SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                              FORM 10-KSB/A (No. 1)

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996

                        Commission File Number 000-19318

                               SPARTA FOODS, INC.
        (Exact name of Small Business Issuer as specified in its Charter)

               Minnesota                                    41-1618240
        (State of incorporation                          (I.R.S. Employer
           or organization)                              Identification Number)


                               2570 Kasota Avenue
                            St. Paul, Minnesota 55108
               (Address of principal executive offices) (Zip Code)

         Issuer's telephone number, including area code: (612) 646-1888

       Securities registered under Section 12(b) of the Exchange Act: NONE

     Securities  registered  under  Section  12(g) of the Exchange  Act:  Common
Stock, par value $.01 per share.

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Exchange Act during the  preceding 12 months (or such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                 Yes   X                          No

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

     Registrant's revenues for its most recent fiscal year: $12,662,819

     The aggregate market value of the voting stock held by  non-affiliates  was
approximately  $6,078,085  based upon the average high and low bid prices of the
Registrant's Common Stock as of January 29, 1997.

     There were 6,685,049 shares of Common Stock, $.01 par value, outstanding as
of January 29, 1997.

     Transitional Small Business Disclosure Format (check one):

                   Yes                              No  X




<PAGE>



     The  Registrant is providing  this  Amendment No. 1 to Form 10-KSB to amend
Part I, Item 1 and Part II, Item 6.

                                     Part I.

ITEM 1.           DESCRIPTION OF BUSINESS

General

     Sparta Foods, Inc. ("Sparta" or the "Company") manufactures a broad line of
Mexican food products which include corn and flour  tortillas,  stone ground and
corn flour tortilla chips,  picante and other salsas and sauces.  These products
are  distributed  under the Company's own brand names and under private  labels.
The  Company's  products  include La Canasta,  La Campana  Paradiso  and Mexitos
tortilla chips, Cruz, La Canasta and La Campana Paradiso tortillas,  La Canasta,
La Campana  Paradiso  and Chapala  salsas and picante  sauces.  The Company also
manufactures barbecue sauces and salsas for others under private label.

     The Company's  branded  retail  products are sold in  supermarkets  located
primarily in the  midwestern  United  States,  with  selected  products  sold in
western Canada.  The Company also produces its Mexican-style  products for other
food distributors  under private labels,  including  Crystados for Crystal Farms
Refrigerated  Distribution  Company  which  distributes  its  products to retail
stores  in 23  states.  Other  private  label  products  include  Ken  Davis and
Rudolph's  barbecue  sauces  utilizing the customer's  proprietary  recipes.  In
addition,  the Company  supplies  over six thousand  restaurants  and other food
service  establishments  through distributors that include Alliant Food Service,
Inc.,  Sysco  Corporation  and  J.P.  Food  Service,  Inc.  The  Company  places
significant  emphasis  on the  development  of the food  service  market  and is
currently an approved supplier to such restaurants as McDonalds,  Chilis, Carlos
O'Kellys and Perkins Restaurants.

     The  Company  is  capitalizing  on the  significant  growth  in the sale of
Mexican  food  products  which has  occurred in the United  States over the past
decade.  Over the fifteen-year  period ended in 1995, sales of soft tortillas in
the United States grew from  approximately  $300 million to  approximately  $2.5
billion.  Management  believes that this growth is partially a result of Mexican
food products  becoming less ethnic due to strong consumer  acceptance.  This is
evidenced by the large number of non-Mexican restaurants currently offering such
Mexican items as nachos,  chips and salsa,  fajitas,  quesadillas,  burritos and
taco salads.

     Prior to 1994,  the Company spent  significant  time and resources  through
acquisition   and  internal   product   development  to  expand  its  production
capabilities and its line of authentic  Mexican food products and to establish a
strong  distribution  network.  Although these activities  increased sales, they
negatively  impacted  the  Company's  net  income.  In fiscal  1994 and 1995 the
Company incurred net losses. The Company is now focusing its efforts on a return
to  profitability  by  attempting  to expand  its  existing  business  and enter
carefully selected new geographic areas in the branded retail, private label and
food service  markets.  The Company recorded net income of $105,307 for the year
ended September 30, 1996.


Business Strategy

     The Company's  principal business objective is to improve  profitability by
increasing  sales and reducing  costs.  The Company  plans to increase  sales by
expanding  its  product   marketing  and  sales   activity  and  broadening  its
distribution  patterns  and by placing  greater  emphasis on the  production  of
tortillas.  The Company plans to direct greater marketing and sales resources to
increase brand  awareness of its products,  including  tortilla  chips,  in each
product's   respective  target  market.  In  addition,   the  Company  plans  to
concentrate its  manufacturing  resources on high volume branded retail products
that it believes will generate the highest gross profit margins.  The Company is
also  seeking  to improve  profitability  by  reducing  and  controlling  excess
operating costs.

