AUTHENTIC SPECIALTY FOODS INC, S-1/A, 1997-08-06

AUTHENTIC SPECIALTY FOODS INC
S-1/A, 1997-08-06
GROCERIES, GENERAL LINE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997

REGISTRATION NO. 333-29959

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AUTHENTIC SPECIALTY FOODS, INC.
(Name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
TEXAS 5141 75-1782453
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>

1313 AVENUE R
GRAND PRAIRIE, TEXAS 75050
(972) 933-4100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)

SAMUEL E. HILLIN, JR.
CHIEF FINANCIAL OFFICER
1313 AVENUE R
GRAND PRAIRIE, TEXAS 75050
(972) 933-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

<TABLE>
<S> <C>
J. MARK METTS, ESQ. KATHERINE M. SEABORN, ESQ.
VINSON & ELKINS L.L.P. GARDERE & WYNNE, L.L.P.
2300 FIRST CITY TOWER 3000 THANKSGIVING TOWER
1001 FANNIN 1601 ELM STREET
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
(713) 758-2222 (214) 999-3000
</TABLE>

---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following
box. [ ]

CALCULATION OF REGISTRATION FEE

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<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 4,715,000 shares $11.00 $51,865,000 $15,717(3)
==================================================================================================================
</TABLE>

(1) Includes 615,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.

(3) Previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.

SUBJECT TO COMPLETION, DATED AUGUST 6, 1997

PROSPECTUS

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<C> <C> <C>
[CALIDAD LOGO] 4,100,000 SHARES [LA VICTORIA LOGO]
AUTHENTIC SPECIALTY FOODS, INC.
COMMON STOCK
</TABLE>

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

The 4,100,000 shares of Common Stock offered hereby (the "Offering") are
being offered by Authentic Specialty Foods, Inc. (the "Company" or "Authentic
Specialty Foods"). Prior to this Offering, there has been no public market for
the Common Stock. It is currently estimated that the initial public offering
price will be between $8.00 and $10.00 per share. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price. The Company has applied for inclusion of the Common Stock on the
Nasdaq National Market under the symbol "ASFD."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS OF THE COMMON STOCK OFFERED
HEREBY.

------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
==============================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $900,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 615,000 additional shares on the same terms and conditions as set forth
above solely to cover over-allotments, if any. If the Underwriters exercise
this option in full, then the total price to the public, underwriting
discounts and commissions and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them, and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares will be ready for delivery at the offices of Cruttenden
Roth Incorporated, Irvine, California, on or about , 1997.
------------------------

CRUTTENDEN ROTH

INCORPORATED

SUTRO & CO. INCORPORATED

WEDBUSH MORGAN SECURITIES

THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3

[This page contains a photograph of certain of Calidad's products
(including packages of a variety of tortillas and tortilla chips, meats,
cheeses, salsas, spices and peppers) and a photograph of certain of La
Victoria's products (including salsas, taco sauces, other Mexican sauces,
jalapenos, tomatillos, cheese sauce and refried beans), as well as a color logo
of each brand.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

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<PAGE> 4

PROSPECTUS SUMMARY

The Company has entered into a Contribution and Exchange Agreement as a
result of which La Victoria Foods, Inc. ("La Victoria") will become a
wholly-owned subsidiary of the Company. The consummation of this acquisition
(the "La Victoria Acquisition") is conditioned upon, and will occur immediately
following, the completion of this Offering, and this Offering will not be
consummated unless the La Victoria Acquisition is completed. Unless the context
otherwise requires, (i) references to the "Company" or "Authentic Specialty
Foods" shall refer to Authentic Specialty Foods, Inc. and its consolidated
subsidiaries, (ii) references to "La Victoria" shall refer to La Victoria Foods,
Inc. and the operations conducted thereby, (iii) references to "Calidad" shall
refer to the Company's operations other than those relating to La Victoria and
(iv) references to "Shansby" shall refer to The Shansby Group, TSG
International, TSG2 L.P. and all of their successors and affiliates. Unless
otherwise indicated, the information in this Prospectus assumes an initial
offering price of $9 per share (the mid-point of the pricing range shown on the
cover page of this Prospectus) and that the Underwriters' over-allotment option
will not be exercised. Except as otherwise specified or the context otherwise
requires, share and per share information gives effect to the 1,700-for-1 stock
split effected by the Company on June 20, 1997. Investors should carefully
consider the information set forth in "Risk Factors." The following summary is
qualified in its entirety by the more detailed information and financial
statements and notes thereto appearing elsewhere in this Prospectus.

THE COMPANY

Authentic Specialty Foods is a leading provider of an extensive line of
Mexican food products to Mexican-American consumers, as well as non-Hispanic
consumers who enjoy authentic Mexican food. After this Offering, the Company
believes that it will be the largest publicly-owned company engaged solely in
the manufacture and distribution of Mexican food products targeting primarily
the Mexican-American consumer. The Company has two separate
brands -- Calidad(TM) and La Victoria(TM) -- both of which are recognized for
high quality products and well-accepted by the Company's target consumers. The
Calidad and La Victoria brands have strong market positions in the southwestern
and western regions of the United States, respectively, particularly in Texas
and California. Following the completion of this Offering, the Company will be
poised for internal growth and to take advantage of acquisition opportunities in
the highly fragmented Mexican food industry. Management has extensive experience
in the food industry and intends to utilize its expertise to improve the
operating efficiencies and to expand the sales of Authentic Specialty Foods and
any companies acquired in the future. With the exception of the La Victoria
Acquisition, the Company does not currently have any agreements, understandings
or negotiations in connection with any future acquisitions.

Calidad sells branded and private label tortillas and tortilla chips, as
well as branded cheeses, meats and shelf-stable products (including spices,
salsas and peppers) primarily to grocery stores in Texas and certain adjacent
states. Calidad provides retailers with an extensive line of quality products
under a comprehensive service program through which Calidad's direct store
delivery ("DSD") salespersons can manage substantially all of a customer's
Mexican food category. The strength of the Calidad brand name (which means
"Quality" in Spanish), its comprehensive service program and the breadth and
quality of its product line have enabled Calidad to achieve significant market
penetration of stores in North Texas, including the Dallas/Ft. Worth metroplex,
one of the largest Mexican-American population centers in the country. Calidad's
tortillas and tortilla chips are manufactured daily in a 70,000 square foot
facility in Grand Prairie, Texas, which is located in the Dallas/Ft. Worth
metroplex. The Company also purchases other products manufactured by third
parties for distribution under the Calidad brand and other brand names.

La Victoria sells a wide variety of branded salsas and other Mexican sauces
primarily to grocery stores in California and certain other western states.
Founded in 1917, La Victoria believes it has significant market share in the
"hot" segment of the salsa and Mexican sauce category. Although La Victoria is a
regional brand, it outsells a number of national brands in several western
states in both taco sauces and salsas. In addition, La Victoria sells its
products to restaurants and wholesale restaurant suppliers on a branded and
private label basis and to warehouse clubs on a branded basis. Generally, La
Victoria's products are delivered to a retail customer's warehouse or
distribution facility rather than directly to a customer's retail outlets. La
Victoria

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<PAGE> 5

manufactures substantially all of its products in a 112,000 square foot
production and warehouse facility located in Rosemead, California, a suburb of
Los Angeles.

The Mexican food segment of the domestic food industry is expected to
experience a compound annual growth rate of approximately 8% from an estimated
base of $2.4 billion in sales in 1994 (excluding tortilla chips). A significant
percentage of the Mexican food segment is comprised of tortillas and
Mexican-style sauces, the Company's principal products. As an example of the
increased popularity of Mexican food, in 1995 United States consumers purchased
30% more Mexican-style sauces than ketchup. In 1996, Hispanics comprised 10.4%,
29.7% and 29.1% of the total United States, California and Texas populations,
respectively. From 1990 to 1996, the Hispanic populations of California and
Texas are estimated to have grown at an average annual rate of approximately
3.3%. The U.S. Census Bureau has estimated that in 1996 there were 27.2 million
Hispanics living in the United States. Of this amount, approximately 64% were of
Mexican descent or origin.

Calidad was acquired in March 1992 by Shansby, a buyout firm based in San
Francisco that specializes in acquiring and improving branded consumer product
companies (particularly in the food industry). Since 1992, Calidad has recruited
its management team, strengthened its management information systems and
infrastructure and acquired another Dallas-area tortilla and tortilla chip
manufacturer. In addition, Calidad has standardized its logo and trade dress,
entered into several independent distribution agreements, extended its product
offerings, discontinued certain marketing relationships that were less
profitable and expanded distribution within North Texas and certain adjacent
states.

Management believes it can execute a number of operational improvements at
La Victoria, including reducing certain operating expenses, particularly
marketing expenditures. The Company plans to gradually shift production of
selected products from fresh to processed tomatoes. La Victoria currently
manufactures the majority of its products with fresh vegetables during the four
to six month tomato harvest in California. Management intends to implement this
change only with respect to those La Victoria products where the taste or
quality of these products will not be affected. Management believes this
production shift will increase manufacturing efficiency, expand useful plant
capacity and reduce working capital requirements. Additionally, the Company
intends to implement new sales and marketing initiatives, including increasing
in-store marketing, introducing new sizes and packages for non-grocery sales
channels and introducing La Victoria products in selected new markets. The
Company also believes it can offer La Victoria's products through the Calidad
distribution system under the Calidad and La Victoria brand names.

The Company's objective is to expand its position as a leading provider of
an extensive line of Mexican food products primarily to Mexican-American
consumers. In order to achieve this objective, the Company's strategy is to (i)
improve the operations of Authentic Specialty Foods in the areas of product
development, merchandising, production, distribution and sales; (ii) acquire
Mexican food manufacturers or brands in areas with large, growing
Mexican-American populations and utilize the skills and experience of its
management team to integrate and improve the operations of these newly acquired
companies; (iii) expand the Company's geographic markets and increase
distribution of the Company's products in its existing markets; and (iv)
continue to add new products and brands to the Company's existing line of
products.

Shansby, which has significant experience in acquiring and improving
branded food companies, has advised and assisted Authentic Specialty Foods since
1992 and will own approximately 22% of the outstanding Common Stock after this
Offering. Shansby Partners, L.L.C., a new affiliate of Shansby ("Shansby
Partners"), has entered into an advisory agreement (the "Advisory Agreement")
with Authentic Specialty Foods in order to assist the Company in developing and
implementing its business strategy. Shansby provided significant assistance to
the Company in arranging the La Victoria Acquisition, and the Company believes
that its relationship with Shansby will be beneficial to its successful
implementation of its business strategy. For example, Shansby has recruited
certain members of the management team of The Famous Amos Chocolate Chip Cookie
Corporation, one of Shansby's former portfolio companies, to serve as chief
executive officer of Authentic Specialty Foods and chief operating officer of La
Victoria. Shansby also assisted in recruiting other key members of management of
Calidad with extensive experience in the food industry. See "Management," "The
Shansby Group" and "Certain Transactions."

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THE LA VICTORIA ACQUISITION

As of the date of this Prospectus, 50% of La Victoria is owned by Robert C.
Tanklage, the President of La Victoria and a member of the family that has owned
and operated La Victoria since 1947, 49.5% is indirectly owned by Shansby and
0.5% is indirectly owned by Keith R. Lively, Chairman and Chief Executive
Officer of the Company. Pursuant to the Contribution and Exchange Agreement
between the Company, Mr. Tanklage, Shansby and Mr. Lively (the "Contribution and
Exchange Agreement"), the Company will acquire beneficial ownership of 100% of
the capital stock of La Victoria. The consummation of the La Victoria
Acquisition is conditioned upon, and will occur immediately following, the
consummation of this Offering.

The total purchase price to be paid by the Company for La Victoria is
approximately $36.6 million (consisting of $12 million of cash, $5 million of
debt assumption and approximately $19.6 million of Common Stock), excluding
transaction expenses. The Company will use approximately 37% of the net proceeds
from this Offering to pay for the $12 million cash portion of the purchase price
for La Victoria and to pay related transaction expenses. See "Use of Proceeds."
The La Victoria Acquisition is the culmination of a series of negotiations and
transactions, with respect to which Shansby has spent a substantial amount of
time, and Shansby, LV Foods, L.L.C., a Shansby affiliate ("LV Foods") and La
Victoria have incurred significant out-of-pocket expenses, including legal,
accounting, market research and finders' fees. La Victoria has paid LV Foods
$475,000 to reimburse LV Foods for its transaction expenses, $200,000 of which
were incurred in 1996 and $275,000 of which were incurred in 1997. In addition,
La Victoria has paid Shansby $250,000 to reimburse Shansby for the transaction
expenses it incurred in 1997.

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THE OFFERING

Common Stock offered by the Company..... 4,100,000 shares

Common Stock to be outstanding after
this Offering........................... 6,439,278 shares(1)(2)

Use of Proceeds......................... To repurchase the 1,538,500 shares
of Common Stock currently owned by
Shansby, to pay the cash
consideration in, and transaction
expenses related to, the La
Victoria Acquisition, to repay
certain outstanding indebtedness
and for general corporate
purposes, which may include
acquisitions. See "Use of
Proceeds."

Proposed Nasdaq National Market
symbol.................................. "ASFD"
- ---------------

(1) Excludes 350,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1997 Stock Plan (the "Stock Plan"), pursuant to which grants
of options to purchase 130,000 shares will be made upon consummation of this
Offering with an exercise price (subject to adjustment) equal to the price
to public set forth on the cover page of this Prospectus. See
"Management -- Executive Compensation -- 1997 Stock Plan." Also excludes
350,000 shares of Common Stock issuable pursuant to a five-year warrant (the
"Shansby Warrant") to be issued to Shansby Partners, with an exercise price
(subject to adjustment) equal to the price to public set forth on the cover
page of this Prospectus.

(2) Gives effect to the repurchase of the 1,538,500 shares of Common Stock owned
by Shansby on the date of this Prospectus at a repurchase price equal to the
net proceeds (before offering expenses) to be received by the Company with
respect to an equivalent number of shares. This repurchase will occur
simultaneously with the consummation of this Offering. Also assumes the
issuance of 2,177,778 shares of Common Stock to Shansby, Mr. Lively and Mr.
Tanklage pursuant to the La Victoria Acquisition. See "The La Victoria
Acquisition."

The Company was established as a sole proprietorship in 1978 and was
incorporated as a Texas corporation in 1981. The Company's principal executive
offices are located at 1313 Avenue R, Grand Prairie, Texas 75050, and its
telephone number is (972) 933-4100.
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SUMMARY FINANCIAL INFORMATION

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<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- ---------------------------
PRO PRO
FORMA FORMA
------- -------
1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $19,637 $21,028 $21,198 $59,346 $10,528 $10,962 $29,939
Cost of sales........................... 13,213 14,266 14,081 33,479 6,927 7,191 16,425
------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 6,424 6,762 7,117 25,867 3,601 3,771 13,514
Operating expenses...................... 7,210 6,940 6,768 23,012 3,314 3,247 12,061
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......... (786) (178) 349 2,855 287 524 1,453
------- ------- ------- ------- ------- ------- -------
Other income (expense)
Interest expense........................ (161) (219) (328) (1,537) (167) (165) (686)
Interest income......................... -- 62 2 95 2 -- 95
Gain (loss) on disposal of property and
equipment............................. (38) (192) (22) (23) (22) 1 12
------- ------- ------- ------- ------- ------- -------
(199) (349) (348) (1,465) (187) (164) (579)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes..... (985) (527) 1 1,390 100 360 874
Income tax expense (benefit)............ -- -- -- 783 34 122 409
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... $ (985) $ (527) $ 1 $ 607 $ 66 $ 238 $ 465
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share............... $ (0.59) $ (0.31) $ 0.00 $ 0.09 $ 0.04 $ 0.14 $ 0.07
Weighted average number of common shares
outstanding........................... 1,680 1,700 1,700 6,439(2) 1,700 1,700 6,439(2)
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, -------------------
------------------ PRO
1995 1996 ACTUAL FORMA(1)
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 9 $ 200 $ 114 $ 6,419
Working capital (deficit)............... (1,499) (1,557) (1,300) 16,310
Total assets............................ 7,132 7,089 7,198 54,210
Notes payable to bank................... 751 1,319 1,350 --
Long-term debt.......................... 1,249 920 816 11,125
Shareholders' equity.................... 2,048 2,049 2,409 34,513
</TABLE>

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(1) On a pro forma basis, as adjusted to give effect to the La Victoria
Acquisition and the application of the net proceeds of this Offering in the
manner described in "Use of Proceeds." See "Unaudited Pro Forma Consolidated
Financial Statements."

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RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby.

ABILITY TO IMPLEMENT THE LA VICTORIA STRATEGY

Management believes that the consummation of the La Victoria Acquisition
will substantially increase the Company's geographic market, revenues and net
income. The Company's ability to realize any long-term advantages from the La
Victoria Acquisition will depend in large part on successfully managing and
improving the operations of La Victoria. La Victoria has exhibited declining
sales revenues over the last four years, the result of increased competition,
unsuccessful marketing strategies and management's decision to leave certain
unprofitable markets. Following the consummation of the La Victoria Acquisition,
the Company will implement new sales and marketing initiatives in an effort to
reverse this trend. There can be no assurance that the new marketing strategies
will result in improved sales or profitability. In addition, management believes
that for the foreseeable future the Company will be unable to consolidate many
of the managerial and administrative operations of La Victoria with the
Company's operations, due in part to the geographic separation between the
operations and their dissimilar nature. Accordingly, the Company does not expect
to achieve reductions in general and administrative expenses for the combined
entities. In addition, no assurance can be made that the Company will be able to
successfully achieve improvements at La Victoria in a timely manner or at all.

ACQUISITION STRATEGY

The Company's acquisition strategy is based on identifying and acquiring
businesses engaged in manufacturing and/or distributing Mexican food products in
markets where the Company currently does not operate or businesses with products
and/or brands that would complement the Company's product mix. The Company will
evaluate specific acquisition opportunities based on prevailing market and
economic conditions. The Company's lack of experience in new markets it may
enter through future acquisitions could have an adverse effect on the Company's
results of operations and financial condition. Acquisitions may require
investment of operational and financial resources and could require integration
of dissimilar operations, assimilation of new employees, diversion of management
time and resources, increases in administrative costs, potential loss of key
employees of the acquired company and additional costs associated with debt or
equity financing. Any future acquisition by the Company could have an adverse
effect on the Company's results of operations or could result in dilution to
existing shareholders, including those purchasing shares of Common Stock in this
Offering. The Company may encounter increased competition for acquisitions in
the future, which could result in acquisition prices the Company does not
consider acceptable. There can be no assurance that the Company will find
suitable acquisition candidates at acceptable prices or succeed in integrating
any acquired business into the Company's existing business or in retaining key
customers of acquired businesses. There can also be no assurance that the
Company will have sufficient available capital resources to execute its
acquisition strategy. See "Business -- Business Strategy -- Acquisition
Opportunities."

COMPETITION

The production and distribution of Mexican food is a competitive industry.
The Company is in competition with a number of manufacturers, marketers and
distributors of Mexican food products and manufacturers of snack foods. Many of
the Company's competitors have substantially greater financial and other
resources than the Company and may offer lower prices on competitive products.
While the Company believes it is in an advantageous position as a provider of an
extensive line of Mexican food products in its primary marketing areas of North
Texas and California, there can be no assurance that suppliers focusing on a
single product could not erode the Company's market share of that product and
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company will also be subject to future
competition from other manufacturers, marketers and distributors and retailers
who enter into the Mexican food manufacturing and distribution industry. While
the Company believes that it has brand

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<PAGE> 10

recognition and brand loyalty in its current market areas, particularly among
Mexican-American consumers, many of the Company's competitors engage in
extensive local and national advertising and marketing. The brand names for
products distributed by these competitors may be significantly more recognizable
to the average consumer than the Company's brand names. In addition, competition
for shelf space in retail grocery stores is intense. The Company is competing
with a number of regional and national manufacturers of Mexican food products
for shelf space. While Calidad's and La Victoria's distribution systems are
effective in their respective market areas, no assurance can be given that the
Company will be able to compete as it expands into new markets. See
"Business -- Competition."

FLUCTUATIONS IN OPERATING RESULTS

The Company may experience significant fluctuations in future operating
results because of a number of factors including, among other things, the size
and timing of customer orders, new product introductions, quality control
difficulties, market acceptance of new products, product returns, seasonality in
product purchases and trends in the food industry in general and in the specific
markets in which the Company is active.

DEPENDENCE ON KEY CUSTOMERS

Calidad has certain key customers whose loss would adversely affect the
Company's business, financial condition and results of operations. Calidad's
largest customer is Minyard Food Stores ("Minyard Foods"), which accounted for
27.6% of Calidad's net sales in 1996. Minyard Foods actually consists of three
separate operating divisions: Minyard Food Stores, Sack 'n Save and Carnival.
Calidad has a separate relationship with each of these three divisions, which
are operated somewhat autonomously and serve different market segments. During
1996, Minyard Food Stores accounted for $1.5 million of Calidad's net sales
(6.9%), Sack 'n Save accounted for $2.5 million (11.6%) and Carnival accounted
for $1.9 million (9.1%). Minyard Foods has been a customer of Calidad since
1981. For the year ended May 31, 1997, American Stores Company and Safeway, Inc.
accounted for 10.0% and 12.9% of La Victoria's net sales, respectively. On a
combined basis, the largest customer of Authentic Specialty Foods would be
Minyard Foods, with approximately 10.0% of the aggregate net sales of Calidad
and La Victoria.

There is no assurance that the Company will be successful in maintaining
its relationship with its significant customers in the future. The loss of, or
any material reduction in, sales to any significant customer could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has not entered into any long-term contracts
with any of its customers, nor is any customer obligated to order additional
products from the Company. There can be no assurance that the Company will be
able to maintain or continue to increase the level of its sales in the future or
that the Company will be able to retain existing customers or attract new
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Customers."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends in part upon the continued services of its
highly skilled personnel involved in management, production and distribution,
and, in particular, upon the efforts and abilities of Keith R. Lively, the Chief
Executive Officer and Chairman of the Company's Board of Directors, Herman L.
"Bing" Graffunder, the President and a Director of the Company, Samuel E.
Hillin, Jr., the Chief Financial Officer of the Company, Robert C. Tanklage, the
President of La Victoria, and Michael Westhusing, the Chief Operating Officer of
La Victoria. The loss of service of Mr. Lively, Mr. Graffunder, Mr. Hillin, Mr.
Tanklage, Mr. Westhusing or any other key personnel of the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has entered into three-year employment
agreements with both Mr. Graffunder and Mr. Hillin, and La Victoria has entered
into a five-year employment agreement with Mr. Tanklage. However, Mr. Lively and
Mr. Westhusing have not entered into employment agreements with the Company.
Furthermore, the Company does not have key-person life insurance on any of its
employees. The success of the Company also depends upon its ability to attract
and retain additional highly qualified employees. See "Management."

9
<PAGE> 11

The Company's future success also depends upon the maintenance of its
relationship with Shansby. The loss of Shansby's advice and guidance,
particularly in the area of strategic acquisitions, could have a material
adverse effect on the Company's business, financial condition and results of
operations. However, the Company and Shansby Partners have entered into the
Advisory Agreement, pursuant to which Shansby Partners will assist the Company
in the development and pursuit of its strategic objectives, including
acquisitions. See "The Shansby Group" and "Certain Transactions -- Shansby
Partners Advisory Agreement."

PRODUCT LIABILITY

The Company may be subject to significant liability should the consumption
of any of its products cause injury, illness or death. There can be no assurance
that product liability claims will not be asserted against the Company or that
the Company will not be obligated to recall its products. The Company has an
umbrella insurance policy of $5 million and carries product liability insurance
in the aggregate amount of $2 million, with per occurrence limits of $1 million.
The Company's umbrella insurance policy supplements the underlying general
liability and product liability insurance. La Victoria has an umbrella insurance
policy of $5 million in the aggregate and with per occurrence limits of $5
million and carries product liability insurance in the aggregate amount of $5
million, with per occurrence limits of $5 million. Unlike the Company's umbrella
policy, La Victoria's umbrella policy excludes product liability. There can be
no assurance that this insurance will be adequate to protect the Company against
product liability claims, or that such insurance will continue to be available
to the Company on reasonable terms. A product recall or a product liability
judgment against the Company (regardless of whether covered by insurance) could
have a material adverse effect on the Company's business, financial condition
and results of operations.

GOVERNMENT REGULATION

The manufacture, processing, packaging, storage, distribution and labeling
of food products are subject to extensive federal, state and local regulations.
The Company's business is subject to regulation by the Food and Drug
Administration (the "FDA") and the United States Department of Agriculture.
Applicable statutes and regulations governing food products include "standards
of identity" for the content of specific types of foods, nutritional labeling
and serving size requirements and "Good Manufacturing Practices" with respect to
production processes. The Company believes that its current products satisfy,
and its new products will satisfy, all applicable regulations and that all of
the ingredients used in its products are "Generally Recognized as Safe" by the
FDA for the intended purposes for which they will be used. Failure to comply
with applicable laws and regulations could subject the Company to civil
remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's business is also subject to various other federal, state and
local environmental and health regulations. If the Company were found not to be
in compliance with such regulations, sanctions and penalties could be imposed
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following this Offering could adversely affect the market price of the
Common Stock. The Company's executive officers and directors, as well as Shansby
and Mr. Tanklage, have agreed, pursuant to lock-up agreements, that they will
not, without the prior written consent of the Representatives, sell or otherwise
dispose of approximately 2,313,778 shares of Common Stock beneficially owned by
them for a period of 180 days from the date of this Prospectus (the "Lockup
Period"). The Contribution and Exchange Agreement provides that, upon
consummation of the transactions contemplated thereby, Shansby and Mr. Tanklage
will enter into registration rights agreements with the Company pursuant to
which Shansby and Mr. Tanklage will receive certain demand and "piggyback"
registration rights. These registration rights cannot be exercised until after
the expiration of the Lockup Period. Upon consummation of this Offering, Shansby
will receive the Shansby

10
<PAGE> 12

Warrant, which is a five-year warrant to acquire 350,000 shares of Common Stock
at an exercise price (subject to adjustment) equal to the price to public on the
cover page of this Prospectus. The Shansby Warrant may not be exercised until
after the first anniversary of the consummation of this Offering. Upon
completion of this Offering, the Company will have 6,439,278 shares of Common
Stock outstanding. Of this amount, the 4,100,000 shares sold in this Offering
(plus any additional shares sold upon the Underwriters' exercise of the
over-allotment option) and approximately 25,500 other shares will be available
for immediate sale in the public market as of the date of this Prospectus. See
"Principal Shareholders" and "Underwriting."

