrese                                 0                            0
                       V.P. Sales & Trade Marketing
                       2199 Wyndtree Lane
                       Malvern, Pennsylvania 19355
</TABLE>



                                      -70-
<PAGE>   72


<TABLE>
<CAPTION>
                                                                AMOUNT & NATURE
                       NAME AND ADDRESS OF                       OF BENEFICIAL                  % OF
CLASS                  BENEFICIAL OWNER                             INTEREST                    CLASS
-----                  ----------------                             --------                    -----
                                                                
<S>                                                                     <C>                    <C>   
Common A               Whitney J. Coombs                                  451                   .15% 
                       V.P. Marketing                                                                
                       86 Roberts Road                                                               
                       Littlestown, Pennsylvania 17340                                               
                                                                                                     
None                   Alan T. Young                                        0                      0 
                       V.P. Purchasing & Transportation                                              
                       21 Laurel Woods                                                               
                       Hanover, Pennsylvania 17331                                                   
                                                                                                     
None                   Edward L. Boeckel, Jr.                               0                      0 
                       434 Estelle Drive                                                             
                       Lancaster, PA   17601                                                         
                                                                                                     
DIRECTORS AND OFFICERS AS A GROUP (13 PERSONS)                                                       
----------------------------------------------                                                       
                                                                                                     
Common A                                                                3,457                  1.20% 
Common B                                                              223,079                 52.24% 
</TABLE>


Footnote:

(1)      Currently, John A. Warehime owns directly 8,558 shares or 2.0% of the
         Class B Common Voting Stock.  Mr. Warehime is Sole Voting Trustee with
         regard to the balance of Class B Common Stock shares listed (214,521)
         (50.2%), pursuant to Voting Trust Agreements dated April 5, 1988 and
         December 1, 1988, respectively, copies of which are incorporated
         herein by reference as Exhibits 9(a) and 9(b).  Said trusts expire
         April 5, 1998 and December 1, 1998, respectively.  See "Legal
         Proceedings."

(2)      Does not include 809 shares of the Corporation's Class B Voting Common
         Stock and 4,490 shares of the Corporation's Class A Nonvoting Common
         Stock held by John R. Miller, Jr. which are subject to the April 22,
         1997 Voting Agreement.  See "Market for the Corporation's Common Stock
         and Related Stockholder Matters."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT AND OTHERS

During the fiscal year ended June 1, 1997, the Corporation and its
subsidiaries, in the normal course of business sold finished goods, provided
administrative and manufacturing services to, and leased buildings, equipment
and land, purchased contracted vegetables and received travel

                                      -71-
<PAGE>   73
services from related companies.  These transactions are as follows:

         1.       The Corporation received travel services from The Cannery
                  Press, Inc., doing business as New Horizons Travel, in the
                  amount of $14,000 for fiscal year 1997.

         2.       The Corporation stored raw potatoes at its Centre Hall,
                  Pennsylvania plant for Snyder's of Hanover, Inc., Hanover,
                  Pennsylvania, for a total rental of $175,000.

         3.       On April 28, 1988, the Corporation entered into an Agreement
                  of Sale with Warehime Enterprises, Inc. to purchase a frozen
                  food facility for the total sum of $2,500,000.  Effective
                  March 1, 1993, the Corporation is obligated to make twenty
                  (20) quarterly principal payments in the amount of $125,000.
                  Interest at the greater of the prime rate or the imputed
                  interest of the Internal Revenue Service accrues on the
                  unpaid balance and is paid monthly.

         4.       During fiscal year 1996-1997, the Corporation rented
                  equipment from two related parties, ARWCO Corporation and
                  Warehime Enterprises, Inc.  The rental payments pursuant to
                  such lease agreements totaled $206,000 for fiscal year 1996-
                  1997.

         5.       On June 1, 1994, the Corporation entered into a one (1) year
                  lease with Food Service East, Inc., Hanover, PA, for 20,931
                  square feet of dry warehouse, production, refrigerated and
                  frozen storage space at Smith Station Road and Route 116,
                  Hanover, PA.  Pursuant to the lease, the Corporation has two
                  unilateral options to extend the term of the lease for two
                  (2) successive one (1) year terms or until May 31,1997 and an
                  option to purchase based on an independent appraisal. On
                  October 1, 1994 the Corporation increased the rental space to
                  28,501 square feet for a total annual rent of $96,703.  On
                  June 1, 1996, the Corporation exercised its unilateral option
                  to purchase for $904,058 approximately 10.3 acres of land
                  improved by an office/warehouse facility free and clear of
                  all liens, encumbrances and security interests.

