<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the Quarterly Period Ended August 30, 1998

                                       OR

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

                        Commission File Number -- 0-17896

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

Commonwealth of Pennsylvania                                 23-0670710
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

1486 York Road, P.O. Box 334, Hanover, PA                    17331
(Address of principal executive offices)                     (Zip Code)

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

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 for the past 90
days. Yes [X] No [ ]

Indicate the number of shares outstanding of issuer's classes of common stock as
of the latest practicable date.

<TABLE>
<CAPTION>
                 Class                       Outstanding at August 30, 1998

<S>                                          <C>
    Class A Common Stock, $25 par value             290,504 shares
    Class B Common Stock, $25 par value             426,693 shares
</TABLE>
<PAGE>   2
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

                                    FORM 10-Q

                  For the Thirteen Weeks Ended August 30, 1998


Index
                                                                            Page
Part I -- Financial Information

   Item 1 -- Financial Statements:

         Condensed Consolidated Balance Sheets
            August 30, 1998 (Unaudited) and May 31, 1998................       3

         Condensed Consolidated Statements of Operations
            (Unaudited), Thirteen Weeks Ended August 30, 1998
            and August 31, 1997.........................................       5

         Condensed Consolidated Statements of Stockholders'
            Equity (Unaudited), Periods Ended August 30, 1998
            and May 31, 1998............................................       6

         Condensed Consolidated Statements of Cash Flows
            (Unaudited), Thirteen Weeks Ended August 30, 1998
            and August 31, 1997.........................................      7

         Notes to Condensed Consolidated Financial Statements
            (Unaudited).................................................       8

   Item 2 -- Management's Discussion and Analysis of Financial
                  Condition and Results of Operations...................      17

Part II -- Other Information............................................      21

   Item      1 -- Legal Proceedings.....................................      21
   Items   2-3 -- None..................................................      23
   Item      4 -- Submission of Matters to a Vote of Security Holders...      23
   Item      5 -- None..................................................      24
   Item      6 -- Exhibits and Reports  on Form 8-K.....................      24
<PAGE>   3
                         PART I -- FINANCIAL INFORMATION
                          Item 1. Financial Statements
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS                                             August 30, 1998  May 31, 1998
                                                     (Unaudited)
<S>                                                 <C>             <C>
Current Assets:
   Cash and Short-Term Cash Investments             $  3,201,000    $  2,337,000
   Accounts and Notes Receivable, Net                 20,848,000      23,429,000
   Accounts Receivable from Related Parties, Net         415,000         389,000
   Inventories                                        55,372,000      42,962,000
   Prepaid Expenses                                    3,184,000       2,244,000
   Deferred Income Taxes                                 365,000         365,000
                                                    ------------    ------------

Total Current Assets                                  83,385,000      71,726,000
                                                    ------------    ------------
Property, Plant and Equipment, at Cost:
   Land and Buildings                                 39,965,000      35,171,000
   Machinery and Equipment                            89,638,000      86,965,000
   Leasehold Improvements                                381,000         374,000
                                                    ------------    ------------
                                                     129,984,000     122,510,000
   Less Accumulated Depreciation and
      Amortization                                    73,855,000      72,641,000
                                                    ------------    ------------
                                                      56,129,000      49,869,000
   Construction in Progress                               30,000       4,411,000
                                                    ------------    ------------
Total Property, Plant and Equipment                   56,159,000      54,280,000
                                                    ------------    ------------
Other Assets and Deferred Charges:
   Intangible Assets, Net                              2,377,000       2,323,000
Other Assets                                           1,663,000       2,678,000
                                                    ------------    ------------
Total Assets                                        $143,584,000    $131,007,000
                                                    ------------    ------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        3
<PAGE>   4
          PART I -- FINANCIAL INFORMATION Item 1. Financial Statements
                 HANOVER FOODS CORPORATION AND SUBSIDIARIES --
                     Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY                        August 30, 1998    May 31, 1998
                                                              (Unaudited)
<S>                                                          <C>               <C>
Current Liabilities:
   Notes Payable - Banks                                     $  28,636,000     $  19,874,000
   Accounts Payable                                             25,081,000        23,979,000
   Accrued Expenses                                             10,022,000         7,717,000
   Current Maturities of Long-Term Debt                          1,859,000         1,859,000
   Income Taxes Payable                                            619,000         1,498,000
                                                             -------------     -------------
Total Current Liabilities                                       66,217,000        54,927,000
                                                             -------------     -------------
Long-Term Debt, Less Current Maturities                         14,359,000        14,359,000
Other Long-Term Liabilities                                      1,703,000         1,565,000
Deferred Income Taxes                                            4,618,000         4,686,000
                                                             -------------     -------------
Total Liabilities                                               86,897,000        75,537,000
                                                             -------------     -------------
Stockholders' Equity:
   8.25% cumulative convertible preferred, $25 par value;
      issuable in series, 120,000 shares authorized;
      31,536 shares issued, 15,044 shares outstanding              788,000           788,000
   4.40% cumulative convertible preferred, $25 par value;
      issuable in series, 10,000 shares authorized;                
      10,000 shares issued and outstanding                         250,000           250,000