DILUTION

This Offering and the La Victoria Acquisition will result in immediate
substantial dilution of $6.91 (76.8%) per share for new investors, which amount
represents the difference between the pro forma net tangible book value per
share after this Offering and the public offering price of $9 per share. See
"Dilution."

EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK

The Board of Directors of the Company is authorized to issue, from time to
time, without any action on the part of the Company's shareholders, up to
5,000,000 shares of Preferred Stock in one or more series, with such relative
rights, powers, preferences, limitations and restrictions as are determined by
the Board of Directors at the time of issuance. Accordingly, the Board of
Directors is empowered to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of Common Stock. In the event of such issuance,
the Preferred Stock could be utilized, under either circumstance, as a method of
discouraging, delaying or preventing a change in control of the Company. See
"Description of Capital Stock -- Preferred Stock" and "-- Antitakeover
Provisions."

ANTITAKEOVER PROVISIONS

The Company's Articles of Incorporation and Bylaws contain provisions that
may delay, defer or prevent a change in control of the Company. Among other
things, these provisions: (i) divide the Board of Directors into three classes
so that directors will generally serve three year terms and only approximately
one-third of the total number of directors will be elected each year; (ii)
permit directors to be removed only for cause; (iii) permit the Board of
Directors to establish the size of the Board and amend the Bylaws; (iv) prohibit
the taking of shareholder action by written consent; and (v) specify advance
notice requirements for shareholder proposals and director nominations. See
"Description of Capital Stock -- Antitakeover Provisions."

ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Company's
Common Stock. Although the Company has applied for quotation of the Common Stock
on the Nasdaq National Market, there can be no assurance that such application
will be granted or, even if granted, an active trading market will develop or
that the market price of the Common Stock will not decline below the public
offering price. The public offering price of the Common Stock has been
determined by negotiations among the Company and the Representatives and does
not necessarily bear any relationship to assets, book value, earnings history or
other investment criteria. See "Underwriting."

The Company believes that factors such as the announcement of new products
by the Company or its competitors, general market conditions in the Mexican food
industry, changes in management and quarterly fluctuations in financial results
could cause the market price of the Common Stock to vary substantially. In
addition, the stock market has experienced extreme price and volume fluctuations
which have affected the market price of many companies for reasons frequently
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common

Stock.

11
<PAGE> 13

THE LA VICTORIA ACQUISITION

The La Victoria Acquisition is the Company's first step in its acquisition
strategy. This acquisition (i) adds another strong brand of Mexican food
products, (ii) expands the Company's geographic marketing area into another part
of the United States with a large, growing Mexican-American population and (iii)
broadens the Company's extensive product line. La Victoria manufactures, markets
and distributes a wide variety of salsas and other Mexican sauces. La Victoria
primarily sells its products to grocery stores in the western United States. La
Victoria also sells its products in the food service market on a branded and
private label basis and to warehouse clubs on a branded basis. Although La
Victoria is a regional brand, it outsells a number of national brands in several
western states in both taco sauces and salsas.

As of the date of this Prospectus, 50% of the capital stock of La Victoria
is owned by Robert C. Tanklage, the President of La Victoria and a member of the
family that has owned and operated La Victoria since 1947, 49.5% is indirectly
owned by Shansby and 0.5% is indirectly owned by Mr. Lively. Pursuant to the
Contribution and Exchange Agreement, the Company will acquire beneficial
ownership of 100% of the capital stock of La Victoria in exchange for
approximately $36.6 million, as described below.

Shansby and Mr. Lively will receive 1,386,000 and 14,000 shares of Common
Stock, respectively, in the La Victoria Acquisition. However, if the price to
public in this Offering is greater than $10 per share, then the number of shares
issued to Shansby and Mr. Lively will be adjusted so that they will receive
shares having a value of $13.86 million and $140,000 (based upon the price to
public). None of the shares of Common Stock to be issued to Shansby or Mr.
Lively will be sold in this Offering.

Shansby owns 99% of LV Foods, and Mr. Lively owns the remaining 1%. LV
Foods is the record owner of 50% of the outstanding shares of common stock of La
Victoria. Pursuant to the Contribution and Exchange Agreement, 100% of the
ownership of LV Foods will be transferred to the Company, and LV Foods will
become a wholly owned subsidiary of the Company. LV Foods acquired its La
Victoria shares in April 1997 in exchange for $5 million in cash and a $7
million note payable to the seller of the shares (the "La Victoria Shareholder
Note"). The La Victoria Shareholder Note matures in April 2004 (subject to
acceleration if LV Foods sells all or substantially all of its interest in La
Victoria) and bears interest at 8% per annum. The La Victoria Shareholder Note
is secured by a pledge of LV Foods' interest in the La Victoria shares. LV Foods
was formed by Shansby solely for the purpose of acquiring an interest in La
Victoria, and it has no other assets or liabilities except in connection with
this ownership.

In the La Victoria Acquisition, Mr. Tanklage will receive $12 million in
cash and shares of Common Stock having a value of $7 million (based upon the
price to public in this Offering). Unlike Shansby and Mr. Lively, Mr. Tanklage
will not receive a fixed number of shares of Common Stock in the La Victoria
Acquisition. Assuming a price to public of $9 per share, 777,778 shares of
Common Stock would be issued to Mr. Tanklage in the La Victoria Acquisition.
None of the shares of Common Stock to be issued to Mr. Tanklage will be sold in
this Offering. The cash portion of the purchase price will be funded from the
net proceeds from this Offering. See "Use of Proceeds."

The Company has also agreed to issue additional shares of Common Stock to
Mr. Tanklage if the aggregate amount of dividends received, debt assumed, cash
received and shares of Common Stock (valued at the price to public) received or
retained in connection with this Offering or the La Victoria Acquisition by Mr.
Tanklage, Mr. Lively, Shansby and the current shareholders of the Company (the
"Aggregate Consideration") is greater than $63 million. In that event, the
Company will issue to Mr. Tanklage an additional number of shares of Common
Stock (the "Contingent Shares") so that Mr. Tanklage receives at least one-third
of the Aggregate Consideration. Based upon the price range set forth on the
cover page of this Prospectus, it is unlikely that any Contingent Shares will be
issued to Mr. Tanklage.

In connection with the consummation of the transactions contemplated in the
Contribution and Exchange Agreement, Shansby, Mr. Lively and Mr. Tanklage will
be granted certain demand and "piggyback" registration rights, and have agreed
not to sell any of their shares of Common Stock until the expiration of 180 days
after the date of this Prospectus.

12
<PAGE> 14

Immediately prior to the consummation of the La Victoria Acquisition, La
Victoria will pay a $4 million dividend to its shareholders, 50% of which will
be paid to Mr. Tanklage and the remaining 50% of which will be paid to LV Foods
and will be used to repay a portion of the La Victoria Shareholder Note.

The consummation of the La Victoria Acquisition is conditioned upon, and
will occur immediately following, the consummation of this Offering.

USE OF PROCEEDS

The net proceeds to the Company from the sale of 4,100,000 shares of Common
Stock offered by the Company are estimated to be approximately $33.4 million,
assuming price to public of $9 per share and after deducting the underwriting
discount and other estimated offering expenses payable by the Company.

The net proceeds to the Company will be used as follows: (i) to repurchase
the 1,538,500 shares of Common Stock owned by Shansby on the date of this
Prospectus at a repurchase price equal to the net proceeds (before offering
expenses) to be received by the Company with respect to an equivalent number of
shares (approximately $12.9 million at an initial public offering price of $9
per share), (ii) to pay the $12 million cash consideration to Mr. Tanklage
pursuant to the La Victoria Acquisition, as well as $350,000 of related
transaction expenses, (iii) to repay outstanding indebtedness under the
Company's $2 million revolving credit facility (the "Revolving Facility"), which
had a balance of approximately $1.4 million as of June 30, 1997, (iv) to repay
outstanding indebtedness under the Company's term loan facility (the "Term
Loan"), which had a balance of approximately $363,000 as of June 30, 1997, (v)
to repay outstanding indebtedness on a note to the former owners of the Company
(the "Calidad Shareholder Note"), which had a balance of approximately $717,000
as of June 30, 1997 and (vi) the remainder for working capital and general
corporate purposes, including acquisitions. With the exception of the La
Victoria Acquisition, the Company does not currently have any specific
agreements, understandings or negotiations in connection with any future
acquisitions.

In connection with the repayment of the amounts outstanding under the
Revolving Facility, the Company intends to terminate the Revolving Facility upon
the consummation of this Offering. As of June 30, 1997, the weighted average
interest rate under the Revolving Facility was 10.25% and the weighted average
interest rate under the Term Loan was 10.50% per annum. The Term Loan matures on
November 1, 1999. The Term Loan and the Revolving Facility are secured by a
first lien on Calidad's equipment, inventory, accounts receivable and general
intangibles. The Calidad Shareholder Note matures on March 26, 1999, bears
interest at 10.50% per annum and is secured by a second lien on Calidad's
equipment, inventory, accounts receivable and general intangibles. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

13
<PAGE> 15

DIVIDEND POLICY

Authentic Specialty Foods has never paid cash dividends on its Common Stock
and does not intend to pay cash dividends on the Common Stock in the foreseeable
future. The Company currently intends to retain its cash for the continued
development of its business. Payment of future dividends, if any, will be at the
discretion of the Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.

La Victoria's long-term debt agreements contain covenants, including
minimum tangible net worth and maximum debt-to-equity covenants, that have the
effect of restricting the amount of dividends paid on capital stock. In
addition, under the terms of the La Victoria Shareholder Note, LV Foods is not
permitted to pay dividends without the consent of the holder of that note. LV
Foods, which has a 50% beneficial ownership interest in La Victoria, will be
wholly owned by the Company after the La Victoria Acquisition. See "The La
Victoria Acquisition." Although these dividend restrictions on La Victoria and
LV Foods will affect the amount of dividends payable to the Company (and
therefore will affect the amount of funds available to the Company to pay
dividends on Common Stock), they are not direct prohibitions on the payment of
dividends by the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

14
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted to reflect the La Victoria Acquisition, as well as the
sale of the shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements of the Company and the
Unaudited Pro Forma Consolidated Financial Statements and in each case the
related Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 114 $ 6,419
======= =======
Short-term debt (Revolving Facility)........................ $ 1,350 $ --
======= =======
Long-term debt(1):
Term Loan................................................. $ 363 $ --
Calidad Shareholder Note.................................. 717 --
El Paco Non-Compete(2).................................... 403 403
La Victoria Shareholder Note.............................. -- 5,000
La Victoria Term Loan..................................... -- 1,467
La Victoria capital leases................................ -- 5,795
------- -------
Total long-term debt........................................ 1,483 12,665
------- -------
Shareholders' equity:
Preferred Stock, par value $0.01 per share, 5,000,000
shares authorized; no shares issued and outstanding.... -- --
Common Stock, par value $1.00 per share, 20,000,000 shares
authorized;............................................ 1,700 6,439
1,700,000 shares issued and outstanding; 6,439,278 shares
issued and outstanding, as adjusted(3)(4)..............
Additional paid-in capital................................ 1,982 29,347
Accumulated deficit....................................... (1,273) (1,273)
------- -------
Total shareholders' equity........................... 2,409 34,513
------- -------
Total capitalization.............................. $ 3,892 $47,178
======= =======
</TABLE>

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

(1) Includes the current portion of long-term debt, which totaled $667,000 and
$1,540,000 on a historical and pro forma basis, respectively. For a
description of the Company's long-term debt, see "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(2) In connection with Calidad's acquisition of the assets of El Paco Foods,
Inc. ("El Paco") in 1995, Calidad entered into a consulting and non-compete
agreement with the shareholders of El Paco.

(3) Excludes 350,000 shares of Common Stock reserved for issuance under the
Stock Plan, pursuant to which grants of options to purchase 130,000 shares
will be made upon consummation of this Offering with an exercise price
(subject to adjustment) equal to the price to public set forth on the cover
page of this Prospectus. See "Management -- Executive Compensation -- 1997
Stock Plan." Also excludes 350,000 shares of Common Stock issuable pursuant
to the Shansby Warrant.

(4) Gives effect to the repurchase of the 1,538,500 shares of Common Stock
owned by Shansby on the date of this Prospectus at a repurchase price equal
to the net proceeds (before offering expenses) to be received by the
Company with respect to an equivalent number of shares. This repurchase
will occur simultaneously with the consummation of this Offering. Also
assumes the issuance of 2,177,778 shares of Common Stock to Shansby, Mr.
Lively and Mr. Tanklage pursuant to the La Victoria Acquisition. See "The
La Victoria Acquisition."

15
<PAGE> 17

DILUTION

The net tangible book value of the Company as of June 30, 1997 was $0.47
per share of Common Stock. Net tangible book value per share is determined by
dividing the tangible net worth of the Company (tangible assets less total
liabilities) by the total number of outstanding shares of Common Stock. After
giving effect to the La Victoria Acquisition, the sale of the shares offered
hereby, the repurchase by the Company of the 1,538,500 shares of Common Stock
owned by Shansby and the receipt of the estimated net proceeds (after deducting
estimated underwriting discounts and commissions and estimated expenses of this
Offering), the net tangible book value of the Company at June 30, 1997 would
have been $2.09 per share. This represents an immediate increase in the net
tangible book value of $1.62 per share to existing shareholders and an immediate
dilution (i.e., the difference between the initial public offering price and the
pro forma net tangible book value after this Offering) of $6.91 per share to new
investors purchasing Common Stock in this Offering. The following table
illustrates the per share dilution to new investors purchasing Common Stock in
this Offering at $9.00 per share:

<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $9.00
Net tangible book value per share at June 30, 1997........ $0.47
Increase per share attributable to new investors.......... 1.62
-----
Pro forma net tangible book value per share after the La
Victoria Acquisition and this Offering.................... 2.09
-----
Dilution per share to new investors......................... $6.91
=====
</TABLE>

The following table sets forth, as of June 30, 1997, the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by existing shareholders and by new
investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION
-------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)............. 2,339,278 36.3% $ 9,302,946 20.1% $3.98
New investors(2)..................... 4,100,000 63.7 36,900,000 79.9 9.00
--------- ----- ----------- -----
Total...................... 6,439,278 100.0% $46,202,946 100.0%
========= ===== =========== =====
</TABLE>

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

(1) Includes 2,177,778 shares issued in conjunction with the La Victoria
Acquisition valued at $15,680,000, less the repurchase of 1,538,500 shares
of Common Stock owned by Shansby on the date of this Prospectus. See "The La
Victoria Acquisition" and "Unaudited Pro Forma Consolidated Financial
Statements."

(2) Gives effect to the 4,100,000 shares of Common Stock offered by the Company.

If the Underwriter's over-allotment option is exercised in full, then the
number of shares of Common Stock held by existing shareholders will be reduced
to 33.2% of the total number of shares of Common Stock to be outstanding after
this Offering, and the number of shares of Common Stock held by new investors
will be increased to 4,715,000 shares, or 66.8% of the total number of shares of
Common Stock outstanding after this Offering.

16
<PAGE> 18

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") are based on the financial statements of the
Company and La Victoria, all of which are included elsewhere in the Prospectus,
adjusted to give pro forma effect to the La Victoria Acquisition and this
Offering (collectively, the "Transactions").

The unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1996 are derived from the audited statements of operations of
the Company for the year ended December 31, 1996 and the unaudited statements of
operations of La Victoria for the year ended December 31, 1996, and assume the
Transactions were consummated on January 1, 1996. The unaudited Pro Forma
Consolidated Statements of Operations for the six months ended June 30, 1997 are
derived from the unaudited financial statements of the Company for the six
months ended June 30, 1997 and the unaudited statements of operations of La
Victoria for the six months ended June 30, 1997, and assume the Transactions
were consummated on January 1, 1996. The unaudited Pro Forma Consolidated
Balance Sheets as of June 30, 1997 are derived from the unaudited balance sheet
of the Company as of June 30, 1997 and the unaudited balance sheet of La
Victoria as of June 30, 1997, and assume the Transactions were consummated on
that date. The unaudited Pro Forma Financial Statements should be read in
conjunction with the historical financial statements of the Company and La
Victoria and the Notes thereto included elsewhere in this Prospectus.

The unaudited Pro Forma Financial Statements do not purport to represent
what the Company's results of operations or financial condition would actually
have been if the Transactions had occurred on the dates indicated or to project
the Company's results or financial condition for or at any future period or
date. The unaudited Pro Forma Financial Statements are presented for comparative
purposes only. The pro forma adjustments, as described in the accompanying data,
are based on available information and certain assumptions that management
believes are reasonable.

17
<PAGE> 19

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997

(UNAUDITED)

<TABLE>
<CAPTION>
AUTHENTIC
SPECIALTY LA VICTORIA PRO FORMA PRO FORMA
FOODS, INC. FOODS, INC. ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................................ $10,962 $18,977 $ $29,939
Cost of sales.................................... 7,191 9,234 16,425
------- ------- -------
Gross profit........................... 3,771 9,743 13,514
Operating expenses............................... 3,247 9,256 243(A) 12,061
(685)(B)
------- ------- ----- -------
Income from operations................. 524 487 442 1,453
Other expenses, net.............................. 164 357 200(C) 579
(142)(D)
------- ------- ----- -------
Income before income taxes............. 360 130 384 874
Income tax expense (benefit)..................... 122 182 105(E) 409
------- ------- ----- -------
Net income (loss)...................... $ 238 $ (52) $ 279 $ 465
======= ======= ===== =======
Earnings per common share........................ $ 0.14 $ 0.07
======= =======
Weighted average number of common shares
outstanding.................................... 1,700 6,439
</TABLE>

FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
AUTHENTIC
SPECIALTY LA VICTORIA PRO FORMA PRO FORMA
FOODS, INC. FOODS, INC. ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.......................................... $21,198 $38,148 $ $59,346
Cost of sales...................................... 14,081 19,398 33,479
------- ------- -------
Gross profit............................. 7,117 18,750 25,867
Operating expenses................................. 6,768 16,130 487(A) 23,012
(373)(B)
------- ------- ----- -------
Income from operations............................. 349 2,620 (114) 2,855
Other expenses, net................................ 348 995 400(C) 1,465
(278)(D)
------- ------- ----- -------
Income before income taxes............... 1 1,625 (236) 1,390
Income tax expense (benefit)....................... -- 780 3(E) 783
------- ------- ----- -------
Net income (loss)........................ $ 1 $ 845 $(239) $ 607
======= ======= ===== =======
Earnings per common share.......................... $ 0.00 $ 0.09
=========== ============
Weighted average number of common shares
outstanding...................................... 1,700 6,439
</TABLE>

See Notes to Pro Forma Consolidated Financial Statements.

18
<PAGE> 20

PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 1997

(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
AUTHENTIC
SPECIALTY LA VICTORIA PRO FORMA PRO FORMA
FOODS, INC. FOODS, INC. ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents................... $ 114 $ 4,632 $ (4,064)(F) $ 6,419
(12,000)(G)
30,987(H)
(350)(H)
(12,900)(I)
Accounts receivable, net.................... 1,592 1,787 3,379
Inventories................................. 747 10,268 11,015
Other current assets........................ 220 999 1,219
------- ------- -------- -------
Total current assets................ 2,673 17,686 1,673 22,032
------- ------- -------- -------
Property and equipment, net................... 2,754 8,145 10,899
Other assets
Intangibles................................. 1,606 -- 9,700(G) 21,053
9,747(G)
Other....................................... 165 61 226
------- ------- -------- -------
1,771 61 19,447 21,279
------- ------- -------- -------
$ 7,198 $25,892 $ 21,120 $54,210
======= ======= ======== =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Line of credit.............................. $ 1,350 $ -- $ (1,350)(H) $ --
Current portion of long-term debt........... 667 1,273 (400)(H) 1,540
Accounts payable............................ 1,607 1,380 2,987
Accrued expenses............................ 349 846 1,195
------- ------- -------- -------
Total current liabilities........... 3,973 3,499 (1,750) 5,722
------- ------- -------- -------
Long-term debt, less current portion.......... 816 5,989 5,000(G) 11,125
(680)(H)
Deferred taxes................................ -- 5 2,845(G) 2,850
Commitments...................................
Shareholders' equity
Preferred stock............................. -- -- --
Common stock................................ 3,682 2,871 (2,871)(J) 35,786
10,776(G)
811(G)
33,417(H)
(12,900)(I)
Retained earnings (accumulated deficit)..... (1,273) 13,528 (4,064)(F) (1,273)
(9,464)(J)
------- ------- -------- -------
2,409 16,399 15,705 34,513
------- ------- -------- -------
$ 7,198 $25,892 $ 21,120 $54,210
======= ======= ======== =======
</TABLE>

See Notes to Pro Forma Consolidated Financial Statements.

19
<PAGE> 21

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(A) The adjustment reflects the additional amortization expense resulting from
the allocation of the purchase price of the La Victoria Acquisition to
intangible assets acquired consisting primarily of La Victoria's tradename
and goodwill. The useful life assigned to intangibles is 40 years.

(B) Reflects the adjustment of the historical salaries and bonuses by La
Victoria to management and expense reimbursements to LV Foods and Shansby
and certain adjustments for new management, as set forth in the following
table. See "Management" and "Certain Transactions."

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
PRO FORMA ADJUSTMENTS 1996 1997
--------------------- ------------ --------------
<S> <C> <C>
Compensation to husband of former shareholder........ $ 270,000 $ 135,000
LV Foods transaction expenses........................ 200,000 325,000
Shansby transaction expenses......................... -- 250,000
Bonus to Mr. Tanklage................................ 663,000 355,000
Mr. Tanklage bonus under new employment agreement.... (360,000) (180,000)
La Victoria Chief Operating Officer salary........... (200,000) (100,000)
Authentic Specialty Foods Chief Executive Officer
salary............................................. (200,000) (100,000)
--------- ---------
Total pro forma adjustments.......................... $ 373,000 $ 685,000
========= =========
</TABLE>

(C) The adjustment reflects interest expense on the La Victoria Shareholder
Note. The annual interest rate is 8% on a principal amount of $5 million.
The original balance on the note was $7 million. LV Foods will repay $2
million of this note using proceeds from the dividend received on La
Victoria common stock as described in pro forma adjustment (F) below. See
"The La Victoria Acquisition."

(D) The adjustment reflects the reduction of interest expense to reflect the
reduction of outstanding indebtedness resulting from the estimated use of
proceeds from this Offering. See "Use of Proceeds."

(E) The pro forma adjustments to income taxes are based on a 41% tax rate
applied to taxable income. Taxable income is income before income taxes plus
non-deductible intangible amortization and less certain other items that
were non-deductible in the historical financial statements.

(F) The adjustment reflects a $64,000 dividend declared and paid in May 1997 on
La Victoria common stock and a $4 million dividend to be declared and paid
on La Victoria common stock in conjunction with, and immediately prior to,
the consummation of this Offering.

(G) The adjustment reflects the La Victoria Acquisition, which will be accounted
for as a purchase. See "The La Victoria Acquisition." The purchase price and
estimated allocation of such cost for the La Victoria Acquisition is as
follows, assuming the La Victoria Acquisition occurred on June 30, 1997 (in
thousands):

<TABLE>
<S> <C>
Purchase Price components:
Common Stock issued to Mr. Tanklage(i).................... $ 5,600
Cash payments to Mr. Tanklage(ii)......................... 12,000
Purchase price for LV Foods(iii).......................... 10,176
Transaction expenses...................................... 350
-------
Total purchase price........................................ 28,126
Book value per historical financial statements(iv)........ 12,335
-------
Excess of purchase price over net book value of assets
acquired.................................................. $15,791
=======
Allocated to:
Identifiable intangible assets(v)......................... $ 9,700
Goodwill(v)............................................... 9,747
Deferred taxes(vi)........................................ (2,845)
Additional paid-in capital (tax benefit)(vi).............. (811)
-------
Total allocated............................................. $15,791
=======
</TABLE>

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

20
<PAGE> 22

(i) Based on 777,778 shares of Common Stock issued at an assumed price per
share of $9, net of a 20% discount for lack of marketability.

(ii) Payment to be funded from the net proceeds from this Offering. See
"Use of Proceeds."

(iii) The Company and LV Foods are both controlled by Shansby. As a result,
the acquisition of LV Foods by the Company is a transaction between
entities under common control. In this situation, the purchase
accounting is based on Interpretation No. 39 to APB 16, which
requires that the net assets and liabilities transferred in the
transaction be accounted for at historical cost in a manner similar
to that in pooling of interests accounting. Accordingly, the purchase
price of LV Foods is based on LV Foods' historical cost investment,
at June 30, 1997, in La Victoria, its only asset. This amount is
based on LV Foods' original investment in La Victoria of $12 million
in April 1997, reduced for net equity method adjustments consisting
primarily of dividends as described in pro forma adjustment (F)
above.

(iv) Represents the historical book value of La Victoria at June 30, 1997
adjusted for the dividends in pro forma adjustment (F) above.

(v) The Company is in the process of allocating these approximate amounts
between identified and unidentified intangible assets. The Company
anticipates that the identified intangible assets will consist
primarily of La Victoria's trade name. The Company anticipates the
identified and unidentified intangible assets will have similar useful
lives of 40 years.

(vi) Deferred tax liabilities of $3,977,000 have been provided on the
amounts allocated to identified intangibles at a rate of 41%. The net
deferred tax liabilities recorded have been reduced by $1,132,000
because of the elimination of the valuation allowance on the Company's
deferred tax assets. The valuation allowance has been eliminated
because, as a result of the La Victoria Acquisition, the Company
believes it is now more likely than not that these assets will be
realized. Of the total deferred tax assets of $1,132,000, $811,000
represents amounts generated before the Company's December 31, 1993
quasi-reorganization and are recorded as a direct addition to
additional paid-in capital, with the balance as an adjustment to
intangibles. See Note 7 to the Company's Financial Statements.

