U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


 [ X ]              Quarterly Report under Section 13 or 15 (d) of the
                     Securities Exchange Act of 1934.

                    For the quarterly period ended  June 30, 1997

 [   ]              Transition Report under Section 13 or 15 (d) of the
                     Exchange Act.

For the transition period from ___________________ to ________________________.

                        Commission File Number 000-19318

                               SPARTA FOODS, INC.
        (exact name of small business issuer as specified in its charter)

      Minnesota                                                  41-1618240
(state or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)

                     2570 Kasota Avenue, St. Paul, MN 55108
                    (Address of principal executive offices)

                                 (612) 646-1888
                           (Issuer's telephone number)

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
                  Yes     [ X ]              No [   ]

State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:

               6,705,049 shares of Common Stock at July 25, 1997.

Transitional Small Business Disclosure Format:  Yes  [   ]        No    [ X ]


<PAGE>
                               SPARTA FOODS, INC.

                                   FORM 10-QSB

                           QUARTER ENDED JUNE 30, 1997

                                TABLE OF CONTENTS
                                                                            PAGE
                                                                            ----
PART I.  FINANCIAL INFORMATION

       Item 1.   Financial Statements                                        3

                 Condensed Consolidated Balance Sheets at June 30, 1997
                 and September 30, 1996                                      3

                 Condensed Consolidated Statements of Operations for the
                 three-month periods and the nine-month periods
                 ended June 30, 1997 and 1996                                4

                 Condensed Consolidated Statements of Cash Flows for
                 the nine-month periods ended June 30, 1997
                 and 1996                                                    5

                 Notes to Condensed Consolidated Financial Statements-
                 June 30, 1997                                               6

       Item 2.   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                         8

PART II. OTHER INFORMATION

       Item 6.   Exhibits and Reports on Form 8-K                           12


SIGNATURES                                                                  13

EXHIBIT INDEX                                                               14

<PAGE>
                         PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               SPARTA FOODS, INC.
                      Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                 June 30             September 30
                                                                                  1997                    1996
                                                                              --------------         ---------------
                                                                              (unaudited)
<S>                                                                        <C>                     <C>    
    ASSETS
    Current Assets
       Cash                                                                $         30,567        $            600
       Accounts receivable, less allowances of $50,000
           and $52,000, respectively                                                849,877                 639,934
       Inventories:
           Finished goods                                                           481,674                 241,959
           Raw materials and packaging                                              498,405                 506,513
       Prepaid expenses                                                             211,197                  63,915
    ----------------------------------------------------------------------------------------------------------------
              Total current assets                                                2,071,720               1,452,921
    ----------------------------------------------------------------------------------------------------------------

    Property and Equipment                                                        6,080,455               5,850,489
       Less accumulated depreciation                                              2,456,966               2,115,810
    ----------------------------------------------------------------------------------------------------------------
                                                                                  3,623,489               3,734,679
    ----------------------------------------------------------------------------------------------------------------

    Other Assets
       Goodwill, less accumulated amortization of $69,355
           and $102,358, respectively                                               444,018                 457,533
       Covenants not-to-compete, less accumulated amortization
           of $38,606 and $235,366, respectively                                     71,394                  98,134
       Rental property held for resale, less accumulated depreciation
           of $33,966 and $15,984, respectively                                     911,184                 924,016
       Other                                                                        636,687                 339,730
    ----------------------------------------------------------------------------------------------------------------
                                                                                  2,063,283               1,819,413
    ----------------------------------------------------------------------------------------------------------------

                                                                           $      7,758,492       $       7,007,013
    ----------------------------------------------------------------------------------------------------------------

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities
       Note payable, bank                                                  $        791,174       $         294,811
       Current maturities of long-term debt                                         442,230                 567,905
       Accounts payable                                                             670,969                 658,575
       Accrued expenses                                                             523,997                 412,074
    ----------------------------------------------------------------------------------------------------------------
              Total current liabilities                                           2,428,370               1,933,365
    ----------------------------------------------------------------------------------------------------------------

