VITA FOOD PRODUCTS INC, 10KSB40, 1997-03-31

VITA FOOD PRODUCTS INC
10KSB40, 1997-03-31
MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-KSB
(Mark One)

( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee required)

Commission File Number 1-12599

VITA FOOD PRODUCTS, INC.
(Name of Small Business Issuer in its Charter)

<TABLE>
<S> <C> <C>
NEVADA #36-3171548
- ------------------------------------------------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2222 WEST LAKE STREET
CHICAGO, ILLINOIS (312) 738-4500 60612
- --------------------- ------------------------------------------------- -------------------
(Address of principal Registrant's telephone number including area code (Zip Code)
executive offices)
</TABLE>

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

<TABLE>
<S> <C>
Name of Each Exchange
Title of Each Class On Which Registered
----------------------------------------- ----------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE CHICAGO STOCK EXCHANGE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS CHICAGO STOCK EXCHANGE
</TABLE>

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

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

State issuer's revenues for the most recent fiscal year. $22,688,000.

Shares of common stock, par value $.01 outstanding at March 20, 1997 -
3,700,000. Aggregate market value of such shares held by non-affiliates as of
that date - $6,327,064.

Documents Incorporated by Reference: None

Transitional Small Business Disclosure Format (check one):
Yes No X

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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Business - Forward Looking
Statements."

INTRODUCTION

The Company has been engaged in the sale of specialty food products under
the VITA brand name for over 65 years. The Company believes that its long
history of producing and marketing quality products has created a strong
recognition of the VITA brand name among consumers and has enabled the Company
to build an extensive national distribution network of established food brokers
for the sale of its products to Supermarkets and Institutional Purchasers.
Historically, the Company has increased its sales through acquisitions which
have enabled the Company to add new product lines and expand its existing
product lines. The Company believes that "VITA" with its accompanying logo is
the most widely recognized, and the only nationally recognized, brand name in
herring products and cured and smoked salmon products. The Company is one of
the leading processors of herring products, and cured and smoked salmon
products in the United States and has been producing and selling herring
products for over 65 years and cured and smoked salmon products for over 25
years. The Company's products include a variety of cuts of pickled herring in
cream and wine based sauces, and lox and nova salmon. The Company markets other
complementary specialty food products, such as cream cheese with salmon, shrimp
cocktail, hommus products, horseradish products, and cocktail and tartar
sauces, that it purchases from third party food producers and markets under the
VITA brand name pursuant to co-packing arrangements. The Company markets and,
in some cases, also produces related specialty food products under other brand
names, some of which are recognized regional brand names, in certain regions of
the country, that have been licensed to the Company.

COMPANY BACKGROUND

Although it had been selling herring products for a number of years prior
to its incorporation, the Company was originally incorporated as Vita Food
Products, Inc. in 1928. In 1968, Brown and Williamson Tobacco Company, a
British company, purchased the Company. The Company was then acquired by Dean
Foods Company in 1978. In 1982, Mr. Stephen D. Rubin and Mr. Clark L. Feldman,
on behalf of the current shareholders, negotiated the acquisition of the
Company from Dean Foods Company and became the Company's largest shareholders.
On September 20, 1996, the Company reincorporated in the State of Nevada
through a merger of Vita Food Products, Inc., an Illinois corporation
("VITA-ILLINOIS"), and V-F Acquisition, Inc., an Illinois corporation that was
the largest shareholder of Vita-Illinois, into the Company, a Nevada
corporation formed for the purpose of effecting the reincorporation. On
January 23, 1997, the Company completed an initial public offering of shares of
its common stock and redeemable common stock purchase warrants resulting in
aggregate net proceeds of approximately $4.1 million (the "INITIAL PUBLIC
OFFERING").

GROWTH STRATEGY

The Company's long-term growth strategy is to focus on acquisitions and
capitalize on the goodwill associated with the VITA brand name and the strength
of its national distribution network to increase its market share for its
existing products and to introduce and market complementary new specialty food
products, which will be sold under either the VITA brand name or other brand
names purchased or licensed from third parties. The Company intends to
implement its growth strategy through acquiring, or entering into joint
ventures with, companies producing complementary specialty food products,
introducing and developing new products and increasing its marketing efforts.
The Company's production facility is currently often operating at full capacity
and the Company, in order to accommodate its anticipated growth, intends to
either purchase a facility to replace its current office, production and
storage facility; the construction of a new facility; or the expansion and
upgrading of its current facility (each of these facilities collectively
referred to as the "IMPROVED FACILITY").

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ACQUISITION STRATEGY

The Company's acquisition strategy is to acquire, or enter into joint
ventures with, companies producing complementary specialty food products. The
Company, under its current management, became a major producer of smoked salmon
products through the acquisition of Royal Enterprises, Inc., a major Chicago
based smoked salmon processor, in 1984 (the "ROYAL ACQUISITION"). In 1995, the
Company purchased the herring product line of Lyon Food Products, Inc. and
secured licensing rights to the ELF brand name, an established regional brand
of herring (the "LYON PRODUCT LINE ACQUISITION"), which increased its market
share in herring products and its penetration of the market in the Midwest
region of the country. The Company believes that the Royal Acquisition and the
Lyon Product Line Acquisition have demonstrated its ability to capitalize on
the VITA brand name and its national distribution network to increase its
market share and its sales through acquisitions. The Royal Acquisition involved
the acquisition of a company that processed smoked salmon products which the
Company now produces and markets through its national distribution network
under the VITA brand name. The Lyon Product Line Acquisition involved the
acquisition of a herring product line and an established regional brand name
which the Company now produces and markets through its national distribution
network under the ELF brand name.

The Company's lack of capital in the past has limited its ability to
pursue its acquisition strategy. As a result, the Company has expanded its
product lines by establishing a number of co-packing arrangements with
companies that produce complementary specialty food products. Pursuant to these
co-packing arrangements, the Company purchases products produced and packaged
by third parties and resells these products through its national distribution
network under the VITA brand name. Co-packing arrangements permit the Company
to expand or increase its product lines and increase the exposure of the VITA
brand name, but require only a minimal capital investment by the Company. The
Company's co-packing arrangements generally do not include minimum purchase
requirements and permit the Company to purchase only the amount of products
that it will be able to resell. Products which the Company markets pursuant to
co-packing arrangements generally have a percentage gross margin that is
one-third lower than the percentage gross margin of products which are produced
and marketed by the Company.

The Company intends to implement its long-term growth strategy, in part,
by shifting its focus from co-packing arrangements to acquisitions and joint
ventures. The Company believes that acquisitions and joint ventures, although
often requiring a substantial capital investment, will provide the Company with
a better opportunity to increase sales and market share, and to penetrate new
markets than co-packing arrangements. The Company believes that the
acquisition of, or joint ventures with, companies producing complementary
specialty food products will enable the Company to: (i) produce certain
products that it currently purchases from third parties and resells, which the
Company expects will result in increased margins on those products; (ii)
produce additional products which can be sold not only under the VITA brand
name but also can be sold under the private labels of existing customers such
as Supermarkets, in bulk to Institutional Purchasers or under co-packing
arrangements to competitors; and (iii) produce and market products under
recognized regional brand names acquired by the Company. See "Business -
Forward Looking Statements."

The Company, as part of its acquisition strategy, has also determined that
it will focus its acquisition and joint venture activities on companies which
produce complementary specialty food products in its market niche: ready-to-eat
refrigerated (or frozen) specialty food products sold to Supermarkets and
Institutional Purchasers. The Company has, in the past, encountered
difficulties when it attempted to expand its product line beyond its market
niche and its management's experience. The Company, through the acquisition of
three companies in the mid-1980's, began to sell "fresh" smoked fish to
delicatessens in New York City. Prior to 1985, the Company did not sell fresh
smoked fish products and had no experience selling directly to delicatessens.
The Company believed, however, that the particularly strong recognition of the
Vita brand name in New York City would compensate for management's lack of
prior experience in selling fresh smoked fish directly to delicatessens. During
the next few years, the Company determined that it had underestimated both the
difficulties of entering the New York City fresh smoked fish market and the
long-term difficulties of effectively competing in this market. Accordingly,
the Company determined to exit this market and refocus its growth strategy on
its market niche.

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NEW PRODUCT STRATEGY

The Company's new product strategy is to continue to introduce and, in
some cases, develop and market new specialty food products under the Vita brand
name that complement its current line of products while at the same time
enabling the Company to expand into products that are less seasonal and appeal
to a broader base of consumers, including younger consumers and health
conscious consumers, than its current products.

DEVELOPMENT/INTRODUCTION. The Company's new products are either products
developed by the Company, products acquired through acquisitions of other
companies, or products marketed under co-packing arrangements or distribution
agreements. The Company introduced "VITA HEAVENLY HOMMUS!" in September, 1996
and introduced the "VITA LEAN Salmon Burger" in November, 1996. The salmon
burger was developed by the Company while the hommus products will be marketed
under a co-packing arrangement. The Company expects these low fat products to
appeal to a broader base of consumers. The Company intends to capitalize on its
national distribution network and the strong recognition of the VITA brand name
as well as its new marketing strategy to generate sales of these products. The
Company believes that through the introduction of new non-seasonal products, it
can, over time, reduce the variability in its quarterly operating results by
increasing sales during the second and third quarters of each year.

New products developed by the Company are developed either internally
through its Quality Control Department or through retaining independent
consultants. New products are also developed with the input of food brokers
and are tested by focus groups for taste and market acceptance. The Company's
lack of capital in the past has limited its product development activities.
Upon completion of this offering, the Company anticipates that its Improved
Facility, additional production equipment and increased availability of
financing will enable it to increase its product development activities. The
Company estimates that it spent approximately $50,000 and $45,000 in 1996 and
1995, respectively, developing new products. See "Business - Forward Looking
Statements."

The Company has introduced new products through the acquisition of
companies producing complementary specialty food products with recognized
regional brand names. Through the Lyon Product Line Acquisition, the Company
added a Scandinavian-style herring that is marketed under the ELF brand name
which is well recognized in the Midwest region of the country. The Company also
introduces new products through its use of co-packing arrangements. Co-packing
arrangements enable the Company to purchase products produced and packaged by
third parties and resell these products through its national distribution
network under the VITA brand name. The Company currently markets its
horseradish products, cocktail and tartar sauces, shrimp cocktail and hommus
products under co-packing arrangements. The Company has also introduced new
products by entering into distributorship agreements. The Company currently
distributes imported Scottish smoked salmon under the ROYAL HIGHLAND and
HIGHLAND CREST brand names pursuant to a distribution agreement.

RECENT NEW PRODUCTS. The VITA LEAN Salmon Burger was developed for the
Company by an independent consultant who has authored over 30 cookbooks. The
salmon burger, which is a blend of smoked salmon and spices, is 97% fat free.
Much of the salmon used in the production of the salmon burger is salmon that
the Company could not previously use in the production of its other salmon
products. The Company is marketing the salmon burger frozen to Supermarkets and
Institutional Purchasers. It is marketed as a low-fat substitute for
hamburgers and is expected to compete directly with turkey burgers and veggie
burgers. The Company believes that the salmon burger will be a less seasonal
product and will appeal to a broader base of consumers than the Company's
current products.

VITA HEAVENLY HOMMUS! is marketed by the Company under a co-packing
arrangement. Hommus is a spread made primarily of chickpeas and sesame paste of
Middle Eastern origin that can be used as a snack food or with meals. Hommus
was introduced to the United States mass market within the past five years and
is rapidly gaining in popularity. The Company believes that hommus is not a
seasonal food and, accordingly, expects sales of its hommus products to be
fairly constant throughout the year with a slight increase in sales during the
summer months. The Company's hommus products contain no saturated fat and have
no cholesterol. The Company believes its hommus products will appeal to
consumers of various ages and particularly to higher income, health conscious
consumers. The Company's hommus products, packed in eight oz. containers, are
available in eleven varieties such as roasted red pepper and garlic, and are
sold refrigerated to Supermarkets and Institutional Purchasers. The Company
anticipates that sales of hommus products will increase as consumers become
aware that hommus can be used as a substitute for cream cheese and spread on
bagels, which have become increasingly popular with consumers in recent years.

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MARKETING STRATEGY

The Company's marketing strategy is to expand its use of promotions to
both Supermarkets and Institutional Purchasers, increase consumer advertising,
secure additional shelf space for its products in Supermarkets and expand its
international sales. The Company intends to use a portion of the net proceeds
of the Initial Public Offering to implement this strategy.

PROMOTIONS AND CONSUMER ADVERTISING. The Company intends to use
promotions and consumer advertising to increase sales of its existing products
and new products to Supermarkets and Institutional Purchasers which currently
purchase VITA products as well as those which have not yet purchased VITA
products. The Company currently uses promotions which reduce the price
Supermarkets and Institutional Purchasers pay for certain of its products
during a specified period of time. The Company believes that its products are
price sensitive and that, historically, selective use of promotions has
resulted in increased sales of its products. The Company selectively uses
promotions to increase sales made by food brokers and sales made directly by
the Company. However, the Company's limited capital has prevented it from
expanding its use of promotions. The Company's products are primarily
advertised in the circulars and newspaper inserts distributed by Supermarkets,
for which the Company pays a fee. The Company intends to increase such
advertising, particularly during holiday seasons and in regions west of the
Rocky Mountains where the Company intends to focus future marketing efforts.
The Company also intends to participate in a greater number of food shows to
increase its visibility. The Company will attempt to increase its visibility by
encouraging its regional sales managers to increase their participation in
joint local sales calls to Supermarkets and Institutional Purchasers made by
food brokers.

SECURING SHELF SPACE. The Company intends to secure additional shelf space
in Supermarkets for both its existing products as well as its new products.
The Company secures additional shelf space primarily by paying the fees charged
by Supermarkets for such shelf space. The Company also secures additional
shelf space by using more aggressive promotions at targeted Supermarkets or by
selling its products through food brokers to food distributors that have access
to shelf space for resale to Supermarkets. The Company, throughout its
history, has incurred, and continues to incur, costs associated with securing
additional shelf space for its products. The Company's ability to pay the costs
associated with securing additional shelf space has been limited by its
available capital. The Company believes that its payment of such costs, when
warranted, has helped contribute to the development of its national
distribution network of food brokers and that future payments of such costs
will further strengthen its distribution network. The Company also believes
that it has benefited by adding additional shelf space in the past and will
continue to increase sales by adding additional shelf space in the future.