         6.       On April 5, 1995, the Corporation purchased a facility
                  located in Teculutan, Guatemala, for $250,000 from ARWCO
                  Corporation.  A deed of transfer dated October 13, 1995 was
                  recorded March 21, 1996.

         7.       During fiscal year 1997, the Corporation leased a two story
                  farm house, adjoining one story guest house and adjoining
                  ground located on Trolley Road, R.D. #3, Hanover, Heidelberg
                  Township, Pennsylvania, for customer housing and
                  entertainment and temporary new employee housing from John A.
                  and Patricia M. Warehime for a total of $52,000.

         8.       Pursuant to the March 3, 1989 Agreement of Sale (Exhibit
                  10(c)), the Corporation

                                      -72-
<PAGE>   74
                  purchased 71.8 acres of real estate located in Penn Township,
                  York County, from Warehime Enterprises, Inc.  The total
                  consideration, $460,000, had been paid in full as of April 1,
                  1993.  The Corporation acquired title to the property by deed
                  dated June 13, 1995 and recorded July 7, 1995.

         9.       During the fiscal year 1997, the Corporation purchased
                  $1,044,000 of contracted vegetables from Lippy Brothers, Inc.

         10.      During the fiscal year 1997, the Corporation retained
                  director James G. Sturgill as a financial consultant and paid
                  him a total of $135,000 in fees, including reimbursable
                  expenses.

         11.      The Corporation repurchased 5,148 shares of the Corporation's
                  Class B Common Stock from Cyril T. Noel, individually, and
                  from Cyril T. Noel and Frances L. Noel, jointly, for
                  $367,567.  See "Security Ownership of Management and Certain
                  Security Holders."

         12.      During the fiscal year 1997, the Corporation sold $3,155,000
                  of frozen food products to Park 100 Foods, Tipton, Indiana.

NOTE:             The following executive officers, directors or beneficial
                  owners of more than five (5%) percent of the Corporation's
                  Class B Voting Common Stocks are also beneficial owners of
                  the following related parties with which the Corporation has
                  and currently does business:

<TABLE>
<CAPTION>
                                                                    PERCENTAGE OF VOTING STOCK/
                                                                           BENEFICIAL INTEREST
                                                                               OF RELATED PARTY

                  RELATED PARTY                                                 AUGUST 10, 1997
                  -------------                                                 ---------------
                                                                 
         <S>      <C>                                                                    <C>
         1.       ARWCO CORPORATION                              
                  -----------------                              
                                                                 
                  John A. Warehime........................................................30.3%
                                                                 
         2.       CENTRE FOODS ENTERPRISES, INC.                 
                  ------------------------------                 
                                                                 
                  ARWCO Corporation.......................................................33.0%
                  John R. Miller, Jr......................................................33.0%
                                                                 
         3.       FOOD SERVICE EAST, INC. AND SUBSIDIARIES  (1)  
                  ----------------------------------------       
                                                                 
                  John A. & Patricia M. Warehime.........................................100.0%
</TABLE>



                                      -73-
<PAGE>   75
<TABLE>
         <S>      <C>                                                                   <C>
         4.       SNYDER'S OF HANOVER, INC.
                  -------------------------

                  J. William Warehime.....................................................13.7%
                  Jane Elizabeth Stick.....................................................7.0%
                  John A. & Patricia M. Warehime...........................................7.2%
                                                                 
         5.       WAREHIME ENTERPRISES, INC.                     
                  --------------------------                     
                                                                 
                  J. William Warehime.....................................................44.4%
                  John A. Warehime........................................................14.8%
                                                                 
         6.       LIPPY BROTHERS, INC.                           
                  --------------------                           
                                                                 
                  T. Edward Lippy.........................................................37.0%
                                                                 
         7.       PARK 100 FOODS                                 
                  --------------                                 
                                                                 
                  James A. Washburn.......................................................80.0%
</TABLE>

                  (1)      Food Service East filed for bankruptcy under Chapter
                           11 of the U.S. Bankruptcy Code on April 22, 1994.
                           This bankruptcy was subsequently converted to
                           Chapter 7 on October 11, 1994.