  Common stock, Class A, non-voting, $25 par value;
      800,000 shares authorized, 349,210 shares issued,
      290,504 shares at August 30, 1998 and 290,860
      shares at May 31, 1998 outstanding                         8,729,000         8,729,000
   Common stock, Class B, voting, $25 par value;
      880,000 shares authorized, 493,123 shares issued,
      426,693 shares at August 30, 1998 and 426,766
      shares at May 31, 1998 outstanding                        12,328,000        12,328,000
   Capital Paid in Excess of Par Value                           2,143,000         2,143,000
   Retained Earnings                                            40,487,000        39,179,000
   Treasury Stock, at Cost                                      (8,013,000)       (7,993,000)
   Other Comprehensive Income                                      (25,000)           46,000
                                                             -------------     -------------
Total Stockholders' Equity                                      56,687,000        55,470,000
                                                             -------------     -------------
Total Liabilities and Stockholders' Equity                   $ 143,584,000     $ 131,007,000
                                                             -------------     -------------
</TABLE>


    See accompanying notes to condensed consolidated financial statements. 4
<PAGE>   5
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                   Thirteen Weeks Ended
                                            August 30, 1998   August 31, 1997
                                              (Unaudited)       (Unaudited)
<S>                                           <C>               <C>
Net Sales                                     $58,538,000       $55,892,000
Cost of Goods Sold                             43,925,000        42,693,000
                                              -----------       -----------
Gross Profit                                   14,613,000        13,199,000

Selling Expenses                                8,226,000         7,367,000
Administrative Expenses                         2,777,000         2,336,000
                                              -----------       -----------
Operating Profit                                3,610,000         3,496,000

Interest Expense                                  764,000           885,000
Other Expenses, Net                                77,000           236,000
                                              -----------       -----------
Earnings Before Income Taxes                    2,769,000         2,375,000

Income Taxes                                    1,133,000           848,000
                                              -----------       -----------
Net Earnings                                    1,636,000         1,527,000

Dividends on Preferred Stock                       12,000             8,000
                                              -----------       -----------
Net Earnings Applicable to Common Stock       $ 1,624,000       $ 1,519,000
                                              -----------       -----------
Earnings Per Share:
   Net Earnings Per Common Share - Basic      $      2.26       $      2.11
   Net Earnings Per Common Share - Diluted    $      2.23       $      2.11
   Dividends Per Share, Common                $     0.275             0.275
   Basic Weighted Average Shares                  717,303           719,496
   Diluted Weighted Average Shares                732,224           725,282
                                              -----------       -----------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        5
<PAGE>   6
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
            Condensed Consolidated Statements of Stockholders' Equity
                                    Unaudited

<TABLE>
<CAPTION>
                                                     Cumulative                Cumulative
                                                Convertible Preferred     Convertible Preferred
                                                        Stock                     Stock                       Common Stock
                                                   Series A and  B               Series C                        Class A

                                   Total
                                Stockholders'
                                   Equity         Shares      Amount      Shares          Amount         Shares          Amount