INTERNATIONAL SALES. The Company believes that international markets
provide an additional opportunity to increase sales of its herring and salmon
products. In 1995 and 1996, international sales constituted less than one
percent of the Company's gross sales. The Company intends to pursue additional
international sales opportunities in a number of foreign markets including,
among others, Canada, Central America, Mexico, Europe and South America, by
capitalizing on the international growth of both wholesale clubs and
institutional distributors which currently purchase or distribute the Company's
products. The Company believes that by capitalizing on the international
growth of its current customers, the total cost incurred to increase
international sales will not exceed the total cost incurred to achieve a
comparable increase in sales in the United States. The Company believes that
the costs incurred in using promotions and consumer advertising to increase
international sales may be higher than the costs incurred to achieve a
comparable increase in sales in the United States but that such costs will be
partially offset because Supermarkets in certain countries, such as Canada, do
not charge fees to secure shelf space. The Company will initially focus on
increasing sales of its products in Canada where the Company believes that the
VITA brand name is recognized by consumers. The Company recently began
marketing VITA brand herring products, that it produces, to Supermarkets in the
Canadian provinces of Ontario and Quebec.

PRODUCTS

The Company's products include herring products and cured and smoked
salmon products and a variety of related ready to eat specialty food products.
Most of the Company's products are refrigerated and can be located in either
the dairy department, meat and fish department or deli department of
Supermarkets. Many of the Company's products are also sold in bulk to
Institutional Purchasers. The Company believes that, although the market for
herring products has been and is expected to remain constant, the market for
salmon products and other specialty products is increasing. Consumption of
fresh and frozen seafood in the United States is increasing,

<PAGE> 6

especially consumption of salmon. This increase contrasts with the consumption
of beef and pork which is declining and has been declining for at least the
last five years. All of the Company's salmon and herring products and most of
its other specialty food products are kosher and receive the symbol of
certification from the Orthodox Union. The Company also receives the symbol
of certification for the use of many of its products for Passover from the
Orthodox Union. The Company believes that the market for kosher foods will grow
in the next few years and that this represents a significant opportunity for
the Company. See "Business - Products." According to the National Kosher Food
Trade Association in New York, the market for kosher foods is almost two
billion dollars annually and growing at more than ten percent a year. The
increase in consumption of kosher food products is at least partially the
result of (i) the perception by certain consumers who are not bound by
Judaism's religious dietary restrictions that kosher certification indicates a
superior product, and (ii) an increase in the population of members of other
religious groups such as Islam, Hinduism and some branches of Christianity that
observe dietary restrictions similar to many Jewish people.

HERRING

The Company, generally using the best available grade of ocean herring,
cures the herring and mixes the cured herring with a variety of high quality
spices, wines and other ingredients according to the Company's proprietary
formulations to produce a number of herring products. These products are then
either packaged in vacuum-sealed glass jars to preserve flavor for sale to
Supermarkets or packaged in bulk containers for sale to Institutional
Purchasers. The Company believes it is the only producer of herring products
to offer two different taste profiles, an Eastern European taste and a
Scandinavian taste. Herring is a traditional Eastern European and
Scandinavian staple, being one of the most widely consumed fish in the world.
In the United States, however, herring is more of a specialty product that is
served at parties or holiday gatherings. Herring products are often served as
appetizers, part of a buffet, between-meal snacks or an ingredient in salads.
The Company's most popular herring products are its "VITA Herring Party Snacks"
and "VITA Herring in Sour Cream." The Company also sells a variety of other
herring products under the VITA and ELF brand names.

SALMON

The Company, using only premium and quality grades of salmon primarily
from Southeastern Alaska and Canada, cures and slices the salmon, most of which
is then smoked. The Company's retail salmon products are packaged and sold
either refrigerated or frozen to Supermarkets. The institutional cured and
smoked salmon products are packaged in bulk containers, including three pound
trays, and sold refrigerated or frozen to Institutional Purchasers. Salmon
consumption has been increasing over the past five years and salmon now
represents the fourth most popular type of seafood consumed in the United
States. The Company's salmon products are generally served as part of buffets
at parties, particularly during the Christmas holiday season, or as a
traditional brunch item with bagels. The salmon products are also served as
appetizers at formal parties and are being more frequently used as light meals.
The Company's salmon products include "VITA Lox Salmon," "VITA Nova Salmon,"
and "VITA Pastrami Salmon." The Company also distributes imported Scottish
smoked salmon under the "ROYAL HIGHLAND" and "HIGHLAND CREST" licensed brand
names. Other products sold under the VITA label include the VITA LEAN Salmon
Burger and VITA Salmon Spread.

OTHER SPECIALTY PRODUCTS

The Company sells a number of spreads and condiments, including
horseradish products, cream cheese with smoked salmon, cocktail and tartar
sauces, shrimp cocktail and hommus products. These products are used as
appetizers, snacks, and condiments to accompany light meals and holiday trays.
Some of these products are produced and marketed by the Company under the VITA
brand name and others are marketed by the Company, but produced by third
parties pursuant to co-packing arrangements.

PRODUCT DISTRIBUTION AND SALES

The Company's specialty food products are currently sold through a
national distribution network of approximately 60 established retail and
institutional/food service brokers. The Company believes that it is the only
processor of herring products and cured and smoked salmon products that has
established such an extensive national distribution network. The Company
believes it has been successful in developing this network for a number of
reasons, including the recognition of the VITA brand name and the Company's
reputation for producing

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quality products. The Company has also been able to develop and strengthen its
distribution network by providing adequate shelf space for its products. The
Company's current marketing efforts and its long-term relationship with many of
the food brokers has also contributed to the strength of this network. The
Company, through its marketing efforts, attempts to maintain good relationships
with the Supermarkets and Institutional Purchasers that purchase its products.
The Company believes that its national distribution network has, in turn,
helped strengthen the VITA brand name and has been a important factor in the
Company's ability to introduce new products into the marketplace.

The Company's regional sales managers oversee its national distribution
network. The Company employs five full-time regional sales managers who
maintain contact with the food brokers in their region and monitor their
performance. The regional sales managers also assist the food brokers in their
selling efforts by, among other things, accompanying the food brokers on local
sales calls. The Company believes that it is one of the few companies in its
market niche to employ regional sales managers and that the presence of the
regional sales managers has solidified the Company's relationship with its
national distribution network.

The Company enters into an agreement with each food broker which grants
the food broker an exclusive territory in which to sell VITA products and sets
forth the amount of commissions to be paid on such sales by the Company. Such
agreements do not permit the Company to make sales directly to Supermarkets
located in a food broker's exclusive territory unless the Company pays the food
broker the commission which it would have earned. The agreements are terminable
by either party upon 30 days' notice. The Company believes such terms are
standard in the Company's industry. The food brokers sell the Company's
products in both the retail and institutional/food service markets. In 1996,
the retail market, consisting of Supermarkets accounted for approximately 80%
of the Company's net sales while Institutional Purchasers accounted for the
remaining 20% of net sales. Approximately 90% of the Company's net sales to
Supermarkets are made through food brokers while the remaining 10% of net sales
to Supermarkets are made directly by the Company. Products purchased through
food brokers by Supermarkets that are shipped directly to the Supermarkets'
warehouses accounted for 65% of the 90% of net sales to the retail market.
Products purchased through food brokers by food distributors for resale to
Supermarkets accounted for 35% of the 90% of net sales to the retail market.
Approximately 90% of the Company's net sales to Institutional Purchasers are
made through food brokers, including international distributors, while the
remaining 10% of net sales are made to Institutional Purchasers directly by the
Company.

CUSTOMERS/SALES BY REGION

The Company's customers include large regional supermarket chains and
wholesale clubs throughout the country. The Company had net sales of $22.7
million in 1996. The Company's products sold under the VITA brand name are
particularly well known in New York City and the surrounding metropolitan area
("NYC"). Approximately 9% of the Company's 1996 net sales were to customers
located in NYC, including Waldbaum's, A & P, Shop-Rite and Supermarket General.
Approximately 20% of the Company's 1996 net sales were to customers located in
the Northeast, excluding NYC, including Stop & Shop, Shaw's and Wegman's.
Approximately 23% of the Company's 1996 net sales were to customers in the
Southeast, including Publix and Winn-Dixie. Approximately 37% of the Company's
1996 net sales, including sales of the ELF brand of herring, were to customers
located in the Midwest, including Super Valu, Jewel, Dominick's and Meijer's.
Approximately 11% of the Company's 1996 net sales were to customers located in
the West, including Safeway, Fred Meyer and Albertson's.

The Company's largest customer represented 10% and 12% of its net sales in
1996 and 1995, respectively. This customer is a large supermarket chain with
five regional divisions located in the Southeast. The purchasing decisions of
each regional division are made independently. The Company does not have a
long-term contractual relationship with this customer. The Company believes the
loss of this customer would have a material adverse affect on the Company's
business, financial condition and results of operations. However, the Company
believes the loss of this customer is unlikely. In addition, because each
regional division makes its purchasing decisions independently, the Company
believes that it is not likely to lose all of the divisions even if it were to
lose one or more of such divisions.

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The Company is aware that its customers are continually reviewing their
purchasing decisions which may result in such customers changing their current
orders from higher margin to lower margin products or reducing the amount of a
product or products purchased. Any material change in orders or reduction in
the amount of a product or products purchased by one or more significant
customers could adversely affect the Company's business, financial condition
and results of operations.

PRODUCT RETURN POLICY

The Company guarantees the sale of its products sold in Supermarkets,
which sales represent approximately 80% of all the Company's sales. This
guarantee helps ensure that consumers receive fresh products. Under the
guarantee, products not sold before their expiration date are either returned
to the Company through its food brokers or are disposed of by the Supermarkets
or food distributor. A credit is then issued to the Supermarket or food
distributor. The Company has established a reserve to be used for credits for
product returns and believes, based on its historical return rates which have
been fairly consistent over the past several years, that this reserve is
adequate to fund all foreseeable product return credits.

PRODUCTION

PRODUCTION FACILITY

The Company produces, packages, stores, and distributes its herring and
salmon products at the Company-owned facility located in Chicago, Illinois.
The Company's facility is located on 125,600 square feet of contiguous land.
The facility contains approximately 82,200 square feet of space, including
approximately 65,000 square feet of production space, approximately 13,900
square feet of refrigerated storage space, and approximately 3,300 square feet
of office space. The Company stores and distributes its products through 30
warehouse facilities owned by third parties which are located throughout the
United States.

As of March 15, 1997, the Company anticipates either purchasing or
constructing an Improved Facility during the next 12 to 18 months. The Company
believes the Improved Facility is necessary to implement the Company's growth
strategy and will result in increased production capacity, increased production
efficiencies, additional internal storage facilities and other overall cost
savings. The Company believes that these overall cost savings can be achieved
through, among the things, the use of improved water treatment facilities in
the Improved Facility that the Company expects to reduce or eliminate the user
charges it currently pays and the availability of increased internal storage
facilities in the Improved Facility which the Company expects to decrease the
costs of using outside storage facilities. However, the Company may experience
delays in all aspects of its operations and incur substantial unanticipated
costs in either purchasing or constructing an Improved Facility. There can be
no assurance that the Company will not encounter quality or capacity
difficulties, or experience production delays, in connection with the
anticipated purchase or construction of an Improved Facility. These factors
could have an adverse short-term effect on the Company's results of operations.
The Company intends to partially finance this purchase or construction of an
Improved Facility with approximately $1,500,000 to $2,000,000 of the net
proceeds of the Initial Public Offering. The Company currently anticipates
obtaining the additional required funds that are currently projected to be
between $4,500,000 to $8,000,000, through the use of one or more financing
options which may include, among others, conventional bank financing,
industrial revenue bond financing, and, possibly, tax incentives for
Empowerment Zones and Enterprise Communities to the extent available. No
assurance can be given that any of these financing options will be available on
terms acceptable to the Company, if at all.

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SUPPLIERS

The Company relies on outside suppliers for its herring and salmon
requirements. The Company currently purchases most of its herring from Barry's
Limited (the "SUPPLIER"), a specialty herring harvester and processor located
in Canada, pursuant to a supply agreement. The Company has been purchasing
herring from the Supplier since the Company began operations over 65 years ago.
Under the agreement, the Supplier has the option to supply 90% of the
Company's annual requirements for herring, provided it sells the herring at the
same prices which the Company would pay if it purchased herring elsewhere. The
Supplier guarantees the first priority of supply of herring to the Company, in
an amount necessary to satisfy the Company's requirements. The Company
currently purchases its salmon from a number of sources. The Company believes
that there are other suppliers of herring and salmon from which the Company
could meet its requirements, if necessary. Pursuant to a distributorship
agreement, the Company distributes imported Scottish smoked salmon under the
licensed brand names ROYAL HIGHLAND and HIGHLAND CREST. See "Business -
Intellectual Property." Any significant interruption in the supply of or in the
quality of the herring or salmon provided by its suppliers or the salmon
products supplied by the distributor could have a material adverse effect on
the Company's business and results of operations. The Company believes that
supplies of the other ingredients used in the Company's products are readily
available and that there are a number of suppliers of these ingredients that
could meet its requirements if its current suppliers were unable to do so.

QUALITY CONTROL

The Company believes that it was one of the first processors of herring
products and cured and smoked salmon products to institute quality control
procedures and that its quality control procedures are among the most stringent
in this market. The Company has two full-time employees in its Quality Control
Department. The primary responsibility of these employees is to insure the
quality of VITA brand name products by overseeing the production process and by
frequent testing of the consistency of the products as they are produced. The
products produced through co-packing arrangements are subject to both the
quality control procedures of the co-packing company and the same frequent
product testing that is required of the Company's products under its quality
control procedures.

COMPETITION

The market for the Company's products is highly competitive. The Company
believes that consumers choose herring products and cured and salmon products
as well as its other specialty products based primarily on product quality and
price. Although the Company's competitors are primarily small, regional food
processors and producers, certain of the Company's competitors may have greater
financial and other resources than the Company and may offer lower prices on
comparable products. Since a key competitive factor among producers of cured
and smoked salmon products and herring products is price, even smaller regional
companies may be able to compete effectively against the Company due to reduced
shipping costs. While the Company believes its prices are competitive for the
quality level of its products, the Company relies primarily on the recognition
of the VITA brand name, its reputation for selling quality products and the
strength of its distribution network. The Company's main competitors in the
herring product and cured and smoked salmon product market are Lassco, Mama's
and Nathan's, among others. The Company believes it is the only independent
company with national distribution capabilities in this market.

ENVIRONMENTAL MATTERS

In the ordinary course of its production process, spillage and cleaning
results in a high concentration of sugars and vinegars, which create Biological
Oxygen Demands ("BODS") as well as fats, oils and greases ("FOGS"), both of
which enter the waste water treatment system. The Company is assessed a user
charge by the Metropolitan Water Reclamation District (the "DISTRICT"), based
in part on the costs of treating this waste water, the amount of which the
Company is currently appealing. The Company has provided accruals of $285,000
and $359,000 as of December 31, 1995 and December 31, 1996, respectively, for
user charges. These accruals are based on the Company's experience in resolving
appeals in prior years and on estimates provided by an independent consultant.
If the Company is not successful in its appeal, the Company would be required
to pay an additional $195,000 in user charges. The Company believes that the
eventual liability will not materially exceed its

<PAGE> 10

presently established accruals and that any potential additional liability will
not be significant and will not have a material adverse effect on the Company's
business, financial condition or results of operations.