         For additional information regarding related party transactions, see
         Note 5 to the Notes to the Consolidated Financial Statements.

PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
                  8-K

(a)      1.       All Financial Statements

                  Hanover Foods Corporation and Subsidiaries
                  (See Part II, Item 8, Pages _______)

         2.       Financial Statement Schedules

                  None

All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.



                                      -74-
<PAGE>   76
          3.      Exhibits

                  The following exhibits are filed herein or have been
                  previously filed with the Securities and Exchange Commission
                  and are incorporated by reference herein.

<TABLE>
<CAPTION>
Number                  Description
------                  -----------
<S>                     <C>

3(a)                    Registrant's Amended and Restated By-laws, enacted April 25,
                        1997, are attached as Exhibit 3(a).

3(b)                    Registrant's Amended and Restated Articles of Incorporation
                        are attached as Exhibit 3(b).

3(c)                    Amendment No. 1 to Registrant's Amended and Restated Articles
                        of Incorporation is attached as Exhibit 3(c).

4(a)                    Note Agreement dated as of December 1, 1991, between the
                        Corporation and Allstate Life Insurance Company, with regard
                        to the Corporation's $25,000,000, 8.74% Senior Notes Due March
                        15, 2007, is incorporated herein by reference to the Form 10-K
                        filed June, 1992 wherein such Exhibit is designated as 4(a).

4(b)                    June 20, 1995 First Amendment to December 1, 1991 Note
                        Agreement between the Corporation and Allstate Life Insurance
                        Company (the "Note Agreement") and Waiver of Compliance with
                        Section 5.9 of the Note Agreement is incorporated herein by
                        reference to Exhibit 4(b) of the Form 10-K filed on July 3,
                        1995.

4(c)                    June 24, 1996 waiver to covenants in the December 1, 1991 Note
                        Agreement between the Corporation and Allstate Life Insurance
                        Company (the "Note Agreement") is incorporated herein by
                        reference to Exhibit 4(c) of the Form 10-K filed on July 2,
                        1996.

4(d)                    July 1, 1996 Second Amendment to December 1, 1991 Note
                        Agreement between the Corporation and Allstate Life Insurance
                        Company (the "Note Agreement") is attached as Exhibit 4(d).
</TABLE>


                                      -75-
<PAGE>   77

<TABLE>
<CAPTION>
Number                  DESCRIPTION
------                  -----------

<S>                     <C>
9(a)                    April 5, 1988 Voting Trust Agreement is incorporated herein by
                        reference to the Form 10 filed July 28, 1989, wherein such

9(b)                    December 1, 1988 Voting Trust Agreement is incorporated herein
                        by reference to the Form 10 filed July 28, 1989, wherein such
                        Exhibit is designated as 9(b).

9(c)                    Writing dated April 5, 1988 appointing John A. Warehime as
                        Successor Voting Trustee under Voting Trust Agreement dated
                        December 1, 1988, is incorporated herein by reference to the
                        Form 8-K filed June 1, 1990, wherein such Exhibit is
                        designated as 9(c).

9(d)                    Writing dated December 1, 1988 appointing John A. Warehime as
                        Successor Voting Trustee under Voting Trust Agreement dated
                        December 1, 1988, is incorporated herein by reference to the
                        Form 8-K filed June 1, 1990, wherein such Exhibit is
                        designated as 9(d).

10(a)                   April 28, 1988 Sublease Agreement between Warehime
                        Enterprises, Inc. and Hanover Brands, Inc., is incorporated
                        herein by reference to the Form 10 filed July 28, 1989,
                        wherein such Exhibit is designated as 10(a).

10(b)                   April 28, 1988 Agreement of Sale between Warehime Enterprises,
                        Inc. and Hanover Brands, Inc., is incorporated herein by
                        reference to the Form 10 filed July 28, 1989, wherein such
                        Exhibit is designated as 10(b).