Industry and Market

     Sales of Mexican-style food products such as corn and flour tortillas, corn
chips and salsas have increased substantially over the past decade in the United
States,  through both  restaurants  and retail  stores.  Tortillas  are becoming
increasingly  popular  as  evidenced  by their use in  restaurant  foods such as
fajitas,  burritos,  enchiladas,  quesadillas,  taco salads, and, most recently,
"wraps".   According  to  a  Tortilla  Industry   Association  study,  over  the
fifteen-year period ended in 1995, sales for soft tortillas in the United States
grew from $300 million to approximately $2.5 billion.
<PAGE>

     The increase in past sales may be partially  attributable  to the growth in
the United States Hispanic  population,  and a continued increase in the sale of
Mexican-style food products is not assured.  However,  the Company's  management
believes  that  Mexican-style  food  products  have become less "ethnic" and now
enjoy a greater consumer acceptance, as illustrated by the fact that non-Mexican
restaurants, such as McDonalds, feature Mexican-style foods on their menus.

Products and Marketing

     General.  The Mexican-style food products  manufactured and marketed by the
Company include whole and pre-cut corn and flour tortillas  (including  die-cut,
hand  stretched  and press flour  tortillas),  stone  ground corn and corn flour
tortilla  chips and salsas  (picante and thick and chunky) for  distribution  to
retail food  stores,  food service  establishments  and other  manufacturers  of
Mexican-style  food products.  The Company also manufactures  products for other
food  distributors to be sold under their own private labels using the customers
or the company's  proprietary  recipes.  During the fiscal years ended September
30, 1996,  1995 and 1994, the percentage of sales of tortillas,  tortilla chips,
barbecue  sauces,  salsas and all other products as compared to all sales of the
Company were as follows:
<TABLE>
<CAPTION>
                                                             Year Ended September 30,
<S>                                                      <C>        <C>      <C>    

                                                          1996      1995      1994
Products                                     
 Tortillas                                                 70%       63%       55%
 Corn tortilla chips                                       17%       20%       25%
 Barbecue sauces, salsas and all other products            13%       17%       20%
</TABLE>

     The  Company  continually  seeks to expand its  product  lines  through the
development  of new  products  for retail sale under the  Company's  own branded
labels and value-added  products for the food service market.  In November 1996,
the Company began manufacturing and distributing seven new retail tortilla chips
under the La Canasta  brand and flavored  flour  tortilla  wraps to food service
establishments.
<PAGE>

     The Company  distributes its products  through  distribution  centers in 21
states and into  Western  Canada.  During the fiscal years ended  September  30,
1996, 1995 and 1994, the Company's  percentage of sales for distribution to food
service  establishments,  to retail stores under its own brand names,  and under
private label or as ingredients for other food manufacturers,  compared to total
Company sales, were as follows:

<TABLE>
<CAPTION>

                                                       Year Ended September 30,
<S>                                                      <C>     <C>       <C>    
                                                         1996    1995      1994          
                               
Market Segment
Food service
 establishments                                          54%      51%       44%
Branded retail                                           29%      31%       33%
Private label and
 ingredients                                             17%      18%       23%
</TABLE>

     Food Service.  The Company's  products are currently served in an estimated
six thousand restaurants and other food service establishments under La Canasta,
Mexitos,  and  Cruz  labels,  and  are  approved  for  use in the  food  service
operations of such  restaurants as  McDonald's,  Chili's,  Carlos  O'Kelly's and
Perkins Restaurants.  The establishment of food service accounts with restaurant
chains,  schools,  in-plant  feeders or other  food  service  establishments  is
initiated  primarily  through direct contact by the Company's sales personnel or
brokers. The Company pays food brokers a commission based upon the percentage of
the net sales of products sold. The Company is obligated to pay such  commission
for as long as the broker continues to achieve specified minimum sales. Sales to
food service  establishments are effected through distributors who carry product
inventory  at their  distribution  centers  located in nine  midwestern  states,
Florida and Canada. These distributors include Alliant Food Service, Inc., J. P.
Food Services, Inc. and Sysco Corporation, who on a combined basis accounted for
over 30% of the Company's food service sales in its fiscal year ended  September
30, 1996. The Company's  distributors provide continued sales and service to the
food service  customer,  while the Company's  direct sales personnel and brokers
continue to solicit new restaurant customers and act as coordinators between the
Company and the distributors.