If the level of FOGs entering the waste water treatment system exceed a
specified level over a specified period of time, the District, following
certain procedural requirements, has the authority to fine the Company or to
temporarily close the Company's production facility. The level of FOGs
resulting from the Company's production process has occasionally exceeded this
specified level in the past on a temporary basis but not for any extended
period of time. The Company has no reason to believe that this level will be
exceeded for any extended period of time in the future. The District has not in
the past initiated, or threatened to initiate, proceedings against the Company.
The Company has no reason to believe the District will do so in the future if
the specified level of FOGs is exceeded on a temporary basis. The Company has
employed a consultant to assist in its user charge appeals and to recommend
methods to reduce the level of BODs and FOGs entering the waste water treatment
system. The Company expects the purchase or construction of an Improved
Facility to significantly decrease or eliminate BODs and, therefore, reduce the
user charges. The Company also uses a number of smokers in the ordinary course
of its production process. The Company is not aware of any pending or
threatened claim involving violation of environmental or occupational safety
and health laws and regulations.

INTELLECTUAL PROPERTY

Trademarks and trade names are of critical importance to producers of food
products. A recognized trademark or trade name allows the consumer to
immediately identify the source of a product, even if the product is new to the
marketplace. The Company owns the federally registered trademark "VITA" (with
accompanying design). The Company believes that this mark is widely recognized,
and provides immediate identification of the source of its products to
consumers. Based upon its ability to maintain a significant share of the
national market for refrigerated herring products and cured and smoked salmon
products, the Company believes the "VITA" brand name and trademark has a
substantial amount of goodwill associated with it. The Company believes the
VITA mark and its accompanying design are critical to its ability to market new
products and to its marketing strategy in general. In addition, the Company
intends to apply for a federal trademark for the name "VITA" without the
accompanying design.

The Company has also licensed certain brand names, such as ELF, ROYAL
HIGHLAND and HIGHLAND CREST. Based on sales of the herring products marketed
under the "ELF" trademark, the Company believes there is widespread consumer
recognition of that brand name in the Midwest region of the country. The
Company obtained all of Lyon Food's rights to the "ELF" trademark in connection
with herring products from Food Marketing Corp. Pursuant to the terms of a
letter agreement (the "LETTER AGREEMENT"). Ownership of the "ELF" trademark
was transferred by Food Marketing Corp. to SuperValu, Inc., which affirmed Lyon
Food's right to use the mark as set forth in the Letter Agreement and consented
to the right to use the trademark in connection with smoked fish products. The
Letter Agreement is terminable upon six months notice to the Company. The
Company has licensed the ROYAL HIGHLAND and HIGHLAND CREST brand names, under
which the Company distributes imported Scottish smoked salmon. The Company
believes that these brand names will develop substantial goodwill over time.
The Company has the right to use the HIGHLAND CREST and ROYAL HIGHLAND brand
names under the terms of an exclusive distributorship agreement that expires in
December, 1999, but is renewable for successive 5-year intervals upon written
agreement of both parties. The Company sells its hommus products under the
recently applied for federal trademark "HEAVENLY HOMMUS!," and sells its salmon
burger under the registered federal trademark "VITA LEAN." The Company is not
aware of any names or marks which infringe any of those the Company uses.
Although the Company sells products under a number of other brand and trade
names, such other brand or trade names are not material to the Company's
marketing strategy. The Company also uses various recipes and proprietary
formulations in its products which it maintains as trade secrets. The Company
does not believe its business is otherwise dependent upon any patent, license,
trademark, service mark or copyright.

PRODUCT LIABILITY INSURANCE

The Company currently maintains product liability insurance for its
products with limits of $1,000,000 per occurrence and $10,000,000 in the
aggregate, per annum. There can be no assurance that the Company's insurance
will be adequate to cover future product liability claims, or that the Company
will be able to maintain adequate product liability insurance at commercially
reasonable rates.

<PAGE> 11

EMPLOYEES

At December 31, 1996, the Company had 118 full-time employees, including
14 administrative employees, seven sales and marketing employees, 91 production
employees and six maintenance employees. Additionally, approximately 80
workers are hired on a temporary basis each year to meet seasonal production
demands. All production employees are represented by the Local 546 United Food
& Commercial Workers, International Union and the five maintenance employees
are represented by the Local 399 International Union of Operating Engineers.
The Local 546 collective bargaining agreement expires, unless renewed, in
April, 1997 and the agreement covering the Local 399 collective bargaining
agreement expires, unless renewed, in March, 1997. The Company has not
experienced any work stoppages since the Company was acquired by the present
shareholders in 1982. The Company considers its relations with its employees
to be good.

ENVIRONMENT

Compliance with Federal, state or local provisions relating to protection
of the environment is not expected to have a material effect on the Company's
capital expenditures, earnings or competitive position.

ITEM 2. PROPERTIES

The Company's facility is located on 125,600 square feet of contiguous
land. The facility contains approximately 82,200 square feet of space,
including approximately 65,000 square feet of production space, approximately
13,900 square feet of refrigerated storage space, and approximately 3,300
square feet of office space. Pursuant to the Bank Credit Facilities, ANB has a
mortgage on this facility. The Company intends to purchase or construct an
Improved Facility. See "Business - Production."

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently involved in any material pending legal
proceedings and is not aware of any material legal proceedings threatened
against it.

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

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, and their respective ages and
principal positions as of March 20, 1997, are as follows:

<PAGE> 12

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the Chicago Stock Exchange under
the symbol "VSF". The Company believes that as of March 20, 1997 there were 69
holders of record and in excess of 200 beneficial holders of the Company's
common stock.

The Company has never paid a cash dividend on its common stock and
currently anticipates that all of its earnings will be retained for use in the
operation and expansion of its business.

The high and low sales price per share for the Common Stock as reported on
the Chicago Stock Exchange for the period January 17, 1997 through March 24,
1997 were $6 and $4.375.

<PAGE> 13

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

The following information includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed
under "Business - Forward Looking Statements."

The selected financial data set forth below with respect to the Company's
statement of income data for the years ended December 31, 1995 and 1996 and
balance sheet data at December 31, 1996 are derived from the audited financial
statements of the Company included elsewhere in this Form 10-KSB that have been
audited by BDO Seidman, LLP, independent certified public accountants. The
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes related thereto included elsewhere in this
Form 10-KSB.

<TABLE>
<S> <C> <C>
YEARS ENDED
DECEMBER 31
STATEMENT OF INCOME DATA: 1995 1996
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net sales....................................... $21,410 $22,688
Cost of goods sold.............................. 15,014 15,588
-------------- -------------
Gross margin.................................... 6,396 7,100
Selling, marketing and administrative expenses.. 5,397 5,883
-------------- -------------
Operating profit (loss)......................... 999 1,217
Interest and other expense, net................. 868(1) 464
-------------- -------------
Income before income tax benefit................ 131 753
Income tax benefit (2).......................... -- (65)
-------------- -------------
Net income...................................... $131 $818
============== =============
Net income per common share..................... $.04 $0.28
============== =============
Weighted average number of common
shares outstanding.............................. 2,960,000 2,960,000
============== =============

</TABLE>

BALANCE SHEET DATA:
DECEMBER 31, 1996
----------------------
(in thousands)
<TABLE>
<S> <C>
Working capital..... $3,228
Total assets........ 11,340
Current liabilities. 5,335
Long-term debt...... 5,419
Shareholders' equity 586
</TABLE>

(1) Included in interest and other expense, net, in 1995 is an expense of
$356,000 representing an arbitration award requiring the Company to pay
the adverse party's legal fees. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -Growth
Strategy."

(2) Income taxes are not presented in 1995 due to the Company's utilization
of net operating loss carryforwards to offset taxable income and due to
the 100% valuation allowance applied against the deferred tax asset. The
Company recognized $316,000 of the prior year's deferred tax asset
valuation allowance during 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Financial Statements.

<PAGE> 14

OVERVIEW

The Company is one of the leading processors of herring products, and
cured and smoked salmon products in the United States, which products it has
been producing and marketing for over 65 years and 25 years, respectively. The
Company's products include a variety of cuts of pickled herring in cream and
wine based sauces, and lox and nova salmon. The Company markets other
complementary specialty food products, such as cream cheese with salmon, shrimp
cocktail, hommus products, horseradish products, and cocktail and tartar
sauces, that it purchases from third party food producers and markets under the
VITA brand name pursuant to co-packing arrangements. The Company markets and,
in some cases, also produces related specialty food products under other brand
names that have been licensed to the Company. These products include
Scandinavian-style herring, which is produced and marketed by the Company under
the ELF brand name, which is widely recognized in the Midwest region of the
country, and imported Scottish smoked salmon, which is distributed by the
Company under the brand names ROYAL HIGHLAND and HIGHLAND CREST.

The Company's long-term growth strategy is to capitalize on the goodwill
associated with the VITA brand name and the strength of its national
distribution network to increase its market share for its existing products and
to introduce and market complementary new specialty food products, which will
be sold under either the VITA brand name or other brand names purchased or
licensed from third parties. The Company intends to implement its growth
strategy through acquiring, or entering into joint ventures with, companies
producing complementary specialty food products, introducing and developing new
products and increasing its marketing efforts.

In March, 1995, the Company purchased the herring production line of Lyon
Food Products, Inc. ("LYON FOOD") and secured licensing rights from Lyon Food
to the ELF brand name, a recognized regional herring brand (the "LYON PRODUCT
LINE ACQUISITION"). The Company financed the $726,000 cost of the Lyon Product
Line Acquisition through borrowings under its Bank Credit Facilities. The
Company subsequently consolidated the herring production line operations of
Lyon Food into its existing production facilities. The Company retained a
limited number of Lyon Food employees resulting in only a slight increase in
selling, marketing and administrative expenses while increasing its market
share and sales of herring products. The Company believes it has achieved and
will continue to achieve operational efficiencies based on this consolidation
of operations while only marginally increasing its selling, marketing and
administrative expenses.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
of Income. This table and discussion below should be read in conjunction with
the financial statements and notes thereto, which appear elsewhere in this Form
10-KSB. The Company believes this unaudited information has been prepared on
the same basis as the audited and unaudited information presented elsewhere in
this Form 10-KSB and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented.

<TABLE>
<S> <C> <C> <C>
YEARS ENDED
DECEMBER 31,
STATEMENT OF INCOME: 1995 1996
----------- ------
Net sales..................................... 100.0% 100.0%
Cost of goods sold............................ 70.1 68.7
----------- ------
Gross margin.................................. 29.9 31.3
Selling, marketing and administrative expenses 25.2 25.9
----------- ------
Operating profit.............................. 4.7 5.4
Interest and other expense, net............... 4.1 2.1
----------- ------
Income before income taxes (benefit).......... 0.6 3.3
Income taxes (benefit)........................ -- (0.3)
----------- ------
Net income.................................... 0.6% 3.6%
=========== ======
</TABLE>

<PAGE> 15

REVENUES. The Company's gross sales for the years ended December 31, 1995
and 1996 were $23.2 million and $24.6 million, respectively. In 1995, herring,
cured and smoked salmon and other specialty products constituted 60%, 36% and
4% of the Company's gross sales, respectively. In 1996, herring, cured and
smoked salmon and other specialty products constituted 56%, 39% and 5% of the
Company's gross sales, respectively. The Company's net sales for the years
ended December 31, 1995 and 1996 were $21.4 million and $22.7 million,
respectively.

Net sales of the Company represent gross sales less the amounts of
discounts, credits and payments for products not sold prior to expiration date
and certain other sales allowances. The Company generally provides its
customers with a net 10-day payment term. The amounts of discounts, credits
and payments for products not sold prior to expiration date and certain other
sales allowances have historically remained relatively consistent from year to
year and were approximately 8% of gross sales for the years ended December 31,
1995 and 1996. Net sales for any of the Company's products can be influenced
by a number of factors, especially the pricing policies of the Company's
competitors.

COSTS. Cost of goods sold consists primarily of the costs of herring,
salmon, curing ingredients, packaging, other raw materials, direct labor and
overhead used in the Company's production process.

GROSS MARGIN. The Company's gross margin, which is net sales less the
cost of goods, was 31.3% for the year ended December 31, 1996 and was 29.9% for
the year ended December 31, 1995. Products which the Company markets pursuant
to co-packing arrangements generally have a percentage gross margin that is
one-third lower than the percentage gross margin of products which are produced
and marketed by the Company.

EXPENSES. Selling, marketing and administrative expenses consist
primarily of brokers' commissions, marketing expenses, costs of shipping
products, advertising expenses and administrative expenses, which include
salaries and other general office expenses.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND THE YEAR ENDED DECEMBER
31, 1995

REVENUES. Net sales for the year ended December 31, 1996 were $22,688,000
compared to $21,410,000 for the same period in 1995, an increase of $1,278,000
or 6.0%. This increase was primarily attributable to a 13% increase in sales
of salmon products and a 37% increase of other specialty products.

GROSS MARGIN. Gross margin for the year ended December 31, 1996 was
$7,100,000 compared to $6,396,000 for the same period in 1995, an increase of
$704,000 or 11.0%. As a percentage of net sales, gross margin increased to
31.3% in 1996 from 29.9% in 1995. The increase was attributable to the absence
of costs of integrating the herring production line operations of Lyon Food
which were incurred in 1995 and estimated to be $110,000. The increase was
also attributable to a lower average cost of purchased salmon used in the
Company's production of its salmon products.

EXPENSES. Selling, marketing and administrative expenses for the year
ended December 31, 1996 were $5,883,000 compared to $5,397,000 for the same
period in 1995, an increase of $486,000 or 9.0%. The increase was primarily
attributable to an increase in advertising expenses of $334,000, which
increased faster than sales volume, as well as other variable sales and
marketing expenses, such as broker commissions, which increase with sales
volume.

INTEREST. Interest and other expense, net, for the year ended December
31, 1996 was $464,000 compared to $868,000 for the same period in 1995, a
decrease of $404,000 or 46.5%. This decrease was primarily attributable to the
non-recurring, unusual expenses incurred by the Company in 1995, which included
the Arbitration Award of $356,000, and other income of $83,000 in 1996
partially offset by an increase in interest expense of $21,000 due to an
increase in average amounts outstanding under the Bank Credit Facilities during
this period.