    Long-Term Debt, less current maturities                                       1,729,097               2,063,613
    ----------------------------------------------------------------------------------------------------------------

    Stockholders' Equity
       Preferred Stock, authorized 1,000,000 shares,
           no designated par value; none issued                                       ----                     ----
       Common Stock, authorized 15,000,000 shares, $.01 par value; issued
           and outstanding 6,685,049 and 6,679,049 shares, respectively              66,850                  66,790
       Additional paid-in capital                                                 4,913,459               4,911,070
       Accumulated deficit                                                       (1,379,284)             (1,967,825)
    ----------------------------------------------------------------------------------------------------------------
                                                                                  3,601,025               3,010,035
    ----------------------------------------------------------------------------------------------------------------

                                                                           $      7,758,492        $      7,007,013
    ----------------------------------------------------------------------------------------------------------------
</TABLE>


    See Notes to Condensed Consolidated Financial Statements.
<PAGE>
                               SPARTA FOODS, INC.
                 Condensed Consolidated Statements of Operations
                                   (unaudited)
<TABLE>
<CAPTION>
                                                    For the three months                    For the nine months
                                                           ended                                    ended
                                                          June 30                                  June 30
                                            --------------------------------------   --------------------------------------
                                                   1997                 1996                1997                 1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                  <C>                 <C>                  <C>  

Net sales                                   $      3,810,107     $      3,346,613    $     10,114,728     $      9,262,690

Cost of sales                                      2,558,433            2,430,227           7,028,204            6,762,206
---------------------------------------------------------------------------------------------------------------------------

        Gross profit                               1,251,674              916,386           3,086,524            2,500,484

Selling, general and administrative expenses         791,552              735,602           2,329,987            2,194,622
---------------------------------------------------------------------------------------------------------------------------

        Operating income                             460,122              180,784             756,537              305,862

Other income (expense),net                            35,086               35,826              88,221               70,213

Interest expense                                     (74,502)             (93,710)           (240,130)            (344,893)
---------------------------------------------------------------------------------------------------------------------------

        Income  before income tax                    420,706              122,900             604,628               31,182

Provision for income tax                              13,587                ---                16,087                 ---
---------------------------------------------------------------------------------------------------------------------------

        Net income                          $        407,119     $        122,900    $        588,541     $         31,182
---------------------------------------------------------------------------------------------------------------------------

Net income per common and common 
    equivalent share:


    Primary earnings per share              $            .05      $           .01    $            .07     $            .01
                                               ==============       ==============      ==============       ==============
    Weighted average number of
        common and common equivalent
        shares                                     9,235,535            9,162,490           9,235,535            6,505,866
                                               ==============       ==============      ==============       ==============


    Fully diluted earnings per share        $            .05      $           .01    $            .07              ----
                                               ==============       ==============      ==============       ==============
    Weighted average number of
        common and common equivalent
        shares                                     9,235,535            9,292,110           9,235,535            7,118,036
                                               ==============       ==============      ==============       ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
                               SPARTA FOODS, INC.
                 Condensed Consolidated Statements of Cash Flows
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                    For the nine months
                                                                                           ended
                                                                                          June 30
                                                                               --------------------------------
                                                                                   1997               1996
    -----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>        

    Cash Flows From Operating Activities
        Net income                                                          $       588,541    $        31,182
        Adjustments to reconcile net income to net cash provided
          by (used in) operating activities:
            Depreciation and amortization                                           421,152            401,043
            Loss on sale-leaseback of equipment                                      15,940             ---
            Changes in assets and liabilities:
               Accounts receivable                                                 (209,944)           (84,171)
               Inventories                                                         (231,607)           115,085
               Prepaid expenses                                                    (147,282)           (18,614)
               Other assets                                                        (302,107)             5,041
               Accounts payable and accrued expenses                                124,318           (501,927)

    -----------------------------------------------------------------------------------------------------------
                  Net cash provided by (used in) operating activities               259,011            (52,361)
    -----------------------------------------------------------------------------------------------------------

    Cash Flows From Investing Activities
        Purchases of equipment                                                     (472,696)           (71,734)
        Proceeds from the sale-leaseback of equipment                               205,030             ---