     Branded  Retail.  The Company's  branded retail products are sold to retail
grocery  chains and  independent  stores through  distributors,  such as Crystal
Farms Refrigerated  Distribution Company which distributes refrigerated goods to
retail  stores in 23 states and Bradley  Distributing,  Inc.  which  distributes
products to  approximately  160 retail  stores in the 13 county  Minneapolis/St.
Paul metropolitan  area. The Company's products appear in such grocery chains as
Cub Foods and Rainbow  Foods and in  independent  stores  such as  Byerly's  and
Lunds.  Through its retail store  distributors,  the Company  often  establishes
incentives,  such as volume  sales  discounts,  which are  offered to  encourage
retail stores to prominently  display the Company's  products.  The Company also
utilizes in-store  demonstrations to promote its retail products.  The Company's
distributors  deal directly  with the retail  stores in soliciting  orders to be
filled  from  local   warehouses  and  assist  in  arranging   shelf  space  and
implementing in-store promotions.

     Private Label and Ingredients.  The Company manufactures products for other
food distributors to be sold under their own private labels, using the Company's
recipes or recipes  provided by such  distributors.  Since 1991, the Company has
been the sole  manufacturer  of Ken Davis  brand  barbecue  sauces for Ken Davis
Products,  Inc.,  and in December 1993 began  production of barbecue  sauces for
Rudolph's  Licensing,  Inc.,  under the Rudolph's  brand name.  The Company also
manufactures  and  sells  tortillas  to  other   manufacturers  to  be  used  as
ingredients for the production of Mexican food products.  Two such manufacturers
are Arden International Kitchens and Schwan's Sales Enterprises, Inc. Arden uses
the Company's tortillas to manufacture its "Charritos" brand Mexican food items,
and Schwan uses the Company's  tortillas in its frozen  burritos  which are sold
door to door by delivery truck in 48 states.
<PAGE>

     The Company  believes  that there are two  principal  factors which tend to
promote the  Company's  growing sales of private  label  products.  First is its
manufacturing  expertise,  and second is its experience in both the food service
and  retail  markets.  Sales  to  private  label  customers  are  initiated  and
maintained directly by Company sales personnel.

Principal Customers

     The Company's sales to significant customers during fiscal years 1996, 1995
and 1994 were as follows:

<TABLE>
<CAPTION>


                                                       Year Ended September 30,
                                                            (In thousands)

<S>                                                    <C>       <C>       <C> 
                                                       1996      1995      1994
Customer
Crystal Farms Refrigerated Distribution Company       $2,557    $1,879   $1,780
Catalina Specialty Foods, Inc.                        $1,962    $1,617   $1,005
Bradley Distributing, Inc.                            $1,011    $1,162   $1,020
Ken Davis Products, Inc.                                $978    $1,112   $1,068
</TABLE>


     The Company has  agreements  with Crystal Farms  Refrigerated  Distribution
Company,  Ken  Davis  Products,  Inc.  and  Catalina  Specialty  Foods,  Inc.  a
distributor to McDonalds  Corporation.  The loss of any of these customers named
above would have an adverse effect on the Company's sales and operating results.
As part of its marketing  plan,  the Company is attempting to establish a strong
brand recognition in key markets in order to minimize the likelihood of any such
loss.

Manufacturing and Supplies

     The Company  manufactures  its products at its principal  place of business
located at 2570 Kasota Avenue, St. Paul, Minnesota. The Company manufactures its
products on 12 production  lines.  These  include:  (i) a hand  stretched  flour
tortilla  line;  (ii) a die-cut  flour  tortilla  line;  (iii) three press flour
tortilla  lines;  (iv) two lines for the production of corn  tortillas;  (v) two
stone ground corn tortilla chip lines;  and (vi) three lines for the  production
of picante salsas, barbecue sauces and other tomato-based sauces.

<PAGE>

     The principal ingredients for the Company's manufactured products are corn,
wheat flour, corn flour, corn and soybean oils and tomato-based products.  These
ingredients  may be  purchased  by the Company  from a number of sources and are
generally  readily  available  under  normal  conditions.  Samples  of  incoming
ingredients  are  tested to ensure  that  they meet the  quality  specifications
dictated by the Company.  The Company has made  contract  purchases  through the
first half of 1997 of corn,  flour and oils to secure  consistency  in price and
quality and reasonable  assurance of a supply of product  ingredients.  Although
the Company  believes that such contracts help reduce the risk of unexpected and
unfavorable  increases  in raw material  prices,  the Company may be required to
purchase  its raw  material at a higher  than  current  market  price if current
market prices fall below the Company's contract price. The Company believes that
termination  of one or more of its raw  material  contracts  will not  adversely
affect its ability to control its raw material  costs as such  contracts  can be
replaced.  The  Company  regularly  maintains  stores  of corn,  flour and other
ingredients  in  sufficient  quantities  at its plant to permit  the  Company to
fulfill  one to two  weeks of  normal  production,  and  cooking  oil and  other
ingredients  in  sufficient  quantities  to  fulfill  three  or  more  weeks  of
production.