<PAGE> 16

INCOME TAXES. The Company had an income tax benefit of $65,000 for the
year ended December 31, 1996, compared to no income tax expense or benefit for
the same period in 1995. Based on its past results of operations, the Company
has generated net operating loss carryforwards which have been used to offset
taxable income. For 1996, the Company utilized its remaining federal net
operating loss carryforwards, which reduced its income tax expense. The
Company also has net deferred tax assets, resulting from temporary differences
between financial and tax reporting of the allowance for doubtful receivables
and product returns, depreciation, and accrued liabilities. In 1995, a
valuation reserve in an amount equal to the entire deferred tax assets resulted
in a net deferred tax asset of $0. The Company had determined that it was more
likely than not that it would not be able to realize the net deferred tax
assets. The Company based this determination on the following factors: (i)
its historical levels of pre-tax income; (ii) its historical use of net
operating losses to eliminate income tax; (iii) the uncertainty of the effect
of the Lyon Product Line Acquisition on the Company's future pre-tax income;
and (iv) the effect of a potential settlement, if any, and payment of the
Metropolitan Water Reclamation District user charges on future pre-tax income.
For 1996, the Company determined that a partial recognition of the valuation
allowance was appropriate. The Company based this determination on the
uncertainty of the effects on future pre-tax income of the Company's
acquisition strategy and its planned purchase or construction of an Improved
Facility. This recognition, combined with the utilization of the operating loss
carryforwards, resulted in the income tax benefit.

NET INCOME. Net income for the year ended December 31, 1996 was $818,000
compared to $131,000 for the same period in 1995, an increase of $687,000 or
524.4%. Excluding the non-recurring Arbitration Award in 1995, the increase
would have been $331,000 or 68%.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER
31, 1994

REVENUE. Net sales for the year ended December 31, 1995 were $21,410,000
compared to $17,793,000 for the same period in 1994, an increase of $3,617,000
or 20.3%. This increase was primarily attributable to sales of ELF brand
herring products of $2,800,000, which the Company began selling following the
Lyon Product Line Acquisition in March, 1995, sales of imported Scottish smoked
salmon of $500,000, which the Company began distributing in January, 1995 and
increased sales of the Company's VITA brand cured and smoked salmon products of
$300,000. Of the $3,617,000 increase in net sales, net sales attributable to
the Company's new products introduced in 1995 were $3,300,000. The increase in
net sales of the Company's existing products was primarily attributable to
increases in sales volume.

GROSS MARGIN. Gross margin for the year ended December 31, 1995 was
$6,396,000 compared to $5,058,000 for the same period in 1994, an increase of
$1,338,000 or 26.5%. As a percentage of net sales, gross margin increased to
29.9% in 1995 from 28.4% in 1994. The increase was primarily attributable to
certain manufacturing efficiencies estimated to be approximately $200,000
achieved from consolidating the herring production line operations of Lyon Food
with the Company's existing production facilities, resulting in certain lower
per unit costs achieved by more frequent utilization of the production
facilities at full capacity. The increase in gross margin was partially offset
by an increase in the sale of co-packed products in 1995 compared to 1994
because the co-packed products generally have lower gross margins than products
produced and marketed by the Company.

EXPENSES. Selling, marketing and administrative expenses for the year
ended December 31, 1995 were $5,397,000 compared to $4,410,000 for the same
period in 1994, an increase of $987,000 or 22.4%. As a percentage of net
sales, selling, marketing and administrative expenses increased to 25.2% in
1995 from 24.8% in 1994. This increase was primarily attributable to increased
advertising expenses of $92,000, increased expenses associated with securing
additional shelf space of $149,000, increased brokers' commissions and
increased regional sales managers' salaries totaling $242,000. The increase in
brokers' commissions and regional sales managers' salaries were primarily
attributable to the Lyon Product Line Acquisition and the resulting increase in
sales of ELF brand herring products.

<PAGE> 17

INTEREST. Interest and other expense, net, for the year ended December
31, 1995 was $868,000 compared to $376,000 for the same period in 1994, an
increase of $492,000 or 130.9%. This increase was primarily attributable to
the payment of an award in an arbitration proceeding which required the
Company, which initiated the arbitration but did not prevail on its claims, to
reimburse the respondent for its legal fees and expenses in the amount of
$356,000 (the "ARBITRATION AWARD"). In addition, $50,000 of this increase was
attributable to a higher average interest rate under the Bank Credit Facilities
and $50,000 was attributable to increased borrowings under the Bank Credit
Facilities to finance the Lyon Product Line Acquisition and the resulting
consolidation of operations and to finance the acquisition of new capital
equipment. See "Business - Growth Strategy."

INCOME TAXES. The Company had no income tax expense for the years ended
December 31, 1995 and 1994, respectively. Based on its past results of
operations, the Company has generated net operating loss carryforwards which
have been used to offset taxable income. As of December 31, 1995, the Company
had net operating loss carry forwards from prior years of $200,000 which expire
in specified amounts through 2007. The Company also has net deferred tax
assets, resulting from temporary differences between financial and tax
reporting of the allowance for doubtful receivables and product returns,
accrued liabilities and net operating loss carryforwards. For the years ended
December 31,1995 and 1994, the Company determined that it was more likely than
not that it would not be able to realize the net deferred tax assets. The
Company based this determination on the following factors: (i) its historical
levels of pre-tax income; (ii) its historical use of net operating losses to
eliminate income tax; (iii) the uncertainty of the effect of the Lyon Product
Line Acquisition on the Company's future pre-tax income; and (iv) the effect of
a potential settlement, if any, and payment of the Metropolitan Water
Reclamation District user charges on future pre-tax income. Accordingly, the
Company created a valuation allowance for 100% of the net deferred tax assets.
As the Company generates pre-tax income in future years, the valuation
allowance will be partially recognized and reduce the Company's future income
tax expense.

NET INCOME. Net income for the year ended December 31, 1995 was $131,000
compared to $272,000 for the same period in 1994, a decrease of $141,000 or
51.8%. Net income for the year ended December 31, 1995, excluding
non-recurring, unusual expenses, was $742,000 compared to $372,000 for the same
period in 1994, an increase of $370,000 or 99.5%. The unusual expenses
incurred in 1995 were the Arbitration Award of $356,000, expenses of $110,000
incurred in consolidating the herring production line operations of Lyon Food
with the Company's existing production facilities, expenses of $83,000 incurred
in establishing the Bank Credit Facilities and legal fees and expenses totaling
$62,000 paid to Company counsel in connection with the Arbitration. Legal fees
and expenses paid to Company counsel in connection with the Arbitration in 1994
were $100,000. All of these expenses were reflected as "selling, marketing and
administrative expenses," with the exception of the Arbitration Award of
$356,000, which was reflected as "interest and other expense, net."

SEASONALITY; QUARTERLY RESULTS

The following table sets forth net sales information for each of the
Company's last 16 quarters. This unaudited net sales information has been
prepared on the same basis as the annual information presented elsewhere in
this Form 10-KSB and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net sales for any quarter are not necessarily
indicative of sales for any future period.

<TABLE>
<S> <C> <C> <C> <C>
NET SALES
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
(in thousands)
1993 $4,145 $2,749 $3,858 $6,019
1994 4,285 3,108 3,892 6,508
1995 4,454 4,011 4,580 8,365
1996 5,516 3,692 4,761 8,719
</TABLE>

<PAGE> 18

The following table sets forth net income (loss) information for each of
the Company's last 16 quarters. This unaudited net income information has been
prepared on the same basis as the annual information presented elsewhere in
this Form 10-KSB and, in the opinion of the management, reflects all
adjustments (consisting of normal recurring entries) necessary for a fair
presentation of the information presented. Net income (loss) for any quarter
is not necessarily indicative of net income (loss) for any future period.

<TABLE>
<S> <C> <C> <C> <C>
NET INCOME (LOSS) (3)
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- -------- -------
(in thousands)
1993... $(91) $(577) $141 $626
1994... 10 (427) (121) 810
1995(1) 63 (270) (548)(2) 886
1996... 69 (100) 3 846
</TABLE>

(1) The Company incurred, non-recurring unusual, expenses in 1995 which
consisted of the Arbitration Award of $356,000, expenses of $110,000
incurred in consolidating the herring production line operations of Lyon
Food with the Company's existing production facilities, expenses of
$83,000 incurred in establishing the Bank Credit Facilities and legal fees
and expenses totaling $62,000 paid to Company counsel in connection with
the Arbitration.
(2) The Arbitration Award of $356,000 was paid in the third quarter of 1995.
(3) Income taxes (benefit) are not presented in 1993, 1994 and 1995 due to
the Company's utilization of net operating loss carryforwards to offset
taxable income and due to the 100% valuation allowance applied against the
deferred tax asset. In 1996, the Company recognized $316,000 of the prior
year's deferred tax asset valuation allowance.

The Company has in the past and expects in the future to experience
significant fluctuation in quarterly operating results. As the tables indicate,
historically the Company's net sales and net income have been the highest in
the fourth quarter of each year. The Company's business is seasonal because
its sales volume increases significantly during the Christmas holiday season
and, to a lesser extent, during other holidays in the Fall and Spring and
periods of colder weather in certain sections of the country. Certain of these
holidays, including Passover, Easter, Yom Kippur and Rosh Hashanah, may fall in
different quarters in different years and could cause the Company's quarterly
operating results to fluctuate in the future. Significant variability in
orders during any period may have an adverse impact on the Company's cash flow
or work flow, and any significant decrease in orders could have a material
adverse impact on the Company's results of operations and financial condition.
The Company's new product strategy includes expanding into products such as
salmon burgers and hommus that are less seasonal and appeal to a broader range
of consumers.

LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $3,302,000 at December 31, 1995 as
compared to working capital of $3,228,000 at December 31, 1996. The Company
has historically satisfied its working capital requirements principally through
cash flow from operations and bank borrowings. The Company has never paid any
dividends on its Common Stock. The Company anticipates that all future
earnings, if any, will be retained for use in the Company's business and it
does not anticipate paying any cash dividends.

Net cash provided by operating activities was $1,049,000 for the year
ended December 31, 1996, compared to net cash provided by operating activities
of $342,000 for the year ended December 31, 1995. The increase in net cash
provided by operating activities in 1996 was primarily due to the increase in
net income; working capital was relatively unchanged.

Net cash used in investing activities was $458,000 for the year ended
December 31, 1996, compared to $1,201,000 for the year ended December 31, 1995.
The decrease in net cash used in investing activities was primarily due to the
acquisition of the Lyon Product Line in 1995.

<PAGE> 19

Net cash used in financing activities was $548,000 for the year ended
December 31, 1996, compared to net cash provided by financing activities of
$507,000 for the year ended December 31, 1995. The difference was primarily
due to lower net bank borrowings in 1996 and costs incurred prior to the
Initial Public Offering which was completed subsequent to the year ended
December 31, 1996.

On March 20, 1995, the Company entered into a Loan and Security Agreement
(the "BANK AGREEMENT") with NBD Bank ("NBD"). The Bank Agreement provides the
Company with an asset-based revolving loan facility and a term loan facility
(the "BANK CREDIT FACILITIES"). American National Bank and Trust Company of
Chicago ("ANB") subsequently acquired all of NBD's right, title and interest
in, to and under the Bank Credit Facilities. The borrowings under the Bank
Credit Facilities are generally limited to eligible accounts, eligible
inventory, equipment and real estate collateral as defined in the Bank
Agreement. The revolving loan facility has a maximum borrowing limit of
$5,250,000 while the term loan facility has a maximum borrowing limit of
$1,500,000. The interest rate on borrowings under the Bank Credit Facilities
was 5/8% over the prime rate established by ANB prior to the Initial Public
Offering. Subsequently, the interest rate was reduced to the prime rate. All
of the assets of the Company are pledged as collateral for borrowings under the
Bank Credit Facilities. Pursuant to a letter dated January 10, 1997, ANB issued
a commitment to extend the maturity date of the Bank Credit Facilities,
including the subordinated participations in the term loan facility, from
April, 1997 until April, 1998. In addition, the commitment from ANB included a
modification of certain covenants contained in the Bank Agreement. As a
result, the Company is currently, and as of December 31, 1996, was in
compliance with the covenants contained in its Bank Agreement. The Company
believes that its relationship with ANB is good and expects ANB to continue to
modify certain covenants, if requested.

As of March 15, 1997, the Company anticipates either purchasing or
constructing an Improved Facility during the next 12 to 18 months. The Company
intends to partially finance the Improved Facility with approximately
$1,200,000 to $1,500,000 of the net proceeds of the Initial Public Offering.
The Company currently anticipates obtaining the additional required funds,
which are currently projected to be between $4,500,000 and $8,000,000, through
the use of one or more financing options which may include, among others,
conventional bank financing, industrial revenue bond financing, and, possibly,
tax incentives for Federal Empowerment Zones and Enterprise Communities to the
extent available.

As of March 15, 1997, the Company anticipates, based on currently proposed
plans and assumptions relating to its operations, that a portion of the net
proceeds of the Initial Public Offering, together with projected cash flow from
operations and existing capital resources, including its Bank Credit
Facilities, will be sufficient to fund the Company's operations for at least
the next 12 to 18 months.

INFLATION

Inflation has historically not had a material effect on the Company's
operations.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement Number 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which requires the Company to review long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The assessment of
the impairment is based upon the estimated undiscounted future cash flows from
operating activities compared with the carrying value of the assets. If the
undiscounted future cash flows of an asset are less than the carrying value, a
write-down would be recorded measured by the amount of the difference between
the carrying value of the asset and the fair value of the asset. The Statement
is required for financial statements for fiscal years beginning after December
15, 1995. The Company adopted this Statement during 1996, and based upon
management's estimates of future cash flows, no impairment losses are
necessary.

<PAGE> 20

In December, 1995, the FASB issued Statement Number 123, "Accounting for
Stock-Based Compensation." Statement Number 123 is effective for fiscal years
beginning after December 15, 1995, and requires either the application of an
option pricing model measurement for stock compensation, or, if a Company
elects to continue to measure stock compensation based on the difference
between the market price of the Company's common stock and the exercise price
of the employer stock option, disclosure of what the effects of the application
of option pricing model measurement would have been. The Company initially
applied Statement Number 123 in fiscal 1996, and elected to disclose the effect
that the application of option pricing model measurement would have had for
options granted from January 1, 1995.

In March, 1997, the FASB issued SFAS 128, "Earnings Per Share." The new
standard simplifies the standards for computing earnings per share and requires
presentation of two new amounts, basic and diluted earnings per share. The
Company will be required to retroactively adopt this standard when it reports
its operating results for the fiscal quarter and year ending December 31, 1997.