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

<S>                             <C>               <C>        <C>          <C>           <C>            <C>          <C>
Balance, May 31, 1998            $55,470,000      31,536     $788,000     10,000        $ 250,000      349,210      $  8,729,000

Net Earnings for  the Period       1,636,000

Cash Dividends Per Share:

   Preferred Stock                   (12,000)

  Common Stock                      (316,000)

Redemption of Common Stock

   (Class A 356 Shares and

     Class B 73 Shares)              (20,000)

Unrealized Loss on Investments       (71,000)

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

Balance, August 30, 1998       $  56,687,000     31,536     $788,000      10,000        $ 250,000      349,210      $  8,729,000
====================================================================================================================================
</TABLE>




<TABLE>
<CAPTION>
                                           Common Stock
                                             Class B
                                                                                                Treasury Stock
                                                               Capital Paid
                                                               in Excess of    Retained
                                      Shares         Amount      Par Value     Earnings     Shares         Amount          Other
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>           <C>           <C>         <C>               <C>
Balance, May 31, 1998                493,123      $12,328,000   $2,143,000    $39,179,000   141,199     $(7,993,000)      $  46,000

Net Earnings for  the Period                                                    1,636,000

Cash Dividends Per Share:

   Preferred Stock                                                                (12,000)

  Common Stock                                                                   (316,000)

Redemption of Common Stock

   (Class A 356 Shares and

     Class B 73 Shares)                                                                         429         (20,000)

Unrealized Loss on Investments                                                                                             ( 71,000)

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

Balance, August 30, 1998            493,123       $12,328,000   $2,143,000    $40,487,000   141,628     $(8,013,000)     $(  25,000)
====================================================================================================================================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                        6
<PAGE>   7
                         PART I -- FINANCIAL INFORMATION
                          Item 1. Financial Statements
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
           Condensed Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                          Period:  August 30, 1998   August 31, 1997
                                                     (Unaudited)       (Unaudited)
                                                     -----------       -----------
<S>                                                 <C>              <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
   Net Earnings                                     $  1,636,000     $  1,527,000
   Adjustments to Reconcile Net Earnings to Net
      Cash Used in Operating Activities:
         Depreciation and Amortization                 1,270,000        1,423,000
         Deferred Income Taxes                           (68,000)          99,000
   Changes in Assets and Liabilities:
         Accounts Receivable                           2,555,000        1,161,000
         Inventory                                   (12,410,000)      (9,174,000)
         Prepaid Expenses                               (940,000)        (853,000)
         Accounts Payable and Accrued Expenses         3,407,000        4,210,000
         Income Taxes Payable                           (879,000)         331,000
         Other Liabilities                               138,000          117,000
                                                    ------------     ------------
Net Cash Used In Operating Activities                 (5,291,000)      (1,159,000)
                                                    ------------     ------------
Investing Activities:
   (Increase) Decrease in Other Assets                   834,000          880,000
   Acquisitions of Property, Plant and Equipment      (3,093,000)      (1,215,000)
                                                    ------------     ------------
Net Cash Used in Investing Activities                 (2,259,000)        (335,000)
                                                    ------------     ------------
Financing Activities:
   Increase in Notes Payable                           8,762,000        2,095,000
   Payments on Long-Term Debt                                  0         (125,000)
   Payment of Dividends                                 (328,000)        (206,000)
   Redemption of Common Stock                            (20,000)         (22,000)
                                                    ------------     ------------
Net Cash Provided by Financing Activities              8,414,000        1,742,000
                                                    ------------     ------------
Net Increase in Cash and Cash Equivalents                864,000          248,000
Cash and Cash Equivalents, Beginning of Period         2,337,000        3,312,000
                                                    ------------     ------------
Cash and Cash Equivalents, End of Period            $  3,201,000     $  3,560,000
                                                    ------------     ------------
</TABLE>


    See accompanying notes to condensed consolidated financial statements. 7
<PAGE>   8
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                       August 30, 1998 and August 31, 1997
                                   (Unaudited)

(1)      BASIS OF PRESENTATION

         The condensed consolidated financial statements of the Corporation
         included herein have been prepared, without audit, pursuant to the
         rules and regulations of the Securities and Exchange Commission.
         Although, certain information normally included in financial statements
         prepared in accordance with generally accepted accounting principles
         has been omitted, the Registrant believes that the disclosures are
         adequate to make the information presented not misleading.