Competition

     The tortilla, tortilla chip, salsa and picante sauce industry in the United
States is comprised of a large number of small regional producers, many of which
have a limited  line of  products,  and several  dominant  producers  with broad
product lines.

         The retail market for fried corn  tortilla  chips is dominated by Frito
Lay, which the Company believes is a market leader in the 13 county Minneapolis/
St. Paul area market and the national market. The Company also competes with Old
Dutch and Barrel O Fun brands. The Company estimates that it has less than a one
percent  share  of the  national  corn  tortilla  chip  market.  While  national
manufacturers of snack foods have established  recognizable brands such as Frito
Lay,  shipping  costs for the light and bulky tortilla chips provide the Company
certain pricing advantages in the local market area. In marketing its salsas and
picante sauces for retail distribution, the Company competes with such brands as
Pace,  Old El Paso,  Frito  Lay and Chi  Chi's.  The  Company  believes  that it
currently  has less than a one percent share of the national  salsa market.  The
Company  estimates that its retail sales of tortillas give it greater than a 50%
share of the 13 county  Minneapolis/St.  Paul metropolitan  market, and that its
principal  competition comes from Resers Foods,  Zapata and Azteca Foods,  which
supply most of the remaining market.

     Many of the makers and distributors of these competing  products for retail
distribution  are better  capitalized that the Company and have the advantage of
intensive local and national  advertising programs as well as greater brand name
recognition.  In addition,  competition for shelf space at retail food stores is
intense.  While  the  Company's  management  believes  that the  quality  of its
products is good and that the retail  prices for its products  are  competitive,
the Company's ability to obtain retail shelf space is primarily dependent on its
distributors  and  brokers.  Although  sales of the  Company's  retail  products
outside the Minneapolis/ St. Paul metropolitan area is increasing,  particularly
with  respect to the Cruz brand  tortillas  distributed  by Crystal  Farms,  the
Company's  market  share of retail sales  outside of that area is not  currently
material.

     In marketing  its products to food service  establishments,  the Company is
competing  with a number of regional  and national  producers  of  Mexican-style
products,  including BecLin Foods, Inc., Lake Park, Minnesota; Mexican Originals
(Tyson Foods,  Inc.),  Fayetteville,  Arkansas;  and Mission  Foods,  Inc.,  Los
Angeles,  California.  Most of these competitors are better capitalized than the
Company and have well established  sales  organizations.  While the Company is a
major  suppler of  Mexican-style  tortillas and tortilla  chips to  restaurants,
corporate cafeterias and schools in the states of Iowa, Minnesota, North Dakota,
South Dakota,  and  Wisconsin,  competition  will  continue to be strong.  While
competition  outside  the  Minneapolis/St.  Paul  area  is  expected  to be more
intense,  the  Company's  management  believes it will be able to  increase  its
market  share in other  metropolitan  area  markets  because  of its  ability to
fulfill a distributor's  needs with a broad line of quality  Mexican-style  food
products and by having its products approved by selected restaurant chains.

Trademarks

     The principal trade names that the Company currently  utilizes are CRUZ, LA
CAMPANA  PARADISO  and LA CANASTA in the retail  sale of  tortillas;  LA CAMPANA
PARADISO, LA CANASTA, CHAPALA, and MEXITOS in the retail sale of tortilla chips;
and LA CAMPANA  PARADISO,  LA CANASTA  and CHAPALA in the retail sale of salsas.
The Company also uses the trade names LA CANASTA, CRUZ and MEXITOS in connection
with food service sales.  Except as discussed below, all of these trade names or
their associated logos are believed to be owned by the company.
<PAGE>

     The Company's CRUZ logo is the subject of a federal trademark  registration
which expires  January 2000. The mark CHAPALA used in connection  with salsas is
the subject of a federal trademark registration which expires November 2004. The
Company owns a federal trademark registration for its MEXITOS logo which expires
May 2005. All of the Company's  trademark  registrations  are subject to renewal
rights  and may  terminate  prior to their  respective  expiration  dates due to
cancellation, disclaimer or surrender.

     The Company's  trademarks  provide an identity  between the Company and its
products.  In the  absence of federal  trademark  registrations,  prior use of a
trademark  may establish an exclusive  right to its use in  connection  with the
sale of products in a particular  market area.  In addition,  the above  federal
trademark  registrations provide rights in their respective marks throughout the
United States and create some legal presumptions should the registered trademark
be infringed.

     The mark LA CAMPANA  PARADISO is licensed by the Company  from an affiliate
of a former director of the Company.  The license agreement expires December 31,
1999 and  requires  the  payment  of three  percent  (3%) of the gross  sales of
products sold under the LA CAMPANA PARADISO mark.

     Under  concurrent  use  agreements,  the Company may not use the LA CANASTA
mark or related logos in 14 western  states and has assigned its rights to those
marks in those  states to La Canasta  Mexican  Food  Products,  Inc.  La Canasta
Mexican  Food  Products,  Inc.  is not  affiliated  with the  Company  but is an
affiliate of a principal shareholder and former director of the Company.