(H) The adjustment reflects the estimated use of the net proceeds of this
Offering, after deducting approximately $900,000 of offering expenses: (i)
$600,000 of professional, printing and other miscellaneous expenses, (ii) a
$250,000 fee to Shansby Partners for its financial advisory services in
connection with this Offering and (iii) a reimbursement of up to $50,000 of
Shansby Partners' out-of-pocket expenses related to this Offering. See "Use
of Proceeds."

(I) The adjustment reflects the use of a portion of the net proceeds of this
Offering to repurchase the shares of Common Stock owned by Shansby on the
date of this Prospectus.

(J) The adjustment reflects the elimination of the historical common stock and
retained earnings (net of the $4,064,000 dividend) of La Victoria in order
to consolidate La Victoria's financial statements.

21
<PAGE> 23

SELECTED FINANCIAL DATA

The following table sets forth certain financial data for the Company as of
the dates and for the periods indicated. The financial data of the Company as of
and for the years ended December 31, 1994 and December 31, 1995 set forth below
have been derived from financial statements audited by Rylander, Clay & Opitz,
L.L.P., independent auditors. The financial data of the Company as of and for
the year ended December 31, 1996 set forth below have been derived from
financial statements audited by McGladrey & Pullen, LLP, independent auditors.
The selected financial data of the Company as of and for the periods ended July
31, 1992, July 31, 1993, December 31, 1993, June 30, 1996 and June 30, 1997 and
the pro forma 1996 and 1997 data are unaudited. However, in the opinion of the
Company, all adjustments, consisting of normal recurring accruals necessary for
a fair presentation, have been made. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Company's Financial Statements and the
Notes related thereto included elsewhere in this Prospectus.

FIVE YEARS ENDED DECEMBER 31,
MONTHS -------------------------------------
YEARS ENDED ENDED PRO
JULY 31, DECEMBER 31, FORMA
----------------- ------------ -------
1992 1993 1993(1) 1994 1995 1996 1996(2)
------- ------- ------------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $18,552 $20,328 $8,113 $19,637 $21,028 $21,198 $59,346
Cost of sales............... 12,648 14,974 5,466 13,213 14,266 14,081 33,479
------- ------- ------ ------- ------- ------- -------
Gross profit.............. 5,904 5,354 2,647 6,424 6,762 7,117 25,867
Operating expenses.......... 4,885 8,511 3,304 7,210 6,940 6,768 23,012
------- ------- ------ ------- ------- ------- -------
Income (loss) from
operations.............. 1,019 (3,157) (657) (786) (178) 349 2,855
------- ------- ------ ------- ------- ------- -------
Other income (expense)
Interest expense............ (118) (218) (98) (161) (219) (328) (1,537)
Interest income............. -- -- -- -- 62 2 95
Gain (loss) on disposal of
property and equipment.... -- (514) -- (38) (192) (22) (23)
------- ------- ------ ------- ------- ------- -------
(118) (732) (98) (199) (349) (348) (1,465)
------- ------- ------ ------- ------- ------- -------
Income (loss) before
income taxes............ 901 (3,889) (755) (985) (527) 1 1,390
Income tax expense
(benefit)................. 341 (520) -- -- -- -- 783
------- ------- ------ ------- ------- ------- -------
Net income (loss)......... $ 560 $(3,369) $ (755) $ (985) $ (527) $ 1 $ 607
======= ======= ====== ======= ======= ======= =======

Earnings (loss) per share... $ 0.36 $ (2.15) $(0.48) $ (0.59) $ (0.31) $ 0.00 $ 0.09
Weighted average number of
common shares
outstanding............... 1,564 1,564 1,564 1,680 1,700 1,700 6,439(3)

<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
PRO
FORMA
-------
1996 1997 1997(2)
------- ------- -------

<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $10,528 $10,962 $29,939
Cost of sales............... 6,927 7,191 16,425
------- ------- -------
Gross profit.............. 3,601 3,771 13,514
Operating expenses.......... 3,314 3,247 12,061
------- ------- -------
Income (loss) from
operations.............. 287 524 1,453
------- ------- -------
Other income (expense)
Interest expense............ (167) (165) (686)
Interest income............. 2 -- 95
Gain (loss) on disposal of
property and equipment.... (22) 1 12
------- ------- -------
(187) (164) (579)
------- ------- -------
Income (loss) before
income taxes............ 100 360 874
Income tax expense
(benefit)................. 34 122 409
------- ------- -------
Net income (loss)......... $ 66 $ 238 $ 465
======= ======= =======
Earnings (loss) per share... $ 0.04 $ 0.14 $ 0.07
Weighted average number of
common shares
outstanding............... 1,700 1,700 6,439(3)
</TABLE>

<TABLE>
<CAPTION>
AS OF JULY 31, AS OF DECEMBER 31, AS OF JUNE 30, 1997
---------------- ----------------------------------- ----------------------
1992 1993 1993 1994 1995 1996 ACTUAL PRO FORMA(2)
------ ------- ------ ------ ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 50 $ -- $ 238 $ 237 $ 9 $ 200 $ 114 $ 6,419
Working capital (deficit)....................... 276 (2,289) (139) (44) (1,499) (1,557) (1,300) 16,310
Total assets.................................... 7,367 6,630 7,436 5,946 7,132 7,089 7,198 54,210
Notes payable to bank........................... 692 1,551 1,418 639 751 1,319 1,350 --
Long-term debt.................................. 1,658 1,528 1,513 949 1,249 920 816 11,125
Shareholders' equity............................ 2,879 260 1,859 2,175 2,048 2,049 2,409 34,513
</TABLE>

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

(1) Represents a five month period. At December 31, 1993, the Company changed
its fiscal year end from July 31 to December 31.

(2) On a pro forma basis, as adjusted to give effect to the La Victoria
Acquisition and the application of the net proceeds of this Offering in the
manner described in "Use of Proceeds." See "Unaudited Pro Forma Consolidated
Financial Statements."

(3) Gives effect to the repurchase of the 1,538,500 shares of Common Stock owned
by Shansby on the date of this Prospectus at a repurchase price equal to the
net proceeds (before offering expenses) to be received by the Company with
respect to an equivalent number of shares. This repurchase will occur
simultaneously with the consummation of this Offering. Also assumes the
issuance of 2,177,778 shares of Common Stock to Shansby, Mr. Lively and Mr.
Tanklage pursuant to the La Victoria Acquisition. See "The La Victoria
Acquisition."

22
<PAGE> 24

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

AUTHENTIC SPECIALTY FOODS, INC.

OVERVIEW

Following the Company's acquisition by Shansby in early 1992, Calidad
executed a number of initiatives to improve its operations and infrastructure.
As a result of these initiatives, following the completion of this Offering, the
Company will be poised for internal growth and to take advantage of acquisition
opportunities in the highly fragmented Mexican food industry.

When Shansby acquired the Company in 1992, Calidad had two facilities, a
manufacturing facility in Ft. Worth and a distribution facility in Rendon,
Texas. In December 1992, Calidad relocated its distribution facility, vehicle
fleet and warehouse hub from the small, inefficient Rendon facility to a 50,000
square foot facility in Grand Prairie, Texas. However, because of capital
constraints, Calidad was unable to relocate its manufacturing facility at that
time. The increased warehouse space and centralized distribution capabilities
enabled Calidad to increase its line of Mexican food products and inventory and
to expand its customer base within the Dallas/Ft. Worth area. In order to manage
its growing direct store delivery ("DSD") sales route system more efficiently,
Calidad computerized its invoicing process by installing a system utilizing
hand-held computers on substantially all of its DSD routes. As a result of
Calidad's implementation of this system, as well as increases in management
staffing and benefit levels, increases in facility expenses from the new
distribution facility and the addition of a new fleet of vehicles, Calidad
experienced an overall increase in distribution and operating expenses.

As Calidad continued its growth, it became apparent in 1994 that its 20,000
square foot manufacturing facility in Ft. Worth was constraining Calidad's
ability to expand production. In August 1995, Calidad began to consolidate its
manufacturing, warehouse and office space into a modern 70,000 square foot
location in Grand Prairie, Texas. This consolidation was completed in January
1996. All production, distribution and management functions now take place
within this facility, which allows management to maximize production and
distribution efficiencies. In November 1995, in conjunction with Calidad's
relocation to the new facility, Calidad acquired the tortilla and tortilla chip
business of El Paco Foods, Inc., a Dallas/Ft. Worth area tortilla and tortilla
chip producer ("El Paco"). The primary purpose of the El Paco acquisition was to
acquire additional tortilla chip and flour tortilla manufacturing equipment,
which enabled Calidad to expand its manufacturing capacity. Calidad moved El
Paco's production and processing equipment to Calidad's Grand Prairie facility
and began servicing El Paco's customer base of small distributors and food
service outlets. In June 1997, the Company changed its name from "Calidad Foods,
Inc." to "Authentic Specialty Foods, Inc."

The following discussion and analysis should be read in conjunction with
the Unaudited Pro Forma Consolidated Financial Statements, the Selected
Financial Data, and the historical financial statements of the Company and the
Notes related thereto, which appear elsewhere in this Prospectus.

23
<PAGE> 25

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
historical financial data for Calidad as a percentage of net sales:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------------------
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 67.3 67.8 66.4 65.8 65.6
----- ----- ----- ----- -----
Gross margin..................................... 32.7 32.2 33.6 34.2 34.4
Operating expenses................................. 36.7 33.0 31.9 31.5 29.6
----- ----- ----- ----- -----
Income from operations........................... (4.0) (0.8) 1.7 2.7 4.8
Other expenses, net................................ 1.0 1.7 1.6 1.8 1.5
----- ----- ----- ----- -----
Income (loss) before taxes....................... (5.0) (2.5) 0.1 0.9 3.3
Provision for income taxes......................... 0.0 0.0 0.0 0.3 1.1
----- ----- ----- ----- -----
Net income (loss)................................ (5.0)% (2.5)% 0.1% 0.6% 2.2%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

Net Sales. Net sales consists of gross sales less the amount of discounts,
returns and allowances. Net sales for the first six months of 1997 were
$10,962,000 compared to $10,528,000 for the first six months of 1996, an
increase of $434,000, or 4.1%. A significant portion of the increase in net
sales was attributable to cheese and meat sales because Calidad gained
distribution of these products in the first quarter of 1997 in two independent
Dallas grocery chains catering to Mexican-American consumers.

Cost of Sales and Gross Margin. Cost of sales consists primarily of labor,
raw materials and overhead used in the production of the products manufactured
by Calidad. Calidad also incurs costs to purchase various products (such as
meats and cheeses) that have been manufactured by third parties for distribution
through Calidad's DSD system. Gross margin for the first six months of 1997 was
$3,771,000 compared to $3,601,000 for the first six months of 1996, an increase
of $170,000, or 4.7%. As a percentage of net sales, gross margin increased from
34.2% in the first six months of 1996 to 34.4% in the first six months of 1997.
The increase in gross margin was attributable to increased sales.

Operating Expenses. Operating expenses consist primarily of commissions,
sales and administrative salaries, office expenses, fleet expenses, warehouse
costs (including leasehold, labor and utility costs) and general overhead.
Operating expenses for the first six months of 1997 were $3,247,000 compared to
$3,314,000 for the first six months of 1996, a decrease of $67,000, or 2.0%. As
a percentage of net sales, operating expenses declined from 31.5% in the first
six months of 1996 to 29.6% in the first six months of 1997. The decrease in
operating expenses was primarily attributable to non-compete and consulting
payments to two former shareholders that were incurred in the first six months
of 1996 but not in the first six months of 1997.

Other Expenses. Other expenses consist primarily of interest expense and
gain or loss on disposal of property and equipment. Other expenses for the first
six months of 1997 were $165,000 compared to $187,000 for the first six months
of 1996, a decrease of $22,000, or 11.8%. As a percentage of net sales, other
expenses decreased from 1.8% in the first six months of 1996 to 1.5% in the
first six months of 1997. The decrease was primarily attributable to losses
incurred on the disposal of equipment in the first quarter of 1996 related to
the completion of the Company's plant relocation.

Taxes. The Company had income tax expense of $122,000 for the first six
months of 1997 compared to $34,000 for the first six months of 1996. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 86, any
tax benefits recognized from net operating losses ("NOLs") generated before the
Company's December 31, 1993 quasi-reorganization are recorded as a direct
addition to additional paid-in

24
<PAGE> 26

capital resulting in a corresponding increase to income tax expense. For
additional information with respect to the quasi-reorganization, see Note 7 to
the Company's Financial Statements.

At June 30, 1997, the Company had NOLs of approximately $3,265,000, which
expire throughout the period ending December 31, 2011. Of these NOLs,
approximately $2,385,000 were generated prior to the quasi-reorganization. At
June 30, 1997, the Company recorded a valuation allowance of approximately
$1,132,000 on deferred tax assets to reduce the total to an amount the Company
believes will ultimately be realized. The Company believes these deferred tax
assets will be realized as a result of the La Victoria Acquisition. See
"Unaudited Pro Forma Consolidated Financial Statements." Realization of deferred
tax assets is dependent upon generating sufficient future taxable income during
the period that deductible temporary differences and carryforwards are expected
to be available to reduce taxable income. Excluding the effects of the La
Victoria Acquisition and annualizing the Company's taxable income generated in
the first six months of 1997, the benefit of the Company's deferred tax asset
would be fully realized within the next five years. See Note 5 to the Company's
Financial Statements.

Net Income. For the reasons described above, net income for the first six
months of 1997 was $238,000 compared to $66,000 for the first six months of
1996, an improvement of $172,000. As a percentage of net sales, net income
improved from 0.6% for the first six months of 1996 to 2.2% for the first six
months of 1997.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996

Net Sales. Calidad's sales growth has historically been limited by its
production capacity. Since the relocation of Calidad's manufacturing facility in
January 1996, significant new grocery store accounts have been added to the
customer base, including Save-A-Lot, Western Family Foods and Brookshire
Brothers. Calidad has experienced steady growth in net sales, driven by extended
route coverage in North Texas (including the Dallas/Ft. Worth metroplex), as
well as expanded distribution into San Antonio, Texas and into Oklahoma,
Louisiana and Arkansas.

Net sales for 1996 were $21,198,000 compared to $21,028,000 for 1995, an
increase of $170,000, or 0.8%. Net sales were flat because net sales for 1995
included a substantial amount of sales of shelf-stable products to Minyard
Foods, which were discontinued in 1996. Accordingly, these low margin sales of
shelf-stable products to Minyard Foods accounted for approximately $86,000 of
Calidad's net sales in 1996, compared to $2,864,000 in 1995. However, the
discontinuation of these sales did not adversely affect Calidad's relationship
with Minyard Foods. In fact, net sales to Minyard Foods in 1996, exclusive of
shelf-stable products, increased by $777,000, or 15.6%, over 1995 net sales.

If sales of shelf-stable products to Minyard Foods are disregarded,
Calidad's net sales increased by $2,948,000, or 16.2%, from $18,164,000 in 1995
to $21,112,000 in 1996. Of this improvement, $2,018,000, or 68.5%, was
attributable to sales of manufactured products (e.g., tortillas, tortilla chips
and spices), of which approximately $741,000 resulted from the El Paco
acquisition. Approximately $761,000, or 25.8%, of the increase in net sales was
generated from increased sales of products manufactured by third parties (e.g.,
meats and cheeses).

Cost of Sales and Gross Margin. The gross margins on products manufactured
by Calidad, such as tortillas and tortilla chips, have improved on a
year-to-year basis because of increased efficiencies from the new manufacturing
facility, as well as Calidad's emphasis on sales of manufactured products in
1996. Most increases in raw material costs have traditionally been recovered
through price increases to Calidad's customers.

Gross margin for 1996 was $7,117,000 compared to $6,762,000 for 1995, an
increase of $355,000, or 5.2%. As a percentage of net sales, gross margin
increased from 32.2% in 1995 to 33.6% in 1996. The improvement in gross margin
was primarily attributable to the increase in sales of higher margin
manufactured products, combined with the discontinuation of low margin sales of
shelf-stable products to Minyard Foods, as described above. Gross margin
achieved on sales of products manufactured by Calidad has historically been
greater than the gross margin achieved on sales of products manufactured by
third parties. Accordingly, increased sales of manufactured products have a
greater impact on the overall gross margin of Calidad. Gross margin for 1996

25
<PAGE> 27

also benefitted from improved manufacturing efficiencies that resulted from the
plant relocation and modernization.

Operating Expenses. Operating expenses for 1996 were $6,768,000 compared to
$6,940,000 in 1995, a decrease of $172,000, or 2.5%. As a percentage of net
sales, operating expenses declined from 33.0% in 1995 to 31.9% in 1996. The
decrease in operating costs was primarily attributable to relocation expenses
incurred in 1995 of approximately $337,000 and $58,000 of long-haul
transportation savings realized in 1996. These expense reductions were partially
offset by nonrecurring 1996 consulting and non-compete payments to former
shareholders and professional fees totaling $113,000 and an increase of $101,000
in distributor commissions attributable to higher sales of manufactured
products.

Calidad expects that operating expenses will increase in absolute amounts
due, in part, to periodic reporting and compliance requirements associated with
being a public company, although such expenses may vary as a percentage of net
sales. Additionally, Calidad expects that operating expenses will increase in
absolute amounts as a result of the implementation of its acquisition strategy.
The Company does not expect that the La Victoria Acquisition will result in any
reductions in general and administrative expenses. See "Risk Factors -- Ability
to Implement the La Victoria Strategy."

Other Expenses. Other expenses for 1996 were $348,000 compared to $349,000
for 1995, a decrease of $1,000, or 0.3%. As a percentage of net sales, other
expenses decreased from 1.7% in 1995 to 1.6% in 1996. Interest expense for 1996
was $328,000 compared to $219,000 for 1995, an increase of $109,000, or 49.8%.
The increase in interest expense is due to interest on the Term Loan and debt
incurred with the El Paco acquisition, which were used to partially finance
Calidad's plant relocation and modernization. See "-- Liquidity and Capital
Resources." Other expenses also included a loss on the disposal of property and
equipment of $22,000 in 1996 compared to a loss of $192,000 in 1995. Both of
these losses resulted from the plant relocation and modification. In addition,
in 1995, interest income consisted primarily of $51,000 of interest income
received on a federal tax refund.

Taxes. Because the Company's deferred tax assets were fully reserved by a
valuation allowance, no provision for income taxes was recorded in 1995 or 1996.
In addition, no taxable income was generated in 1996 that would require an
adjustment to additional paid-in capital pursuant to SAB No. 86.

Net Income. For the reasons described above, net income for 1996 was $1,000
compared to a net loss of $527,000 for 1995, an improvement of $528,000. As a
percentage of net sales, net income improved from a loss of 2.5% in 1995 to a
profit of 0.1% in 1996.

COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1995

Net Sales. Net sales for 1995 were $21,028,000 compared to $19,637,000 for
1994, an increase of $1,391,000, or 7.1%. Of the total net sales increase of
$1,391,000 for 1995, $633,000, or 46.0%, was attributable to cheese and meat
sales, with the remaining increase being attributable to increased sales of
shelf-stable grocery products. Sales of manufactured products were relatively
unchanged between the two years.

Although Calidad's net sales improved in 1995, Calidad closed its Houston
distribution center and began a relationship with an independent Houston
distributor in January 1995. Calidad took this action because of operating
losses at Calidad's Houston distribution center, production limitations at
Calidad's Ft. Worth facility and management's decision to focus on North Texas
operations, including the Dallas/Ft. Worth metroplex. The Houston distributor
retained in 1995 did not carry a complete line of Calidad's products and had a
limited retail presence. Net sales for 1995 in the Houston market declined from
$1,401,000 in 1994 to $303,000 in 1995. Total net sales in the core markets of
North Texas, East Texas and West Texas increased from $18,236,000 in 1994 to
$20,725,000 in 1995, an increase of $2,489,000, or 13.6%.

Cost of Sales and Gross Margin. Gross margin for 1995 was $6,762,000
compared to $6,424,000 for 1994, an increase of $338,000, or 5.3%. As a
percentage of net sales, gross margin decreased from 32.7% in 1994 to 32.2% in
1995. The dollar increase in gross margin was primarily attributable to
increased net sales

26
<PAGE> 28

levels. Relative flatness in manufactured product sales, coupled with
manufacturing inefficiencies at the Ft. Worth plant, caused the decrease in the
gross margin as a percentage of sales.

Operating Expenses. Operating expenses for 1995 were $6,940,000 compared to
$7,210,000 for 1994, a decrease of $270,000, or 3.7%. As a percentage of net
sales, operating expenses decreased from 36.7% in 1994 to 33.0% in 1995. The
decrease in operating expenses was due to the elimination of consulting costs
and vacation pay expenses totaling $415,000, coupled with an $80,000 reduction
in insurance costs and a $53,000 reduction in administrative payroll. These
expense reductions were partially offset by relocation costs of $337,000
incurred in 1995.

Other Expenses. Other expenses for 1995 were $349,000 compared to $199,000
for 1994, an increase of $150,000, or 75.4%. As a percentage of net sales, other
expenses increased from 1.0% in 1994 to 1.7% in 1995. The increase was primarily
attributable to a loss on disposal of property and equipment of $192,000 in 1995
compared to a loss of $37,000 in 1994. Interest expense for 1995 was $219,000
compared to $161,000 for 1994, an increase of $58,000, or 36.0%, as a result of
increased borrowings and higher effective rates under the Company's line of
credit. In 1995, interest income consisted primarily of interest income received
on a federal tax refund.

Taxes. Because the Company's deferred tax assets were fully reserved by a
valuation allowance, no provision for income taxes was recorded in 1994 or 1995.

Net Income. As a result of the above, Calidad had a net loss of $527,000
for 1995 compared to a net loss of $985,000 for 1994, an improvement of
$458,000, or 46.5%. As a percentage of net sales, the net loss improved from a
loss of 5.0% in 1994 to a loss of 2.5% in 1995.

VARIABILITY IN QUARTERLY OPERATING RESULTS; SEASONALITY

Calidad has experienced a minimal degree of seasonality over the three
previous years. Minor increases in tortilla, spice, meat and cheese sales
normally occur during the winter months. A similar sales increase for tortilla
chips is experienced during the summer months. The Company believes that the
relative inelasticity of demand for grocery products is an insulating factor
against material fluctuations in Calidad's sales levels. Anticipated sales gains
due to product acceptance and favorable market demographics should also serve as
a seasonality buffer.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's losses and restricted access to capital have
adversely affected the Company's ability to pursue acquisition and growth
opportunities. As the net sales of Calidad have grown, the Company has
experienced increased working capital requirements. These working capital
requirements have been funded largely by borrowings under asset-based working
capital facilities. An initial $2,000,000 facility was funded in May 1993, with
effective interest rates ranging from prime rate plus 0.75% per annum to prime
rate plus 6.0% per annum as of the termination date. This facility was replaced
in April 1995 by the $2,000,000 Revolving Facility with a different lender. The
Revolving Facility continues to be utilized by the Company and accrues interest
at prime rate plus 1.75%. The principal balance on the Revolving Facility as of
June 30, 1997 was $1,350,000, and the Company had $54,000 of availability under
the Revolving Facility as of that date. Amounts available for borrowing under
the Revolving Facility are based on percentages of the Company's eligible
accounts receivable and inventory balances. Management believes the percentages
used to calculate borrowing availability under the Revolving Facility are
generally in accordance with those offered to companies of similar size.

Although Shansby has provided certain funding since acquiring the Company
in 1992, Shansby has been limited in the amount of funding it was able to
provide because of constraints imposed by its investment objectives.
Nevertheless, because of Calidad's net losses incurred in 1994 and the decrease
in the Company's available working capital facility in effect during that year,
Shansby made several capital infusions that totaled $1,085,000 in 1994.
Furthermore, in order to fund capital expenditures, including the El Paco
acquisition, that were required to relocate and modernize Calidad's plant in
late 1995, Shansby funded $400,000 of the

27
<PAGE> 29

$2,529,000 of these capital and other expenditures. The remaining $2,129,000 was
funded with (i) $600,000 under the Term Loan, (ii) a consulting and non-compete
agreement with the shareholders of El Paco under which the Company was obligated
to pay $549,000 and which is treated as indebtedness for financial accounting
purposes (the "El Paco Non-Compete"), (iii) a federal income tax refund of
$539,000, (iv) $162,000 from the sale of surplus manufacturing equipment and (v)
past due accounts receivable collections made in late 1994. The Term Loan was
initially funded in November 1995, accrues interest at prime rate plus 2.0% per
annum and is payable in 48 monthly principal installments of $12,500 plus
interest. As of June 30, 1997, the principal balances on the Term Loan and
Revolving Facility were $363,000 and $1,350,000, respectively. The Term Loan and
the Revolving Facility are secured by a first lien on Calidad's equipment,
inventory, accounts receivable and general intangibles. The Company intends to
use the net proceeds from this Offering to repay all amounts outstanding under,
and terminate, the Revolving Facility and the Term Loan. In connection with the
termination of the Revolving Facility, the Company will pay a $20,000
termination fee and will expense deferred financing costs of $29,000. See "Use
of Proceeds." The El Paco Non-Compete is due in monthly installments of $11,667,
with interest imputed at 10.0%, through November 2000.

In connection with the acquisition of Calidad by Shansby in 1992, a $1
million subordinated note was issued to the former shareholder of Calidad (the
"Calidad Shareholder Note"). The Calidad Shareholder Note was originally
scheduled to mature on March 26, 1997. Because of funding constraints on the
Company, the former shareholder agreed to extend the note for an additional two
years to March 26, 1999. Interest on this note was increased from 8.0% per annum
to 10.5% per annum. As of June 30, 1997, the Calidad Shareholder Note had an
outstanding principal balance of approximately $717,000. The Company intends to
use a portion of the net proceeds from this Offering to repay the Calidad
Shareholder Note. See "Use of Proceeds."