10(c)                   March 3, 1989 Agreement of Sale between Warehime Enterprises,
                        Inc. and Hanover Brands, Inc., is incorporated herein by
                        reference to the Form 10 filed July 28, 1989, wherein such
                        Exhibit is designated as 10(c).
</TABLE>



                                      -76-
<PAGE>   78

<TABLE>
<CAPTION>
Number                  Description
------                  -----------

<S>                     <C>
10(d)                   November 14, 1986 Employment Agreement between Hanover Brands,
                        Inc., and Patricia H. Townsend is incorporated herein by
                        reference to the Form 10 filed July 28, 1989, wherein such
                        Exhibit is designated as 10(i).

                        May 10, 1991 Amendment to April 28, 1988 Agreement of Sale
10(e)                   between Warehime Enterprises, Inc. and Hanover Brands, Inc.,
                        is incorporated herein by reference to the Form 10-K filed
                        June 29, 1991, wherein such Exhibit is designated as 10(k).

10(f)                   October 1, 1994 Amendment to the June 1, 1994 Lease Agreement
                        between Hanover Foods Corporation and Food Service East, Inc.
                        is incorporated herein by reference to Exhibit 10(p) of the
                        Form 10-K filed on July 3, 1995.

10(g)                   June 12, 1995 Employment Agreement between Hanover Foods
                        Corporation and John A. Warehime is incorporated herein by
                        reference to Exhibit 10(r) of the Form 10-K filed on July 3,
                        1995.

10(h)                   April 4, 1994 Lease Agreement between John A. and Patricia M.
                        Warehime and Hanover Foods Corporation is incorporated herein
                        by reference to Exhibit 10(t) of the Form 10-K filed on July
                        2, 1996.

10(i)                   July 27, 1995 Installment Sales Agreement for the purchase of
                        5,148 shares of Hanover Foods Class B Voting Common Stock from
                        Cyril T. Noel, individually, and Cyril T. Noel and Frances L.
                        Noel, jointly, is incorporated herein by reference to Exhibit
                        10(u) of the Form 10-K filed on July 2, 1996.

10(j)                   April 1, 1996 Installment Sales Agreement for the purchase of
                        1,210 shares of Hanover Foods Class B Voting Common Stock and
                        5,990 shares of Hanover Foods Class A Nonvoting Common Stock
                        from John R. Miller, Jr. is incorporated herein by reference
                        to Exhibit 10(v) of the Form 10-K filed on July 2, 1996.
</TABLE>


                                      -77-
<PAGE>   79

<TABLE>
<CAPTION>
Number                  Description
------                  -----------

<S>                     <C>
10(k)                   January 23, 1997 Employment Agreement between Hanover Foods
                        Corporation and Gary T. Knisely is attached as Exhibit 10(k).

10(l)                   February 13, 1997 Amendment No. 1 to June 12, 1995 Employment
                        Agreement between Hanover Foods Corporation and John A.
                        Warehime is attached as Exhibit 10(l).

10(m)                   August 1, 1997 Amendment No. 2 to June 12, 1995 Employment
                        Agreement between Hanover Foods Corporation and John A.
                        Warehime is attached as Exhibit 10(m).

10(n)                   May 21, 1997 Senior Executive Agreement between Hanover Foods
                        Corporation and Clement A. Calabrese is attached as Exhibit
                        10(n).

10(o)                   May 21, 1997 Senior Executive Agreement between Hanover Foods
                        Corporation and Alan T. Young is attached as Exhibit 10(o).

10(p)                   April 22, 1997 John R. Miller, Jr. Voting Agreement is
                        attached as Exhibit 10(p).

10(q)                   Annual Top Management Cash Bonus Program is attached as
                        Exhibit 10(q).

11                      Computation of Earnings Per Share is attached as Exhibit 11.

21                      A list setting forth subsidiaries of the Registrant is
                        attached as Exhibit 21.

27                      The Financial Data Schedule is attached as Exhibit 27.
</TABLE>

         (b)      Reports on Form 8-K

                  None.


                                      -78-
<PAGE>   80
                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of Hanover Foods
Corporation and in the capacity and on the date indicated.


DATE:   AUGUST 29, 1997

                                        HANOVER FOODS CORPORATION



                                        By: /s/ John A. Warehime
                                           -----------------------------

                                                JOHN A. WAREHIME 
                                                CHAIRMAN


                                      -79-
<PAGE>   81
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Hanover
Foods Corporation and in the capacities and on the date indicated.