    -----------------------------------------------------------------------------------------------------------
                  Net cash (used in) investing activities                          (267,666)           (71,734)
    -----------------------------------------------------------------------------------------------------------

    Cash Flows From Financing Activities
        Net borrowings (payments) on line of credit                                 496,363           (581,274)
        Long-term borrowings (repayments), net                                     (460,191)          (444,182)
        Issuance of Common Stock (excluding, in 1996, stock issued for
          conversion of debt), net of cost                                            2,450          1,149,288

    -----------------------------------------------------------------------------------------------------------
                  Net cash provided by financing activities                          38,622            123,832
    -----------------------------------------------------------------------------------------------------------

                  Net increase (decrease) in cash                                    29,967               (263)

    Cash Balance
        Beginning of period                                                             600                863
    -----------------------------------------------------------------------------------------------------------

        End of period                                                       $        30,567    $           600
    -----------------------------------------------------------------------------------------------------------

    Supplemental Disclosures of Cash Flow Information
        Cash payments for:
            Interest                                                        $       242,569    $       356,149
            Income tax                                                                3,750           ---
    -----------------------------------------------------------------------------------------------------------

    Supplemental Schedule of Noncash Financing Activities
        Conversions to Common Stock:
          of bridge financing                                               $      ---         $       350,000
          of trade  account payable                                                ---                  20,000
        Reclassification of deferred private placement costs to equity
          upon issuance of Common Stock                                            ---                  18,704
    -----------------------------------------------------------------------------------------------------------
</TABLE>

    See Notes to Condensed Consolidated Financial Statements.
<PAGE>
                               Sparta Foods, Inc.
              Notes to Condensed Consolidated Financial Statements
                                  June 30, 1997
                                   (unaudited)

NOTE 1.  GENERAL

     The  unaudited  condensed  consolidated  balance  sheet at June  30,  1997,
     condensed  consolidated  statements of operations for the  three-month  and
     nine-month periods ended June 30, 1997 and 1996, and condensed consolidated
     statements of cash flows for the nine-month periods ended June 30, 1997 and
     1996,  include  all  adjustments  which in the  opinion of  management  are
     necessary in order to make the financial  statements not misleading and are
     not necessarily  indicative of results of operations to be expected for the
     entire fiscal year ending September 30, 1997.

     The unaudited  financial  statements should be read in conjunction with the
     audited  financial  statements  for the years ended  September 30, 1996 and
     1995,  contained in Form 10-KSB and Form 10-KSB/A(No.  1), and Management's
     Discussion  and Analysis of Financial  Condition  and Results of Operations
     contained herein.

NOTE 2.  FINANCING AGREEMENT

     The Company has a financing  agreement with a bank which involves a line of
     credit and term note.  Under this  agreement  the  Company is  required  to
     maintain certain minimum net worth levels.  In addition,  a maximum debt to
     net worth ratio is specified,  and dividends and capital  expenditures  are
     restricted.  Advances  are secured by the  Company's  accounts  receivable,
     inventories  and equipment.  Maximum  borrowing under the line of credit is
     determined  by  an  accounts   receivable  and  inventory   borrowing  base
     calculation  or  $1,200,000,  whichever  is less.  At June 30,  1997,  such
     borrowing  bears  interest at prime plus .50 percent  (9.00  percent),  and
     $791,174 was  outstanding on the line of credit.  On December 20, 1996 this
     agreement was amended to adjust various covenants,  extend the maturity and
     make available an additional $200,000 under the term note.

NOTE 3.  PROVISION FOR INCOME TAX

     The 1997  provision for income tax is based upon taxable  income subject to
     federal  and state  alternative  minimum  taxes.  The  availability  of tax
     benefits  from prior years  offsets  income  otherwise  subject to ordinary
     taxation. Such benefits eliminated taxes on income of the 1996 periods.