Cash flows provided by operating activities for 1996 were $565,000,
consisting primarily of depreciation and amortization of $757,000, offset by an
increase in accounts receivable of $151,000 and a decrease in accounts payable
of $232,000. Accounts receivable increased because of slower collections
resulting from increased sales to non-major chains in outlying markets. Accounts
payable decreased because of Calidad's efforts to bring payables to vendors
closer to terms. Cash flows provided by operating activities for the first six
months of 1997 were $415,000, consisting primarily of net income of $238,000 and
noncash expenses of $451,000, offset by an increase in accounts receivable of
$117,000 and a decrease in accounts payable of $117,000. Accounts receivable
continued to increase because of fewer collection days and increased sales to
non-major chains in outlying markets. Accounts payable continued to decrease due
to continuing efforts to bring payables to vendors closer to terms.

Cash flows used in investing activities for 1996 were $509,000, consisting
primarily of capital expenditures of $652,000 related to the Company's
relocation and the El Paco acquisition as discussed above, offset by proceeds
from the sale of property and equipment of $171,000 related to excess equipment
sold as a result of the relocation. Cash flows used in investing activities for
the first six months of 1997 were $328,000, consisting primarily of capital
expenditures of $232,000 and an increase in other assets of $147,000. Capital
expenditures consisted primarily of additions and improvements to manufacturing
equipment, and the increase in other assets consisted primarily of deferred
offering costs.

Cash flows provided by financing activities for 1996 were $136,000,
consisting primarily of additional borrowings on the Company's line of credit of
$569,000, offset by repayments on short and long-term debt. Cash flows used in
financing activities for the first six months of 1997 were $173,000, consisting
primarily of repayments on long-term debt.

Calidad estimates that capital expenditures for the existing business in
1997 and the foreseeable future will range from $300,000 to $400,000 per year.
La Victoria estimates that capital expenditures for 1997 and subsequent years
will range from $200,000 to $300,000 per year. After applying the net proceeds
from this Offering in the manner described under "Use of Proceeds," the Company
believes that its cash on hand and cash generated from operations will provide
the Company with sufficient liquidity and working capital to permit Calidad and
La Victoria to carry on its normal operations without the need of incurring the
expense of

28
<PAGE> 30

maintaining a revolving credit facility in addition to La Victoria's line of
credit facility. As the Company implements its growth strategy, it will continue
to re-evaluate its working capital needs, and will seek to obtain an additional
working capital line of credit when it becomes necessary to do so. Although the
Company believes that it will have sufficient funds to make one or more
acquisitions in pursuit of its growth strategy, it may elect to pursue bank
financing in connection with its acquisitions, depending upon the size of the
acquisition and its other capital needs.

INFLATION AND CHANGES IN PRICES

The costs of ingredients (e.g., corn flour and wheat flour) for products
that Calidad manufactures rise and fall in line with their value in the
commodity markets. Calidad endeavors to insulate itself from wide variations in
prices by entering into supply contracts on a 90 to 360 day basis. Generally,
increases in raw material costs are recovered with periodic product price
increases. Product pricing for products manufactured by third parties are
negotiated. When price increases occur, Calidad passes these increases on to the
retailer.

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<PAGE> 31

LA VICTORIA FOODS, INC.

OVERVIEW

La Victoria has experienced a decline in net sales as a result of increased
competition and its decision to focus on core markets in the western United
States, combined with a withdrawal from less profitable markets. La Victoria's
management undertook a restructuring effort in 1995 that has resulted in more
effective employment of its capital base, reduced costs, and increased
efficiencies throughout La Victoria. La Victoria has refocused its marketing
efforts, concentrating on its core markets, and successfully returned to
profitability in fiscal 1996.

Prior to La Victoria's recent restructuring efforts, its operating margins
had suffered from relatively fixed general and administrative expenses and
certain manufacturing expenses that La Victoria incurred to upgrade its
production capacity and efficiency as well as expenses related to label and
container redesigns. La Victoria's management believes that La Victoria is
capable of supporting a significantly larger sales base with its existing
manufacturing and warehousing facilities.

Prior to Shansby's recent purchase of beneficial ownership of 50% of the
capital stock of La Victoria, La Victoria was a family-owned business. La
Victoria has entered into various transactions with its shareholders and their
affiliates including the payment of discretionary employee bonuses and other
expenses.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
historical financial data for La Victoria as a percentage of net sales:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
YEARS ENDED MAY 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 53.7 51.6 49.5
----- ----- -----
Gross margin........................................... 46.3 48.4 50.5
Operating expenses.......................................... 45.2 40.0 45.5
----- ----- -----
Income from operations................................. 1.1 8.4 5.0
Other expenses, net......................................... (2.0) (2.3) (2.3)
----- ----- -----
Income (loss) before taxes............................. (0.9) 6.1 2.7
Provision for income taxes.................................. (0.2) 2.6 1.6
----- ----- -----
Net income (loss)...................................... (0.7)% 3.5% 1.1%
===== ===== =====
</TABLE>

COMPARISON OF FISCAL YEAR ENDED MAY 31, 1996 TO 1997

Net Sales. Net sales for 1997 were $37,192,000 as compared to $38,978,000
for 1996, a decrease of $1,786,000, or 4.6%. The decline in net sales was
primarily the result of increased competition from other Mexican food brands,
including the introduction of the Tostitos(TM) brand Mexican sauces by Frito-Lay
Inc. and the withdrawal of La Victoria from certain less profitable markets in
the eastern and central United States. In addition, 1996 included a one-time
sale at reduced prices of products packaged in containers that became obsolete
as a result of a change in packaging.

Cost of Sales and Gross Margin. Cost of sales consists primarily of labor,
raw materials and overhead used in the production of the products manufactured
by La Victoria. Gross margin was $18,783,000 for 1997 as compared to $18,871,000
for 1996, a decrease of $88,000, or 0.5%. As a percentage of net sales, gross
margin increased to 50.5% in 1997 from 48.4% for 1996. The primary reason for
the increase in gross margin percentage is attributable to a focus by the
Company on cost controls and efficiencies, as well as the absence of the sales
made in the prior period of products in obsolete packaging.

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<PAGE> 32

Operating Expenses. Operating expenses were $16,934,000 for 1997 compared
to $15,608,000 for 1996, an increase of $1,326,000, or 8.5%. As a percentage of
net sales, operating expenses increased from 40.0% for 1996 to 45.5% for 1997.
The dollar increase in operating expenses was due to an increase of $900,000 in
discretionary bonuses and expenses to management and related parties, a $305,000
increase in selling expenses, primarily advertising expenses, and a $253,000
increase in legal expenses. During 1997, La Victoria incurred legal expenses of
approximately $204,000 relating to a dispute with a former shareholder, as well
as $270,000 in salary expense to that former shareholder's husband, who was an
employee of La Victoria. La Victoria anticipates that such expenses will not
recur in 1998.

Other Expenses. Other expenses, primarily interest related to capital
leases, were $868,000 for 1997 as compared to $905,000 for 1996, a decrease of
$37,000, or 4.1%. As a percentage of net sales, other expenses remained constant
at 2.3% for 1996 and 1997.

Taxes. Taxes were $588,000 for 1997 compared to $979,000 for 1996, a
decrease of $391,000, or 39.9%. The decrease was attributable to the decrease in
earnings for 1997 as compared to 1996. The high effective tax rate of 60% in
1997 was due primarily to certain nonrecurring expenses that are not deductible
for tax purposes. See Note 6 to La Victoria's Financial Statements.

Net Income. For the reasons described above, net income was $393,000 for
1997 compared to $1,379,000 for 1996, a decrease of $986,000. As a percentage of
net sales, net income decreased from 3.5% in 1996 to 1.1% in 1997.

COMPARISON OF FISCAL YEAR ENDED MAY 31, 1995 TO 1996

Net Sales. Net sales for 1996 were $38,978,000 compared to $41,382,000 for
1995, a decrease of $2,404,000, or 5.8%. The decrease in net sales was primarily
attributable to (i) increased competition within the salsa category generally,
(ii) an increase in private label products in grocery stores that are not
manufactured by La Victoria and (iii) the withdrawal of La Victoria from certain
less profitable markets to focus on core markets.

Cost of Sales and Gross Margin. Gross margin for 1996 was $18,871,000
compared to $19,163,000 for 1995, a decrease of $292,000, or 1.5%. As a
percentage of net sales, gross margin increased from 46.3% for 1995 to 48.4% for
1996. The increase in gross margin was primarily a result of a 2.9% decline in
raw material and direct labor costs to produce La Victoria's products. Partially
offsetting the gains were increases in manufacturing overhead (including
repairs, maintenance and rent).

Operating Expenses. Operating expenses for 1996 were $15,608,000 compared
to $18,709,000 for 1995, a decrease of $3,101,000, or 16.6%. As a percentage of
net sales, operating expenses decreased from 45.2% for 1995 to 40.0% for 1996.
The decrease in operating expenses was largely the result of a decrease in
advertising spending from $4,939,000 in 1995 to $1,937,000 in 1996, as well as a
reduction in corporate sponsorships from $866,000 in 1995 to $403,000 in 1996.
Advertising spending was high in 1995 as a result of efforts to promote the La
Victoria Thick 'N Chunky Salsa product line. In addition, La Victoria reduced
salaries and commissions paid to sales personnel by $542,000. These decreases
were partially offset by increases in market development funds and promotional
allowances by approximately $300,000 as well as a discretionary bonus paid to
senior management/shareholders of $550,000 in 1996. No comparable bonus was paid
in 1995.

Other Expenses. Other expenses, primarily interest, were $905,000 in 1996
compared to $844,000 for 1995, an increase of $61,000, or 7.2%. As a percentage
of net sales, other expenses increased from 2.0% for 1995 to 2.3% for 1996.
During 1996, La Victoria extended two facility leases with its shareholders that
resulted in the leases being classified as capital leases. As a result interest
expense increased by $238,000. This increase was offset by a decrease in rent
expense included in cost of sales. See "Certain Transactions -- Tanklage Lease
Arrangements." Other interest expense decreased due to a reduction in debt
outstanding.

Taxes. Taxes for 1996 were $979,000 compared to a tax benefit of $81,000
for 1995, an increase of $1,060,000. This increase in taxes was primarily
attributable to the increase in earnings for 1996 as compared to 1995.

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<PAGE> 33

Net Income. For the reasons described above, net income improved from a
loss of $309,000 for 1995 to $1,379,000 for 1996, an increase of $1,688,000. As
a percentage of net sales, net income improved from a loss of 0.7% in 1995 to a
profit of 3.5% in 1996.

VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY

La Victoria experiences a minimal degree of seasonality in its sales. La
Victoria's cash flow is affected by costs incurred seasonally as a result of
increased production costs associated with the peak tomato harvest, when La
Victoria currently packs the majority of its products. In terms of sales, minor
increases in salsa and Mexican sauce sales normally occur during the fall and
winter months. La Victoria believes that the relative inelasticity of demand for
grocery products is an insulating factor against material fluctuations in La
Victoria's sales levels.

LIQUIDITY AND CAPITAL RESOURCES

La Victoria's working capital requirements have decreased substantially
since the fiscal year ended May 31, 1994 because of lower discretionary spending
and improved operating efficiencies. Indebtedness, which had increased as a
result of the more than $4 million refurbishment and expansion of its main
production facility in 1993 and 1994, has greatly decreased.

In order to finance its facility refurbishment and expansion, La Victoria
borrowed $5,500,000 in October 1993 on an unsecured basis (the "La Victoria Term
Loan"). The La Victoria Term Loan carries an interest rate of 6.48% per annum.
Under the agreement that governs the La Victoria Term Loan, La Victoria is
required to pay monthly installments of $91,667, plus interest, through October
1998. As of May 31, 1997, the outstanding principal balance on the La Victoria
Term Loan was $1,558,000. The La Victoria Term Loan agreement includes covenants
requiring the maintenance of certain financial ratios and minimum tangible net
worth. These financial covenants have the effect of restricting LaVictoria's
payment of dividends. La Victoria was not in compliance with the cash flow
coverage requirement for the year ended May 31, 1997 and has obtained a waiver
from the bank of this covenant.

La Victoria has traditionally maintained a working capital facility with a
bank in order to fund seasonal requirements associated with the purchase of its
raw materials and production of its products. La Victoria produces its salsas
and Mexican sauces using fresh ingredients, including tomatoes. As a result, its
production is at approximately 80% of capacity during the harvesting season
(approximately June through November). During that time, La Victoria produces
substantially all of its salsa products required until the next harvesting
season. During the off season, La Victoria produces other types of products and
operates its facility at approximately 15% of capacity. As a result of the
seasonality of its production, La Victoria's cash needs are greater during and
immediately after the production season. La Victoria has entered into an
agreement with a bank for a $3,000,000 unsecured line of credit (the "La
Victoria Line of Credit"). Interest on the La Victoria Line of Credit is at the
bank's prime rate (8.50% at May 31, 1997) or at LIBOR (5.77% at May 31, 1997),
plus 2%, at La Victoria's option. As of March 31 and May 31, 1997, the Company
had $3 million available under the La Victoria Line of Credit. The La Victoria
Line of Credit expires in September 1997. The agreement contains similar
covenants to those in the La Victoria Term Loan agreement.

La Victoria entered into various note payable agreements with related
parties, including shareholders, to finance working capital and capital
improvement projects in 1994. In addition to these "on demand" borrowings, La
Victoria historically has borrowed other funds from related parties on a
long-term basis to finance short-term working capital requirements. There were
no amounts outstanding under these note agreements at May 31, 1997.

La Victoria also has entered into three facility lease agreements with
related parties, which have been classified as capital leases. Accordingly, a
liability under these leases of $5,809,000 was recorded as of May 31, 1997. The
leases require minimum monthly payments that total $90,000 over the remaining 14
year term of the agreements. In addition, the leases require adjustment for
increases in the Consumer Price Index (the "CPI") every five years. The next
scheduled increase is to occur in August 2000. La Victoria's management

32
<PAGE> 34

believes these facilities are sufficient for their needs for the foreseeable
future. See "Certain Transactions -- Tanklage Lease Arrangements."

The La Victoria Contribution and Exchange Agreement provides that La
Victoria will pay a dividend of $4 million immediately prior to the La Victoria
Acquisition, 50% of which will be paid to Mr. Tanklage and the remaining 50% of
which will be paid to LV Foods and will be used to repay a portion of the La
Victoria Shareholder Note. La Victoria anticipates that this payment will be
made from existing cash balances and operating cash flow.

Net cash provided by operating activities for the year ended May 31, 1997
decreased from $5,235,000 in 1996 to $2,039,000 in 1997, a decrease of
$3,196,000, or 61%. This was primarily attributable to a $986,000 reduction in
net income along with a decrease in working capital requirements of $1,644,000
compared to a decrease in working capital requirements in 1996 of $3,856,000.

Net cash provided by investing activities for the year ended May 31, 1997
increased from a loss of $101,000 in 1996 to $320,000 in 1997, an increase of
$421,000, or 418%. This was primarily attributable to La Victoria's collecting
$340,000 on a note receivable from an officer. In addition, cash paid for the
purchase of equipment decreased approximately $100,000.

Net cash used in financing activities increased from $1,512,000 in 1996 to
$2,637,000 in 1997, an increase of $1,125,000, or 74%. This was primarily
attributable to the pay-off of related party notes of approximately $1,300,000.

ENVIRONMENTAL MATTERS

La Victoria has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), for the cleanup of contamination from hazardous
substances at the South El Monte Operable Unit of the San Gabriel Valley
Superfund Site. La Victoria does not believe that its ultimate liabilities in
relation to the site will have a material effect on its financial position;
however, it is not possible to determine the ultimate environmental liabilities,
if any, that may arise from this matter. See "Business -- Legal Proceedings."

INFLATION AND CHANGES IN PRICES

The cost of ingredients (e.g., tomatoes, peppers, onions) for products La
Victoria manufactures rises and falls in line with their value in the commodity
markets. La Victoria endeavors to insulate itself from wide variations in prices
by entering into supply contracts on an annual basis. Generally, increases in
raw material costs are recovered with periodic product price increases.

33
<PAGE> 35

BUSINESS

INTRODUCTION

Calidad sells branded and private label tortillas and tortilla chips, as
well as branded cheeses, meats and shelf-stable products (including spices,
salsas and peppers) primarily to grocery stores in Texas and certain adjacent
states. Calidad provides retailers with an extensive line of quality products
under a comprehensive service program through which Calidad's direct store
delivery ("DSD") salespersons can manage substantially all of a customer's
Mexican food category. The strength of the Calidad brand name (which means
"Quality" in Spanish), its comprehensive service program and the breadth and
quality of its product line have enabled Calidad to achieve significant market
penetration of stores in North Texas, including the Dallas/ Ft. Worth metroplex,
one of the largest Mexican-American population centers in the country. Calidad's
tortillas and tortilla chips are manufactured daily in a 70,000 square foot
facility in Grand Prairie, Texas, which is located in the Dallas/Ft. Worth
metroplex. The Company also purchases other products manufactured by third
parties for distribution under the Calidad brand and other brand names.

La Victoria sells a wide variety of branded salsas and other Mexican sauces
primarily to grocery stores in California and certain other western states.
Founded in 1917, La Victoria believes it has significant market share in the
"hot" end of the salsa and Mexican sauce category. Although La Victoria is a
regional brand, it outsells a number of national brands in several western
states in both taco sauces and salsas. In addition, La Victoria sells its
products in the food service market on a branded and private label basis and to
warehouse clubs on a branded basis. Food service sales consist primarily of
sales to restaurants and wholesale restaurant suppliers. Generally, La
Victoria's products are delivered to a retail customer's warehouse or
distribution facility rather than directly to a customer's retail outlets. La
Victoria manufactures substantially all of its products in a 112,000 square foot
production and warehouse facility located in Rosemead, California, a suburb of
Los Angeles.

INDUSTRY BACKGROUND

Growing Popularity of Mexican Food Segment. The Mexican food segment is one
of the largest and fastest growing categories within the domestic food industry,
and this trend is expected to continue. According to Packaged Facts (1995),
nearly $2.4 billion of Mexican food (excluding tortilla chips) was consumed in
the United States in 1994, and this category is expected to grow to over $3.5
billion by 1999, a compound annual growth rate of 8%. Tortillas are a staple in
the Mexican-American diet as they are served like bread and are used in many
Mexican-style dishes.

As reported by Packaged Facts, the Mexican sauce industry, which includes
salsas, picante sauces, taco sauces and enchilada sauces, is estimated to have
achieved $1 billion in annual sales in 1995 and is projected to grow at a
compound annual growth rate of approximately 11% through 1999. According to
Supermarket Business, sales of Mexican sauces in 1995 increased over 7.3% from
1994 sales levels, compared to year-to-year growth of approximately 4.5% for the
condiment category as a whole. Moreover, also according to Supermarket Business,
in 1995 U.S. consumers purchased approximately 30% more Mexican sauces than
ketchup.

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<PAGE> 36

Growing Mexican-American Population. The Company targets Mexican-American
consumers, an increasingly important part of the U.S. population. According to
estimates by CACI Marketing Systems, Hispanics comprised 10.4%, 29.7% and 29.1%
of the total United States, California and Texas populations, respectively, in
1996. From 1990 to 1996, the overall populations in the United States,
California and Texas are estimated to have grown at an average annual rate of
1.0%, 1.1% and 1.9%, respectively, and the Hispanic populations of each are
estimated to have grown at an average annual rate of approximately 3.3%. The
U.S. Census Bureau has estimated that in 1996 there were 27.2 million Hispanics
living in the United States. Of this amount, approximately 64% were of Mexican
descent or origin. Although the Company is not aware of any separate statistics
with respect to the growth of the Mexican-American portion of the Hispanic
population, management believes that the growth of the Mexican-American
population is consistent with that of the Hispanic population in general,
particularly in the Company's current primary marketing areas of Texas and
California.

Six of the top ten Hispanic markets in the U.S. are in the Company's
marketing areas: Dallas/Ft. Worth, Los Angeles, San Francisco, Houston, San
Antonio and McAllen-Brownsville. Furthermore, these markets comprise
approximately 39% of the total U.S. Hispanic population. Management believes
that the demographic trends within the Mexican-American population, including
absolute growth in numbers and relative growth in purchasing power, will create
market opportunities for companies targeting this growing demographic group.

Shopping and Dining Characteristics. The Company focuses its marketing
efforts on Mexican-American consumers, who generally exhibit shopping and dining
characteristics that distinguish them from non-Hispanic consumers and make them
attractive target consumers. A number of grocery store chains, such as Carnival
and Danal's in the Dallas/Ft. Worth metroplex and Fiesta in Houston,
specifically cater to the preferences of the Mexican-American consumer.
Non-Hispanic grocery store chains have also realized the importance of
attracting Mexican-Americans to their stores. Grocery store chains believe that
a strong selection of Mexican food products will encourage repeat shopping by
these high frequency shoppers and will foster sales of other products throughout
a store. The Company believes that its marketing strategy of providing an
extensive line of Mexican food products appeals to both Mexican-American and
non-Hispanic grocery stores.

Management believes that the Company also benefits from the increasing
popularity of Mexican food products among the general population described above
and that it is well-positioned to take advantage of the expected continued
growth in the Mexican-American population.

BUSINESS STRATEGY

The Company's objective is to expand its position as a leading provider of
an extensive line of Mexican food products primarily to Mexican-American
consumers. In order to achieve this objective, the Company's strategy is to (i)
improve the operations of Authentic Specialty Foods in the areas of product
development, merchandising, production, distribution and sales; (ii) acquire
Mexican food manufacturers or brands in areas with large, growing
Mexican-American populations and utilize the skills and experience of the
management team to integrate and improve the operations of these newly acquired
companies; (iii) expand the Company's geographic markets and increase
distribution of the Company's products in its existing markets; and (iv)
continue to add new products and brands to the Company's existing line of
products.

Integration and Improvement of La Victoria. Management believes it can
execute a number of operational improvements at La Victoria, including reducing
certain operating expenses, particularly marketing expenditures. Additionally,
the Company plans to gradually shift production of selected products from fresh
to processed tomatoes, which can be purchased throughout the year. La Victoria
currently manufactures the majority of its products with fresh vegetables during
the four to six month tomato harvest in California. Management intends to
implement this change only with respect to those La Victoria products where the
taste or quality of these products will not be affected by the change.
Management believes this production shift will increase manufacturing
efficiency, expand useful plant capacity and reduce working capital
requirements. Additionally, the Company intends to implement new sales and
marketing initiatives, including increasing in-store marketing, introducing new
sizes and packages for non-grocery sales channels and introducing La Victoria
products in selected new markets. The Company also believes it can integrate
certain activities of

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Calidad and La Victoria by (i) offering La Victoria's products through the
Calidad distribution system and (ii) selling other Mexican sauces produced by La
Victoria under the Calidad brand name in Calidad's markets.

Acquisition Opportunities. Following the completion of this Offering, the
Company will be poised for internal growth and to take advantage of acquisition
opportunities in the highly fragmented Mexican food industry. The Company
intends to pursue strategic acquisitions of Mexican food manufacturers or brands
in market areas with significant Mexican-American populations. Management has
extensive experience in the food industry and intends to utilize its expertise
to improve the operating efficiencies and to expand the sales of Authentic
Specialty Foods and any companies acquired in the future. The Company believes
that its relationship with Shansby, which has significant experience in
acquiring and improving branded consumer product companies, will be beneficial
to its successful implementation of this strategy. See "The Shansby Group" and
"Certain Transactions -- Shansby Partners Advisory Agreement."

Market Expansion. The Company intends to continue to grow in its current
geographic markets by expanding sales with its existing customers and by adding
new customers. A number of grocery store chains in the southwest have
specifically designed their operations to cater to the Mexican-American
consumer. Many grocery store chains have special areas or displays in their
stores with an extensive selection of Mexican food products to attract
Mexican-American consumers and encourage repeat shopping. Generally, the Company
has sold more products and captured additional shelf space as the Company's
customers have recognized the growing demand for Mexican food and tailored their
operations to appeal to Mexican food consumers.

New Product Developments. Because of the strength of the Calidad brand in
its markets, Calidad has been able to introduce new products that have
contributed to the growth of Calidad's business. Within the last three years,
Calidad has broadened its product line by approximately 60 stock keeping units
("SKUs"), including Calidad branded Tipo Casero (or "home style") tortillas, a
thicker tortilla product, a variety of shortening products used in traditional
Mexican cooking, restaurant-style chips packaged in a 40-ounce bag and fat-free
flour tortillas. Management believes that these recently-introduced products (as
well as other new products that are currently under development but that have
not yet been announced) are logical extensions of the Company's existing product
lines. The Company intends to continue to develop new products for Calidad and
to identify selected new products for La Victoria.

PRODUCTS AND BRANDS

As a result of the La Victoria Acquisition, the Company has expanded its
already extensive line of Mexican food products. The Company has two separate
brands -- Calidad(TM) and La Victoria(TM) -- both of which are recognized for
high quality products and well-accepted by Mexican-American consumers. Under the
Calidad brand, the Company sells branded and private label tortillas and
tortilla chips, as well as branded cheeses, meats and shelf-stable products
(including spices, salsas and peppers). Under the La Victoria brand, the Company
sells a wide variety of branded salsas, taco sauces and other Mexican sauces and
specialty items (such as jalapenos, tomatillos, cheese sauce and refried beans).
The Company offers a variety of products to capitalize on consumers' preferences
for different types of Mexican food products. The Company believes that the
Calidad and La Victoria products have gained wide acceptance in the
Mexican-American population in their respective geographic markets.

Calidad. Calidad's two primary products are tortillas and tortilla chips.
Tortillas are traditional Mexican flat bread made from wheat flour or corn flour
(known as "masa"). They are used in all aspects of Mexican cuisine, are served
like bread and are cooked with many Mexican dishes. Tortilla chips are also made
from masa and are often served with soups and salsas and eaten as a snack. In
addition to distributing these products under the Calidad brand, Calidad also
manufactures and distributes these products on a private label basis for larger
grocery store chains. The Company believes that offering certain of its products
on a private label basis expands the market for Mexican food products generally
and gives the Company a competitive advantage for shelf space over other
suppliers of Mexican food products.