DATE:   AUGUST 29, 1997


By: /s/ John A. Warehime                    By: /s/ T. Edward Lippy
   -----------------------------------          -------------------------------
         John A. Warehime                            T. Edward Lippy
         Chairman, Director                          Director
         (Chief Executive Officer)          
                                            
                                            
By: /s/ Gary T. Knisely                     By: /s/ Clayton J. Rohrbach, Jr.
   -----------------------------------          -------------------------------
         Gary T. Knisely                             Clayton J. Rohrbach, Jr.
         Executive Vice President                    Director
         (Chief Financial Officer)          
                                            
                                            
By: /s/ Pietro D. Giraffa, Jr.              By: /s/ James G. Sturgill
   -----------------------------------          -------------------------------
         Pietro D. Giraffa, Jr.                      James G. Sturgill
         Vice President - Controller                 Director
         (Chief Accounting Officer)         
                                            
                                            
By: /s/ Arthur S. Schaier                   By: /s/ James A. Washburn
   -----------------------------------          -------------------------------
         Arthur S. Schaier                           James A. Washburn
         Director                                    Director


By: /s/ Cyril T. Noel                              
   -----------------------------------             
         Cyril T. Noel
         Director




                                      -80-
<PAGE>   82
                           HANOVER FOODS CORPORATION
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
Number               Description
------               -----------
                     
<S>                  <C>
3(a)                 Registrant's Amended and Restated By-laws, enacted April 25, 1997, are attached
                     as Exhibit 3(a).
                     
3(b)                 Registrant's Amended and Restated Articles of Incorporation are attached as
                     Exhibit 3(b).
                     
3(c)                 Amendment No. 1 to Registrant's Amended and Restated Articles of Incorporation
                     is attached as Exhibit 3(c).
                     
4(a)                 Note Agreement dated as of December 1, 1991, between the Corporation and
                     Allstate Life Insurance Company, with regard to the Corporation's $25,000,000,
                     8.74% Senior Notes Due March 15, 2007, is incorporated herein by reference to
                     the Form 10-K filed June, 1992 wherein such Exhibit is designated as 4(a).
                     
4(b)                 June 20, 1995 First Amendment to December 1, 1991 Note Agreement between the
                     Corporation and Allstate Life Insurance Company (the "Note Agreement") and
                     Waiver of Compliance with Section 5.9 of the Note Agreement is incorporated
                     herein by reference to Exhibit 4(b) of the Form 10-K filed on July 3, 1995.
                     
4(c)                 June 24, 1996 waiver to covenants in the December 1, 1991 Note Agreement between
                     the Corporation and Allstate Life Insurance Company (the "Note Agreement") is
                     incorporated herein by reference to Exhibit 4(c) of the Form 10-K filed on July
                     2, 1996.
                     
4(d)                 July 1, 1996 Second Amendment to December 1, 1991 Note Agreement between the
                     Corporation and Allstate Life Insurance Company (the "Note Agreement") is
                     attached as Exhibit 4(d).
                     
9(a)                 April 5, 1988 Voting Trust Agreement is incorporated herein by reference to the
                     Form 10 filed July 28, 1989, wherein such Exhibit is designated as 9(a).
                     
9(b)                 December 1, 1988 Voting Trust Agreement is incorporated herein by reference to
                     the Form 10 filed July 28, 1989, wherein such Exhibit is designated as 9(b).
</TABLE>


                                      -81-
<PAGE>   83

<TABLE>
<CAPTION>
Number               Description
------               -----------
                     
<S>                  <C>
9(c)                 Writing dated April 5, 1988 appointing John A. Warehime as Successor Voting
                     Trustee under Voting Trust Agreement dated December 1, 1988, is incorporated
                     herein by reference to the Form 8- K filed June 1, 1990, wherein such Exhibit is
                     designated as 9(c).
                     
9(d)                 Writing dated December 1, 1988 appointing John A. Warehime as Successor Voting
                     Trustee under Voting Trust Agreement dated December 1, 1988, is incorporated
                     herein by reference to the Form 8- K filed June 1, 1990, wherein such Exhibit is
                     designated as 9(d).
                     