         The Corporation's fiscal year ends at the close of operations on the
         Sunday nearest to May 31. Accordingly, these financial statements
         reflect activity for the thirteen week periods ended August 30, 1998
         and August 31, 1997.

         It is suggested that these condensed consolidated financial statements
         be read in conjunction with the consolidated financial statements and
         the notes thereto included in Form 10-K for the Corporation's fiscal
         year ended May 31, 1998.

         The condensed consolidated financial statements included herein reflect
         all adjustments (consisting only of normal recurring accruals) which,
         in the opinion of management, are necessary to present a fair statement
         of the results of the interim period.

         The results for interim periods are not necessarily indicative of
         trends or results to be expected for a full fiscal year.

(2)      SHORT-TERM BORROWINGS

         The Corporation and its subsidiaries maintain short-term unsecured
         lines of credit with various banks providing credit availability
         amounting to $90.0 million of which $28,636,000 was borrowed at August
         30, 1998. The average cost of funds during the period ended August 30,
         1998 was 6.10%.



                                        8
<PAGE>   9
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)
(3)      LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                             August 30, 1998  May 31, 1998
                                             ---------------  ------------
<S>                                          <C>               <C>  
8.74% unsecured senior notes payable
   to an insurance company, due
   fiscal years ending 1995-2007               $16,071,000    $16,071,000

Installment obligation payable to a related
   party, due in equal annual installments
   in fiscal years ending 1996-2000
   interest at prime rate (8.50% at
   August 30, 1998)                                147,000        147,000

                                               -----------    -----------
                                                16,218,000     16,218,000

Less current maturities                          1,859,000      1,859,000
                                               -----------    -----------
Net Long Term Debt                              14,359,000     14,359,000
                                               -----------    -----------
</TABLE>

The term loan agreements with the insurance company and the agreements for
seasonal borrowing with financial institutions contain various restrictive
provisions including those relating to mergers and acquisitions, additional
borrowing, guarantees of obligations, lease commitments, limitations on
declaration and payment of dividends, repurchase of the Corporation's stock, and
the maintenance of working capital and certain financial ratios.

The Corporation is in compliance with the restrictive provisions in the
agreements.


                                        9
<PAGE>   10
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                     Notes to Condensed Financial Statements
                                   (Unaudited)

(4)      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.

<TABLE>
<CAPTION>
                                         Thirteen Weeks Ended
                                  August 30, 1998   August 31, 1997
                                  ---------------   ---------------
<S>                               <C>               <C>
Revenues:
   Park 100 Foods, Inc.              $  930,000        $1,747,000

Corporate Charges:

   Snyder's of Hanover, Inc.         $   46,000        $   44,000

Expenditures:

   Park 100 Foods Corp.              $   23,000        $  142,000
   ARWCO Corporation                 $    4,000        $    4,000
   Warehime Enterprises, Inc.        $   12,000        $    1,000
   John A. & Patricia M. Warehime    $   11,000        $   16,000
   James G. Sturgill                 $   18,000        $   24,000
   Lippy Brothers, Inc.              $    1,000        $        0
                                     ----------        ----------
</TABLE>


                                       10
<PAGE>   11
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                     Notes to Condensed Financial Statements
                                   (Unaudited)


The respective August 30, 1998 and May 31, 1998 account balances with related
companies are as follows:
<TABLE>
<CAPTION>
                               August 30, 1998    May 31, 1998
                               ---------------    ------------
Accounts Receivable:

<S>                            <C>               <C>
   Snyder's of Hanover, Inc.      $ 33,000          $ 48,000
   Park 100 Foods, Inc.           $389,000          $346,000
   Warehime Enterprises           $      0          $  3,000

Accounts Payable:

   Park 100 Foods, Inc.           $  3,000          $      0
   ARWCO Corporation              $  1,000          $  1,000
   James G. Sturgill              $      0          $  7,000
   Lippy Brothers, Inc.           $  3,000          $      0

Notes Payable:

   Cyril T. Noel                  $147,000          $147,000
                                  --------          --------
</TABLE>


                                       11
<PAGE>   12
                          PART I - FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                     Notes to Condensed Financial Statements
                                   (Unaudited)

(5)      The Company adopted Statement of Financial Accounting Standards No.
         128, "Earnings Per Share" effective with the period ended March 1,
         1998, and restated all prior earnings per share amounts to conform to
         the provisions thereof.