<PAGE>
NOTE 4.  NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

     Primary  earnings  per common and common  equivalent  share are  calculated
     based on the net income for the period and on the weighted  average  number
     of common shares outstanding  during the period,  both adjusted by assuming
     the issuance of shares for the  exercise of all stock  options and warrants
     having  exercise  prices  which are less than the average  market  price of
     Common Stock,  using the treasury stock method. By that method, the assumed
     proceeds from the  exercises  are used to  repurchase  shares to the extent
     possible and then apply the balance of any proceeds to reduce debt, thereby
     decreasing  interest  expense;  where  applicable,   net  income  has  been
     increased for the  computation of earnings of the periods.  The computation
     of fully diluted  earnings per share employs the treasury  stock method but
     applies the market  price at the close of the periods  rather than  average
     prices during the periods to repurchase shares.

     The Financial Accounting Standards Board has issued "Statement of Financial
     Accounting   Standards  No.  128,  Earnings  per  Share"  (FAS  128)  which
     supersedes  Accounting  Principles  Board  Opinion No. 15 (APB 15). FAS 128
     requires,  for financial  statement  periods ending after December 15, 1997
     but not sooner,  the  presentation  of basic  earnings  per share (EPS) and
     diluted  per share  amounts.  Basic EPS is the net  income  related  to the
     weighted-average  number  of  common  shares  outstanding  for the  period.
     Diluted EPS  reflects  potential  dilution  assuming the issuance of Common
     Stock  for  the  exercise  of all  stock  options  and  warrants,  computed
     similarly to fully diluted EPS pursuant to APB 15.

     If  the  Company  had  applied  FAS  128  in  the  accompanying   financial
     statements, the following per share amounts would have been reported.
<TABLE>
<CAPTION>

                                                                 Periods Ended June 30
                                   -------------------------------------------------------------------------
                                   3 mo. `97            3 mo. `96             9 mo. `97            9 mo. `96
                                   ---------            ---------             ---------            ---------
<S>                                <C>                  <C>                   <C>                  <C>   

Net Income                         $ 407,119            $ 122,900             $ 588,541            $  31,182
                                   ---------            ---------             ---------            ---------
Shares                             6,685,049            6,667,304             6,683,269            5,477,580
                                   ---------            ---------             ---------            ---------
Basic EPS                          $   .06              $   .02               $   .09              $   .01
---------                          -------              -------               -------              -------
Dilutive securities:
  Options and Warrants             1,568,053            2,180,047             1,605,781              827,768
                                   ---------            ---------             ---------            ---------
Total Shares                       8,253,102            8,847,351             8,289,050            6,305,348
                                   ---------            ---------             ---------            ---------
Diluted EPS                        $   .05              $   .01               $   .07                 ----
-----------                        -------              -------               -------              -------
</TABLE>

Options  and  warrants  to purchase  884,134  shares of Common  Stock at various
prices  ranging from $1.06 to $5.00 per share were  outstanding  during the 1997
periods  but were not  included in the  computations  of diluted EPS because the
exercise  prices were greater than the average market price of the Common Stock.
The options and warrants have various expiration dates between 2001 and 2007.

NOTE 5.  SUBSEQUENT EVENT

     As part of the Company's  previously  announced relocation of its corporate
     headquarters and  manufacturing  plant to a leased facility within the Twin
     Cities  metropolitan  area,  it  has  obtained   additional   financing  to
     facilitate  the move and extend its  production  capabilities.  During July
     1997,  the Company  entered into a  $1,950,000  credit  agreement  with the
     Minnesota  Agricultural  and  Economic  Development  Board to  finance  the
     purchase of new  manufacturing  equipment.  It also  obtained an additional
     $800,000 in availability for revolving credit borrowings under its existing
     Credit Agreement with its bank.
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Overview

     La Canasta of Minnesota,  Inc. ("La  Canasta"),  the  predecessor of Sparta
     Foods,  Inc.  (the  "Company"),  and now a  wholly-owned  subsidiary of the
     Company, began producing limited volumes of hand stretched 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 purposes 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. During the period 1991 through
     1993 the Company completed acquisitions which expanded its trademark retail
     brands to include Cruz, Chapala,  Mexitos and La Campana Paradiso, its food
     service bases to include McDonald's restaurants and its retail distribution
     network to include Bradley Distributing, Inc. In 1995 the Company relocated
     its   Lakeville,   Minnesota   production   operations   to  its  St.  Paul
     manufacturing  facility.  The Company leased the Lakeville facility in 1996
     for a period of 10 years with a purchase  option.  Effective  September  1,
     1997 the Company  signed a 15-year  lease to relocate all  operations to an
     office and manufacturing facility in New Brighton,  Minnesota.  The current
     facility in St. Paul has been sublet for the remainder of its lease term.