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-KSB, including "Business," "Properties,"
"Legal Proceedings" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's
current expectations and are subject to a number of factors and uncertainties
which could cause actual results to differ materially from those described in
the forward-looking statements. Such factors and uncertainties include, but
are not limited to: (i) the impact of the level of the Company's indebtedness;
(ii) restrictive covenants contained in the Company's various debt documents;
(iii) general economic conditions and conditions in the retail environment;
(iv) the Company's dependence on a few large customers; (v) price fluctuations
in the raw materials used by the Company, particularly herring and salmon; (vi)
competitive conditions in the Company's markets; (vii) the seasonal nature of
the Company's business; (viii) the Company's ability to execute its acquisition
strategy; (ix) fluctuations in the stock market; (x) the extent to which the
Company is able to retain and attract key personnel; (xi) relationships with
retailers; (xii) relationships with key vendors; and (xiii) the impact of
federal, state and local environmental requirements (including the impact of
current or future environmental claims against the Company). As a result, the
Company's operating results may fluctuate, especially when measured on a
quarterly basis.

The Company's business strategy contemplates that the Company will pursue
potential acquisitions. The Company currently has no agreements or
understandings with respect to any acquisitions and there can be no assurance
that the Company will be successful in pursuing other potential acquisitions.
However, the costs associated with this strategy, means of financing any
potential acquisitions, and consummation and integration of any potential
acquisitions could significantly impact the Company's financial and operating
performance.

<PAGE> 21

ITEM 7. FINANCIAL STATEMENTS

Listed below are the financial statements and supplementary data included
in this part of the Annual Report on Form 10-KSB:

<TABLE>
<C> <C> <C>
(a) Financial Statements Page No.
-------------------- --------
Reports of Independent F-2
Certified Public Accountant
Balance Sheets at December 31, 1995 F-5
and at December 31, 1996
Statements of Income for the years ended F-3
December 31, 1995 and 1996
Statements of Shareholders' Equity (Deficit) for F-6
the years ended December 31, 1995 and 1996
Statements of Cash Flow for the years ended F-7
December 31, 1995 and 1996
Notes to Financial Statements F-9
</TABLE>

<TABLE>
<S> <C>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.
</TABLE>

<PAGE> 22

PART III

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

The directors, nominees, and executive officers of the Company, and their
ages as of March 20, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Stephen D. Rubin........................... 57 President and Director
Clark L. Feldman............................ 62 Executive Vice
President, Secretary and
Director
Jay H. Dembsky............................ 36 Vice President, Chief
Financial Officer and
Treasurer
Sam Gorenstein(2)........................ 49 Director
Jeffrey Rubenstein(1).................... 55 Director
Neal Jansen(1).............................. 59 Director
Michael Horn(2)............................. 60 Director
</TABLE>

(1) Member of the Audit Committee
(2) Member of the Compensation Committee

MR. RUBIN has served as a director and President of the Company since
1982. Mr. Rubin is responsible for the overall operations of the Company with
an emphasis on production, finance and quality control. Previously, Mr. Rubin
was the owner and chief operating officer of several other companies which
included food, manufacturing and industrial companies. Mr. Rubin received a
B.B.A. from the University of Wisconsin and a J.D. from the University of
Wisconsin Law School.

MR. FELDMAN has served as a director and Executive Vice President and
Secretary of the Company since the Company was acquired in 1982. Mr. Feldman
has an extensive background in strategic financial planning and marketing and
is responsible for all sales personnel, including brokers. Mr. Feldman
received a B.S. from Indiana University.

MR. DEMBSKY became Vice President, Chief Financial Officer and Treasurer
of the Company in October, 1996 and is responsible for all financial matters
for the Company. From 1988 until joining the Company in 1996, Mr. Dembsky held
a number of positions with Duff & Phelps, LLC, a corporation valuation advisory
and investment banking firm. Mr. Dembsky served as a Vice President of Duff &
Phelps, LLC, from 1992 to 1996. Mr. Dembsky has a 12-year background in
corporate finance, accounting, and strategic and financial planning and
received his CPA certification in 1984 and CFA certification in 1991. Mr.
Dembsky received a M.M. from the J.L. Kellogg Graduate School of Management at
Northwestern and a B.S. from the Wharton School of the University of
Pennsylvania.

MR. GORENSTEIN has served as a director of the Company since February,
1990. For the past 20 years, Mr. Gorenstein has served as Secretary of Three G
Care Management, Inc., a nursing home management company. Mr. Gorenstein is
also a major shareholder of Three G Care Management, Inc. Mr. Gorenstein
attended the University of Manitoba in Winnipeg, Canada.

<PAGE> 23

MR. RUBENSTEIN has served as a director of the Company since November,
1984. For the past five years Mr. Rubenstein has been a principal in the law
firm of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Mr.
Rubenstein is also currently a director of Miller Building Systems, Inc. and
Selfix, Inc. Mr. Rubenstein received an A.B. and a J.D. from the University of
Michigan and an L.L.M in taxation from John Marshall Law School.

MR. JANSEN has served as a director of the Company since April, 1983. Mr.
Jansen is currently a self-employed consultant in the food industry. From 1986
to 1996, he served as President and CEO of Pies, Inc. and was a major
shareholder until it was sold to Flowers Industries in 1991. Prior to 1986 he
was President of Gordon Fleming and Associates, a food brokerage company in
Minnesota, and a Senior Vice President of Red Owl Stores, Inc., a large
Midwestern supermarket chain. Mr. Jansen received a B.A. from St. Norbert
College and an M.B.A. from Michigan State University.

MR. HORN has served as a director of the Company since April, 1983. For
the past six years, Mr. Horn, as the largest shareholder of Save More Foods
Supermarkets and a significant shareholder of Performance Foods of Wisconsin,
Inc., has acted in a management advisory role to both companies. Prior to that
Mr. Horn was president of the Green Bay Division of Super Valu Stores, Inc., a
national grocery food wholesaler and distributor. Mr. Horn is also a Vice
President and a director on the Executive Committee of the Green Bay Packer
Hall of Fame. Mr. Horn has a B.A. degree in business from the University of
Minnesota at Duluth.

The Company's Bylaws provide that the authorized number of directors of
the company must be no less than six (6) and no more than ten (10). The number
of authorized directors, which is currently six, may be set from time to time
within this range by either the Board of Directors or the affirmative vote of a
majority of the Company's shareholders. Directors are elected annually to
serve until the next annual meeting of shareholders and until their successors
are elected and qualified. Executive officers are elected annually by the
Board of Directors and serve at the Board's discretion, subject to any written
employment agreements with the Company.

BOARD COMMITTEES

The Compensation Committee consists of Messrs Gorenstein and Horn. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for officers and other employees, administers incentive
compensation and benefit plans, including the Company's 1996 Stock Option Plans
and the Stock Purchase Plan and recommends policies relating to such plans.

The Audit Committee consists of Messrs. Rubenstein and Jansen. The Audit
Committee, which meets periodically with management and independent auditors,
reviews the results and scope of audits and other services provided by the
Company's independent auditors. The Audit Committee also evaluates the need
for internal auditing procedures and the adequacy of internal controls.

COMPENSATION OF DIRECTORS

STANDARD COMPENSATION

Directors who are not employees of the Company or its subsidiaries receive
$1,000 for each meeting of the Board of Directors or committee meeting that
they attend, plus reimbursement of any expenses that they incur with respect to
attendance at such meetings. In addition, non-employee directors are eligible
to participate in the 1996 Stock Option Plan for Non-Employee Directors.
Directors who are employees of the Company serve as directors without
compensation.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's 1996 Stock Option Plan for Non-Employee Directors (the
"DIRECTOR PLAN") was adopted by the Board of Directors in September, 1996 and
was approved by the shareholders in September, 1996. A total of 75,000 shares
of Common Stock have been authorized for issuance under the Director Plan.
Each non-employee director of the Company, was granted an option to purchase
2,000 shares of Common Stock on the closing date of the Initial Public
Offering. Each non-employee director who becomes a director after the initial
public offering will be automatically granted, as of the first business day
following the non-employee director's election or

<PAGE> 24

appointment, a non-qualified option to purchase 2,000 shares of Common Stock.
Each non-employee director will automatically receive on the first business day
of each fiscal year, beginning with the 1998 fiscal year, an additional
non-qualified option to purchase 2,000 shares of Common Stock. In the event of
a change in capitalization of the Company, through merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, dividend, stock split, reverse stock split,
spin-off, split-off or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment will be
made in (i) the maximum number and kind of shares reserved for issuance under
the Director Plan, (ii) the number and kind of shares or other securities
subject to then outstanding options under the Director Plan, and (iii) the
price of each share subject to any then outstanding options under the Director
Plan. The exercise price of all options granted under the Director Plan will be
equal to the fair market value of the Common Stock on the date of grant. No
option grant under the Director Plan may be exercised before the expiration of
the fiscal year for which it was granted, provided that any option granted
under the Plan shall become immediately exercisable upon the retirement of the
Director because of age, death or disability. All such options will expire ten
years from the date of grant unless terminated sooner pursuant to the
provisions of the Director Plan. The Board may amend the Director Plan at any
time, subject to certain limitations included in the Director Plan. The
Director Plan will terminate in September, 2006.

ITEM 10. EXECUTIVE COMPENSATION

The following table shows certain information concerning the compensation
of the Chief Executive Officer and each other executive officer of the Company
where aggregate compensation for services in all capacities rendered during the
year ended December 31, 1996 exceeded $100,000 (collectively the "NAMED
EXECUTIVE OFFICERS.").

SUMMARY COMPENSATION TABLE

<TABLE>
<C> <C> <C> <C> <C>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------------------------
Stephen D. Rubin 1996 $212,934 $15,000 $29,447
President, Treasurer and 1995 $207,001 $15,000 $24,154
Director 1994 $207,785 0 $23,518
Clark L. Feldman 1996 $226,523 $15,000 -
Executive Vice President, 1995 $218,068 $15,000 -
Secretary and Director 1994 $219,473 0 -
</TABLE>

(1) This column reflects perquisite compensation which exceeds the lesser of
$50,000 or 10% of the Named Executive Officer's total salary and bonus.
For fiscal years ended December 31, 1996, 1995, and 1994, respectively,
Mr. Rubin's perquisites included $11,542, $8,505 and $11,042 for lease
payments for a car which were paid by the Company. For the fiscal year
ended December 31, 1996 and 1995, respectively, Mr. Rubin's perquisites
included $10,922 for payments for club dues and $7,644 for health
insurance payments for Mr. Rubin's family members which were paid by the
Company.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 1996, the Company's Board of Directors
established the levels of compensation for certain of the Company's
executive officers prior to the formation of the Compensation Committee.
The current members of the Company's Compensation Committee are Messrs.
Gorenstein and Horn. During 1996, neither of these individuals served as
an officer or employee of the Company.

<PAGE> 25

EMPLOYMENT AGREEMENTS

In September, 1996, the Company entered into a three-year employment
agreement with both Mr. Stephen D. Rubin and Mr. Clark L. Feldman (the
"EMPLOYMENT AGREEMENTS"). The terms of the Employment Agreements are identical
except for the capacity in which Mr. Rubin and Mr. Feldman are employed. Under
the Employment Agreements, the Company agrees to employ Mr. Rubin as its
President and Mr. Feldman as its Executive Vice President, each at a salary of
$215,000 per year (adjusted for cost of living increases) plus certain
additional perquisites, not to exceed $30,000 per year, including, among other
things, a car payment allowance, reimbursement of country club or health club
membership dues and expenses, the right to designate a charitable contribution
to be paid by the Company and a non-accountable business expense allowance.
The Employment Agreements also provide that Mr. Rubin and Mr. Feldman may
receive an annual bonus based on Company and individual performance as
determined by the Board of Directors and the Compensation Committee and a
special bonus for any consulting work developed by Mr. Rubin or Mr. Feldman as
determined by the Board of Directors. The Employment Agreements provide for
termination of Mr. Rubin or Mr. Feldman (i) for "cause" as defined in the
Employment Agreements, (ii) upon Mr. Rubin's or Mr. Feldman's death or "total
disability," as defined in the Employment Agreements, or (iii) if Mr. Rubin or
Mr. Feldman terminates his employment because of a breach of the Employment
Agreements by the Company. The Employment Agreements contain provisions that
restrict Mr. Rubin's and Mr. Feldman's ability to compete with the Company or
solicit its employees or customers for a specified period following the
termination of their employment.

The Company and Mr. Jay H. Dembsky, in connection with his employment as
the Company's Chief Financial Officer, entered into a two-year employment
agreement containing provisions which are substantially similar to the
provisions of the Employment Agreements of Mr. Rubin and Mr. Feldman except
that Mr. Dembsky will receive: (i) a salary of $110,000 per year with a
guaranteed bonus of $20,000 in 1997 but no additional perquisites; (ii) options
to purchase 80,000 shares of Common Stock at the initial public offering price
per share less the underwriting discount and pro rata portion of the
non-accountable expense allowance per share which will vest in 20% increments
over a 5-year period; and (iii) a payment in an amount equal to twice his
salary and bonus for the previous fiscal year in the event of change in control
of the Company.

1996 EMPLOYEE STOCK OPTION PLAN

The Company's 1996 Employee Stock Option Plan (the "STOCK OPTION PLAN")
was adopted by the Board of Directors in September, 1996 and was approved by
the shareholders in September, 1996. The purpose of the Stock Option Plan is
to attract and retain qualified personnel, to provide additional incentives to
employees of the Company and to promote the success of the Company's business.
A total of 325,000 shares of Common Stock have been authorized for issuance
under the Stock Option Plan. The Stock Option Plan provides for the granting
to employees, including directors who are employees, of incentive stock options
and nonstatutory stock options. As of December 31, 1996, the Company had
granted options under the Stock Option Plan to purchase 80,000 shares of Common
Stock at fair market value. Subsequently, the Company granted options to
several employees to purchase 90,500 shares of Common Stock at fair market
value. All options granted vest in 20% increments over a 5-year period.

The Stock Option Plan is administered by the Board of Directors, unless
the Board of Directors delegates administration to a committee of disinterested
directors. No vesting schedule is required under the Stock Option Plan,
provided that each option shall vest and become exercisable at the rate of not
less than 20% per year over five years from the date such option is granted.
The maximum term of a stock option under the Stock Option Plan is ten years,
but if the optionee at the time of grant holds more than 10% of the voting
power of the Company's outstanding capital stock, then the maximum term of an
incentive stock option is five years. The exercise price of incentive stock
options granted under the Stock Option Plan must be at least equal to 100% (or
110% with respect to holders of more than 10% of the voting power of the
Company's outstanding capital stock) of the fair market value of the Common
Stock subject to the option on the date of grant. The exercise price of
non-qualified stock options granted under the Stock Option Plan is determined
by the Board of Directors but must not be less than 85% of the fair market
value of the Common Stock subject to the option on the date of grant. Options
granted under the Stock Option Plan are generally non-transferable. The
exercise price may be paid in cash, check, promissory note or any other form of
consideration if authorized by the Board of Directors in connection with the
grant of an option.