     There is no assurance that any of the trade names or other  trademarks used
by the Company, whether or not registered, will be free from future challenge by
others as to prior use or as otherwise being unprotectable.

Government Regulation

     The Company is subject to licensing,  regulation and periodic inspection by
various local, state and federal agencies, including those administering health,
sanitation, environmental, building, safety and fire laws and regulations. These
agencies  include,  but are not limited to the  Minnesota  Department of Health,
City of St. Paul,  the U.S. Food and Drug  Administration,  the  Minneapolis/St.
Paul,  Minnesota  Metropolitan Waste Control  Commission.  As a result of recent
U.S. Food and Drug Administration  rule changes,  some of the Company's products
required  changes in  labeling.  Nutritional  testing has been  completed on all
applicable  products,  and the results of such testing have been incorporated in
new packaging as required by those rules. To managements knowledge,  the Company
is in substantial  compliance  with all applicable  rules and regulations of the
above-referenced  agencies.  The costs associated with the Company's  compliance
with environmental laws are minimal.

Personnel

     As of  December  1, 1996 the Company  employed a total of 123  persons.  Of
these full-time employees,  four serve in an executive capacity, 109 are engaged
in manufacturing,  shipping,  quality control and plant  supervision,  three are
engaged in sales and marketing,  and seven are engaged in administrative  tasks.
None  of  the  Company's  employees  are  covered  by  a  collective  bargaining
agreement. The Company provides its employees with a health, dental,  disability
and life insurance program. The Company's management believes that its relations
with its employees are good.

<PAGE>




                                     PART II

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


Overview

     La Canasta of Minnesota,  Inc. ("La Canasta"),  the Company's  predecessor,
and now a  wholly-owned  subsidiary  of the  Company,  began  producing  limited
volumes of hand  stretched  flour  tortillas,  corn  tortillas and corn tortilla
chips  shortly  following  its  organization  in  1981,  primarily  for  sale to
restaurants.  The Company was organized under the laws of the State of Minnesota
in 1988, originally under the name of "Sparta Corp.," for the purpose of raising
capital for the acquisition  of, or investment in, a business.  In January 1991,
the Company  acquired all of the  outstanding  capital stock of La Canasta.  The
shareholders of La Canasta  entered into this  transaction to obtain capital for
La Canasta and to  facilitate  La Canasta's  plans to expand its product  lines,
markets and  production  capabilities.  Under the  umbrella of the  Company,  La
Canasta  had begun to expand  its  product  mix in 1990  when it  acquired  food
processing  equipment from SuperValu,  Inc. in Hopkins,  Minnesota,  and started
producing  Ken Davis  barbecue  sauces.  This  enabled La Canasta to expand into
other  tomato-based  products,  such as Mexican  salsas and picante  sauces.  In
January 1992, the Company  continued this expansion by acquiring the business of
Cruz  Distributing,  Inc., a distributor of Cruz brand press flour  tortillas to
retail establishments and McDonald's restaurants.  In November 1992, the Company
also acquired from Chapala International, Inc. the Chapala registered trademarks
and trade names and certain other assets related to the sale and distribution of
Mexican-style foods to wholesalers and others for retail sale, including product
formulas for salsas and customer  lists.  In October 1993, the Company  acquired
substantially  all of  the  assets  of  International  Food  Products,  Inc.  of
Lakeville, Minnesota, which was engaged in the manufacture and sale of tortillas
and tortilla  chips.  This  acquisition  provided  the Company  with  additional
manufacturing  capabilities,  the  established  La Campana  Paradiso and Mexitos
brand names,  and the retail and food service  distribution  services of Bradley
Distributing, Inc. and Sysco Corporation, respectively.

     The foregoing  acquisitions were effected to improve the Company's capacity
to efficiently  manufacture a broad line of  Mexican-style  food products and to
increase  sales and market share by  developing  a  broad-based  responsive  and
capable  distribution  network.  While these  acquisitions  increased sales, the
Company incurred  significant  legal,  accounting and  debt-related  expenses to
complete the transactions.  As a result, the Company incurred substantial losses
in fiscal years 1994 and 1995.

     In response to these years of losses,  the ongoing  problems of integrating
the Company's  acquisitions and other corporate problems, the Board of Directors
adopted a  restructuring  plan in October  1994.  In the first quarter of fiscal
1995, the Board of Directors  hired Joel Bachul and Merrill Ayers as its new CEO
and CFO,  respectively,  and they  were  given  the  primary  responsibility  of
managing the restructuring process.

     The  focus  of  management's  efforts  to  date  has  been  to  complete  a
comprehensive  financial restructuring and effectuate changes in connection with
its products and its production  and  distribution  systems  necessary to attain
profitability.