(6)      The Company adopted Statement of Financial Accounting Standards No. 130
         "Reporting Comprehensive Income" in the first quarter of the current
         fiscal year. Comprehensive income is determined as follows:

<TABLE>
<CAPTION>
                                          Thirteen Weeks Ended
                                   August 30, 1998     August 31, 1997
                                   ---------------     --------------
<S>                                <C>                 <C>
Net Income                           $1,636,000          $1,527,000

Other Comprehensive Loss
   Unrealized Loss on Investments        71,000              21,000
                                     ----------          ----------

Comprehensive Income                 $1,565,000          $1,506,000
                                     ==========          ==========


</TABLE>


                                       12
<PAGE>   13
                         PART I -- FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

(7)      CONTINGENCIES

         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 compliant 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) a count 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 complaint). The suit also names 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 director's fees. (Since the
         filing of this lawsuit, John A. Warehime's 1995 Employment Agreement
         was amended.) 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


                                       13
<PAGE>   14
                         PART I - FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                                   (Unaudited)

         complaint for failure to make a prior demand. An appeal has been filed
         from the court's June 24, 1997 Order. On May 12, 1997, a written demand
         was received by the Corporation from the attorney for those Class A
         common stockholders containing similar allegations and the allegations
         raised by the Class A common stockholders were investigated by a
         special independent committee of the Board of Directors and found to be
         without merit.

         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, John A. Warehime, in his capacity as voting
         trustee, and all certain directors of the Corporation 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
         stockholders), Michael A. Warehime, John A. Warehime, Sally W. Yelland,
         J. William Warehime, and Elizabeth W. Stick (all members of the
         Warehime family),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 shareholders may become entitled to vote in the manner
         described in the document.

         The Amended and Restated Articles create a Series C Convertible
         Preferred Stock and 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.



                                       14
<PAGE>   15
                         PART I - FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

         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 in his capacity as voting trustee) 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 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. Michael A.
         Warehime has filed an appeal. 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, in his capacity
         as voting trustee) 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 17159(e) of the Pennsylvania Business Corporations 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.



                                       15
<PAGE>   16
                         PART I - FINANCIAL INFORMATION
                     Item 1. Financial Statements, Continued
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES
                     Notes to Condensed Financial Statements
                                   (Unaudited)

         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 Corporation's consolidated financial
         position, results of operations or liquidity.



                                       16
<PAGE>   17
                         PART I -- FINANCIAL INFORMATION
                 Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

ITEM 1.   BUSINESS

FORWARD LOOKING STATEMENTS

When used in this Form 10-Q, 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, foreign operations and risks
associated with the Year 2000 Issue. Such factors, which are discussed in the
Form 10-Q, could affect the Company's financial performance and could cause the
Company'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 Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made.

The following comments should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in the Corporation's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998.

RESULTS OF OPERATIONS

NET SALES

Consolidated net sales were $58.5 million for the thirteen week period ended
August 30, 1998. This represents an increase of 4.7% over the thirteen week
period ended August 31, 1997 consolidated net sales of $55.9 million. The
increase of $2.6 million was primarily due to by increases in the sales of L.K.
Bowman and Sunnyside Fresh Foods, new acquisitions during the later part of
fiscal 97/98, offset by decreased retail branded sales.

COST OF GOODS SOLD

Cost of goods sold were $43.9 million, or 75.0% of consolidated net sales in the
thirteen week period ended August 30, 1998 and $42.7 million, or 76.4% of
consolidated net sales, for the corresponding period in 1997. The decrease in
cost of goods sold as a percentage of net sales resulted primarily from a
reduction in costs of operations.