The Company sells a variety of cheese and meat products under the Calidad
brand and other brand names. Calidad's cheese products include a variety of
ethnic cheeses, and the meat products include chorizo

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(a Mexican-style sausage) and tamales (corn meal stuffed with beef, pork or
chicken). These products are manufactured by third parties and distributed by
Calidad. Approximately half of these products are distributed under the Calidad
brand name, and the remainder are distributed under the original brand name.
Calidad distributes certain of these products under the manufacturer's brand
name because of their significant recognition within the Mexican-American
community.

Calidad also packages and sells a wide variety of spices that are used in
Mexican cuisine, including cayenne pepper, chili powder, chili peppers and
cinnamon. Calidad's spices are packaged in small packets that the Company
believes appeal to the Mexican-American consumer. Calidad distributes these
products primarily under the Calidad brand and also on a private label basis.

Shelf-stable products, such as salsas, peppers, fruit drinks and cheese
sauces are obtained from Mexican, national or regional producers and distributed
by Calidad. Approximately half of these shelf-stable products are distributed
under the Calidad brand, and the remainder are distributed under the
manufacturer's brand name. Certain products in this group carry the lowest gross
margins of Calidad's product line, but are essential to the Company's strategy
of providing an extensive line of Mexican food products.

La Victoria. La Victoria markets salsas with a wide variety of tastes, heat
levels and container sizes. Salsas are used for dipping with chips, as a
condiment or as an ingredient in cooking a number of Mexican food dishes. La
Victoria sells its salsas under a variety of descriptive names in order to
emphasize the distinctive character of their ingredients. Examples of these
varieties are Salsa Suprema, Thick 'N Chunky Salsa, Salsa Brava, Green Chili
Salsa and Salsa Victoria. Each of the La Victoria brand salsas contain different
combinations of vegetables (chili peppers, diced onions, jalapenos and garlic)
in a green or red tomato-based sauce.

One of La Victoria's more established products is taco sauce. La Victoria
has manufactured and marketed at least one variety of taco sauce for almost 50
years and continues to be a market leader in this category in the western United
States. La Victoria also markets enchilada sauce, a mild sauce made from fresh
and dehydrated California and Pasilla chili pods. Beyond use with enchiladas, it
is marketed as a condiment for chili, soup and tamales.

La Victoria also sells a variety of specialty items under the La Victoria
brand, such as whole and nacho-sliced jalapenos, crushed tomatillos, refried
beans, cheddar cheese sauce and nacho cheese sauce (which is spiced with
jalapenos). Some of La Victoria's specialty items are produced under separate
one-year agreements with third party manufacturers. These agreements, also known
as co-packing arrangements, are renewable at the Company's option.

SALES AND MARKETING

The Company's combined market area after this Offering will encompass the
southwest and western regions of the United States, particularly Texas and
California. Upon completion of this Offering, the Company intends to explore the
expansion of its marketing area to other geographic areas with existing and new
customers, additional distributor relationships and through acquisitions.

Calidad. Calidad's marketing area currently encompasses locations within
Texas, Arkansas, Louisiana and Oklahoma. Given the Company's historically
limited financial resources, management has focused primarily on distribution
within North Texas, including the Dallas/Ft. Worth metroplex.

Calidad has targeted grocery store chains, independent retail food outlets
and individual retailers that wish to appeal to the growing Mexican-American
community. Calidad is able to approach retail outlets with a comprehensive
full-service program for managing substantially all of a store's Mexican food
category. Under its category management program, Calidad provides an extensive
line of quality Mexican food products, and utilizing its DSD system, delivers
these products to the store and stocks the store's shelves. Generally, Calidad
attempts to gain shelf space for all of its products in each of its customer's
stores. In those circumstances when this is not possible, Calidad often utilizes
one product in order to gain access to shelf space and, through its commitment
to service and quality, continues to add to the product line it supplies.
Calidad believes that its

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category management capabilities enable Calidad to enter new markets where
retailers are seeking strategies to target the Mexican-American consumer.

Calidad spends the majority of its marketing funds reinforcing the image of
the Calidad brand as a Mexican food brand that appeals primarily to
Mexican-Americans. Calidad does this primarily through performance-based
promotional plans. These performance plans typically require the retailer to
provide equal or partial participation in costs associated with displays,
temporary price reductions, advertising and coupons. For example, Calidad's
customers will often run photographs of Calidad's products in their weekly,
biweekly and monthly circulars. Calidad also runs promotions in conjunction with
Mexican-American holidays, such as Cinco de Mayo.

La Victoria. La Victoria's market is focused primarily on California and
adjacent western states with limited distribution in the central United States.
In recent years, La Victoria's management has concentrated on its existing
markets and discontinued sales in regions that have traditionally been less
profitable.

La Victoria targets primarily grocery store chains, independent retail food
outlets and individual retailers. In addition, La Victoria sells its products in
the food service market on a branded and private label basis and to warehouse
clubs on a branded basis. In general, La Victoria's approach to retailers has
differed from Calidad's in that La Victoria offers a more focused product line,
concentrated on Mexican sauces and salsas.

La Victoria employs a variety of marketing methods to support sales,
including advertising, coupons and minimal in-store promotions and displays.
Historically, La Victoria's strategy has been to market broadly the La Victoria
brand rather than to focus on a specific product. However, in 1993 and 1994, La
Victoria focused its marketing efforts and expenditures on the introduction of
its line of Thick 'N Chunky Salsa. Management believes its efforts in
introducing this line of salsa created valuable exposure for the La Victoria
brand. La Victoria focuses its marketing efforts around several key events,
including the Super Bowl and Mexican-American holidays. As described under
"-- Business Strategy -- Integration and Improvement of La Victoria," the
Company intends to increase La Victoria's use of in-store marketing after the La
Victoria Acquisition.

DISTRIBUTION

Calidad. Calidad's products are distributed through an integrated,
computerized DSD system. The DSD system utilizes Calidad's employees in the
Dallas/Ft. Worth and San Antonio market areas, and independent distributors
outside of these markets. Through its DSD system, Calidad has established
rapport with its customers and built strong relationships at the retail level.
In addition, Calidad's frequent visits to customers served by its DSD system
provide valuable information with respect to its products, competition,
consumers' shopping habits, product positioning, marketing effectiveness,
pricing and relative shelf space.

Calidad provides its grocery store customers a comprehensive full-service
category management program. Under this program, Calidad manages substantially
all of a grocery store's Mexican food category by providing an extensive line of
quality Mexican food products, delivering these products to the store, stocking
the store's shelves and removing out-of-date or spoiled products. DSD
salespersons are generally scheduled to visit their customers from two to seven
times per week. DSD salespersons leave Calidad's facility early each morning on
predetermined routes, equipped with hand-held computers, portable printers and a
broad selection of Calidad's products. Nightly, when salespersons return to
Calidad's main distribution facility, all deliveries and orders are downloaded
into Calidad's main computer system. This information is electronically
disseminated to the proper department for invoicing, collection and production
scheduling.

Calidad owns or leases 26 DSD vehicles and manages its DSD system from
Calidad's manufacturing and distribution facility. Although Calidad's DSD system
is generally administered in the same manner regardless of whether the
salesperson is a Calidad employee or an independent distributor, there are
certain differences between the two groups. Independent distributors are
utilized by Calidad to target more distant and less concentrated markets. These
distributors are effective in introducing Calidad's products on either a branded
or private label basis and are required to provide services that are similar to
those provided by Calidad's DSD employees in their market areas. In contrast to
Calidad employees, independent distributors own or lease their

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own vehicles. These distributors are also responsible for any returns of
Calidad's products. Distributors are compensated on a commission basis that
equates to a higher percentage of gross sales than that earned by Calidad's
employees. Almost all distributors are linked by modem to Calidad's computer
system. The Company believes that Calidad's computer-enhanced distribution
system distinguishes Calidad from many of the other participants in the Mexican
food industry.

La Victoria. Generally, in California and the western United States, La
Victoria's products are distributed directly to retailers' warehouses and
through wholesalers for distribution to independent grocery stores. Unlike
Calidad, La Victoria does not utilize a DSD system. The majority of La
Victoria's distribution outside of California is serviced by public warehouses
located in customers' markets which are regularly supplied with La Victoria's
products based on orders. La Victoria owns or leases eight vehicles and delivers
its products to its distributors' and customers' warehouses from its
distribution facilities. Certain customers located in close proximity to La
Victoria's facilities frequently obtain product directly from La Victoria's main
distribution facility, utilizing their own vehicles.

Finished products are stored temporarily at the production facility before
being transferred to the 170,000 square foot distribution center in City of
Industry, California. The products are stored in the main distribution center
until they are delivered to a customer or trucked by common carrier to La
Victoria's seven regional distribution centers. Co-packed shipments are trucked
from the co-packer's plant to La Victoria's City of Industry distribution center
or one of the regional warehouses. La Victoria uses public warehouses, which
serve as regional distribution centers, in Clackamas, Oregon (near Portland);
Salt Lake City, Utah; Billings, Montana; Aurora, Colorado (near Denver); El
Paso, Texas; Itasca, Illinois (near Chicago); and Tampa, Florida.

CUSTOMERS

Calidad. Calidad's customer base includes major grocery stores, independent
food chains and individual retailers. In the past, this base has been quite
stable, with little turnover. Since the acquisition of the Company by Shansby
and the installation of the existing management team, Calidad's customer base
has expanded significantly both within and outside North Texas. Although it is
difficult for many food companies to obtain shelf space in retail outlets,
Calidad currently sells to over 160 grocery retailers and distributors, and
Calidad's products are on the shelves in an estimated 1,400 stores throughout
its marketing area. Among Calidad's customers are Minyard Food Stores, Sack 'n
Save, Carnival, Brookshire Grocery Co., Wal-Mart Stores, Inc., Winn-Dixie Texas,
Inc., The Kroger Co., Albertson's, Inc. and Tom Thumb Food Markets, Inc. Within
the food industry and, in particular, within the grocery store distribution
channel of the food industry, it is common practice for retailers to charge food
producers fees ("slotting fees") for new product placement. Slotting fees are
charged to offset the retailers' startup costs associated with the new item,
including the costs of setting up scan codes, printing shelf tags and resetting
shelves. In general, Calidad does not pay its customers slotting fees to sell
its products. Calidad paid less than $25,000 in slotting fees in 1996.

Sales to Calidad's top ten customers were $14.5 million in 1996, or 68.6%
of net sales, compared to $15.2 million in 1995, or 72.3% of net sales. Only
Minyard Foods accounted for more than 10% of Calidad's net sales during these
periods. The decrease in sales to the top ten customers resulted from the
discontinuation of sales of shelf-stable products to Minyard Foods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Authentic Specialty Foods, Inc." Most of Calidad's principal
customer relationships have been cultivated over a period of many years. In many
cases, Calidad's relationships were established when retailers became aware of
the importance of Mexican-American consumers within their markets and began to
contemplate an appropriate service strategy.

Minyard Foods accounted for 27.6% of Calidad's net sales during 1996.
However, Minyard Foods actually consists of three separate operating divisions:
Minyard Food Stores, Sack 'n Save and Carnival. During 1996, Minyard Food Stores
accounted for $1.46 million of Calidad's net sales (6.9%), Sack 'n Save
accounted for $2.5 million (11.6%) and Carnival accounted for $1.9 million
(9.1%). Calidad has a separate relationship with each of these three divisions,
which are operated somewhat autonomously and have different target consumers.
See "Risk Factors -- Dependence on Key Customers."

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La Victoria. La Victoria sells its products primarily to major grocery
stores, independent retail food outlets, individual retailers and wholesalers.
La Victoria currently has over 800 retail accounts and 200 food service
accounts, and La Victoria's products are sold by an estimated 7,500 stores and
distributors throughout its marketing area. Among La Victoria's customers are
Safeway, Lucky, Albertson's, Inc., Vons Grocery Company and Ralph's Grocery. In
fiscal 1996, La Victoria's top ten customers accounted for approximately 50% of
its total net sales. For the year ended May 31, 1997, American Stores Company
and Safeway, Inc. accounted for 10.0% and 12.9% of La Victoria's net sales,
respectively. La Victoria paid approximately $195,000 for new distribution and
slotting fees in the fiscal year ended May 31, 1997.

La Victoria also sells its products to food service customers, such as
Sysco Corp. and Denny's, Inc. Relationships with other types of customers,
primarily warehouse clubs and private label programs, are currently managed
internally by La Victoria's regional sales managers. While these customers have
traditionally represented a relatively small amount of La Victoria's total
sales, La Victoria's management believes that the expansion of these categories
could provide an area of future growth for La Victoria.

TRADEMARKS

Calidad. The Company believes that its Calidad logo, which features two
traditional Mexican dancers, is an important part of its efforts to appeal to
the Mexican-American consumer. Substantially all of Calidad's products bear a
green, yellow and red Calidad logo, but a few items have a blue, red and white
Calidad logo to differentiate the product type. The logo on all of Calidad's
products features the types of bright colors to which the Mexican-American
consumer is accustomed, and the picture of the dancers is reminiscent of images
from Mexico. The word "Calidad" means "Quality" in Spanish, and Calidad has
incorporated the phrase "Our Name Means Quality" into its logo. In order to
reinforce brand identity and underscore Calidad's ability to provide an
extensive line of Mexican food products, the Company's products can be found
throughout a store in a variety of food categories and are easily identified by
the Calidad logo that is incorporated across all product line packaging. The
Company has obtained federal registration for the trademarks contained in the
logo. The Company has successfully defended its trademark in the past against
one food company that had attempted to use it and plans to continue to defend
its trademark in the future.

La Victoria. La Victoria has a number of important trademarks and
copyrights, including La Victoria, Salsa Brava(TM), Salsa Suprema(TM),
Suprema(TM), Victoria(TM), Mexican Kitchen(TM) and a thermometer, which clearly
indicates to the consumer the heat level of each product (mild, medium, hot or
extra hot). La Victoria uses the slogans "When you're ready for real salsa" and
"Food secrets of Mexico" on many of its labels and in its advertisements. La
Victoria redesigned its labels in 1993 and its jars in 1994 in an effort to
provide its consumers with more information on an individual product's
ingredients and to make the La Victoria brand more recognizable and consistent
throughout its product line. Each container's label is clearly marked with the
La Victoria logo, a depiction of the product's ingredients and the trademarked
thermometer. La Victoria has successfully defended its trademark in the past and
plans to continue to defend its trademark in the future.

MANUFACTURING AND FACILITIES

Calidad. Calidad manufactures tortillas and tortilla chips at its modern
facility in Grand Prairie, Texas, which is located in the Dallas/Ft. Worth
metroplex. Calidad spent an aggregate of $3.1 million in 1995 and 1996 to move
to the facility and to expand its production and distribution capabilities. The
70,000 square foot facility has six tortilla production lines and two tortilla
chip lines. At the facility, Calidad also repackages bulk spices into smaller
packaging that is designed to appeal to Mexican-American consumers. Calidad
employs approximately 90 production personnel at the facility and currently
operates on a two-shift basis, five days per week. Management believes that
Calidad's existing production facility has ample capacity for tortilla and
tortilla chip production to support the Company's expansion efforts for the
foreseeable future and subsequently realize additional operating leverage and
efficiencies.

Calidad leases its Grand Prairie facility under a three-year sublease that
is scheduled to expire in August 1999, with an annual rental rate of
approximately $175,000. The sublease may be renewed at the option of the Company
for an additional six-year term at the fair market value on the date of renewal.

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Management expects Calidad's production efficiencies to improve and costs
to decline as this available production capacity is utilized. If the production
lines were to be run on a three shift, six-day work week, management believes
that current tortilla chip production would be at approximately 30% of total
capacity; corn tortilla production would be at approximately 50% of total
capacity; and flour tortilla production would be at approximately 50% of total
capacity.

Calidad does not manufacture all of its branded products. As of June 30,
1997, approximately 34% of Calidad's branded products were manufactured by third
parties under co-packing arrangements. Products offered by Calidad but produced
under co-packing arrangements include: canned peppers, picante sauce, salsa,
nacho cheese sauce, sweet breads, pork skins, chorizo, cheese, dried beans, taco
shells, tostada shells, ice pops, tamales, gelatin and chili con queso.

La Victoria. With the exception of co-packed products, all of La Victoria's
production is conducted at its production and warehouse facility in Rosemead,
California, a suburb of Los Angeles. The Rosemead facility consists of a total
of approximately 112,000 square feet, including approximately 61,000 square feet
of production space and approximately 51,000 square feet of warehouse space. La
Victoria leases its Rosemead production and warehouse facility under two
separate leases with affiliates of La Victoria. The 61,000 square foot
production facility is leased through July 2010 at lease rates that escalate
based upon changes in the CPI every five years. The annual lease payment is
approximately $214,000, and the next CPI escalation will occur in August 2000.
The 51,000 square foot warehouse facility is leased through July 2010 at lease
rates that escalate in accordance with the CPI every five years. The annual
lease payment is approximately $262,000, and the next CPI escalation will occur
in August 2000. During 1993 and 1994, La Victoria completed a capital
improvement program in the Rosemead facility, investing in excess of $4 million
over two years.

The Rosemead facility currently operates seasonally, as the majority of La
Victoria's products are manufactured with fresh vegetables during the four to
six month tomato harvest in California. During the harvest season, La Victoria
operates at or near capacity to fresh pack the vast majority of its tomato based
products. If La Victoria were to utilize processed tomatoes and operate two
shifts for 5 days per week for 52 weeks, the Rosemead facility would operate at
approximately 29% of capacity at current production levels. Although the
Rosemead facility has three production lines, La Victoria rarely runs all of
them simultaneously. La Victoria believes it could efficiently, and with little
capital expense, support significant additional production of Mexican sauces at
the Rosemead facility with its existing equipment.

Finished products are stored temporarily at the Rosemead facility before
being transferred to La Victoria's approximately 170,000 square foot warehouse
and distribution center in City of Industry, California. The City of Industry
facility is leased through July 2010 at lease rates that escalate according to
the CPI every five years. The annual lease payment is approximately $860,000,
and the next CPI escalation will occur in August 2000. See "Certain
Transactions -- Tanklage Lease Arrangements."

COMPETITION

Although the Company believes that its ability to supply a broad product
line and its category management skills are unique in the Mexican food industry,
the Company faces significant competition in each of the components of its
product line. Many of these competitors are larger, more established and better
capitalized than the Company.

Calidad competes against national and local companies in the manufacture
and distribution of tortillas and tortilla chips. Calidad's two most significant
competitors are Mission Foods Corporation, a subsidiary of Gruma S.A. de C.V.
("Mission"), and Bimar Foods Corporation, a subsidiary of Grupo Industrial
Bimbo, S.A. de C.V. ("Bimbo"). Both Mission and Bimbo are significant
participants in the southwestern region of the United States and are larger and
better capitalized than the Company. Mission produces primarily tortillas and
tortilla chips and is the most visible competitor in the Company's markets.
Bimbo entered the Texas market in 1995 with its acquisition of C&C Bakery and
formed a strategic alliance with Mrs. Baird's Bakeries, Inc. ("Mrs. Baird's"), a
third-generation family bread company with annual sales of approximately $250
million, to act as Bimbo's Texas distribution vehicle. Mrs. Baird's introduced
its tortillas to the North

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Texas market in July 1995. Mrs. Baird's has a full line of flour and corn
tortillas marketed under the Mrs. Baird's Texas Tortilla and Tia Rosa brand
names. Management believes that Mrs. Baird's provides a quality product but that
acceptance of the Mrs. Baird's Texas Tortilla and Tia Rosa brands among Mexican-
American families has been limited to date.

In addition to direct competition from manufacturers of Mexican food
products, certain snack food companies, such as Frito-Lay Inc., manufacture and
distribute tortilla chips and corn chips. Frito-Lay Inc., a national company
headquartered in Dallas, markets its products under several brands, including
Doritos(TM) and Tostitos(TM), among others. However, management does not believe
that snack food companies compete directly with Calidad because their products
are positioned as snack foods and are marketed primarily to non-Hispanic
consumers.

With regard to Calidad's refrigerated product category (i.e., meats and
cheeses), there is only one principal DSD distributor, Alamo Distributing
("Alamo"), in Calidad's major markets that competes in this product category.
Several of the Dallas/Ft. Worth grocery chains carry ethnic meats and cheeses
through their warehouse distribution system, but Calidad believes that it
provides superior service at the store level. In addition, several of the large
grocery distributors also handle meats and cheeses. Gourmet Award Foods also
competes with Calidad in the cheese category.

With respect to the spices that Calidad repackages and sells, Calidad
competes with Mojave Spice Co., Inc., DeLuna Spice Company and Fiesta Bolner
Spice Company.

With respect to Mexican food products that are distributed by Calidad under
other brands (such as salsas, peppers and other shelf-stable products), this
category is broad, with an array of products that are all produced by other
suppliers, and it generates less profitability than other categories. Competing
companies such as Fleming Companies, Inc., Gourmet Award Foods, Grocers Supply
and Cyclone Enterprises, Inc. carry similar products.

La Victoria. The Mexican sauce industry is highly competitive. In the
western United States, La Victoria primarily competes with Pace, Tostitos and
Old El Paso, and to a lesser extent, Ortega. These competitors are divisions of
the following major food companies: Campbell Soup Company, Frito-Lay Inc., The
Pillsbury Company and Nestle USA, Inc., respectively. Additionally, La Victoria
competes against smaller providers of Mexican sauces and against providers of
condiments in general.

GOVERNMENT REGULATION

Public Health. As a manufacturer and distributor of food products, the
Company is subject to the Federal Food, Drug and Cosmetic Act and regulations
promulgated thereunder by the Food and Drug Administration ("FDA"). This
comprehensive regulatory scheme governs the manufacture (including composition
and ingredients), labeling, packaging and safety of food. The FDA regulates
manufacturing practices for foods through its current good manufacturing
practices regulations, specifies the standards of identity for certain foods,
including many of the products sold by the Company, and prescribes the format
and content of certain information required to appear on food products labels.

In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. The Company and
its products are also subject to state and local regulation through such
measures as the licensing of manufacturing facilities, enforcement by state and
local health agencies of state standards for the Company's products, inspection
of the Company's facilities and regulation of the Company's trade practices in
connection with the sale of its products.

To monitor product quality, the Company maintains quality control programs
to test products during various processing stages. Management believes that the
Company's production and storage facilities and manufacturing practices comply
with applicable government regulations.

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Employee Safety Regulations. The Company is subject to certain health and
safety regulations issued pursuant to the Occupational Safety and Health Act.
These regulations require the Company to comply with certain manufacturing,
health and safety standards to protect its employees from accidents.

Environmental Regulations. The Company is subject to certain federal, state
and local environmental regulations regarding the discharge of wastewater and
other environmental matters. Management does not expect environmental compliance
to have a material impact on the Company's capital expenditures, earnings or
competitive position in the foreseeable future. See "-- Legal Proceedings."

EMPLOYEES

Calidad. As of June 30, 1997, Calidad had approximately 155 employees. Of
this total, 66% were hourly, 19% were salaried and 15% were compensated on a
commission basis. Calidad's management considers Calidad's relationship with its
employees to be good. None of Calidad's employees are represented by unions.

La Victoria. As of June 30, 1997, La Victoria had 108 employees, 83 of whom
were hourly employees and 25 of whom were salaried employees. La Victoria
supplements its workforce with hourly workers on a seasonal basis. La Victoria's
peak demand for seasonal employees occurs from June to November, when fresh
tomatoes are harvested in California and La Victoria packs the majority of its
product. During the four to six month packing season, La Victoria employs an
average of an additional 80 to 90 hourly employees. See "-- Business
Strategy -- Integration and Improvement of La Victoria." La Victoria's hourly
employees are subject to a collective bargaining agreement with the United
Industrial Workers, Service, Transportation, Professional and Government of
North America, SIUNA, AFL-CIO. La Victoria has had a collective bargaining
agreement with this union since 1969. The current agreement went into effect on
March 1, 1997 and expires on February 29, 2000. La Victoria has never
experienced a strike or any other type of work stoppage. La Victoria's
management believes that La Victoria's relationship with its employees is good.

LEGAL PROCEEDINGS

In March 1995, La Victoria and F.M. Roberts & Company, Inc. ("F.M.
Roberts") entered into an engagement letter in connection with a possible sale
of La Victoria. This engagement letter was amended by the parties on March 28,
1996. On April 29, 1997, La Victoria received a demand letter from F.M. Roberts
claiming that, under the terms of this engagement letter, it is entitled to an
investment banking fee in the amount of $360,000 in connection with the
acquisition by LV Foods of its 50% beneficial ownership interest of La Victoria.
La Victoria believes that this claim is without merit and intends to vigorously
defend against such claim.

By letter dated April 13, 1995, the U.S. Environmental Protection Agency
("EPA") has identified La Victoria as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), for the cleanup of contamination from hazardous
substances at the South El Monte Operable Unit of the San Gabriel Valley
Superfund Site. La Victoria has completed a subsurface soil remediation of
solvents at its Rosemead facility, which is located within the San Gabriel
Valley. Under CERCLA, persons may be subject to joint and several liability for
cleanup costs.

The EPA has identified approximately fifty PRPs at the site. The EPA has
requested that La Victoria participate in the groundwater sampling program for a
remedial investigation and feasibility study. Based on the limited impact to
groundwater that appears to be related to La Victoria's Rosemead facility, La
Victoria declined to participate in the groundwater monitoring. Since that time,
La Victoria has received no further correspondence from the EPA. La Victoria
does not believe that its ultimate liabilities in relation to the site will have
a material effect on its financial position; however, it is not possible to
determine the ultimate environmental liabilities, if any, that may arise from
this matter.

The Company is also involved in routine litigation incidental to the
conduct of its business. There are currently no material pending legal
proceedings to which the Company is a party or to which any of its property is
subject.

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<PAGE> 45

THE SHANSBY GROUP

The Shansby Group, Shansby's initial investment partnership, was founded in
1987 by J. Gary Shansby and Charles H. Esserman to invest in branded consumer
products companies with strong growth potential. TSG International is a separate
investment partnership established in conjunction with The Shansby Group for
certain international transactions. Shansby manages approximately $120 million
of equity capital on behalf of its limited partners, which are largely pension
funds, corporations and high net worth individuals. Its general partners and
employees are former operating executives, management consultants and investment
bankers. As a result, Shansby is able to offer substantial operating, strategic,
financial and analytical support to its portfolio companies.