Results of Operations

     Fiscal  Year  Ended  September  30,  1996  Compared  to Fiscal  Year  Ended
September 30, 1995.


<PAGE>

     During fiscal 1996, the Company had net sales of  $12,662,819,  an increase
of $670,831,  or 6%,  compared to net sales of $11,991,988 in fiscal 1995.  This
increase in net sales  resulted  primarily  from  additional  marketing  efforts
relating  to  expansion  of its  existing  customer  base as  well  as into  new
territories.  Four  customers  accounted for 51% of net sales in fiscal 1996 and
48% of net sales in fiscal 1995.

     Gross profit as a percentage  of net sales for fiscal 1996 was 27% compared
to 26% for fiscal 1995.  This  increase in fiscal 1996 was primarily due to more
favorable   operating   efficiencies  and  discontinued  sales  of  unprofitable
products.  Overhead  costs were  reduced in certain  areas to  maximize  product
margins.  Even though the Company faced  increasing  pricing  pressures from raw
material suppliers, it was able to minimize these cost increases by implementing
selective price  increases.  At the end of fiscal 1995 the Company  consolidated
its  production  operations  from its  Lakeville  facility to its St. Paul plant
resulting in additional cost savings achieved in fiscal 1996.

     Selling,  general and  administrative  expenses were  $2,968,569 for fiscal
1996, a decrease of $315,423 or 10%, as compared to  $3,283,992  in fiscal 1995.
Selling,  general and  administrative  expenses as a percentage of net sales for
fiscal  1996  were 23%  compared  to 27% for  fiscal  1995.  This  decrease  was
primarily  attributable  to the return to more normal expense levels which began
in fiscal 1995 following the costs associated with the IFP operating activities,
related  integration costs of the acquisition and professional  costs associated
with the withdrawn  secondary public offering and bridge financing during fiscal
1994.

     Interest  expense  was  $431,741  for fiscal  1996,  a decrease  of $84,471
compared to $516,212 in 1995. This lower interest expense reflects primarily the
effect of interest rate and debt  reductions  associated  with the completion of
the Company's private placement in February,  1996. See,  "Liquidity and Capital
Resources."

     The Company recorded other income of $86,018 during fiscal 1996 compared to
other expense of $279,450 in fiscal 1995. This income results primarily from the
rental of the  Company's  Lakeville  property.  Other expense in fiscal 1995 was
primarily the non-recurring charge of $302,612 reflecting  management's estimate
of the excess of the property's  net book value over current  market value.  Net
income for fiscal  1996 was  $105,307  compared  to a net loss in fiscal 1995 of
$943,778, for the reasons set forth above.

Fiscal Year Ended September 30, 1995 Compared to September 30, 1994

     During fiscal 1995, the Company had net sales of  $11,991,988,  an increase
of $811,075,  or 7% as compared to net sales of $11,180,913 in fiscal 1994. This
increase in net sales  resulted  primarily  from  additional  marketing  efforts
relating  to  expansion  of its  existing  customer  base as  well  as into  new
territories.  Four  customers  accounted for 48% of net sales in 1995 and 44% of
net sales in 1994. Fiscal 1994 sales included approximately $600,000 in products
with low volume and/or low margins as well as heavily discounted products. These
were not continued in fiscal 1995.  Excluding  these sales,  sales on continuing
products  increased  approximately  13% in fiscal 1995.  During fiscal 1995, the
Company  expanded  its food  service  business  in  Illinois,  Indiana,  Kansas,
Nebraska and Wisconsin  and its retail  business  into  Wisconsin,  Illinois and
Iowa.

<PAGE>

     Gross profits as a percentage of net sales for fiscal 1995 was 26% compared
to 24% for fiscal 1994.  This  increase in fiscal 1995 was primarily due to more
favorable   operating   efficiencies  and  discontinued  sales  of  unprofitable
products.  Overhead  costs were  reduced in certain  areas to  maximize  product
margins.  Even though the Company faced increasing pricing pressures from flour,
corrugated and plastic  material  suppliers,  it was able to minimize these cost
increases by  implementing  selective  price  increases.  During fiscal 1995 the
Company  consolidated its production  operations from its Lakeville  facility to
its St. Paul plant. Currently, other than USDA-related meat products produced by
outside suppliers, all of the Company's products are produced in-house.

     Selling,  general and  administrative  expenses were  $3,283,992 for fiscal
1995, a decrease of $56,975,  or 2%, as compared to  $3,340,967  in fiscal 1994.
Selling,  general and  administrative  expenses as a percentage of net sales for
fiscal  1995 were 27%,  compared  to 30% for  fiscal  1994.  This  decrease  was
primarily attributable to the return to more normal expense levels following the
costs associated with the IFP operating activities, related integration costs of
the  acquisition  and  costs  associated  with the  withdrawn  secondary  public
offering and bridge financing during fiscal 1994.