Results of Operations

     The  Company's  net sales of  $10,114,728  increased  $852,038 for the nine
     months ended June 30,  1997,  as compared to the nine months ended June 30,
     1996. Net sales of $3,810,107 increased $463,494 for the three months ended
     June 30, 1997,  as compared to the three months ended June 30, 1996.  These
     increases  primarily  resulted  from  new  customers  in the  food  service
     industry  as well as  expansion  into new  territories  through its primary
     retail  distributors,  Crystal Farms Refrigerated  Distribution Company and
     Marigold Foods, Inc.

     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,  salsas,  and
     barbecue  sauces,  during the summer  months.  This  seasonality  may cause
     quarterly results of operations to fluctuate.

     Gross profit,  as a percentage of net sales, for the nine months ended June
     30, 1997 was 30.5 % compared  to 27.0 % for the nine months  ended June 30,
     1996.  Gross  profit,  as a percentage  of net sales,  for the three months
     ended June 30, 1997 was 32.9 % compared to 27.4% for the three months ended
     June 30, 1996.  The higher  percentages  reflect  significant  cost savings
     achieved by certain purchases of raw materials and packaging and processing
     efficiencies,  as well as the effect of  periodic  price  increases  of the
     Company's products.
<PAGE>
     Selling,  general and administrative  expenses increased $135,365 or 6 % in
     the nine months ended June 30,  1997,  as compared to the nine months ended
     June 30, 1996. These expenses  increased $55,950 or 8 % in the three months
     ended June 30,  1997,  as compared to the three months ended June 30, 1996.
     Both increases  reflect the results of the Company's cost control  programs
     to limit  growth  of these  expenses  to a  comparative  growth  in  sales.
     Interest expense decreased $104,763 for the nine months ended June 30, 1997
     compared to the nine months ended June 30, 1996. Interest expense decreased
     $19,208  for the three  months  ended June 30,  1997  compared to the three
     months  ended  June 30,  1996.  Both are due  primarily  to  interest  rate
     reductions and lower levels of bank borrowings.

     As previously  reported the Company signed a lease during the third quarter
     and will be moving its corporate office and  manufacturing  operations to a
     new  facility  during  the  fourth  quarter.  The  Company  will  record  a
     nonrecurring  charge  against  operating  income  in  connection  with  the
     relocation, the amount of which is unknown at this time.

Liquidity and Capital Resources

     The Company financed its current  activities  primarily through  short-term
     borrowings,  cash  generated from its operations and the sale and leaseback
     of equipment.

     Cash provided by operating activities during the nine months ended June 30,
     1997  was  $259,011  consisting  principally  of net  income  of  $588,541,
     depreciation  and  amortization  of  $421,152,  and an increase in accounts
     payable  and  accrued   expenses  of  $124,318,   offset  by  increases  in
     inventories of $231,607,  accounts receivable of $209,944, prepaid expenses
     of $147,282, and other assets of $302,107.  Included in prepaid expenses is
     a reclassification of manufacturing supplies of $53,821 previously included
     in  inventories.  Included  in  other  assets  are  equipment  deposits  of
     $190,539.  Cash used in investing  activities  was $267,666,  primarily the
     result of the sale and  leaseback  of a new  freezer and the  purchase  and
     installation  of new  production  equipment.  Cash  provided  by  financing
     activities  was  $38,622  due  mainly  to  a  net  increase  in  short-term
     borrowings under the Company's Line of Credit.

     The Company  estimates  that as of June 30, 1997,  there was an  additional
     $305,000  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. 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 such violations.