Shansby's initial investment in the food category was The Famous Amos
Chocolate Chip Cookie Corporation ("Famous Amos") in 1988. At the time of the
investment, Famous Amos had approximately $6 million in annual sales and
operating losses of over $200,000 per month. Famous Amos had super-premium
priced products, was in a number of unprofitable channels of distribution and
was involved in a number of legal disputes. Despite its drawbacks, Famous Amos
retained one of the strongest brands in the cookie and snack business and had
substantial consumer awareness, both in and outside of its distribution areas.
Shansby executed a number of strategic initiatives, including repositioning the
brand to a premium category, eliminating non-core businesses, replacing and
supplementing management and staff, settling legal disputes and reducing general
and administrative costs. As a result, Famous Amos increased annual sales to
over $70 million in 1992 with operating income in excess of $9 million. Shansby
sold the company in 1992, realizing a substantial gain on its investment.

Shansby's investments since 1994 include Arrowhead Mills, Inc., one of the
first natural and organic food manufacturers of grain-based products; DeBoles
Natural Foods, Inc., a manufacturer of natural and organic dried pastas; Dana
Alexander, Inc., a manufacturer of natural potato and assorted root vegetable
chips under the Terra Chip(TM) brand; Medtech Products, Inc., a seller and
marketer of 11 over-the-counter pharmaceutical brands, including Compound W(TM)
(wart remover), Heet(TM) (topical analgesic), Arthritis Pain Formula(TM)
(internal analgesic) and Momentum(TM) (back pain specific internal analgesic);
Kasper, Inc., a contract manufacturer of health and beauty aid products for
prestige brands; The Freestyle Group, a seller and marketer of sport watches
under the Freestyle(TM) brand; and LV Foods, the beneficial owner of 50% of La
Victoria. These investments were made by TSG2 L.P., Shansby's second investment
partnership, which was formed in August 1993.

The Company was purchased by Shansby's first investment partnership, which
was formed in 1987 with a stated life of 10 years. Accordingly, this partnership
is required to liquidate its investment in the Company during 1997, although the
life of the partnership may be extended by the general partner for up to two
additional one-year periods. However, except in connection with the Contribution
and Exchange Agreement (and only if the Offering is consummated), the Company is
not obligated to redeem or otherwise repurchase any of Shansby's shares. As
described under "The La Victoria Acquisition," Shansby, through TSG2 L.P., a
second investment partnership formed by Shansby, will receive 1,386,000 shares
of Common Stock in the La Victoria Acquisition (provided that the value of such
shares will not exceed $13,860,000). As a result, Shansby will remain a
significant shareholder of the Company following this Offering. See "Principal
Shareholders." In addition, upon the consummation of this Offering, Shansby
Partners will receive the Shansby Warrant, which is a five-year warrant to
acquire 350,000 shares of Common Stock at an exercise price (subject to
adjustment) equal to the price to public on the cover page of this Prospectus.
The Shansby Warrant may not be exercised until after the first anniversary of
the consummation of this Offering.

Pursuant to the Advisory Agreement with the Company, Shansby Partners, a
newly formed affiliate of Shansby, has agreed to provide certain advisory
services to the Company. These advisory services will include assisting the
Company in the development and pursuit of its strategic objectives, including
strategic acquisitions and operational improvements of the companies acquired.
There can be no assurance that alliance with Shansby will result in any
acquisitions other than the La Victoria Acquisition. See "Certain
Transactions -- Shansby Partners Advisory Agreement."

Mr. Shansby and Mr. Esserman are members of the Board of Directors of the
Company. See "Management."

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<PAGE> 46

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names, ages and titles of the current
directors and executive officers of the Company. As reflected in the table, the
Board of Directors is divided into three classes, with the terms of the
directors of each class expiring at the Company's Annual Meeting of Shareholder
as follows: 1998 (Class I), 1999 (Class II) and 2000 (Class III). The table also
includes information with respect to three individuals that the Company intends
to elect as directors at the time of the consummation of this Offering.

<TABLE>
<CAPTION>
YEAR TERM
DIRECTOR AS DIRECTOR
NAME AGE POSITION CLASS EXPIRES
---- --- -------- -------- -----------
<S> <C> <C> <C> <C>
Keith R. Lively...................... 46 Chief Executive Officer, Chairman of the III 2000
Board and Director
Herman L.("Bing") Graffunder......... 51 President and Director II 1999
Samuel E. Hillin, Jr................. 40 Chief Financial Officer -- --
J. Gary Shansby...................... 59 Director III 2000
Charles H. Esserman.................. 38 Director III 2000
Tim G. Bruer......................... 40 Director nominee II 1999
Charles A. Lynch..................... 69 Director nominee I 1998
Robert K. Swanson.................... 64 Director nominee I 1998
</TABLE>

Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.

Keith R. Lively, Chief Executive Officer, Chairman of the Board and
Director. Mr. Lively has worked as an advisor to several of Shansby's portfolio
companies since 1995, including the Company. Prior to this work, Mr. Lively
served as President, Chief Executive Officer and Director of Famous Amos. Mr.
Lively was appointed to his positions after Shansby purchased Famous Amos in
1988. Prior to joining Famous Amos, Mr. Lively was with Shamitoff Foods from
1987 to 1988 and previously, with MJB Coffee, a division of Nestle USA, Inc.,
where he worked from 1982 to 1986. Mr. Lively currently serves as a director of
Swiss Army Brands Inc. and SweetWater Inc.

Herman L. ("Bing") Graffunder, President and Director. Mr. Graffunder
joined the Company as President and Chief Executive Officer in February 1994
after 25 years in the dairy and specialty food industries. Prior to joining the
Company, Mr. Graffunder served as President and Chief Operating Officer of Oak
Farms Dairy, an operating company of Schepps-Foremost, Inc., in Dallas, Texas,
from 1990 to 1992. Oak Farms Dairy is a manufacturer and distributor of a
full-line of dairy products, frozen desserts and specialty foods. From 1988 to
1990, Mr. Graffunder served as Vice President and General Manager of three
businesses (Cabell's/Oak Farms Dairy, Specialty Foods Inc. and Merritt Foods)
owned by Morningstar Foods, a manufacturer of refrigerated food products based
in Dallas, Texas with over $200 million in annual sales. From 1984 to 1988, Mr.
Graffunder served as the Division Manager of the Specialty Foods Group of
Southland Corporation, the owner of the 7-Eleven convenience store chain, which
also had a significant food and dairy operation. From 1979 to 1984, Mr.
Graffunder held several positions, including Vice President Operations, with
Dairymen, Inc., an 8,500 member dairy co-op that operated 22 plants throughout
the southeastern United States, based in Louisville, Kentucky.

Samuel E. Hillin, Jr., Chief Financial Officer. Mr. Hillin joined the
Company as Chief Financial Officer in 1994 after 15 years in the food industry.
Prior to joining the Company, Mr. Hillin was Vice President, Finance of
Schepps-Foremost, Inc., a dairy company based in Dallas, Texas, from 1990 to
1994. From 1988 to 1990, Mr. Hillin served as the Controller of Texas Operations
(Cabell's/Oak Farms Dairy and Specialty Foods Inc.) for Morningstar Foods. From
1981 to 1988, Mr. Hillin held several positions with Southland Corporation of
Dallas, Texas, including Division Controller of MovieQuik Systems and Assistant
Division Controller of Cabell's/Oak Farms Dairy.

45
<PAGE> 47

J. Gary Shansby, Director. Mr. Shansby is the founder of The Shansby Group
and has served as managing general partner of The Shansby Group since it was
formed in 1987. See "The Shansby Group." Mr. Shansby was formerly the Chairman
of the Board and Chief Executive Officer of Shaklee Corporation ("Shaklee"), and
has over 35 years of experience with consumer products companies. During his 11
years at Shaklee, a direct marketer of nutritional, personal care and household
products, the company grew from a family business with annual sales of less than
$80 million to a Fortune 500 company with annual sales of over $500 million.

Charles H. Esserman, Director. Mr. Esserman is a co-founder of The Shansby
Group and has served as general partner of The Shansby Group since it was
founded in 1987. See "The Shansby Group." Prior to joining The Shansby Group,
Mr. Esserman worked at Bain & Company ("Bain"), a strategic consulting firm,
from 1982 to 1987. While at Bain, Mr. Esserman's work was primarily focused on
helping companies formulate and implement marketing strategies.

Tim G. Bruer, Director nominee. Mr. Bruer is President and Chief Executive
Officer of Silverado Foods, Inc., an American Stock Exchange company that
manufactures specialty baked goods. From November 1992 until he joined Silverado
Foods, Inc. in March 1997, Mr. Bruer served as Vice President and General
Manager of the Culinary Division of Nestle Food Company. From February 1992
until November 1992, Mr. Bruer was Vice President, Business Development of
Nestle USA, Inc., and from December 1990 until February 1992, he was a partner
in Bain's consumer marketing practice area. Mr. Bruer is a director of Silverado
Foods, Inc.

Charles A. Lynch, Director nominee. Mr. Lynch has served as Chairman of
Fresh Choice, Inc., the owner of a chain of restaurants, since March 1995. From
1989 until 1995, Mr. Lynch was Chairman of Market Value Partners Company, an
investment firm. From 1988 until 1989, Mr. Lynch served as President and Chief
Executive Officer of Levelor Corporation, a manufacturer of window coverings,
and from 1986 until 1988, he served as Chairman and Chief Executive Officer of
DHL Airways, Inc., an express courier. Mr. Lynch serves as a director of Pacific
Mutual Life Insurance Company, Nordstrom, Inc., Fresh Choice, Inc., PST Vans,
Inc. and SRI International, Inc.

Robert K. Swanson, Director nominee. Mr. Swanson has served as Chairman of
RKS, Inc., an international investment and financial/marketing consulting firm,
since November 1987. During that period, Mr. Swanson has also served as Chairman
of Grossman's Inc., a company offering "do-it-yourself" products. From January
1981 until October 1987, Mr. Swanson served as Chief Executive Officer of Del
Webb Corporation.

OTHER KEY EMPLOYEES

Robert C. Tanklage, President of La Victoria. Mr. Tanklage has served as
President of La Victoria since May 1983, and has held various management
positions with La Victoria since the late 1970s.

Michael T. Westhusing, Chief Operating Officer of La Victoria. Mr.
Westhusing joined La Victoria in 1997 after 20 years in the specialty food and
consumer products industries. Prior to joining La Victoria, Mr. Westhusing was
Senior Vice President, Marketing, from 1995 to 1997, for Favorite Brands
International, an $800 million manufacturer of branded confection products. From
1989 to 1995, Mr. Westhusing served as Vice President, Operations for Famous
Amos. Prior to joining Famous Amos, Mr. Westhusing was Vice President,
Operations for Shamitoff Foods from 1987 to 1988 and previously served in
various marketing and operational capacities at Beecham Cosmetics, the consumer
products division of Beecham Group Ltd., from 1978 to 1988.

BOARD OF DIRECTORS

After consummation of this Offering, the Board of Directors of the Company
will be composed of seven members. In accordance with the Bylaws of the Company,
the members of the Board of Directors are generally elected for a term of office
expiring at the third annual shareholders' meeting following their election to
office or until a successor is duly elected and qualified. The officers of the
Company are elected by and serve

46
<PAGE> 48

until their successors are elected by the Board of Directors. Following the
completion of this Offering, the Company intends to form an audit committee,
consisting solely of nonemployee directors.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to the Chief
Executive Officer of the Company, and each of the other executive officers of
the Company who received at least $100,000 in annual salary and bonus during
fiscal 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND PRINCIPAL ---------------- ALL OTHER
POSITION SALARY BONUS COMPENSATION
IN THE COMPANY YEAR ($) ($) ($)
------------------ ---- ------- ----- ------------
<S> <C> <C> <C> <C>
Keith R. Lively(1)...................... 1996 -- -- --
Chief Executive Officer
Herman L. Graffunder.................... 1996 190,304 -- 2,200(2)
President
Samuel E. Hillin, Jr.................... 1996 118,751 -- 1,410(3)
Chief Financial Officer
</TABLE>

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

(1) Mr. Lively became Chairman and Chief Executive Officer of the Company on
June 19, 1997. Mr. Lively will receive an annual salary of $200,000 per year
from the Company.

(2) Includes $810 contributed by the Company to Mr. Graffunder's account under
the Company's 401(k) Plan, and $1,390 paid by the Company for term life
insurance premiums for Mr. Graffunder.

(3) Includes $685 contributed by the Company to Mr. Hillin's account under the
Company's 401(k) Plan, and $725 paid by the Company for term life insurance
premiums for Mr. Hillin.

EMPLOYMENT AGREEMENTS

Mr. Graffunder. Mr. Graffunder entered into a three-year employment
agreement with the Company, effective as of June 19, 1997. The agreement
provides for an annual base salary of $200,000, subject to increase by the Board
of Directors, as well as an annual incentive award with a target of 40% of his
base salary, which can be further increased up to 80% upon the attainment of
certain performance targets. Mr. Graffunder will be reimbursed for life
insurance premiums with respect to a $500,000 term policy, subject to an annual
limit of $5,000. Mr. Graffunder will also be reimbursed for the purchase price
or lease payments for an automobile to be used primarily in the Company's
business and for the cost of insurance for such automobile.

Under Mr. Graffunder's prior employment agreement, 85,000 shares of Common
Stock were granted to Mr. Graffunder in 1994, subject to certain forfeiture
restrictions that lapse 25% per year until February 7, 1998. This schedule for
the lapsing of the forfeiture restrictions has also been included in the new
employment agreement. However, all forfeiture restrictions on such shares will
lapse immediately prior to the closing of this Offering. If Mr. Graffunder's
employment with the Company is terminated or terminates for any reason, any
unvested shares will be forfeited to the Company.

During Mr. Graffunder's employment and for a period of two years
thereafter, Mr. Graffunder is prohibited from competing or assisting others to
compete with the Company, or from advising or doing business with any previous
or current customer, in the food distribution, food packaging and food
processing businesses in connection with Mexican food products within the State
of Texas, or from inducing any other employee to terminate his employment with
the Company.

47
<PAGE> 49

The Company can terminate Mr. Graffunder's employment for cause, as defined
in the agreement, or without cause upon written notice. If employment is
terminated without cause, Mr. Graffunder is entitled to receive his base salary
for a one-year period, which amount will be reduced by any salary or
compensation received or deferred by Mr. Graffunder in connection with his
employment by or consulting with any company not affiliated with the Company.

Mr. Hillin. Mr. Hillin entered into an employment agreement with the
Company, effective as of June 19, 1997. The terms of Mr. Hillin's employment
agreement are substantially similar to those in Mr. Graffunder's employment
agreement described above, except as described below. Mr. Hillin's annual base
salary is $125,000, and his annual incentive award has a target of 25% of his
base salary, which can be further increased to 50% of his base salary based upon
the attainment of certain performance targets. Mr. Hillin was granted 51,000
shares of Common Stock in 1994, the forfeiture restrictions on which will lapse
on March 21, 1998. These 51,000 shares of Common Stock are subject to the same
conditions as the 85,000 shares of Common Stock to be fully vested for Mr.
Graffunder on February 7, 1998. Mr. Hillin is not eligible for an automobile to
be paid for by the Company.

COMPENSATION OF DIRECTORS

No compensation has been paid by the Company to its directors prior to this
Offering. Upon completion of this Offering, directors who are not employees or
executive officers of the Company or Shansby ("nonemployee directors") will
receive directors' fees of $10,000 each year and an additional $1,000 for each
Board of Directors' Meeting and committee meeting they attend. Nonemployee
directors will also receive options to purchase 1,000 shares of Common Stock
upon their election to the Board of Directors. The exercise price for these
options to be granted to nonemployee directors serving at the time of the
consummation of this Offering will be the price to public set forth on the cover
page of this Prospectus. With respect to any nonemployee directors elected after
this Offering, the exercise price will be the fair market value of the Common
Stock on the date that the option is granted.

1997 STOCK PLAN

On June 19, 1997, the Board of Directors and the shareholders of the
Company approved its 1997 Stock Plan (the "Stock Plan"). The purpose of the
Stock Plan is to provide directors, employees and consultants of the Company and
its subsidiaries additional incentive and reward opportunities designed to
enhance the profitable growth of the Company. All employees who are key to the
Company's growth and profitability are eligible to receive awards under the
Stock Plan. The Stock Plan provides for the granting of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended, options that do not constitute incentive stock options and restricted
stock awards.

The Stock Plan is administered by the Compensation Committee of the Board
of Directors (the "Committee"). In general, the Committee is authorized to
select the recipients of awards and the terms and conditions of those awards.
The number of shares of Common Stock that may be issued under the Stock Plan may
not exceed 350,000 shares (subject to adjustment to reflect stock dividends,
stock splits, recapitalizations and similar changes in the Company's capital
structure). Shares of Common Stock that are attributable to awards that have
expired, terminated or been canceled or forfeited are available for issuance or
use in connection with future awards. The maximum number of shares of Common
Stock that may be subject to awards granted under the Stock Plan to any one
individual during any calendar year may not exceed 50,000 (subject to adjustment
to reflect stock dividends, stock splits, recapitalizations and similar changes
to the Company's capital structure). The price at which a share of Common Stock
may be purchased upon exercise of an option granted under the Stock Plan will be
determined by the Committee, but such purchase price will not be less than the
fair market value of a share of Common Stock on the date such option is granted.
However, with respect to options intended to qualify as incentive stock options
that are issued to a holder of more than 10% of the total combined voting power
of all classes of stock of the Company, or of its parent or subsidiary
corporation, the exercise price must be at least 110% of fair market value on
the date of grant.

48
<PAGE> 50

Shares of Common Stock that are the subject of a restricted stock award
under the Stock Plan will be subject to restrictions on disposition by the
holder of such award and an obligation of such holder to forfeit and surrender
the shares to the Company under certain circumstances (the "Forfeiture
Restrictions"). The Forfeiture Restrictions will be determined by the Committee
in its sole discretion, and the Committee may provide that the Forfeiture
Restrictions will lapse upon: (a) the attainment of one or more performance
targets established by the Committee that are based on (1) the price of a share
of Common Stock, (2) the Company's earnings before interest, taxes,
depreciation, and amortization, (3) the Company's earnings per share, (4) the
total return to holders of Common Stock based upon price appreciation and
dividends paid, (5) the Company's market share, (6) the market share of a
business unit of the Company designated by the Committee, (7) the Company's
sales, (8) the sales of a business unit of the Company designated by the
Committee, (9) the Company's cash flow, or (10) the return on shareholders'
equity achieved by the Company; (b) the award holder's continued employment with
the Company or continued service as a consultant or director for a specified
period of time; (c) the occurrence of any event or the satisfaction of any other
condition specified by the Committee in its sole discretion; or (d) a
combination of any of the foregoing. No awards under the Stock Plan may be
granted after ten years from the date the Stock Plan was approved by the Board
of Directors. The Stock Plan will remain in effect until all awards granted
under the Stock Plan have been satisfied or expired. The Board of Directors in
its discretion may terminate the Stock Plan at any time with respect to any
shares of Common Stock for which awards have not been granted. The Stock Plan
may be amended, other than to increase the maximum aggregate number of shares
that may be issued under the Stock Plan or to change the class of individuals
eligible to receive awards under the Stock Plan, by the Board of Directors
without the consent of the shareholders of the Company. No change in any award
previously granted under the Stock Plan may be made which would impair the
rights of the holder of such award without the approval of the holder.

Option Grants. Upon the consummation of this Offering, the Company will
grant certain employees of the Company stock options to purchase a total of
130,000 shares of Common Stock with an exercise price (subject to adjustment)
equal to the price to public shown on the cover page of this Prospectus. Mr.
Lively, Mr. Graffunder and Mr. Westhusing will each be granted options to
purchase 35,000 shares of Common Stock, and Mr. Hillin will be granted options
to purchase 25,000 shares of Common Stock. The options granted to each
individual will vest over a four-year period, with 25% of the options vesting
each year, commencing one year after the consummation of this Offering. The
options will expire 10 years from the date of grant.

49
<PAGE> 51

CERTAIN TRANSACTIONS

THE LA VICTORIA ACQUISITION

Shansby (through TSG2 L.P.) and Mr. Lively will receive 1,386,000 and
14,000 shares of Common Stock, respectively, pursuant to the La Victoria
Acquisition (provided that the value of such shares at the offering price will
not exceed $13,860,000 and $140,000, respectively). La Victoria has paid LV
Foods $475,000 to reimburse LV Foods for expenses it incurred in connection with
the La Victoria Acquisition. Of this amount, $200,000 was incurred during 1996
and $275,000 was incurred during the first six months of 1997. In addition, La
Victoria has paid Shansby $250,000 to reimburse Shansby for expenses it incurred
in connection with the La Victoria Acquisition during the first six months of
1997. See "The La Victoria Acquisition."

ROBERT TANKLAGE EMPLOYMENT AGREEMENT

Mr. Tanklage entered into a five-year employment agreement with La
Victoria, effective as of May 31, 1997. The agreement provides for an annual
base salary of $360,000, subject to increase by the Board of Directors, as well
as an annual incentive award which can be increased, but not decreased by the
Board of Directors, in accordance with past practices of La Victoria. Mr.
Tanklage will be granted an allowance of $800 per month for an automobile. La
Victoria can terminate Mr. Tanklage's employment for cause, death (upon payment
of one month's salary to Mr. Tanklage's estate), incapacity or disability, as
defined in the agreement, or without cause. If employment is terminated without
cause, Mr. Tanklage is entitled to receive the greater of (a) $1,980,000 or (b)
$660,000 multiplied times the number of years then remaining in the term of the
agreement.

TANKLAGE LEASE ARRANGEMENTS

La Victoria leases its facilities from entities partially owned and
controlled by Mr. Tanklage and certain of his family members. Tanklage Property
Trust is owned 50% by Mr. Tanklage and 50% by Ms. Carolyn Johnson, Mr.
Tanklage's sister. Tanklage Investments, Ltd. is owned 12.5% by Mr. Tanklage and
the remaining 87.5% is owned by other family members, two of whom are employed
by La Victoria.

La Victoria's 170,000 square foot warehouse and distribution facility in
City of Industry is owned by Tanklage Property Trust and is leased to La
Victoria under a lease that expires in July 2010. The annual lease payment is
approximately $860,000 and is scheduled to increase at the CPI every five years.
The next scheduled increase is to occur in August 2000.

The 51,000 square foot warehouse facility in Rosemead is owned by Tanklage
Property Trust and leased to La Victoria under a lease that expires in July
2010. The annual lease payment is approximately $262,000 and is scheduled to
increase at the CPI every five years. The next scheduled increase is to occur in
August 2000.

La Victoria's 61,000 square foot production facility in Rosemead is owned
by Tanklage Investments, Ltd. and leased to La Victoria under a lease that
expires in July 2010. The annual lease payment is approximately $214,000 and is
scheduled to increase at the CPI every five years. The next scheduled increase
is scheduled to occur in August 2000.

Although La Victoria has not conducted a survey of rental rates for
comparable properties in the Los Angeles area, it is believed that La Victoria
would be able to obtain more favorable lease terms from unaffiliated third
parties than those contained in these leases.

SHANSBY PARTNERS ADVISORY AGREEMENT

The Company entered into the three-year Advisory Agreement with Shansby
Partners, effective June 1, 1997, pursuant to which Shansby Partners will
provide the Company with advisory services, including assistance with respect to
the identification of potential acquisition candidates and assistance in the
negotiation, implementation and financing of these acquisitions.

50
<PAGE> 52

The Advisory Agreement expires on the third anniversary of the consummation
of this Offering, and may be terminated by either party for a material breach of
the Advisory Agreement by the other party if the breach has not been remedied
within 60 days after notice.

Shansby Partners, Shansby and their affiliates specialize in acquiring and
improving branded consumer product companies (particularly in the food
industry). See "The Shansby Group." The Advisory Agreement provides that, during
the term of the Advisory Agreement, Shansby Partners will offer to the Company
for its consideration any Mexican food companies that primarily produce
tortillas, tortilla chips or salsas and that are identified by Shansby after the
consummation of this Offering. If the Company declines to pursue any such
acquisition opportunity, then Shansby will be able to pursue the opportunity
without the involvement of the Company. There is no assurance that the Company
will have the necessary funds available at the time that any such acquisition
opportunity is offered to it by Shansby Partners, and Shansby Partners will not
be required to use any of its funds, or the funds of any affiliates, in order to
finance any acquisitions on behalf of the Company.

In connection with this Offering, the Company has agreed to pay Shansby
Partners a financial advisory fee of $250,000 and up to an additional $50,000 to
reimburse Shansby Partners for out-of-pocket expenses it incurred in connection
with this Offering. Shansby Partners will also be reimbursed for out-of-pocket
expenses incurred in connection with advising the Company, and will also receive
customary financial advisory fees in connection with acquisitions identified by
the Company during the term of the Advisory Agreement.

SHANSBY WARRANT

Upon the consummation of this Offering, Shansby Partners will receive the
Shansby Warrant, which is a five-year warrant to acquire 350,000 shares of
Common Stock at an exercise price (subject to adjustment) equal to the price to
public on the cover page of this Prospectus. The Shansby Warrant may not be
exercised until after the first anniversary of the consummation of this
Offering. Management believes that it will be beneficial to the Company for its
advisor to benefit from any future increases in the price of the Common Stock.

51
<PAGE> 53

PRINCIPAL SHAREHOLDERS

The following tables set forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 1, 1997, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each director, (ii)
each named executive officer in the Summary Compensation Table, (iii) each
person who is known by the Company to own beneficially 5% or more of the Common
Stock and (iv) all directors and executive officers as a group. Unless otherwise
indicated, each person has sole voting and dispositive power over the shares
indicated as owned by such person.