     Interest  expense  was  $516,212  for fiscal  1995,  a decrease of $155,683
compared to $671,895 in 1994. This reduced interest  expense reflects  primarily
the comprehensive financial restructuring in December 1994.

     The Company  incurred Other Expense of $279,450 during fiscal 1995 compared
to Other Income of $3,707 in fiscal 1994. This expense consists primarily of the
write-down as discussed above.  Excluding this the net loss in fiscal 1995 would
have been  $641,166  or an  improvement  of 46% over  fiscal  1994's net loss of
$1,193,177.

Seasonality

     The  Company  has  historically  had  higher  sales in its third and fourth
fiscal quarters which end June 30, and September 30,  respectively,  than in its
first and second quarters. Management believes that this is a result of seasonal
consumption  patterns  with  respect to the  Company's  food  products,  such as
consumption  of higher  volumes of tortilla  chips,  salsa and barbecue  sauces,
during  the summer  months.  This  seasonality  may cause  quarterly  results of
operations to fluctuate.

Raw Material Cost Fluctuations

     The Company does not enter into futures contracts as defined by SFAS 80. It
does, however, enter into purchase orders for delayed delivery of raw materials,
generally  30 days for raw  materials  other  than flour and corn.  The  Company
enters into purchase orders for delayed  delivery of flour and corn for a period
of 2-18 months,  depending on current pricing, to ensure the availability of the
type of flour and corn best suited for the Company's  products.  These  purchase
orders  are place  directly  with the  suppliers.  At the end of each  reporting
period,  the Company  evaluates the open  purchase  orders for corn to determine
whether a loss should be recognized.

<PAGE>


Liquidity and Capital Resources


     The Company has financed its  activities  to date  primarily  through debt,
cash generated from its operations and the issuance of securities.

     During fiscal 1996 net cash provided by operating  activities was $305,511,
consisting   principally  of  net  income  of  $105,307  adjusted  for  non-cash
depreciation and amortization expenses of $552,902 and a decrease in inventories
of $181,597,  offset by a decrease of accounts  payable and accrued  expenses of
$489,620.

     Net  cash  used in  investing  activities  in  fiscal  1996  was  $161,286,
primarily the result of capitalized  costs  associated with the  refurbishing of
production  equipment  and  down  payments  on  the  construction  of a  freezer
expansion. During fiscal 1996 net cash used in financing activities was $144,488
due mainly to the issuance of additional Common Stock for $808,620 net of costs,
offset by net reductions in borrowings of $953,108.

     The Company estimates that as of September 30, 1996, there is an additional
$470,000  which  could be  drawn  under  its bank  line of  credit.  The  amount
available  under this line of credit  fluctuates  daily based upon the Company's
eligible accounts  receivable and inventory.  The line of credit, bank term note
and bank capital note are subject to various financial covenants,  the violation
of which could result in termination of the loan agreements  which would require
the  Company to repay the loans in full.  The Company had been in default of the
financial  covenants in the past, and the bank has waived such  defaults.  It is
management's  opinion that the Company will be able to meet the  requirements of
these covenants in the future;  however,  there is no assurance that the Company
will not violate the  financial  covenants  in the future or that the bank would
waive any violations.

     At September 30, 1996, the Company had cash of $600 and a negative  working
capital of $480,444.

     On February 2, 1996,  the Company raised  $1,280,000  pursuant to a private
offering of 2,560,000 equity units,  each unit consisting of one share of Common
Stock and a warrant,  exercisable  for three  years,  to  purchase  one share of
Common Stock at $0.75 per share.  The Company filed a registration  statement on
Form S-3,  which has been  declared  effective  by the  Securities  and Exchange
Commission,  to  register  the  possible  resale  by  certain  shareholders  who
participated in the Company's December 1994 financial restructuring and February
2, 1996 private  placement  of an aggregate of 6,185,400  shares of Common Stock
including up to 2,978,900 shares that  shareholders may acquire upon exercise of
outstanding warrants.

     The Company  believes that the additional  capital raised,  its bank credit
facilities  and  cash  flow  from  operations  will be  sufficient  to meet  its
operating  requirements  through fiscal 1997,  assuming (i) the Company's fiscal
1997 sales  equal or exceed  fiscal 1996  sales;  (ii) there are no  significant
increases in expenses in fiscal 1997;  and (iii) the Company is able to keep its
bank credit facilities operative.