                                       17
<PAGE>   18
                         PART I -- FINANCIAL INFORMATION
                 Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

SELLING EXPENSES

Selling expenses were $8.2 million, or 14.1% of consolidated net sales, for the
thirteen week period ended August 30, 1998 as compared to $7.4 million or 13.2%
of consolidated net sales, during the corresponding period in 1997. The increase
in selling expenses as a percentage of net sales reflects higher expenses
related to coupon programs, and increased retail promotional expenses for the
period.

ADMINISTRATIVE EXPENSES

Administration expenses as a percentage of consolidated net sales were 4.7% for
the thirteen week period ended August 30, 1998 compared to 4.2% for the
corresponding period of 1997. The increase is attributed to outside consulting
services dealing with the Year 2000 conversion and the administrative expenses
of L.K. Bowman and Sunnyside Fresh Foods which were acquired last year.

INTEREST EXPENSE

Interest expense was $764,000 for the thirteen week period ended August 30, 1998
as compared to $885,000 for the same period in 1997. The decreased in interest
in mainly due to lower average borrowings of higher interest rate debt during
the current period.

INCOME TAXES

The provision for corporate federal and state income taxes for the thirteen week
period ended August 30, 1998 was $1.1 million, or 40.9% of pretax earnings, as
compared to $0.8 million, or 35.7% of pretax earnings for the same period in
1997. The increase in the effective tax rate is due to decreased earnings in
foreign jurisdictions with lower tax rates in the current year period as
compared to the prior period.


                                       18
<PAGE>   19
                         PART I -- FINANCIAL INFORMATION
                 Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

OPERATING ACTIVITIES

Cash used by operating activities for the thirteen week period ended August 30,
1998 was $5.3 million as compared to $1.2 million during the same period of
1997. The combination of increased inventory levels offset by decreases in
accounts payable and accrued expenses, utilized more cash flow. By comparison
for the same period in 1997, the combination of increased inventory levels
offset by decreases in accounts receivable and increases in accounts payable and
accrued expenses utilized less cash flow.

INVESTING ACTIVITIES

During the thirteen week period ended August 30, 1998 the Corporation spent
approximately $3.1 million for the purchase of land and plant upgrades and
expansions. This compares to $1.2 million spent during the same period last year
for capital projects.

FINANCING ACTIVITIES

The increase in notes payable of approximately $8.8 million during the thirteen
week period ended August 30, 1998 represents borrowings made against available
seasonal lines of credit from financial institutions for use in operations and
plant upgrades and expansions.

The Corporation has available seasonal lines-of-credit from financial
institutions in the amount of $90.0 million of which $28.6 million was utilized
as of August 30, 1998. Additional borrowings are permitted within parameters in
existing debt agreements.

Management believes these credit facilities provide adequate cash availability
for seasonal operating requirements.


                                       19
<PAGE>   20
                         PART I - FINANCIAL INFORMATION
                 Item 2. Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

YEAR 2000

Many existing computer programs, including those utilized by the Corporation,
use only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, any computer applications could fail or create
erroneous results by or at the Year 2000 (the "Year 2000 Issue"). The
Corporation has retained an outside consultant to manage the Corporation's
efforts to bring its computer system into Year 2000 compliance. The Corporation
has contacted its customers, key suppliers and its equipment manufacturers in an
attempt to ensure third party compliance.

In 1997, the Corporation established a management team to assess the
Corporation's Year 2000 issues and to implement the Corporation's Year 2000
compliance program. The management team includes members of the Corporation's
Management Information, Accounting and Finance Departments and certain officers
of the Corporation. The Corporation has completed the majority of its
implementation and testing program and currently anticipates having all of its
information technology systems as well as non-information technology systems
(which include the Corporation's telecommunications systems and food processing
equipment) Year 2000 compliant by the end of the first quarter of 1999. The
Corporation is also in the process of developing a contingency plan in the event
its systems are not Year 2000 compliant on a timely basis. The Corporation
currently estimates the total costs associated with addressing the Year 2000
Issue to be approximately $350,000 and anticipates that such costs will not
materially affect the Corporation's future financial results.