<PAGE> 26

Options generally terminate thirty days after termination of the
optionee's employment unless such termination is caused by the permanent
disability or death of the optionee. The Stock Option Plan may be amended at
any time by the Board of Directors, although certain amendments would require
stockholder approval. The Stock Option Plan will terminate in September, 2006,
unless earlier terminated by the Board of Directors.

1996 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1996 Employee Stock Purchase Plan (the "STOCK PURCHASE
PLAN") was adopted by the board of directors in September, 1996 and was
approved by the shareholders in September, 1996. A total of 150,000 shares of
Common Stock have been authorized for issuance under the Stock Purchase Plan.
No shares have been issued under the Stock Purchase Plan. The Stock Purchase
Plan, which is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended (the "CODE"), will be administered by the Board of
Directors of the Company or by a committee appointed by the Board of Directors.
Under the Stock Purchase Plan, the Company will withhold a specified percentage
(not to exceed 15%) of each salary payment to participating employees over
certain offering periods. Any employee who is currently employed for at least
20 hours per week and for at least five consecutive months in a calendar year,
either by the Company or by a majority-owned subsidiary of the Company, will be
eligible to participate in the Stock Purchase Plan. Unless the Board of
Directors or its committee determines otherwise, each offering period will run
for 24 months and will be divided into four consecutive purchase periods of
approximately six months. The first offering period and the first purchase
period will commence on the date determined by the Board of Directors or the
committee. New 24-month offering periods will commence every six months
thereafter. In the event of a change in control of the Company, including a
merger or sale of substantially all of the Company's assets, each option under
the Stock Purchase Plan may be assumed by any successor corporation, or the
offering periods then in progress may be shortened and all options
automatically exercised. The price at which Common Stock will be purchased
under the Stock Purchase Plan is equal to 85% of the fair market value of the
Common Stock on the first trading day of the applicable offering period or the
last day of the applicable purchase period, whichever is lower. Employees may
end their participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment with the
Company. The maximum number of shares that a participant may purchase on the
last day of any offering period is determined by dividing the payroll
deductions accumulated during the offering period by the purchase price.
However, no person may purchase shares under the Stock Purchase Plan to the
extent such person would own 5% or more of the total combined value or voting
power of all classes of the capital stock of the Company or of any of its
subsidiaries, or to the extent that such person's rights to purchase stock
under all employee stock purchase plans would accrue at a rate that exceeds
$25,000 worth of stock for any calendar year. The Stock Purchase Plan will
terminate in September, 2006.

LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

The Company's Articles of Incorporation limit the personal liability of
directors to the fullest extent permitted by Nevada law. Nevada law provides
that directors or officers of a corporation will not be personally liable for
damages for breach of their fiduciary duties as directors or officers, except
liability for (i) acts or omissions which involve intentional misconduct, fraud
or a knowing violation of law or (ii) unlawful payments of dividends. Such
limitation of liability does not apply to liabilities arising under the federal
securities laws and does not affect the availability of equitable remedies such
as injunctive relief or rescission. In addition, the Company's Articles of
Incorporation provide that the Company shall to the fullest extent permitted by
Nevada law, indemnify any and all persons whom it shall have the power to
indemnify under Nevada law from and against any and all expenses, liabilities
or other matters referred to or covered by Nevada law. This indemnification is
in addition to any other rights of indemnification to which such persons may be
entitled under the Company's by-laws, any agreement or vote of shareholders or
disinterested directors.

The Company's By-laws provide that the Company shall indemnify its
directors, and officers, employees and other agents for certain expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
by any such person in connection with any action or proceeding, including any
action by or in the right of the Company, arising out of such person's services
as a director, officer, employee or agent of the Company or any other company
or enterprise to which such person provides services at the request of the
Company if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company. The Company's By-laws also permit it to secure insurance on behalf of
any director,

<PAGE> 27

officer, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the By-laws would permit
indemnification.

At present there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification. The Company
believes that the indemnification provisions in its Article of Incorporation
and By-laws are necessary to attract and retain qualified persons as directors
and officers. The Company does not have any separate indemnification
agreements with its directors or officers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 20, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, (i)
each person or entity who is known by the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each executive officer of the Company,
(iii) each director of the Company and nominee for director, and (iv) all
directors, nominees and executive officers of the Company as a group.

<TABLE>
<S> <C> <C> <C> <C>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
NAME OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT NUMBER(2) PERCENT
- --------------------------- ------------- ------------- ------------- -------------
Stephen D. Rubin........... 1,245,202 42.2% 1,245,202 33.7%
Clark L. Feldman........... 622,303 21.1 622,303 16.8
Sam Gorenstein(3).......... 501,707 17.0 501,707 13.6
J.B.F. Enterprises(4)...... 477,783 16.2 477,783 12.9
James Rubin(5)............. 282,870 9.6 282,870 7.6
Jeffrey C. Rubenstein(6)... 96,239 3.3 96,239 2.6
Michael Horn(7)............ -- * -- *
Neal Jansen(8)............. -- * -- *
All directors, nominees
and executive officers as
a group (7 persons)(9)..... 2,465,451 83.6% 2,465,451 66.6%
</TABLE>

* Less than 1% of the outstanding shares of Common Stock

(1) The address of each of the executive officers and directors, unless noted
otherwise in the footnotes, is c/o Vita Food Products, Inc., 2222 West
Lake Street, Chicago, Illinois 60612.

(2) Includes, when applicable, shares owned of record by such person's minor
children and spouse and by other related individuals and entities over
whose shares of Common Stock such person has custody, voting control, or
power of disposition.

(3) Includes 477,783 shares of Common Stock held by J.B.F. Enterprises, an
Illinois general partnership ("J.B.F."), which are also listed as being
beneficially owned by J.B.F. Mr. Sam Gorenstein and his brother, David
Gorenstein, are general partners of J.B.F. The address of Mr. Sam
Gorenstein is 6770 North Lincoln Avenue, Suite 200, Lincolnwood, Illinois
60046.

(4) Mr. Sam Gorenstein, a director of the Company, and Mr. David Gorenstein,
the brother of Mr. Sam Gorenstein, are partners of J.B.F. The address of
J.B.F. is 6770 North Lincoln Avenue, Suite 200, Lincolnwood, Illinois
60046. These shares are also included in the number of shares beneficially
owned by Mr. Sam Gorenstein.

(5) James Rubin is the brother of Stephen D. Rubin. The address of James
Rubin is 719 Sycamore Lane, Glencoe, Illinois 60022.

(6) Mr. Rubenstein's address is 200 North LaSalle Street, Suite 2100,
Chicago, Illinois 60601.

(7) Mr. Horn's address is 835 Potts Avenue, Green Bay, Wisconsin 54303.

(8) Mr. Jansen's address is 6216 St. Albans Circle, Edina, Minnesota 55439.

(9) Includes 477,783 shares of Common Stock beneficially owned by J.B.F.
which are also deemed to be beneficially owned by Mr. Sam Gorenstein.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to the initial purchase of the Company from Dean Foods in 1982,
the Company borrowed money at an interest rate of 10% per annum from certain
officers, directors and Company shareholders, evidenced by ten year unsecured
promissory notes entered into in March, 1982 (the "ORIGINAL NOTES") in the
following original

<PAGE> 28

principal amounts: (i) Stephen D. Rubin - $98,591; (ii) Clark L. Feldman -
$49,483; (iii) Sam Gorenstein - $20,894; (iv) David Gorenstein - $20,894; (v)
James Rubin - $24,741; (vi) Edward Levine - $9,897; and (vii) Sachnoff Weaver &
Rubenstein, Ltd. - $11,842. The principal amounts of all Original Notes remain
outstanding except for the Original Note to Sachnoff Weaver & Rubenstein, Ltd.
which has been repaid. The scheduled maturity of the Original Notes was
extended for five years to February, 1997 by a resolution of the Board of
Directors in February, 1992 and was extended an additional three years to
February, 2000 by a resolution of the Board of Directors in September, 1996.
The Company borrowed additional amounts at an interest rate of 8% per annum,
evidenced by promissory notes dated February 1, 1993 (the "1993 NOTES") in the
following original principal amounts: (i) Stephen D. Rubin - $52,500; (ii)
Clark L. Feldman - $26,250; (iii) Sam Gorenstein - $11,037; (iv) David
Gorenstein - $11,037; (v) Edward Levine - $5,225; and (vi) Jeffrey C.
Rubenstein - $3,750; (vii) Arnold Pagniucci - $460; and (viii) Philip Wong -
$200. The principal amounts of the 1993 Notes remain outstanding except the
1993 Notes to Mr. Pagniucci and Mr. Wong which have been repaid and the 1993
Note to Mr. Feldman which was partially repaid and has a remaining balance of
$7,105. The scheduled maturity of the 1993 Notes is December 31, 1998. Interest
on the Original Notes and the 1993 Notes is currently being paid by the
Company. The Bank Agreement required those officers, directors and
shareholders owning the 1993 Notes (the "1993 NOTEHOLDERS") to enter into
Subordination Agreements dated March 20, 1995 (the "SUBORDINATION AGREEMENTS")
subordinating the 1993 Notes to any amounts which the Company owes to ANB under
the Bank Agreement. The Subordination Agreements allow the Company to pay the
1993 Noteholders currently accruing interest as long as the Company is not in
default under the Bank Agreement. The 1993 Noteholders also have a security
interest in Company property, pursuant to a Security Agreement dated March 20,
1995 provided, however, that the security interest of the 1993 Noteholders is
subordinated to the security interest of ANB.

Certain shareholders, officers and directors also participated in the loan
from ANB to the Company pursuant to the Bank Agreement. Each participant is
entitled to the same rate of interest to which ANB is entitled. Subordinated
Participation Agreements dated July 10, 1995 (the "PARTICIPATION AGREEMENTS")
were entered into by with these officers, directors and shareholders in the
following amounts: (i) Stephen D. Rubin - $125,430; (ii) Clark L. Feldman -
$62,700; (iii) Jeffrey Rubenstein - $15,000; (iv) Edward Levine - $12,539; and
(v) James Rubin - $31,356. The Participation Agreements document each
participant's purchase of a subordinated participation in the loan in those
amounts. The interest payments due each participant are subordinate to the
rights of ANB, and upon default or certain other events, the participants will
receive their payment of principal after all payments have first been made to
ANB. Upon 30 days' written notice, ANB may repurchase any or all of these loan
participant's outstanding principal balance in the ANB loan for a purchase
price equal to the outstanding principle balance plus accrued interest less
expenses. The participants are currently being paid interest pursuant to the
Participation Agreements by ANB. In addition, the Company has determined that
each participant is entitled to an additional interest payment of 6% per annum
on the amounts subject to the Participation Agreements. The Company is not
currently paying this interest but is reflecting it as accrued interest. The
Participation Agreements terminate on the maturity date of the Bank Agreement.

On February 26, 1990, David Gorenstein, Sam Gorenstein, Sid Gorenstein and
J.B.F. Enterprises (the "GORENSTEINS") entered into a Settlement Agreement and
General Release (the "SETTLEMENT AGREEMENT") with the Company, Stephen Rubin,
Clark Feldman, Jeffrey Rubenstein, Neal Jansen, Michael Horn and V-F
Acquisition, Inc. ("V-F ACQUISITION"). The Settlement Agreement released
various complaints and actions brought by the Gorensteins against the Company
and the other named parties and other claims that the Gorensteins and the
Company may have against one another through the date of the settlement. The
Settlement Agreement also required that Mr. Rubin, Mr. Feldman and V-F
Acquisition enter into a voting agreement with Sam Gorenstein and J.B.F.
Enterprises (the "VOTING AGREEMENT") that required each party to vote their
shares of Common Stock for the election of Sam Gorenstein, Stephen D. Rubin and
Clark L. Feldman as directors of the Company. The Voting Agreement terminated
on January 16, 1997. The Settlement Agreement also contains limits on the
maximum compensation including bonuses and amounts paid to family members that
can be paid to Mr. Rubin and Mr. Feldman. The maximum compensation allowable
for the fiscal year ending August 31, 1990 was $215,000 and increases each year
by an amount tied to the Consumer Price Index or five percent, whichever is
greater. In 1996, the maximum compensation limit was approximately $288,000.
If salaries are paid in excess of that amount, then pro-rata dividends must be
paid to the shareholders of the Company. In addition, Consulting Agreements,
required by the Settlement Agreement, provided for payments of consulting fees
to Sam and David Gorenstein in the annual amount of $12,500 through February,
1995, with fees paid quarterly. The Settlement Agreement also provides that
the Company will not attempt to force the Gorensteins to relinquish ownership
through any type of "freeze out" transaction, except under defined
circumstances.

<PAGE> 29

On September 20, 1996, the Company, Stephen Rubin, Clark Feldman, the
Gorensteins and certain other parties entered into an agreement (the
"GORENSTEIN AGREEMENT") pursuant to which, among other things, Mr. Rubin, Mr.
Feldman, Mr. Rubenstein and Mr. James Rubin agree to vote their shares of
Common Stock for the election of Sam Gorenstein as a director of the Company
for a period of three years from the date of the initial public offering. The
Gorenstein Agreement also provides that the Company will grant certain
"piggyback" registration rights to the Gorensteins effective on the date of the
closing of the initial public offering. In addition, the Gorenstein Agreement
provides that the Settlement Agreement was terminated on the date of the
closing of the Initial Public Offering.