Accounting Standards Issued and Not Yet Adopted

     The Financial  Accounting  Standards Board (FASB) has issued  Statement No.
123 (SFAS 123),  Accounting  for  Stock-Based  Compensation.  This  statement is
effective  for the  Company's  1997 fiscal  year.  SFAS 123  establishes  a fair
value-based  method  of  accounting  for  stock-based   compensation  plans  and
encourages,  but does not  require,  entities to adopt that method for grants to
employees  in place of APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees,  which uses an intrinsic value-based accounting method. At this time,
the Company does not intend to adopt SFAS 123 in  measuring  expenses for grants
to employees.  However, the Company must present pro forma net income (loss) and
related per share  amounts as if SFAS 123 had been  adopted,  and such pro forma
amounts are expected to reflect higher amounts of expenses than amounts reported
in the financial statements.
<PAGE>

Outlook

     Management  believes  the  restructuring  it  began  in  October  1994  has
substantially  been  completed.  Its plan in  fiscal  1997  will be to  increase
revenues and improve  profitability by focusing on new markets and product brand
positioning  of  tortillas  and  tortilla  chips in the retail and food  service
markets to take advantage of strong  industry  growth  patterns.  See Item One -
"Description of Business - Business Strategy."

     The foregoing  statements contained in this Outlook section of Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations,
including those relating to the Company's operating  requirements through fiscal
1997 contained in  Management's  Discussion and Analysis of Financial  Condition
and Results of Operations,  and other forward  looking  statements  made in Item
One, "Description of Business - Business Strategy" of this Form 10-KSB/A (No. 1)
for the  period  ended  September  30,  1996,  involve  a number  of  risks  and
uncertainties.  Some of the factors  that could cause  actual  results to differ
materially  include  but are not  limited  to  seasonality  of its sales and raw
materials cost fluctuations, which are discussed above, and the following:

     Reliance on Principal Customers. The Company has several customers who each
accounted  for a significant  percentage of the Company's  sales in fiscal 1996.
During that period,  sales to Crystal Farms Refrigerated  Distribution  Company,
Ken  Davis  Products,   Inc.,   Catalina   Specialty  Foods,  Inc.  and  Bradley
Distributing,  Inc.  accounted  for  approximately  20%,  8%,  15% and 8% of the
Company's sales, respectively.  The loss of any of the foregoing customers could
have a material and adverse effect on the Company's sales and profitability.

     Competition. The Mexican-style food manufacturing and distribution industry
is  highly  competitive.  The  Company  is  in  competition  with  a  number  of
manufacturers and distributors of Mexican-style  food products and, to a limited
extent,  manufacturers  of "snack  foods," many of which are better  capitalized
than the Company.  The Company will also be subject to future  competition  from
other manufacturers, distributors and retailers who enter into the Mexican-style
food and distribution  industry. In the retail market, many of these competitors
engage in extensive local and national advertising and marketing,  and the brand
names for products  distributed  by those  competitors  are  significantly  more
recognizable  to the  consumer  than the  Company's  brand  names.  In addition,
competition  for shelf space in retail  grocery  stores is intense.  In the food
service market,  the Company is competing with a number of regional and national
producers or Mexican-style  food products.  Many of these competitors are better
capitalized  than the  Company  and have  established  sales  organizations.  No
assurance  can be given that the  Company  will be able to compete as it expands
its markets.

     Product  Liability.  The  Company may be subject to  significant  liability
should the  consumption of any of its products  cause injury,  illness or death.
Although the Company carries product liability insurance in the aggregate amount
of  $2,000,000,  with  limits  per  occurrence  of  $1,000,000,  there can be no
assurance that this  insurance  will be adequate to protect the Company  against
product  liability  claims, or that such insurance will continue to be available
to the Company on reasonable terms.

     Government  Regulation.  The  Company's  business  is  subject  to  various
federal,  state and local environmental and health  regulations.  If the Company
were  found  not  to be in  compliance  with  such  regulations,  sanctions  and
penalties  could be imposed  which could  materially  and  adversely  affect the
Company's business.

<PAGE>


                                   SIGNATURES

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

                                        SPARTA FOODS, INC.


Dated:  January 30, 1997                By:  /s/ A. Merrill Ayers
                                            ---------------------
                                  A. Merrill Ayers, Chief Financial Officer

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


Signature and Title

/s/ Michael J. Kozlak             )
Michael J. Kozlak, Director       )
                                  )
                                  )
/s/ Larry Arnold                  )
Larry Arnold, Director            )
                                  )    By:   /s/ A. Merrill Ayers
                                  )         A. Merrill Ayers as Attorney-in-
/s/ Joel P. Bachul                )         Fact pursuant to Power of Attorney
Joel P. Bachul, Director          )         previously filed.
                                  )
                                  )
--------------------------        )   Date:    January 30, 1997
Edward Jorgensen, Director        )
                                  )
                                  )
/s/ Richard H. Leepart            )
Richard H. Leepart, Director      )
                                  )
                                  )
/s/ R. Dean Nelson                )
R. Dean Nelson, Director          )