PRINCIPAL SHAREHOLDERS

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES TO BE BENEFICIAL OWNERSHIP
BEFORE OFFERING REPURCHASED BY AFTER OFFERING
---------------------- THE -----------------------
NAME SHARES PERCENTAGE COMPANY(1) SHARES PERCENTAGE
---- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
The Shansby Group(2).................... 1,103,470 28.5% 1,103,470 -- -- %
TSG International(2).................... 435,030 11.2% 435,030 -- -- %
TSG2 L.P.(2)(3)......................... 1,386,000 35.7% -- 1,386,000 21.5%
Robert C. Tanklage(2)(3)................ 777,778 20.1% -- 777,778 12.1%
</TABLE>

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

(1) Simultaneously with the consummation of this Offering, the Company will
repurchase these shares at a repurchase price equal to the net proceeds
(before offering expenses) to be received by the Company with respect to an
equivalent number of shares ($12.9 million at an assumed price to public of
$9 per share).

(2) The address of The Shansby Group, TSG International and TSG2 L.P. is 250
Montgomery Street, San Francisco, California 94104. The address of Mr.
Tanklage is 260 S. Sixth Street, City of Industry, California 91746.

(3) The shares set forth for TSG2 L.P. and Mr. Tanklage will be issued in the La
Victoria Acquisition immediately following the consummation of this
Offering. The number of shares for these two persons assumes that the price
to public in this Offering is $9 per share. See "The La Victoria
Acquisition."

DIRECTORS (INCLUDING NOMINEES) AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING
----------------------- -----------------------
NAME SHARES PERCENTAGE SHARES PERCENTAGE
---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Keith R. Lively(1)............................. 14,000 * 14,000 *
Herman L. Graffunder........................... 85,000 2.2% 85,000 1.3%
Samuel E. Hillin, Jr........................... 51,000 1.3% 51,000 *
J. Gary Shansby(2)............................. 1,386,000 35.7% 1,386,000 21.5%
Charles H. Esserman(2)......................... 1,386,000 35.7% 1,386,000 21.5%
Tim G. Bruer................................... -- -- -- --
Charles A. Lynch............................... -- -- -- --
Robert K. Swanson.............................. -- -- -- --
All directors and executive officers as a group
(8 persons).................................. 1,536,000 39.6% 1,536,000 23.9%
</TABLE>

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

* Represents less than one percent.

(1) To be issued pursuant to the La Victoria Acquisition. See "The La Victoria
Acquisition."

(2) Mr. Shansby and Mr. Esserman may be deemed to beneficially own the 1,386,000
shares owned by TSG2 L.P. because they are members of the limited liability

company that is the general partner of TSG2 L.P.

52
<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $1.00 per share, of which 1,700,000 shares are
outstanding and are held by five shareholders of record as of August 1, 1997,
and 5,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), none of which is currently outstanding. In addition, there are 350,000
shares of Common Stock (subject to adjustment) reserved for issuance pursuant to
the Shansby Warrant.

COMMON STOCK

Each share of Common Stock has an equal and ratable right to receive
dividends, when, as and if declared by the Company's Board of Directors, out of
any funds legally available for the payment thereof. In the event of
liquidation, dissolution or winding up of the Company, subject to the rights of
any outstanding Preferred Stock, the holders of Common Stock are entitled to
share equally and ratably in the assets available for distribution after payment
of all liabilities.

Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of the shareholders. Holders of Common Stock are not entitled to
cumulative voting, conversion or preemptive rights. All outstanding shares of
Common Stock are, and when issued, the shares of Common Stock to be issued in
connection with this Offering, will be, fully paid and nonassessable.

PREFERRED STOCK

The Company's Restated Articles of Incorporation authorize the Board of
Directors, without the necessity of further action or authorization by the
shareholders (unless required in a specific case by applicable law or
regulations or stock exchange rules), to authorize the issuance of the Preferred
Stock from time to time in one or more series and to determine all pertinent
features of each such series of Preferred Stock, including but not limited to
variations in the designations, preferences, and relative participating,
optional or other special rights (including, without limitation, rights of
conversion into Common Stock or other securities, redemption provisions or
sinking fund provisions) as between series and as between the Preferred Stock or
any series thereof and the Common Stock, and the qualifications, limitations or
restrictions of such rights, and any voting powers of such Preferred Stock.

Holders of Common Stock have no preemptive rights to purchase or otherwise
acquire any Preferred Stock that may be issued in the future. Each series of
Preferred Stock, could, as determined by the Board of Directors at the time of
issuance, rank, with respect to dividends, redemption and liquidation rights,
senior to the Common Stock.

It is not possible to state the actual effect of the authorization of the
Preferred Stock upon the rights of holders of the Common Stock until the Board
of Directors determines the respective rights of the holders of one or more
series of the Preferred Stock. Such effects, however, might include: (a)
restrictions on dividends on Common Stock if dividends on the Preferred Stock
are in arrears; (b) dilution of the voting power of the Common Stock to the
extent that a series of the Preferred Stock would have voting rights; (c) the
holders of Common Stock not being entitled to share in the Company's assets upon
dissolution until satisfaction of any liquidation preference granted to the
Preferred Stock; and (d) potential dilution of the equity of holders of Common
Stock to the extent that a series of the Preferred Stock might be convertible
into Common Stock. In addition, the issuance of Preferred Stock may serve to
discourage or make more difficult an attempt to obtain control of the Company by
way of a merger, tender offer, proxy contest or other means. See "Antitakeover
Provisions" below.

ANTITAKEOVER PROVISIONS

The Restated Articles of Incorporation and the Bylaws of the Company
contain provisions that could have an antitakeover effect. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors of the Company and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of

53
<PAGE> 55

control of the Company. The provisions are designed to reduce the vulnerability
of the Company to an unsolicited proposal for a takeover of the Company that
does not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of the
Company. The provisions are also intended to discourage certain tactics that may
be used in proxy fights. The Board of Directors believes that, as a general
rule, such takeover proposals would not be in the best interest of the Company
and its shareholders. Set forth below is a description of such provisions in the
Restated Articles of Incorporation and the Bylaws. The description of such
provisions set forth below is intended only as a summary and is qualified in its
entirety by reference to the pertinent sections of the Restated Articles of
Incorporation and the Bylaws, forms of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The Board of
Directors has no current plans to formulate or effect additional measures that
could have an antitakeover effect.

Classified Board of Directors. The classification of directors will have
the effect of making it more difficult for shareholders to change the
composition of the Board of Directors. At least two annual meetings of
shareholders generally will be required to effect a change in a majority of the
Board of Directors. Such a delay may help ensure that the Company's directors,
if confronted by a shareholder attempting to force a proxy contest, a tender or
exchange offer or an extraordinary corporate transaction, would have sufficient
time to review the proposal as well as any available alternatives to the
proposal and to act in what they believe to be the best interests of the
shareholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
Board of Directors would be beneficial to the Company and its shareholders and
whether a majority of the Company's shareholders believes that such a change
would be desirable. Pursuant to the Restated Articles of Incorporation, the
provisions relating to the classification of directors may only be amended by
the affirmative vote of eighty percent of the voting power of the then
outstanding shares of capital stock entitled to vote thereon ("Voting Stock").

Removal of Directors Only for Cause. Pursuant to the Restated Articles of
Incorporation, directors can be removed from office only for cause (as defined
therein) and only by the affirmative vote of eighty percent of the Voting Stock
other than at the expiration of their term of office. Vacancies on the Board of
Directors may be filled only by the remaining directors and not by the
shareholders.

Number of Directors. The Restated Articles of Incorporation provide that
the whole Board of Directors will consist of not less than three members, the
exact number to be set from time to time by resolution of the Board of
Directors. Accordingly, the Board of Directors, and not the shareholders, has
the authority to determine the number of directors and could delay any
shareholder from obtaining majority representation on the Board of Directors by
enlarging the Board of Directors and filling the new vacancies with its own
nominees until the next shareholder election.

No Written Consent of Shareholders. The Restated Articles of Incorporation
also provides that, subject to the terms of any Preferred Stock, any action
required or permitted to be taken by the shareholders of the Company must be
taken at a duly called annual or special meeting of shareholders and may not be
taken by written consent. In addition, special meetings may only be called by
(i) the Chairman of the Board, (ii) the President, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the then-authorized number of
directors or (iv) the holders of at least 50% of the outstanding Voting Stock.

Restated Articles of Incorporation and Bylaws. The Restated Articles of
Incorporation provides that the Board of Directors, by a majority vote, may
adopt, alter, amend or repeal provisions of the Bylaws.

Preferred Stock. As described above under "Preferred Stock," the Board of
Directors may designate and issue shares of Preferred Stock without shareholder
approval under certain circumstances. As a result, the Preferred Stock could be
issued quickly with terms designed to make more difficult a proposed takeover of
the Company or the removal of its management. The Board of Directors will make
any determination to issue such shares based on its judgment as to the best
interests of the Company and its shareholders.

Advance Notice of Director Nominations and Shareholder Proposals. The
Restated Articles of Incorporation provide that the only business (including
election of directors) that may be considered at an annual meeting of holders of
Common Stock, in addition to business proposed (or persons nominated to be
directors)

54
<PAGE> 56

by the directors of the Company, is business proposed (or persons nominated to
be directors) by holders of Common Stock who comply with the notice and
disclosure requirements set forth in the Restated Articles of Incorporation. In
general, the Restated Articles of Incorporation require that a shareholder give
the Company notice of proposed business or nominations no later than 60 days
before the annual meeting of holders of Common Stock (meaning the date on which
the meeting is first scheduled and not postponements or adjournments thereof) or
(if later) ten days after the first public notice of the annual meeting is sent
to holders of Common Stock. In general, the notice must also contain information
about the shareholder proposing the business or nomination, the shareholder's
interest in the business, and (with respect to nominations for director)
information about the nominee of the nature ordinarily required to be disclosed
in public proxy statements. The shareholder also must submit a letter from each
of the shareholder's nominees stating the nominee's acceptance of the nomination
and indicating the nominee's intention to serve as director if elected.

OTHER MATTERS

ChaseMellon Shareholder Services L.L.C. will serve as registrar and
transfer agent for the Common Stock.

55
<PAGE> 57

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 6,439,278 shares of
Common Stock outstanding. Of the outstanding shares of Common Stock, 4,100,000
shares of Common Stock to be sold in this Offering will be freely transferable
without restriction or further registration under the Securities Act, except
that any shares purchased by affiliates of the Company will be subject to
limitations of Rule 144 under the Securities Act.

Holders of approximately 2,313,778 shares of Common Stock have agreed with
the Underwriters not to sell or otherwise dispose of any shares of Common Stock
for a period of 180 days after the date of this Prospectus (the "Lockup Period")
without the consent of the Representatives or the Underwriters. See
"Underwriting." Following the completion of this Offering, 25,500 shares of
Common Stock held by nonaffiliates for more than two years will be available for
sale in the public market without compliance with Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, including persons who may be deemed "affiliates" of the Company,
would be entitled to sell within any three month period a number of shares that
does not exceed the greater of one percent of the number of shares of Common
Stock then outstanding or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the date an order to sell is placed
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements, and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time in the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above. The Company is unable to
estimate the number of shares that may be sold under Rule 144 since this will
depend on the market price of the Common Stock of the Company, the personal
circumstances of the seller and other factors.

There are also 350,000 shares of Common Stock reserved for issuance under
the Stock Plan, pursuant to which grants of options to purchase 130,000 shares
will be made upon consummation of this Offering with an exercise price (subject
to adjustment) equal to the price to public set forth on the cover page of this
Prospectus. The Company intends to file a registration statement on Form S-8
covering sales of shares issued upon exercise of any securities issued under the
Stock Plan. In addition, Shansby Partners will be issued the Shansby Warrant to
acquire 350,000 shares of Common Stock at the price to public in this Offering.
The Shansby Warrant may not be exercised until after the first anniversary of
the consummation of this Offering. See "Certain Transactions -- Shansby
Warrant." Shansby Partners will have certain registration rights in connection
with the shares underlying the Shansby Warrant. In addition, the Contribution
and Exchange Agreement provides that, at the consummation of the transactions
contemplated thereby, Shansby and Mr. Tanklage will enter into registration
rights agreements with the Company pursuant to which Shansby and Mr. Tanklage
will receive certain demand and "piggyback" registration rights. These
registration rights cannot be exercised until after the expiration of the Lockup
Period.

Prior to this Offering, there has been no public market of the Common Stock
of the Company. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sales, will have on
the market price of the Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price for the Common Stock.

56
<PAGE> 58

UNDERWRITING

The Underwriters named below, for whom Cruttenden Roth Incorporated, Sutro
& Co. Incorporated and Wedbush Morgan Securities Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock set forth opposite their respective names
below at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Cruttenden Roth Incorporated................................
Sutro & Co. Incorporated....................................
Wedbush Morgan Securities Inc...............................

---------
Total............................................. 4,100,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby if any such
shares are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock offered hereby to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such a price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the public offering, the public offering price and such concessions may be
changed by the Representatives.

The Company has granted an option to the Underwriters, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
615,000 shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only for the purpose of
covering over-allotments made in connection with the sale of the Common Stock
offered hereby. To the extent that the Underwriters exercise such option, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such Underwriter's
initial commitment pursuant to the Underwriting Agreement. If the additional
shares are purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 4,100,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act.

The Company and certain other shareholders and officers and directors of
the Company have agreed with the Underwriters not to sell, offer to sell, issue,
distribute or otherwise dispose of any shares of Common Stock (other than in
connection with acquisitions or pursuant to any option granted under the Stock
Plan) for a period of 180 days after the date of this Prospectus without the
prior written consent of the Representatives for the Underwriters.

Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that a regular trading market will develop
upon the completion of this Offering. The initial public offering price was
determined by negotiations between the Company and the Representatives. There is
no direct relationship between the offering price of the Common Stock and the
assets, book value and net worth of the Company. The primary factors considered
in determining such offering price included the history of and prospects for the
industry in which the Company competes, market valuation of comparable
companies, market conditions for public offerings, the history and prospects for
the Company's business, the Company's past and present operations and earnings
and the trend of such earnings, the prospects for future earnings of

57
<PAGE> 59

the Company, the Company's current financial position, an assessment of the
Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specific maximum. Syndicate covering transactions involve purchases of Common
Stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Representatives to
reclaim a selling concession from a syndicate member when the shares of Common
Stock originally sold by such syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Common Stock to be higher than it would otherwise be in the absence
of such transactions. These transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.

The Company has also agreed to pay $250,000 to Cruttenden Roth Incorporated
for its opinion as to whether the proposed consideration to be paid to the
shareholders of La Victoria in connection with the La Victoria Acquisition is
fair from a financial point of view to the shareholders of the Company.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters relating to the Common Stock offered hereby will be passed
on by Gardere & Wynne, L.L.P., Dallas, Texas, as counsel for the Underwriters.

EXPERTS

The financial statements of Authentic Specialty Foods, Inc. for each of the
two years in the period ended December 31, 1995, appearing in this Prospectus
and Registration Statement have been audited by Rylander, Clay & Opitz, L.L.P.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein. Such financial statements are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.

Rylander, Clay & Opitz, L.L.P. were dismissed by the Company as the
Company's auditors on April 18, 1997. The report of Rylander, Clay & Opitz,
L.L.P. on the financial statements for each of the two years in the period ended
December 31, 1995 did not contain any adverse opinion or disclaimer of opinion,
nor was it qualified or modified as to uncertainty, audit scope, or accounting
principles. The Company's decision to change auditors was approved by the
Company's Board of Directors. In connection with its audits, Rylander, Clay &
Opitz, L.L.P. did not identify any reportable conditions. During the Company's
two most recent fiscal years and through the three-month period ended March 31,
1997, there were no disagreements between the Company and Rylander, Clay &
Opitz, L.L.P. on any matter of accounting principles or practices, financial
statement disclosure or auditing scope and procedure, which, if not resolved to
the satisfaction of Rylander, Clay & Opitz, L.L.P. would have caused it to make
a reference to the subject matter of the disagreement in connection with its
reports.

The financial statements of Authentic Specialty Foods, Inc. for the year
ended December 31, 1996, appearing in this Prospectus and Registration Statement
have been audited by McGladrey & Pullen, LLP, independent auditors, as set forth
in their reports thereon appearing elsewhere herein. Such financial statements
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

The financial statements of La Victoria Foods, Inc. for each of the three
years in the period ended May 31, 1997 appearing in this Prospectus and
Registration Statement have been audited by McGladrey &

58
<PAGE> 60

Pullen, LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein. Such financial statements are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.

AVAILABLE INFORMATION

The Company has not previously been subject to the reporting requirements
of the Exchange Act. The Company has filed with the Commission a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act,
with respect to the offer and sale of Common Stock pursuant to this Prospectus.
This Prospectus, filed as a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement or the exhibits
and schedules thereto in accordance with the rules and regulations of the
Commission and reference is hereby made to such omitted information. Statements
made in this Prospectus concerning the contents of any contract, agreement or
other document filed as an exhibit to the Registration Statement are summaries
of the terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto filed with the Commission may be inspected, without charge,
and copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511. The
Commission also maintains a Website (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. For further information pertaining
to the Common Stock offered by this Prospectus and the Company, reference is
made to the Registration Statement.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.

59
<PAGE> 61

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUTHENTIC SPECIALTY FOODS, INC.
Reports of Independent Auditors............................. F-2
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997...................................................... F-4
Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and for the six month periods ended
June 30, 1996 and 1997.................................... F-5
Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and for the six month
periods ended June 30, 1996 and 1997...................... F-6
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the six month periods ended
June 30, 1996 and 1997.................................... F-7
Notes to Financial Statements............................... F-8
LA VICTORIA FOODS, INC.
Report of Independent Auditors.............................. F-15
Balance Sheets as of May 31, 1996 and 1997.................. F-16
Statements of Operations for the years ended May 31, 1995,
1996 and 1997............................................. F-17
Statements of Shareholders' Equity for the years ended May
31, 1995, 1996 and 1997................................... F-18
Statements of Cash Flows for the years ended May 31, 1995,
1996 and 1997............................................. F-19
Notes to Financial Statements............................... F-20
</TABLE>

F-1
<PAGE> 62

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Authentic Specialty Foods, Inc.
Grand Prairie, Texas

We have audited the accompanying balance sheet of Authentic Specialty
Foods, Inc. as of December 31, 1996 and the related statements of operations,
shareholders' equity, and cash flows for the year 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Authentic Specialty Foods,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

McGLADREY & PULLEN, LLP

Minneapolis, Minnesota
April 25, 1997

F-2
<PAGE> 63

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Authentic Specialty Foods, Inc. (f/k/a Calidad Foods, Inc.)
Grand Prairie, Texas

We have audited the accompanying balance sheet of Authentic Specialty
Foods, Inc. (f/k/a Calidad Foods, Inc.) as of December 31, 1995 and the related
statements of operations, retained earnings (deficit), and cash flows for each
of the two years in the period 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 Authentic Specialty Foods,
Inc. (f/k/a/ Calidad Foods, Inc.) as of December 31, 1995 and the results of its
operations and its cash flows for each of the two years in the period then ended
in conformity with generally accepted accounting principles.

RYLANDER, CLAY & OPITZ, L.L.P.

Fort Worth, Texas
March 15, 1996

F-3
<PAGE> 64

AUTHENTIC SPECIALTY FOODS, INC.

BALANCE SHEETS

ASSETS (NOTE 4)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996 JUNE 30, 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents......................... $ 9,027 $ 200,479 $ 114,091
Accounts receivable, net of allowance for doubtful
accounts of $57,000 in 1995, $75,000 in 1996
and $79,000 in 1997 (Note 8)................... 1,323,226 1,474,753 1,591,838
Inventories (Note 3).............................. 868,738 780,222 747,003
Prepaid expenses.................................. 135,077 108,104 220,101
----------- ----------- -----------
Total current assets...................... 2,336,068 2,563,558 2,673,033
----------- ----------- -----------
Property and Equipment, at cost
Leasehold improvements............................ 659,463 730,975 746,775
Fixtures.......................................... 518,102 568,249 767,399
Equipment......................................... 2,313,137 2,722,438 2,490,610
----------- ----------- -----------
3,490,702 4,021,662 4,004,784
Less accumulated depreciation............. 724,232 1,199,125 1,250,573
----------- ----------- -----------
2,766,470 2,822,537 2,754,211
----------- ----------- -----------
Other Assets
Goodwill, net of accumulated amortization of
$305,058 in 1995, $386,379 in 1996 and $427,040
in 1997........................................ 1,727,988 1,646,667 1,606,006
Non-compete agreement, net of accumulated
amortization of $350,654 in 1995 and $493,000
in 1996 and 1997............................... 142,346 -- --
Other, primarily deferred offering costs in
1997........................................... 158,765 56,376 164,680
----------- ----------- -----------
2,029,099 1,703,043 1,770,686
----------- ----------- -----------
$ 7,131,637 $ 7,089,138 $ 7,197,930
=========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Line of credit (Note 4)........................... $ 750,933 $ 1,319,442 $ 1,349,716
10.5% note payable to officer, unsecured.......... 80,000 -- --
Current portion of long-term debt................. 789,907 766,432 666,802
Accounts payable.................................. 1,956,198 1,723,999 1,607,385
Accrued expenses.................................. 258,013 310,244 348,831
----------- ----------- -----------
Total current liabilities................. 3,835,051 4,120,117 3,972,734
----------- ----------- -----------
Long-Term Debt, less current portion (Note 4)....... 1,248,798 919,866 816,267
----------- ----------- -----------
Commitments (Note 6)................................

Shareholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized (Note 7)............................ -- -- --
Common stock, $1.00 par value; 20,000,000 shares
authorized; 1,700,000 shares issued and
outstanding.................................... 1,700,000 1,700,000 1,700,000
Additional paid-in capital........................ 1,860,152 1,860,152 1,982,152
Accumulated deficit, since January 1, 1994
($4,125,298 deficit eliminated on December 31,
1993) (Note 7)................................. (1,512,364) (1,510,997) (1,273,223)
----------- ----------- -----------
2,047,788 2,049,155 2,408,929
----------- ----------- -----------
$ 7,131,637 $ 7,089,138 $ 7,197,930
=========== =========== ===========
</TABLE>

F-4
<PAGE> 65

AUTHENTIC SPECIALTY FOODS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales (Note 8).............. $19,637,170 $21,028,390 $21,198,408 $10,527,546 $10,961,606
Cost of Sales................... 13,213,280 14,266,056 14,081,436 6,926,690 7,190,462
----------- ----------- ----------- ----------- -----------
Gross Profit.................... 6,423,890 6,762,334 7,116,972 3,600,856 3,771,144
Operating Expenses.............. 7,210,294 6,940,177 6,767,617 3,313,921 3,246,771
----------- ----------- ----------- ----------- -----------
Income (loss) from
operations................. (786,404) (177,843) 349,355 286,935 524,373
----------- ----------- ----------- ----------- -----------
Other Income (Expense)
Interest expense.............. (161,251) (219,142) (327,994) (166,664) (165,611)
Interest income............... -- 61,218 2,246 1,845 35
Gain (loss) on disposal of
property and equipment..... (37,368) (191,574) (22,240) (22,135) 977
----------- ----------- ----------- ----------- -----------
(198,619) (349,498) (347,988) (186,954) (164,599)
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes...................... (985,023) (527,341) 1,367 99,981 359,774
Income tax expense (Note 5)..... -- -- -- 34,000 122,000
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ (985,023) $ (527,341) $ 1,367 $ 65,981 $ 237,774
=========== =========== =========== =========== ===========

Earnings (loss) per common
share......................... $ (0.59) $ (0.31) $ 0.00 $ 0.04 $ 0.14
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding..... 1,679,973 1,700,000 1,700,000 1,700,000 1,700,000
=========== =========== =========== =========== ===========
</TABLE>

See Notes to Financial Statements.

F-5
<PAGE> 66

AUTHENTIC SPECIALTY FOODS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994........... 31,814 $ 318 1,564,000 $1,564,000 $ 294,830 $ -- $1,859,148
Issuance of preferred stock...... 4,000 40 -- -- (40) -- --
Issuance of common stock......... -- -- 136,000 136,000 (136,000) -- --
Contribution of capital.......... -- -- -- -- 1,085,500 -- 1,085,500
Tax benefit of net operating loss
utilized (Note 5).............. -- -- -- -- 216,004 -- 216,004
Net loss......................... -- -- -- -- -- (985,023) (985,023)
------- ----- --------- ---------- ---------- ----------- ----------
Balance, December 31, 1994......... 35,814 358 1,700,000 1,700,000 1,459,794 (985,023) 2,175,129
Cancellation of preferred
stock.......................... (35,814) (358) -- -- 358 -- --
Contribution of capital.......... -- -- -- -- 400,000 -- 400,000
Net loss......................... -- -- -- -- -- (527,341) (527,341)
------- ----- --------- ---------- ---------- ----------- ----------
Balance, December 31, 1995......... -- -- 1,700,000 1,700,000 1,860,152 (1,512,364) 2,047,788
Net income....................... -- -- -- -- -- 1,367 1,367
------- ----- --------- ---------- ---------- ----------- ----------
Balance, December 31, 1996......... -- -- 1,700,000 1,700,000 1,860,152 (1,510,997) 2,049,155
Tax benefit of net operating loss
utilized (Note 5)
(unaudited).................... -- -- -- -- 122,000 -- 122,000
Net income (unaudited)........... -- -- -- -- -- 237,774 237,774
------- ----- --------- ---------- ---------- ----------- ----------
Balance, June 30, 1997
(unaudited)...................... -- $ -- 1,700,000 $1,700,000 $1,982,152 $(1,273,223) $2,408,929
======= ===== ========= ========== ========== =========== ==========
</TABLE>

See Notes to Financial Statements.