It is the policy of the Company that all future transactions, including
loans, between the Company and its executive officers, employees, directors,
principal shareholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Listed below are the exhibits included in this part of the Annual Report
on Form 10-KSB:

(A) REPORTS FILED ON FORM 8-K

None

<PAGE> 30
p

(B) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B)

EXHIBIT INDEX

<TABLE>
<S> <C>
EXHIBIT
NUMBER EXHIBIT TITLE
------- --------------------------------------------------

3.1 Articles of Incorporation of the Company (Ex. 3.1)

3.2 By-laws of the Company (Ex. 3.2)

4.1 Form of Common Stock Certificate (Ex. 4.1)

4.2 Form of Representatives' Warrant Agreement between the Company and
National Securities Corporation and Access Financial Group, Inc., as
representative of the several Underwriters (the "Representatives"),
including Form of Representatives' Warrant (Ex. 4.2)

4.3 Form of Warrant Agreement between the Company and American Stock
Transfer & Trust Company and the Representative, including form of
Warrant Certificate (Ex. 4.3)

10.1 Loan and Security Agreement dated as of March 20, 1995 by and between
the Company and NBD Bank, as amended (Ex. 10.3)

10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)

10.3 Form of 1996 Stock Option Plan for Non-Employee Directors (Ex. 10.5)

10.4 Form of Employment Agreement between the Company and Stephen D. Rubin
(Ex. 10.7)

10.5 Form of Employment Agreement between the Company and Clark L. Feldman
(Ex. 10.8)

10.6 Long Term Supply/Purchase Agreement dated as of September 1, 1992 by
and between the Company and Barry's Limited (Ex. 10.9)

10.7 Exclusive Distributorship Agreement dated as of December 1, 1994 by
and between the Company and Brookside Products, Ltd. (Ex. 10.10)

10.8 Subordinated Participation Agreement dated as of July 10, 1995 by and
between NBD Bank and Stephen D. Rubin (Ex. 10.13)

10.9 Subordinated Participation Agreement dated as of July 10, 1995 by and
between NBD Bank and Clark L. Feldman (Ex. 10.14)

10.10 Subordinated Participation Agreement dated as of July 10, 1995 by and
between NBD Bank and Jeffrey Rubenstein (Ex. 10.15)

10.11 Subordinated Participation Agreement dated as of July 10, 1995 by and
between NBD Bank and Edward Levine (Ex. 10.16)

</TABLE>

<PAGE> 31

10.12 Subordinated Participation Agreement dated as of July 10, 1995 by and
between NBD Bank and James M. Rubin (Ex. 10.17)

10.13 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Stephen D. Rubin and delivered to NBD Bank. (Ex.
10.18)

10.14 Subordination Agreement and Assignment dated as of March 20, 1995 by
and between the Company and Clark L. Feldman and delivered to NBD Bank.
(Ex. 10.19)

10.15 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Jeffrey Rubenstein and delivered to NBD Bank.\
(Ex. 10.20)

10.16 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Sam Gorenstein and delivered to NBD Bank
(Ex. 10.21)

10.17 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and David Gorenstein and delivered to NBD Bank\
(Ex. 10.22)

10.18 Subordination Agreement and Assignment dated as of March 20, 1995 by and
between the Company and Edward Levine and delivered to NBD Bank
(Ex. 10.23)

10.19 Requirements Manufacturing and Co-Packing Agreement dated as of August
30, 1996 by and between the Company and Cedar's Mediterranean Foods,
Inc.(Ex. 10.24)

10.20 Gorenstein Agreement dated September 20, 1996 by and among the Company,
Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein, David Gorenstein and
J.B.F. Enterprises (Ex. 10.26)

10.21 Commitment Letter from American National Bank and Trust Company of
Chicago agreeing to extend the maturity date of the Company's Bank Credit
Facilities until April 30, 1998 (Ex. 10.27)

*27.1 Financial Data Schedule.
______________________________
* Filed herewith, exhibits not marked with an asterisk were filed as part
of the Form SB-2 Registration Statement, as amended (File No. 333-5738) ,
filed with the Securities and Exchange Commission on September 23, 1996.
Form SB-2 Exhibit Number is included in parenthesis following the title
of the Exhibit.

* Filed herewith, exhibits not marked with an asterisk are incorporated
by reference.
X Indicates an employee benefit plan, management contract or compensatory
plan or arrangement in which a named executive officer participates.

<PAGE> 32

Page

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2

Balance Sheets at December 31, 1995 and at December 31, 1996 F-3

Statements of Income for the Years Ended December 31, 1995
and 1996 F-5

Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1995 and 1996 F-6

Statements of Cash Flows for the Years Ended December 31, 1995
and 1996 F-7

Notes to Financial Statements F-9
</TABLE>

F-1
#40996- v. 4

<PAGE> 33

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Vita Food Products, Inc.

We have audited the accompanying balance sheets of Vita Food Products, Inc. as
of December 31, 1995 and 1996, and the related statements of income,
shareholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vita Food Products, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.

BDO Seidman, LLP

Chicago, Illinois
March 7, 1997

F-2
#40996- v. 4

<PAGE> 34

<TABLE>
<S> <C> <C>
December 31, DECEMBER 31,
1995 1996
------------ ------------
ASSETS (Note 3)
CURRENT ASSETS
Cash $ 45,294 $ 88,221
Accounts receivable - trade, net of allowance for
doubtful accounts of $190,000 in 1995 and 1996 3,798,647 3,212,157
Inventories
Raw materials and supplies 3,166,514 3,167,911
Work in process 150,194 168,604
Finished goods 1,158,146 1,473,172
Prepaid expenses and other current assets 128,963 152,845
Deferred income taxes (Note 4) -- 300,000
- ---------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,447,758 8,562,910
- ---------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Building and improvements 1,354,941 1,379,056
Machinery and office equipment 3,552,463 3,984,517
- ---------------------------------------------------------------------------------------
4,907,404 5,363,573
Less accumulated depreciation and amortization 3,045,221 3,337,129
- ---------------------------------------------------------------------------------------
1,862,183 2,026,444
Land 35,000 35,000
- ---------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 1,897,183 2,061,444
- ---------------------------------------------------------------------------------------
OTHER ASSETS (including deferred public offering
costs of $613,028 in 1996) (Note 10) 70,054 715,677
- ---------------------------------------------------------------------------------------
$ 10,414,995 $ 11,340,031
=======================================================================================
</TABLE>

F-3
#40996- v. 4

<PAGE> 35

<TABLE>
<S> <C> <C>
December 31, DECEMBER 31,
1995 1996
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term obligations (Note 3) $ 127,920 $ 307,403
Accounts payable 3,936,859 3,455,681
Accrued expenses (Notes 2 and 6) 1,081,331 1,322,171
Income taxes payable -- 249,482
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,146,110 5,334,737
- ---------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS, less current maturities (Note 3) 5,500,704 5,419,159
- ---------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
SHAREHOLDERS' EQUITY (DEFICIT) (Notes 9 and 10)
Preferred Stock, $.01 par value, authorized 1,000,000
shares; none issued -- --
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 2,950,000 shares 29,500 29,500
Additional paid-in capital 196,000 196,000
Retained earnings (deficit) (457,319) 360,635
- ---------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (231,819) 586,135
- ---------------------------------------------------------------------------------------------
$ 10,414,995 $ 11,340,031
=============================================================================================
</TABLE>

See accompanying notes to financial statements.

F-4
#40996- v. 4

<PAGE> 36

<TABLE>
<S> <C> <C>
YEAR ENDED
DECEMBER 31,
1995 1996
NET SALES (Note 8) $ 21,410,077 $ 22,687,765
COST OF GOODS SOLD 15,013,763 15,587,552
- -------------------------------------------------------------------------
Gross margin 6,396,314 7,100,213
- -------------------------------------------------------------------------
SELLING, MARKETING AND
ADMINISTRATIVE EXPENSES
Selling and marketing 3,879,272 4,343,053
Administrative 1,518,079 1,540,426
- -------------------------------------------------------------------------
5,397,351 5,883,479
- -------------------------------------------------------------------------
Operating profit 998,963 1,216,734
- -------------------------------------------------------------------------
OTHER (INCOME) EXPENSE
Other income --- (82,898)
Lawsuit settlement (Note 6) 355,527 --
Interest 512,645 546,678
- -------------------------------------------------------------------------
868,172 463,780
- -------------------------------------------------------------------------
Income before income tax benefit 130,791 752,954
Income tax benefit (Note 4) -- (65,000)
- -------------------------------------------------------------------------
NET INCOME $ 130,791 $ 817,954
=========================================================================
NET INCOME PER COMMON SHARE $ .04 $ 0.28
=========================================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,960,000 2,960,000
=========================================================================
</TABLE>

See accompanying notes to financial statements.

F-5
#40996- v. 4

<PAGE> 37

<TABLE>
<S> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL RETAINED
---------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- ----------------------------------------------------------------------------------------
BALANCE, at January 1, 1995 2,950,000 $29,500 $196,000 $(588,110) $(362,610)
Net income -- -- --- 130,791 130,791
- ----------------------------------------------------------------------------------------
BALANCE, at December 31, 1995 2,950,000 29,500 196,000 (457,319) (231,819)
Net income -- -- --- 817,954 817,954
- ----------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 2,950,000 $29,500 $196,000 $360,635 $586,135
========================================================================================
</TABLE>

See accompanying notes to financial statements.

F-6

<PAGE> 38
STATEMENTS OF CASH FLOWS

YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
- -------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $130,791 $817,954
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 268,843 293,708
Deferred income taxes -- (300,000)
Changes in assets and liabilities, net
of effects of product line acquisition
Decrease (increase) in accounts
receivable (504,025) 586,490
Increase in inventories (907,408) (334,833)
Increase in prepaid expenses and other
current assets (19,729) (23,882)
(Decrease) increase in accounts
payable 1,142,537 (481,178)
Increase in accrued expenses 231,137 240,840
Increase in income taxes payable -- 249,482
- -------------------------------------------------------------------
Net cash provided by operating activities 342,146 1,048,581
- -------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets (29,432) (1,832)
Acquisition of a product line (725,915) --
Capital expenditures (446,109) (456,169)
- -------------------------------------------------------------------
Net cash used in investing activities (1,201,456) (458,001)
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Public offering costs and other costs -- (645,591)
Borrowings under notes payable-bank 2,496,000 3,007,296
Payments under notes payable-bank (1,237,398) (2,737,760)
Long-term obligation proceeds --- 122,168
Payments of long-term obligations (647,894) (285,511)
Payments of capital lease obligations (103,750) (8,255)
- -------------------------------------------------------------------
Net cash provided by (used in) financing
activities 506,958 (547,653)
- -------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

F-7
#40996- v. 4

<PAGE> 39

YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996
- ---------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH $ (352,352) $ 42,927
CASH, at beginning of year 397,646 45,294
- ---------------------------------------------------------------------
CASH, at end of year $ 45,294 $ 88,221
=====================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest $ 459,467 $ 530,639
Income taxes paid (refunded) $ (7,451) $ 550
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
</TABLE>

In March, 1995, the Company purchased the herring production line of Lyon Food
Products, Inc. ("Lyon") and secured licensing rights from Lyon to the ELF brand
name, a recognized regional herring brand (the "Lyon Product Line
Acquisition"). In conjunction with the Lyon Product Line Acquisition,
liabilities were assumed as follows:

<TABLE>
<S> <C>
Fair value of assets acquired $ 844,842
Cash paid 725,915
----------
Liabilities assumed $ 118,927
==========

Capital lease obligations of $57,400 were incurred when the Company entered
into leases for equipment in 1995.
</TABLE>

See accompanying notes to financial statements.

F-8

<PAGE> 40

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF A summary of the significant accounting policies utilized in the preparation of the accompanying
SIGNIFICANT financial statements follows.
ACCOUNTING POLICIES

INDUSTRY The Company processes ans sells various herring, and cured and smoked salmon products. In addition, the
Company sells other complementary specialty food products.

CONCENTRATION OF Financial instruments that potentially subject the Company to significant concentrations of credit risk
CREDIT RISK consist principally of trade accounts receivable. The Company primarily provides credit in the normal
course of business. The Company performs ongoing credit evaluations of it customers and maintains
allowances for potential credit losses, if necessary.

MERCHANDISE In accordance with industry practices, inventory is sold to customers with the right to return if the
RETURNS merchandise is not sold prior to the expriation of its shelf life. Sales are reduced by a provision for
estimated future returns.

INVENTORIES Inventories are stated at the lower of cost or market. Costs are determined by the first-in, first-out
(FIFO) method.

PROPERTY, PLANT Property, plant and equipment are stated at cost. Depreciation and amortization are being provided, on
AND EQUIPMENT accelerated and straight-line methods, over the estimated useful lives of the assets. Leasehold
improvements are being amortized on a straight-line basis over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. Repair and maintenance items are expensed as
incurred.

DEFERRED PUBLIC Fees, costs and expenses related to the public offering are capitalized and will be charged against the
OFFERING COSTS proceeds therefrom.

ESTIMATES The accompanying financial statements include estimated amounts and disclosures based on management's
assumptions about future events. Actual results may differ from those estimates.

ADVERTISING Advertising costs are expensed as incurred and included in "selling and marketing expenses".
Advertising expenses amounted to approximately $425,000 in 1995 and $752,000 in 1996.

</TABLE>

F-9

<PAGE> 41

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
INCOME TAXES The Company recognizes deferred tax assets and
liabilities for the expected future tax consequences of
temporary differences between the tax basis and
financial reporting basis of certain assets and
liabilities based upon currently enacted tax rates
expected to be in effect when such amounts are realized
or settled.

NET INCOME PER Net income per common share is computed based on the
COOMON SHARE weighted average number of common shares and common
share equivalents outstanding, after giving effect to
the increase in the number of outstanding shares of
common stock of the Company as described in Note 9 and
for the effects of the application of Securities and
Exchange Commission Staff Accounting Bulletin ("SAB")
No. 83. Pursuant to SAB No. 83, common stock and common
stock equivalents issued within a one-year period prior
to the initial filing of the Registration Statement,
which have a purchase price less than the initial public
offering price, are treated as outstanding for all
periods presented. Net income per share is computed
using the treasury stock method, under which the number
of shares outstanding reflects an assumed use of the
proceeds from the sale of shares within the one-year
period prior to the initial filing to repurchase shares
of the Company's common stock at the initial public
offering price.

In March 1997, the FASB issued SFAS 128, "Earnings Per
Share." The new standard simplifies the standard for
computing earnings per share and requires presentation
of two new amounts, basic and diluted earnings per
share. The Company will be required to retroactively
adopt this standard when it reports its operating
results for the fiscal quarter and year ending December
31, 1997. The earnings per share amounts for 1995 and
1996 reflected below have been calculated in accordance
with FAS 128, without regard to the provisions of SAB
No. 83. The SEC is considering rescinding SAB No. 83.
However, there can be no assurance that SAB No. 83 will
be rescinded. The 1996 and 1995 amounts shown above are
subject to change if SAB No. 83 is not rescinded. When
the Company adopts SFAS 128, it expects no significant
changes to earnings per share.