As part of its Year 2000 compliance program, the Corporation is contacting and
surveying vendors and customers with whom which the Corporation does a material
amount of business to determine whether these parties' systems (to the extent
they relate to the Corporation's business) are subject to Year 2000 issues. The
failure of the Corporation's material vendors or customers to convert their
systems on a timely basis may have a material adverse effect on the
Corporation's operations. The Corporation is in the process of developing a
contingency plan in the event these vendors or customers with which the
Corporation does a material amount of business are not Year 2000 compliant on a
timely basis.



                                       20
<PAGE>   21
                          PART II -- OTHER INFORMATION
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

ITEM 1.  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) a
count requesting removal of John A. Warehime as the voting trustee of the voting
trusts.

Derivation 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
complaint). The suit also names 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 director's fees. (Since the
filing of this lawsuit, John A. Warehime's 1995 Employment Agreement was
amended.) 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. An appeal has been filed from the court's June
24, 1997 Order. On May 12, 1997, a written demand was received by the
Corporation from the attorney for those Class A common stockholders containing
similar allegations and the allegations raised by the Class A Common
stockholders were investigated by a special independent committee of the Board
of Directors and found to be without merit.


                                       21
<PAGE>   22
                           PART II - OTHER INFORMATION
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

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, John A. Warehime, in his capacity as voting trustee, and all
certain directors of the Corporation 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 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 stockholders), Michael A.
Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime, and Elizabeth
W. Stick (all members of the Warehime family), 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
shareholders may become entitled to vote in the manner described in the
document.

The Amended and Restated Articles create a Series C Convertible Preferred Stock
and 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 in his capacity as voting trustee) and the Amended and Restated
Articles became effective June 25, 1997. Appeals have been filed from the denial
of the plaintiff's 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


                                       22
<PAGE>   23
                           PART II - OTHER INFORMATION
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

deduction pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended. A 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. Michael A. Warehime has
filed an appeal. 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, in his capacity as voting trustee) on August
14, 1997 and the Amendment become 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 the
following criteria: (i) disinterested directors as defined in Section 1719(e) of
the Pennsylvania Business Corporations 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.

Item 2.  Changes in Securities - None

Item 3.  Defaults Upon Senior Securities - None

Item 4.  Submission of Matters to a Vote of Security Holders - The
         Corporation held its Annual Meeting of Shareholders on September
         10,1998 to elect one director of the Corporation. The following
         provides information regarding the total votes cash for each nominee
         for election as a director.

<TABLE>
<CAPTION>
                                    For              Against       Abstain
                                    ---              -------       -------
<S>                               <C>                <C>           <C>
          Cyril T. Noel           557,575             5,503            -
          G. Steven McKnoly       233,752               -              -
</TABLE>


                                       23
<PAGE>   24
                           PART II - OTHER INFORMATION
                   HANOVER FOODS CORPORATION AND SUBSIDIARIES

         Accordingly Cyril T. Noel was elected a director of the Corporation for
         a term of four years and until his successor is elected and qualified.
         Directors remaining in office include John A. Warehime, Clayton J.
         Rohrbach, Jr., T. Edward Lippy, Arthur S. Schaier, James G. Sturgill
         and James A. Washburn.

Item 5.  Other Information - None

Item 6.  Exhibits and Reports on Form 8-K - None

(a)        Exhibits

          S-K Exhibit
            Number          Description of Exhibit
            ------          ----------------------

              11            Computation of Earnings per Share

              27            Financial Data Schedule

(b)        Reports on Form 8-K.

          No reports on Form 8-K were filed during the quarter ended August 30,
          1998.


                                       24
<PAGE>   25
                                    SIGNATURE



         Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.


                                            HANOVER FOODS CORPORATION


Date                                        By: /s/ Gary T. Knisely
    ----------------------------------          --------------------------------
                                                Gary T. Knisely
                                                Executive Vice President

                                            By: /s/ Pietro Giraffa
                                                --------------------------------
                                                Pietro Giraffa
                                                Controller

                                       25