10(a)                April 28, 1988 Sublease Agreement between Warehime Enterprises, Inc. and Hanover
                     Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28,
                     1989, wherein such Exhibit is designated as 10(a).
                     
10(b)                April 28, 1988 Agreement of Sale between Warehime Enterprises, Inc. and Hanover
                     Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28,
                     1989, wherein such Exhibit is designated as 10(b).
                     
10(c)                March 3, 1989 Agreement of Sale between Warehime Enterprises, Inc. and Hanover
                     Brands, Inc., is incorporated herein by reference to the Form 10 filed July 28,
                     1989, wherein such Exhibit is designated as 10(c).
                     
10(d)                November 14, 1986 Employment Agreement between Hanover Brands, Inc., and
                     Patricia H. Townsend is incorporated herein by reference to the Form 10 filed
                     July 28, 1989, wherein such Exhibit is designated as 10(i).
                     
10(e)                May 10, 1991 Amendment to April 28, 1988 Agreement of Sale between Warehime
                     Enterprises, Inc. and Hanover Brands, Inc., is incorporated herein by reference
                     to the Form 10-K filed June 29, 1991, wherein such Exhibit is designated as
                     10(k).
                     
10(f)                October 1, 1994 Amendment to the June 1, 1994 Lease Agreement between Hanover
                     Foods Corporation and Food Service East, Inc. is incorporated herein by
                     reference to Exhibit 10(p) of the Form 10-K filed on July 3, 1995.
                     
10(g)                June 12, 1995 Employment Agreement between Hanover Foods Corporation and John A.
                     Warehime is incorporated herein by reference to Exhibit 10(r) of the Form 10-K
                     filed on July 3, 1995.
</TABLE>


                                      -82-
<PAGE>   84
<TABLE>
<CAPTION>
Number               Description
------               -----------
                     
<S>                  <C>
10(h)                April 4, 1994 Lease Agreement between John A. and Patricia M. Warehime and
                     Hanover Foods Corporation is incorporated herein by reference to Exhibit 10(t)
                     of the Form 10-K filed on July 2, 1996.
                     
10(i)                July 27, 1995 Installment Sales Agreement for the purchase of 5,148 shares of
                     Hanover Foods Class B Voting Common Stock from Cyril T. Noel, individually, and
                     Cyril T. Noel and Frances L. Noel, jointly, is incorporated herein by reference
                     to Exhibit 10(u) of the Form 10-K filed on July 2, 1996.
                     
10(j)                April 1, 1996 Installment Sales Agreement for the purchase of 1,210 shares of
                     Hanover Foods Class B Voting Common Stock and 5,990 shares of Hanover Foods
                     Class A Nonvoting Common Stock from John R. Miller, Jr. is incorporated herein
                     by reference to Exhibit 10(v) of the Form 10-K filed on July 2, 1996.
                     
10(k)                January 23, 1997 Employment Agreement between Hanover Foods Corporation and Gary
                     T. Knisely is attached as Exhibit 10(k).
                     
10(l)                February 13, 1997 Amendment No. 1 to June 12, 1995 Employment Agreement between
                     Hanover Foods Corporation and John A. Warehime is attached as Exhibit 10(l).
                     
10(m)                August 1, 1997 Amendment No. 2 to June 12, 1995 Employment Agreement between
                     Hanover Foods Corporation and John A. Warehime is attached as Exhibit 10(m).
                     
10(n)                May 21, 1997 Senior Executive Agreement between Hanover Foods Corporation and
                     Clement A. Calabrese is attached as Exhibit 10(n).
                     
10(o)                May 21, 1997 Senior Executive Agreement between Hanover Foods Corporation and
                     Alan T. Young is attached as Exhibit 10(o).
                     
10(p)                April 22, 1997 John R. Miller, Jr. Voting Agreement is attached as Exhibit
                     10(p).
                     
10(q)                Annual Top Management Cash Bonus Program is attached as Exhibit 10(q).
                     
11                   Computation of Earnings Per Share is attached as Exhibit 11.
                     
21                   A list setting forth subsidiaries of the Registrant is attached as Exhibit 21.
                     
27                   The Financial Data Schedule is attached as Exhibit 27.
</TABLE>


                                      -83-