</TABLE>

F-10

<PAGE> 42

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

<TABLE>
<S> <C> <C> <C> <C> <C>
2. ACCRUED EXPENSES Accrued expenses consist of the following:
December 31, DECEMBER 31,
1995 1996
----------------------------------------------------------------------
Spoilage and merchandise
return accrual $ 464,674 $ 647,500
Metropolitan Water
Reclamation District user
charges 285,000 359,000
Accrued interest 121,212 137,252
Accrued salaries and bonuses 130,640 108,050
Other 79,805 70,369
--------------------------------------------------------------------
$ 1,081,331 $ 1,322,171
====================================================================
</TABLE>

F-11
#40996- v. 4

<PAGE> 43

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
3.
LONG-TERM
OBLIGATIONS Long-term obligations consist of the following:
December 31, DECEMBER 31,
1995 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Revolving loan facility due
in April, 1998. Interest at
prime (8.5% and 8.25% at
December 31, 1995 and 1996,
respectively) plus 5/8% (a). $ 4,830,379 $ 4,063,202

Term loan facility payable
in monthly installments of
$9,957 in 1995 and $24,760
in 1996 plus interest at
prime plus 5/8% through
March, 1998. Final payment
of principal and interest
due in April, 1998 (a)(b). 459,577 1,332,947

10% unsecured and 8% secured
subordinated notes payable
to the shareholders of the
Company. The notes are
subordinated to the advances
under the loan and security
agreement. Interest is
payable each November 1, and
the principal is payable
February 1, 2000 and
December 31, 1998,
respectively. 315,154 315,154

Capitalized lease obligations 23,514 15,259
- ----------------------------------------------------------------------
5,628,624 5,726,562
Less current maturities 127,920 307,403
- ----------------------------------------------------------------------
$ 5,500,704 $ 5,419,159
======================================================================
</TABLE>

F-12

<PAGE> 44

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

(a) The Company has a loan and security agreement
(the "Agreement") with a bank consisting of a revolving loan
facility and a term loan facility, with maximum borrowing
limits of $5,250,000 and $1,500,000, respectively. All assets
of the Company are pledged as collateral for all borrowings
under the Agreement. The Agreement provides that the Company
must meet certain covenants including a current ratio of at
least 0.75 to 1 and an annual limit for capital expenditures,
and provides for restrictions on the payment of dividends. At
December 31, 1996, the Company was in compliance with these
covenants. In January, 1997 the Company received a commitment
from the bank to extend the Agreement through April, 1998.

(b) Certain shareholders, officers and directors
participate in this loan pursuant to the Agreement. Each
participant is entitled to the same rate of interest that is
paid to the bank. Further, the Company has determined that
each participant is entitled to an additional interest payment
of 6% per annum on the amounts subject to the participation
agreements. Total amounts under the participation agreements
are $247,025.

Scheduled annual maturities of long-term obligations as of
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Year Amount
----------------------------------------------------
<S> <C>
1997 $ 307,403
1998 5,419,159
----------------------------------------------------
$ 5,726,562
====================================================

</TABLE>

The Company incurred interest expense with related parties of $29,700 for the
years ended December 31, 1995 and 1996.

F-13

<PAGE> 45

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

The Company leases telephone equipment under a
capitalized lease agreement. The lease is
noncancellable and expires in 1998. The following is
a schedule of future minimum payments under the
capital lease as of December 31, 1996, together with
the present value of net minimum lease payments:

<TABLE>
<CAPTION>
Year ending December 31, Amount
- -------------------------------------------------
<S> <C>
1997 $ 10,284
1998 5,999
- -------------------------------------------------
Net minimum lease payments 16,283
Less amount representing interest 1,024
- -------------------------------------------------
Present value of net minimum lease
payments $ 15,259
=================================================

</TABLE>

The equipment which is leased under the capitalized lease
agreement and classified as machinery and office equipment
in the accompanying balance sheets is as follows:

<TABLE>
<CAPTION>
December 31, DECEMBER 31,
1995 1996
- ------------------------------------------------------------
<S> <C> <C>
Cost $26,977 $26,977
Accumulated amortization 1,927 5,781
- ------------------------------------------------------------
$25,050 $21,196
============================================================
</TABLE>

F-14

<PAGE> 46

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 4. INCOME TAXES Deferred income taxes reflect the net tax
effects of temporary differences between the
carrying amounts of assets and liabilities
for financial reporting purposes and the
amounts used for income tax purposes. The
tax effects of existing temporary
differences that give rise to significant
portions of the net deferred tax assets are
as follows:

<TABLE>
<CAPTION>
December 31, DECEMBER 31,
1995 1996
- -----------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful
receivables and product
returns $ 240,000 $ 308,000
Uniform inventory
capitalization 30,000 38,000
Accrued liabilities 111,000 144,000
Net operating loss
carryforwards 80,000 --
Alternative minimum tax
credit carryforwards 12,000 --
- -----------------------------------------------------------
473,000 490,000
Deferred tax liability
Depreciation (23,000) (56,000)
- -----------------------------------------------------------
450,000 434,000
Less valuation allowance (450,000) (134,000)
- -----------------------------------------------------------
Net deferred tax asset $ -- $ 300,000
===========================================================
</TABLE>

F-15

<PAGE> 47

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

In 1995 and 1996, the valuation allowance decreased by
$55,000 and $316,000, respectively.

During the years ended December 31, 1995 and 1996, the
Company utilized approximately $161,000 and $175,000,
respectively, of net operating loss carryforwards.
Based on its pre-tax income for the year ended December
31, 1996, which allowed the Company to utilize its net
operating loss carryforwards, the Company determined
that a partial recognition of the deferred tax asset
valuation allowance was appropriate. The Company
determined, as of December 31, 1996, that it was more
likely than not that it would not be able to fully
realize the remaining net deferred tax assets. The
Company based this determination on the uncertainty of
the effects on future pre-tax income of the Company's
acquisition strategy and its planned purchase or
construction of an improved facility.

For the year ended December 31, 1995, the Company
determined that it was more likely than not that it
would not be able to realize the net deferred tax
assets. The Company based this determination on the
following factors: (i) its historical levels of pre-tax
income; (ii) its historical use of net operating
losses to eliminate income tax; (iii) the uncertainty
of the effect of the Lyon Product Line Acquisition on
the Company's future pre-tax income; and (iv) the
effect of a potential settlement, if any, and payment
of the Metropolitan Water Reclamation District user
charges on future pre-tax income. Accordingly, the
Company created a valuation allowance for 100% of the
net deferred tax assets. As the Company generates
pre-tax income in future years, the valuation allowance
will be partially recognized and reduce the
Company's future income tax expense.

F-16

<PAGE> 48

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

Income taxes (benefit) at December 31, 1995 and 1996
consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
- ---------------------------------------------------------------
<S> <C> <C>
Current $ 50,500 $ 294,500
Utilization of net operating loss
carryforward (50,500) (59,500)
Deferred 55,000 16,000
Adjustment of valuation allowance (55,000) (316,000)
- ---------------------------------------------------------------
Income taxes (benefit) $ -- $ (65,000)
===============================================================
</TABLE>

The reconciliation of income tax computed at the
United States federal statutory tax rate of 34% to
income taxes (benefit) is as follows:

<TABLE>
<CAPTION>
-----------------------------
1995 1996
-----------------------------
<S> <C> <C>
Tax at federal statutory rate $ 44,500 $ 256,000
State income tax expense,
net of federal tax benefit 10,500 --
Deferred tax valuation allowance (55,000) (316,000)
Other -- (5,000)
- -----------------------------------------------------------------
Income tax benefit $ -- $ (65,000)
=================================================================
</TABLE>

F-17

<PAGE> 49

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

5. ACQUISITION In March, 1995, the Company purchased a product line of
Lyon Food Products, Inc. ("Lyon"), which was in the
same business as the Company, and secured licensing
rights to a regional herring brand name. The product
line, primarily consisting of certain accounts
receivable, inventories and equipment, and the
licensing rights were acquired for $725,915 and funded
with additional bank borrowings.

6. COMMITMENTS AND In the ordinary course of business, the Company enters
CONTINGENCIES into purchase commitments for raw materials and does
not anticipate any losses. The Company purchases a
majority of its herring from one supplier. The
supplier has the option to supply up to 90% of the
Company's annual requirements for herring, provided
that the supplier agrees to supply the herring at
competitive prices.

At December 31, 1996, the Company is required to
purchase approximately $110,000 under one of these
agreements.

The Company is contesting the amount of user charges
assessed by the Metropolitan Water Reclamation District
for 1994, 1995 and 1996. The Company has provided
accruals of $285,000 and $359,000 as of December 31,
1995 and 1996, respectively, for user charges. These
accruals are based upon an estimate provided by an
independent consultant. If the Company is not
successful in its protest, the Company would be
required to pay an additional $195,000. However, the
Company believes that any potential additional
liability will not have a material adverse effect on
the Company's business, financial condition or results
of operations. The Company further believes that the
eventual liability will not materially exceed its
presently established accruals.

F-18

<PAGE> 50

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

During 1995, the Company incurred an expense of
$355,527 representing an arbitration award requiring
the Company to pay the adverse party's legal fees.

In the ordinary course of business, the Company becomes
involved in litigation as a defendant in various
lawsuits. In the opinion of management, after
considering the advice of counsel, the ultimate
resolution of these legal proceedings will not have a
material effect on the financial statements taken as a
whole and thus no provision has been made in the
financial statements for any loss contingencies.

7. EMPLOYEE The Company has established a qualified profit sharing
BENEFIT PLANS plan covering its nonunion employees. Participants may
elect to defer a portion of annual compensation. The
Company may contribute amounts at the discretion of
the Board of Directors.

The Company made a contribution for the year ended
December 31, 1995 of $60,000 and no contribution in
1996.

Additionally, the Company participates in two
multi-employer plans that provide benefits to the
Company's union employees. Contributions to the plans
for the years ended December 31, 1995 and 1996 were
$28,900 and $32,300, respectively.

8. MAJOR CUSTOMER The Company had sales to one customer in 1995 and 1996
representing 12% and 10% of net sales, respectively.

F-19

<PAGE> 51

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

9. CAPITAL In September, 1996, the Company reincorporated in the
State of Nevada via a merger of the Illinois
corporation into the Company, which was a Nevada
corporation formed in September, 1996. The ratio of
shares of the Illinois corporation to the Nevada
corporation is 5,412.745:1 and the ratio of shares of
V-F Acquisition, Inc., an investor group of the
Illinois corporation, to the Nevada corporation is
54.12745:1. The shares of the Illinois corporation
held by V-F Acquisition, Inc., the Illinois
corporation's largest shareholder, were cancelled in
the merger. Further, the Nevada corporation changed
its name to Vita Food Products, Inc. upon completion of
the merger. After the merger there were 2,950,000
shares of common stock of the Company issued and
outstanding. The earnings per share calculation and
all share information contained in these financial
statements have been retroactively adjusted to give
effect to the increases in authorized, issued and
outstanding shares of common stock.

On September 11, 1996, the Company adopted the Vita
Food Products, Inc. 1996 Employee Stock Option Plan
(the "Plan") pursuant to which 325,000 shares of common
stock have been reserved for issuance upon the exercise
of options designated as either an "incentive stock
option" or as a "nonqualified stock option." These
options may be granted to employees of the Company,
including members of the Board of Directors who are
employees. On September 11, 1996, the Company also
adopted the Vita Food Products, Inc. 1996 Stock Option
Plan for Non-Employee Directors (the "Director Plan")
pursuant to which 75,000 shares of common stock have
been reserved for issuance upon the exercise of options
designated as a "nonqualified stock option." These
options may be granted to directors who are not
employees of the Company. Further, in September, 1996
the Company adopted the 1996 Employee Stock Purchase
Plan pursuant to which 150,000 shares of common stock
have been reserved for issuance. The Company's Chief
Financial Officer was granted options to purchase
80,000 shares of Common Stock on October 14, 1996 at
the initial public offering price per share less the
underwriting discount and pro rata portion of the
non-accountable expense allowance per share as
determined in the Company's initial public offering
which vest in 20% increments over a 5-year period.

F-20

<PAGE> 52

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized
for its Plan, Director Plan and Employee Stock Purchase
Plan. Had compensation cost for the Company's Employee
Stock Purchase Plan been determined based upon the fair
value at the date of grant consistent with the method
of FASB Statement 123, the Company's net income and
income per share would not have changed significantly.
The fair value of each option grant is estimated on the
date of grant using the minimum value method with the
following weighted-average assumptions: risk-free
interest rate of 5.5%, no dividends and expected
option life of 5 years.

F-21

<PAGE> 53

VITA FOOD PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

10. SUBSEQUENT In January, 1997, the Company completed a public
EVENT offering of 750,000 new shares of its common stock and
750,000 redeemable common stock purchase warrants.
Pursuant to the underwriters' exercise of a portion of
the over-allotment option, the Company issued an
additional 96,500 redeemable common stock purchase
warrants in February, 1997. The Company received
aggregate proceeds net of underwriting commissions and
expenses of approximately $3.2 million from this
offering.

The Company has entered into employment agreements with
three officers of the Company, with two extending
through January, 2000 and the other through January,
1999. Under the terms of these agreements, two
officers are entitled to be paid a salary of $215,000
annually and one officer a salary of $110,000 annually
(adjusted annually for increases in the cost of living
index), plus bonuses, if any, and certain perquisites.

F-22
<PAGE> 54

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

VITA FOOD PRODUCTS, INC.

<TABLE>
<S> <C>
By: //Stephen D. Rubin//
----- ---------------------
Stephen D. Rubin
President

Date: March 27, 1997
</TABLE>

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant in the following capacities
on March 27, 1997.

<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------- --------------------------------------------
<S> <C>
//Stephen D. Rubin// Director and President
- -------------------- (Principal Executive Officer)
Stephen D. Rubin
//Clark L. Feldman// Director, Executive Vice President and
- -------------------- Secretary
Clark L. Feldman
Vice President, Chief Financial Officer
//Jay H. Dembsky// and Treasurer
- ------------------ (Principal Financial and Accounting Officer)
Jay H. Dembsky
//Sam Gorenstein//
- ------------------ Director
Sam Gorenstein
//Neil Jansen//
- --------------- Director
Neil Jansen
//Michael Horn//
- ---------------- Director
Michael Horn
//Jeffrey C. Rubenstein//
- ------------------------- Director
Jeffrey C. Rubenstein
</TABLE>

S-1
#41232-v.4

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 88,221
<SECURITIES> 0
<RECEIVABLES> 3,402,157
<ALLOWANCES> 190,000
<INVENTORY> 4,809,687
<CURRENT-ASSETS> 8,562,910
<PP&E> 5,398,573
<DEPRECIATION> 3,337,129
<TOTAL-ASSETS> 11,340,031
<CURRENT-LIABILITIES> 5,334,737
<BONDS> 5,419,159
0
0
<COMMON> 29,500
<OTHER-SE> 556,635
<TOTAL-LIABILITY-AND-EQUITY> 11,340,031
<SALES> 22,687,765
<TOTAL-REVENUES> 22,687,765
<CGS> 15,587,552
<TOTAL-COSTS> 15,587,552
<OTHER-EXPENSES> 5,800,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546,678
<INCOME-PRETAX> 752,954
<INCOME-TAX> (65,000)
<INCOME-CONTINUING> 817,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 817,954
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0

</TABLE>