     At June 30,  1997,  the Company had cash of $30,567  and  negative  working
     capital of $356,650.

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

Subsequent Event

     On July 2, 1997, in conjunction with the previously  reported relocation of
     the Company's corporate office and manufacturing facilities planned for the
     fall of 1997,  the Company  signed a $1,950,000  credit  agreement with the
     Minnesota  Agricultural  and Economic  Development  Board ("Board") for new
     equipment  financing.  The Board issued tax-exempt  revenue bonds under its
     Small Business  Development  Loan Program and will loan the proceeds to the
     Company to purchase new equipment.  The interest rate is 5.79% and the loan
     matures on August 1,  2008.  The  Company  is subject to various  financial
     covenants, and the Board received a security interest in the equipment.

     On July 1,  1997 the Bank and the  Company  signed  an  amendment  to their
     Credit  Agreement  which  adjusted  various  financial  covenants  and made
     available  additional  revolving  credit  borrowings  of  $800,000  through
     November 1, 1997.  After November 1, 1997 this additional  borrowing may be
     converted into a five-year term loan.

Outlook

     The  Company's  plan in fiscal  1997 is 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.

     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 (i) ability to meet its covenant
     requirements  under its Credit  Agreement and (ii)  operating  requirements
     through  fiscal 1997 contained in  Management's  Discussion and Analysis of
     Financial  Condition and Results of  Operations,  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:
<PAGE>
     Reliance on Principal Customers. The Company has several customers who each
     accounted for a significant  percentage of the Company's  sales in the nine
     month  period ended June 30,  1997.  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 22 %, 8 %, 13 % and 6 % of the Company's sales, respectively.
     While the Company has  manufacturing  agreements  with all of the foregoing
     customers  except  Bradley  Distributing,  Inc.,  the  loss of any of these
     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.

     Sufficiency of Working Capital. As of June 30, 1997, the Company had a cash
     balance of $30,567 and negative working capital of $356,650. As of June 30,
     1997, there was an estimated $305,000 which could have been drawn under the
     Company's Line of Credit. The amount available  fluctuates daily based upon
     the Company's eligible accounts receivable and inventory.  In addition, the
     Company's   ability  to  obtain   additional  equity  capital  is  severely
     restricted,  and,  if  obtainable  at  all,  would  result  in  substantial
     dilution.  Therefore,  the  Company's  ability to fund its working  capital
     requirements in fiscal 1997 will be almost entirely dependent on generating
     sales which equal or exceed the Company's  fiscal 1996 sales.  In addition,
     any unforeseen  expense of a material nature would materially and adversely
     affect the Company's ability to fund ongoing operations.

<PAGE>

                           PART II. OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

       Exhibit
       Number           Description
       -------          -----------

        10.46           Commercial lease between First Industrial L. P. and 
                         Sparta Foods, Inc., effective September 1, 1997 for a
                         15-year period

        11              Computation of Earnings Per Common Share

        27              Financial Data Schedule (only filed  in electronic 
                         format)

(b)  Reports on Form 8-K

     A report on Form 8-K was not filed during the quarter ended June 30, 1997.








<PAGE>

                                   SIGNATURES


     In accordance  with the  requirements  of the Exchange Act, the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                          SPARTA FOODS, INC.
                                          (Registrant)

Dated: August 7, 1997                     By:/s/ Joel P. Bachul
                                           Joel P. Bachul,
                                           President and Chief Executive Officer


Dated: August 7, 1997                     By:/s/ A. Merrill Ayers
                                           A. Merrill Ayers
                                           Treasurer, Secretary and
                                           Chief Financial Officer


<PAGE>

                                  EXHIBIT INDEX

                                SPARTA FOODS, INC.

                   Form 10-QSB for Quarter Ended June 30, 1997



Exhibit Number             Description
--------------             -----------

  10.46                    Commercial lease between First Industrial L. P. and 
                           Sparta Foods, Inc., effective September 1, 1997 for 
                           a 15-year period

  11                       Computation of Earnings Per Common Share

  27                       Financial Data Schedule (only filed  in electronic
                           format)