F-6
<PAGE> 67

AUTHENTIC SPECIALTY FOODS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ ---------------------
1994 1995 1996 1996 1997
---------- ----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)......................... $ (985,023) $ (527,341) $ 1,367 $ 65,981 $ 237,774
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Tax benefit of net operating loss utilized
(Note 5)................................ -- -- -- 34,000 122,000
Depreciation.............................. 317,408 354,716 515,117 247,796 278,149
Amortization.............................. 266,491 197,187 242,081 104,938 51,731
Gain (loss) on disposal of property and
equipment............................... 37,368 191,574 22,240 22,135 (977)
(Increase) decrease in:
Receivables............................... 435,065 430,565 (151,527) (186,822) (117,085)
Inventory................................. 391,134 (157,477) 88,516 54,761 33,219
Prepaid expenses.......................... (55,072) (59,726) 26,973 (5,677) (111,997)
Accounts payable.......................... (222,746) 244,740 (232,199) (194,832) (116,614)
Accrued expenses.......................... (4,883) 16,352 52,231 150,930 38,587
---------- ----------- --------- --------- ---------
Net cash provided by operating
activities.............................. 179,742 690,590 564,799 293,210 414,787
---------- ----------- --------- --------- ---------
Cash flows from investing activities
Change in other assets.................... -- (48,466) (28,540) (1,984) (146,709)
Proceeds from disposal of property and
equipment............................... 244,620 -- 171,188 110,012 50,750
Purchase of property and equipment........ (148,115) (1,256,552) (492,176) (297,078) (232,261)
Acquisition of business (Note 2).......... -- (516,453) (159,921) (93,000) --
---------- ----------- --------- --------- ---------
Net cash provided by (used in) investing
activities.............................. 96,505 (1,821,471) (509,449) (282,050) (328,220)
---------- ----------- --------- --------- ---------
Cash flows from financing activities
Increase (decrease) in line of credit..... (778,931) 111,664 568,509 246,824 30,274
Borrowing (repayment) on note payable to
officer................................. -- 80,000 (80,000) (55,000) --
Proceeds of long-term debt................ -- 600,000 -- -- --
Payments made on long-term debt........... (583,854) (288,641) (352,407) (174,099) (203,229)
Capital contributions..................... 1,085,000 400,000 -- -- --
---------- ----------- --------- --------- ---------
Net cash provided by (used in) financing
activities.............................. (277,785) 903,023 136,102 17,725 (172,955)
---------- ----------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................. (1,538) (227,858) 191,452 28,885 (86,388)
Cash and Cash equivalents:
Beginning................................. 238,423 236,885 9,027 9,027 200,479
---------- ----------- --------- --------- ---------
Ending.................................... $ 236,885 $ 9,027 $ 200,479 $ 37,912 $ 114,091
========== =========== ========= ========= =========
Supplemental Disclosures of Cash Flow
Information
Cash paid for interest.................... $ 161,251 $ 219,142 $ 327,994 $ 166,664 $ 165,611
========== =========== ========= ========= =========
</TABLE>

See Notes to Financial Statements.

F-7
<PAGE> 68

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business: Authentic Specialty Foods, Inc. manufactures,
distributes and sells Mexican food products primarily in Texas on credit terms
it establishes for individual customers.

Revenue recognition: The Company recognizes revenue upon delivery of the
product to customers or distributors because the Company is not obligated to
perform significant activities after delivery.

Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all unrestricted cash and Treasury bills, commercial paper,
and money market funds with maturities of three months or less to be cash
equivalents.

The Company maintains its cash in bank deposit accounts which, at times,
exceed federally insured limits. The Company has not experienced any losses in
such accounts.

Fair value of financial instruments: The fair value of cash and cash
equivalents, accounts receivable and accounts payable approximate the carrying
amount because of the short maturity of those investments. The fair value of the
short and long-term debt is estimated based on interest rates for the same or
similar debt offered to the Company having the same or similar remaining
maturities and collateral requirements and approximates the fair value.

Inventories: Inventories is valued at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) method.

Depreciation and amortization: Depreciation and amortization are provided
using the straight-line method based on the estimated useful lives of individual
assets over the following periods:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Fixtures and equipment................................ 3-10
Leasehold improvements................................ Life of Lease
Non-compete agreement................................. 5
Goodwill.............................................. 25
</TABLE>

In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, the Company reviews its long-lived assets and goodwill related
to those assets periodically to determine potential impairment by comparing the
carrying value of the long-lived assets and identified goodwill with the
estimated future net undiscounted cash flows expected to result from the use of
the assets, including cash flows from disposition. Should the sum of the
expected future net cash flows be less than the carrying value, the Company
would recognize an impairment loss at the date. An impairment loss would be
measured by comparing the amount by which the carrying value exceeds the fair
value (estimated discounted future cash flows) of the long-lived assets and
identified goodwill.

Goodwill not identified with impaired assets will continue to be evaluated
to determine whether events or circumstances warrant a write-down or revised
estimates of useful lives. The Company will determine a potential impairment by
comparing the carrying value of goodwill with the estimated future net
undiscounted cash flows expected to result from the use of the assets, including
cash flows from disposition. Should the sum of the expected future net cash
flows be less than the carrying value, the Company would recognize an impairment
loss at that date. An impairment loss would be measured by comparing the amount
by which the carrying value exceeds the fair value (estimated discounted future
cash flows) of the goodwill.

To date, management has determined that no impairment of long-lived assets
and goodwill exists.

Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
operating loss carryforwards and deferred tax liabilities

F-8
<PAGE> 69

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Earnings (loss) per share: Earnings (loss) per share is based upon the
weighted average number of common and common equivalent shares outstanding
during each period. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common stock issued and stock options and warrants
granted with exercise prices below the assumed initial public offering price
during the 12-month period preceding the date of the initial filing of the
registration statement have been included in the calculation as if they were
outstanding for all periods presented.

The FASB has issued Statement No. 128, Earnings Per Share, which supersedes
APB Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities, outstanding that trade in a public
market. Those entities that have only common stock outstanding are required to
present basic earnings per-share amounts. All other entities are required to
present basic and diluted per-share amounts. Diluted per-share amounts assume
the conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce a loss or increase the income per common share
from continuing operations. All entities required to present per-share amounts
must initially apply Statement No. 128 for annual and interim periods ending
after December 15, 1997. Earlier application is not permitted.

The adoption of Statement No. 128 would have had no effect on reported
earnings (loss) per share.

Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.

Interim financial information (unaudited): The financial statements and
notes related thereto as of June 30, 1997 and for the six month periods ended
June 30, 1996 and 1997 are unaudited but, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations. The
operating results for the interim periods are not indicative of the operating
results to be expected for a full year or for other interim periods. Not all
disclosures required by generally accepted accounting principles necessary for a
complete presentation have been included.

NOTE 2. ACQUISITION

In November 1995, the Company purchased substantially all assets of El Paco
Foods, Inc., a Dallas/Fort Worth area tortilla and tortilla chip producer. A
final settlement related to the acquisition was completed in 1996.

The acquisition was accounted for as a purchase. The purchase price is
summarized as follows:

<TABLE>
<S> <C>
Cash paid................................................ $ 648,360
Non-compete and consulting agreement, discounted at 10%
(see Note 4)........................................... 548,984
Direct acquisition costs................................. 28,014
----------
$1,225,358
==========
</TABLE>

F-9
<PAGE> 70

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The purchase price was allocated as follows:

<TABLE>
<S> <C>
Inventory................................................ $ 83,266
Property and equipment................................... 1,142,092
----------
$1,225,358
==========
</TABLE>

The amount allocated to inventory was based on estimated fair value and
property and equipment was based on an independent appraisal.

In connection with the acquisition, the Company agreed to pay commissions
to the seller on future sales to the seller's existing customers at 6% through
November 1997, and at 5% thereafter through November 2002. The Company also
entered into a brokerage contract with one of the seller's shareholders to pay
commissions on sales to new customers brought to the Company at the same terms
as those above. These commissions have been expensed as incurred and are
immaterial for all periods presented.

NOTE 3. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials..................................... $144,996 $ 83,265 $ 77,004
Packaging materials............................... 257,332 246,849 261,480
Finished goods.................................... 466,410 450,108 408,519
-------- -------- --------
$868,738 $780,222 $747,003
======== ======== ========
</TABLE>

NOTE 4. NOTES PAYABLE

Line of credit: The Company has a $2,000,000 revolving line of credit
agreement with a financial institution, expiring April 1998. Advances under the
agreement are subject to borrowing base requirements and bear interest at 1.75%
in excess of the financial institution's prime rate. The interest rate was
10.4%, 10%, and 10.25% at December 31, 1995, 1996 and June 30, 1997,
respectively. Borrowings under the agreement are secured by substantially all
assets of the Company. The agreement also contains certain financial covenants,
including dividend restrictions. Under these dividend restrictions, if the
Company has annual net income before taxes and depreciation of at least
$400,000, less capital expenditures (unless financed by capital contributions),
then the Company may pay dividends of up to 30% of the excess over $400,000.

F-10
<PAGE> 71

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt: Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Note payable to financial institution, bearing interest at
2% in excess of financial institution's prime rate, due in
monthly installments of $12,500, plus interest, through
November 1999, secured by substantially all assets(1)..... $ 587,500 $ 437,500
Note payable to former shareholder, bearing interest at
10.5%, due in monthly installments of $16,667, plus
interest, beginning in April 1997, with balance due March
1999, subordinated to line of credit and note payable to
financial institution..................................... 766,880 766,880
Non-compete and consulting agreement with El Paco Foods,
Inc.'s selling shareholders, discounted at 10%, due in
monthly installments of $11,667, through November, 2000... 541,980 452,262
Non-compete agreement with former shareholder, discounted at
8%, due in monthly installments of $10,000, through March
1997...................................................... 142,345 29,656
---------- ----------
2,038,705 1,686,298
Less current maturities..................................... 789,907 766,432
---------- ----------
Total............................................. $1,248,798 $ 919,866
========== ==========
</TABLE>

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

(1) If amounts outstanding under the revolving credit facility are accelerated,
then amounts outstanding under the Term Loan can be accelerated as well and,
accordingly, have been classified as a current liability.

At December 31, 1996, approximate maturities of long-term debt are as
follows:

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997..................................................... $ 766,000
1998..................................................... 310,000
1999..................................................... 488,000
2000..................................................... 122,000
----------
$1,686,000
==========
</TABLE>

NOTE 5. INCOME TAXES

Income tax expense consisted of the following:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Current................................. $ -- $ -- $ -- $34,000 $122,000
Deferred................................ -- -- -- -- --
------- ------- ------- ------- --------
$ -- $ -- $ -- $34,000 $122,000
======= ======= ======= ======= ========
</TABLE>

F-11
<PAGE> 72

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company's income tax expense (benefit) differed from the statutory
federal rate as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate applied to income (loss)
before tax............................ $(335,000) $(178,000) $ -- $ 35,000 $126,000
Non-deductible expenses................. 28,000 28,000 28,000 14,000 14,000
Tax benefit not utilized (utilized)..... 307,000 150,000 (28,000) (15,000) (18,000)
--------- --------- -------- -------- --------
$ -- $ -- $ -- $ 34,000 $122,000
========= ========= ======== ======== ========
</TABLE>

The components of deferred taxes are as follows:

<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net operating loss carryforwards........ $ 1,181,000 $ 1,197,000 $ 1,238,000 $ 1,110,000
Depreciation and amortization........... (128,000) 33,000 (43,000) (38,000)
Accrued expenses and other.............. 70,000 47,000 48,000 33,000
Allowance for doubtful accounts......... 24,000 20,000 26,000 27,000
Valuation allowance..................... (1,147,000) (1,297,000) (1,269,000) (1,132,000)
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>

At June 30, 1997, the Company recorded a valuation allowance of $1,132,000
on the deferred tax assets to reduce the total to an amount that management
believes will ultimately be realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.

At June 30, 1997, the Company had net operating losses of approximately
$3,265,000 expiring as follows:

<TABLE>
<CAPTION>
EXPIRATION
DATE
----------
<S> <C> <C>
2008............................................................................................... $2,684,000
2009............................................................................................... 415,000
2010............................................................................................... 47,000
2011............................................................................................... 119,000
</TABLE>

These net operating losses may be subject to certain annual limitations
resulting from future stock offerings. In addition, any tax benefits recognized
from net operating losses generated before the Company's quasi-reorganization
(see Note 7), which totaled approximately $2,385,000 at June 30, 1997, are
recorded as a direct addition to additional paid-in capital. Such benefits
recognized were $216,004 for the year ended December 31, 1994 and $34,000 and
$122,000 for the six months ended June 30, 1996 and 1997, respectively.

F-12
<PAGE> 73

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. COMMITMENTS

Operating leases: Certain office and warehouse facilities, computer
equipment and delivery vehicles are leased under non-cancelable operating
leases. Approximate future minimum lease commitments under non-cancelable
operating leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997....................................................... $397,000
1998....................................................... 209,000
1999....................................................... 123,000
</TABLE>

Rent expense was approximately $548,000, $581,000 and $475,000 for the
years ended December 31, 1994, 1995, and 1996, respectively, and $235,000 and
$190,000 for the six months ended June 30, 1996 and 1997, respectively.

NOTE 7. SHAREHOLDERS' EQUITY

Preferred stock: Under the Company's Restated Articles of Incorporation the
Board of Directors of the Company is authorized to issue, from time to time,
without any action on the part of the Company's shareholders, up to 5,000,000
shares of Preferred Stock in one or more series, with such relative rights,
powers, preferences, limitations and restrictions as are determined by the Board
of Directors at the time of issuance. Accordingly, the Board of Directors is
empowered to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. In the event of such issuance, the
Preferred Stock could be utilized, under either circumstance, as a method of
discouraging, delaying or preventing a change in control of the Company.

Quasi-reorganization: The Board of Directors approved a corporate
readjustment of the accounts as of December 31, 1993, effected in accordance
with accounting principles applicable to quasi-reorganizations. At December 31,
1993, the Company's assets and liabilities approximated fair value and,
accordingly, there was no write-down of the assets and liabilities of the
Company in conjunction with the quasi-reorganization. The quasi-reorganization
was accomplished by offsetting the accumulated deficit in retained earnings of
$4,125,298 against additional paid-in capital.

NOTE 8. MAJOR CUSTOMER

Sales to one major customer accounted for approximately 45%, 37% and 28% of
net sales for the years ended December 31, 1994, 1995 and 1996, respectively,
and approximated 27% for each of the six month periods ended June 30, 1996 and
1997. The major customer accounted for approximately 16% of the Company's
accounts receivable balance at June 30, 1997.

NOTE 9. SUBSEQUENT EVENTS

Recapitalization: In June 1997, the Company affected a 1,700-to-1 common
stock split and increased its authorized shares of common stock to 20,000,000.
The effect of this common stock split has been retroactively reflected in these
financial statements and notes for all periods presented.

Initial public offering: In June 1997, the Company signed a letter of
intent with an investment banking firm to undertake a public offering by the
Company of 4,100,000 shares of Common Stock at a price based on market
conditions at the time of effectiveness. The letter of intent includes an
over-allotment option to sell an additional 615,000 shares. Simultaneously with
the public offering, the Company will repurchase 1,538,500 shares of Common
Stock currently owned by the Company's majority shareholders.

F-13
<PAGE> 74

AUTHENTIC SPECIALTY FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

La Victoria Acquisition: Currently, 50% of the beneficial interest in the
capital stock of La Victoria is held by Mr. Robert C. Tanklage, the President of
La Victoria and a member of the family that has owned and operated La Victoria
since 1947, 49.5% of the beneficial interest is held by Shansby (the majority
shareholder of the Company) and .5% is held by Mr. Keith Lively, the Company's
chairman. Shansby owns 99% of LV Foods, L.L.C. ("LV Foods"), and Mr. Lively owns
the remaining 1%. LV Foods is the record owner of 50% of the outstanding shares
of common stock of La Victoria. LV Foods acquired its La Victoria shares in
April 1997 in exchange for $5 million in cash and a $7 million note payable to
the seller of the shares.

Pursuant to a contribution and exchange agreement, the Company will acquire
beneficial ownership of 100% of the capital stock of La Victoria. The purchase
price of the La Victoria Acquisition will be approximately $36.6 million,
consisting of $12 million in cash (to be paid out of proceeds of the public
offering), Common Stock with a value of $19.6 million, and assumed liabilities
of $5 million.

Stock option plan: In June 1997, the Board of Directors and the
shareholders of the Company approved its 1997 Stock Plan (the "Stock Plan"). The
purpose of the 1997 Stock Plan is to provide directors, employees and
consultants of the Company and its subsidiaries additional incentive and reward
opportunities designed to enhance the profitable growth of the Company. The
Stock Plan provides for the granting of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended,
options that do not constitute incentive stock options, and restricted stock
awards. Grants of options to purchase 130,000 shares will be made upon
consummation of the public offering with an exercise price (subject to
adjustment) equal to the offering price.

F-14
<PAGE> 75

LA VICTORIA FOODS, INC.

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
La Victoria Foods, Inc.
City of Industry, California

We have audited the accompanying balance sheets of La Victoria Foods, Inc.
as of May 31, 1996 and 1997, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended May 31, 1997. These financial statements are the responsibility of La
Victoria Foods, Inc.'s management. Our responsibility is to express an opinion
on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of La Victoria Foods, Inc. as
of May 31, 1996 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended May 31, 1997, in conformity with
generally accepted accounting principles.

McGLADREY & PULLEN, LLP

Anaheim, California

June 26, 1997

F-15
<PAGE> 76

LA VICTORIA FOODS, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
MAY 31,
-----------------------------
1996 1997
------------ --------------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 9)........................ $ 5,100,000 $ 4,822,071
Trade receivables, less allowance for doubtful accounts
1996 and 1997 $50,000 and market development fund
allowance 1996 $155,000 and 1997 $100,000.............. 1,411,585 1,238,221
Note receivables, officer-shareholder, current portion.... 18,501 --
Inventories (Note 2)...................................... 9,684,042 9,991,234
Prepaid expenses (Note 10)................................ 1,200,894 50,576
Prepaid income taxes...................................... 519,000 676,000
Deferred taxes (Note 6)................................... -- 451,000
----------- -----------
Total current assets.............................. 17,934,022 17,229,102
----------- -----------
Long-Term Receivables and Other Assets......................
Note receivable, officer-shareholder less current
maturities............................................. 341,768 --
Security deposits, related parties........................ 61,065 61,065
Other..................................................... -- 19,770
----------- -----------
402,833 80,835
----------- -----------
Property, Equipment and Leasehold Improvements, net (Note
3)........................................................ 9,160,473 8,220,576
----------- -----------
$27,497,328 $25,530,513
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable with related parties........................ $ 298,235 $ --
Current maturities of long-term debt (Note 4)............. 1,100,000 1,100,000
Current maturities of related party capital leases (Note
5)..................................................... 146,278 171,033
Accounts payable.......................................... 610,043 872,064
Accrued payroll and related taxes (Note 4)................ 600,427 602,698
Accrued profit sharing (Note 7)........................... 171,962 171,119
Other accrued expenses.................................... 158,688 331,447
Deferred taxes (Note 6)................................... 91,000 --
----------- -----------
Total current liabilities......................... 3,176,633 3,248,361
----------- -----------
Long-Term Debt (Note 4)..................................... 1,558,333 458,333
----------- -----------
Long-Term Related Party Debt................................ 1,005,000 --
----------- -----------
Long-Term Related Party Capital Leases (Note 5)............. 5,813,151 5,638,129
----------- -----------
Deferred Taxes (Note 6)..................................... 93,026 5,000
----------- -----------
Commitments and Contingencies (Notes 5, 7, 9 and 12)
Shareholders' Equity (Notes 4, 8 and 12)
Preferred stock, Class A, $100 par value; 10%
noncumulative 60,000 shares authorized; no shares
issued or outstanding.................................. -- --
Preferred stock, Class B, $100 par value; 9% noncumulative
30,000 shares authorized; no shares issued or
outstanding............................................ -- --
Common stock, $100 par value; 24,000 shares authorized;
issued and outstanding, 212 shares..................... 21,200 21,200
Additional paid-in capital................................ 2,850,000 2,850,000
Retained earnings......................................... 12,979,985 13,309,490
----------- -----------
15,851,185 16,180,690
----------- -----------
$27,497,328 $25,530,513
=========== ===========
</TABLE>

See Notes to Financial Statements.

F-16
<PAGE> 77

LA VICTORIA FOODS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales............................................. $41,381,679 $38,978,089 $37,191,863
Cost of Sales, including rent paid to related parties
1995 $839,000; 1996 $642,000; 1997 $385,000 (Notes 5
and 7).............................................. 22,218,655 20,107,345 18,408,518
----------- ----------- -----------
Gross Profit.......................................... 19,163,024 18,870,744 18,783,345
Operating Expenses, including expenses and bonuses to
related parties 1995 $0; 1996 $550,000; 1997
$1,450,000 (Notes 5, 7, 10 and 11).................. 18,709,328 15,607,329 16,933,692
----------- ----------- -----------
Operating income.................................... 453,696 3,263,415 1,849,653
Other Income (Expense)
Interest expense, including related party expense 1995
$540,000; 1996 $751,000; 1997 $850,000.............. (885,673) (996,438) (998,663)
Other, primarily interest income...................... 42,102 91,546 130,348
----------- ----------- -----------
Income (loss) before income tax expense (credits)... (389,875) 2,358,523 981,338
Income tax expense (credits) (Note 6)................. (80,880) 979,599 588,233
----------- ----------- -----------
Net income (loss)................................... $ (308,995) $ 1,378,924 $ 393,105
=========== =========== ===========

Earnings (loss) per share............................. $ (1,457.52) $ 6,504.36 $ 1,854.27
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding....................... 212 212 212
=========== =========== ===========
</TABLE>

See Notes to Financial Statements.

F-17
<PAGE> 78

LA VICTORIA FOODS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CAPITAL STOCK ISSUED
--------------------- ADDITIONAL
CLASS B PAID-IN RETAINED SHAREHOLDERS'
PREFERRED COMMON CAPITAL EARNINGS EQUITY
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1994.................. $ 600,000 $21,200 $2,400,000 $11,910,056 $14,931,256
Net (loss)........................... -- -- -- (308,995) (308,995)
--------- ------- ---------- ----------- -----------
Balance, May 31, 1995.................. 600,000 21,200 2,400,000 11,601,061 14,622,261
Net income........................... -- -- -- 1,378,924 1,378,924
Purchase of 6,000 shares of Class B
preferred stock for retirement....... (600,000) -- 450,000 -- (150,000)
--------- ------- ---------- ----------- -----------
Balance, May 31, 1996.................. -- 21,200 2,850,000 12,979,985 15,851,185
Dividends on common stock $300 per
share................................ -- -- -- (63,600) (63,600)
Net income........................... -- -- -- 393,105 393,105
--------- ------- ---------- ----------- -----------
Balance, May 31, 1997.................. $ -- $21,200 $2,850,000 $13,309,490 $16,180,690
========= ======= ========== =========== ===========
</TABLE>

See Notes to Financial Statements.

F-18
<PAGE> 79

LA VICTORIA FOODS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)..................... $ (308,995) $ 1,378,924 $ 393,105
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.......................... 741,843 861,481 922,412
Deferred income taxes................. 517,292 (261,208) (630,026)
Loss (gain) on sale of equipment...... 3,815 (16,000) 57,865
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables.................. 1,604,836 (45,503) 173,364
Inventories........................ (282,916) 2,468,662 (307,192)
Prepaid expenses and other
assets........................... (1,225,027) 1,282,915 1,150,318
Prepaid income taxes............... 882,000 306,000 (157,000)
Increase (decrease) in accounts
payable and accrued expenses..... 974,788 (740,537) 436,208
----------- ----------- -----------
Net cash provided by operating
activities ........................ 2,907,636 5,234,734 2,039,054
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sale of equipment....... 3,000 16,000 --
Purchase of equipment................. (334,324) (133,988) (40,380)
Collections on notes receivable from
officers........................... 34,095 17,252 360,269
----------- ----------- -----------
Net cash provided by (used in)
investing activities............... (297,229) (100,736) 319,889
----------- ----------- -----------
Cash Flows from Financing Activities
Borrowings on long-term debt.......... 558,000 491,861 --
Cash dividends paid................... -- -- (63,600)
Principal payments on long-term debt
and capital
leases............................. (1,861,478) (1,853,932) (2,553,502)
Purchase of preferred stock for
retirement......................... -- (150,000) --
Other................................. -- -- (19,770)
----------- ----------- -----------
Net cash (used in) financing
activities......................... (1,303,478) (1,512,071) (2,636,872)
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents........................ 1,306,929 3,621,927 (277,929)
Cash and Cash Equivalents
Beginning............................. 171,144 1,478,073 5,100,000
----------- ----------- -----------
Ending................................ $ 1,478,073 $ 5,100,000 $ 4,822,071
=========== =========== ===========
</TABLE>

See Notes to Financial Statements.

F-19
<PAGE> 80

LA VICTORIA FOODS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business: La Victoria is engaged in the manufacture, distribution
and sale of a variety of Mexican food products primarily to grocery stores,
independent retail food outlets and individual retailers in the western United
States on credit terms that La Victoria establishes for individual customers. In
addition, La Victoria sells its products to warehouse clubs and on a private
label basis.

Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and their reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents: For the purpose of reporting cash flows, La
Victoria considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.

Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market.

Market development fund allowance: La Victoria provides credits to
customers related to specific marketing programs upon proof of the participation
by the customer. All credits offered to customers are recorded at the time of
performance, as a credit against amounts due from the customers.

Property, equipment and leasehold improvements: Property, equipment and
leasehold improvements are recorded at cost. Depreciation is computed primarily
by the straight-line method, over the following estimated useful lives:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Automobiles and trucks.................. 5
Machinery and equipment................. 5-10
Furniture and fixtures.................. 5-10
Buildings............................... 15
</TABLE>

Leaseholds improvements are depreciated over the shorter of the term of the
lease or their estimated useful lives. Depreciation expense on assets acquired
under capital leases is included with depreciation on owned assets.

Income taxes: Deferred income taxes are provided on a liability method
whereby deferred tax assets and deferred tax liabilities are recognized for
temporary differences. Temporary differences are the difference between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

Revenue recognition: La Victoria recognizes revenue upon delivery of its
products to customers or distributors because La Victoria is not obligated to
perform significant activities after shipment of the product.

Advertising: La Victoria expenses the production costs of advertising the
first time the advertising event takes place. Prepaid advertising represents
unused media time which is expensed when the air time is used.

Fair value of financial instruments: The fair value of cash and cash
equivalents, accounts receivable and accounts payable approximate the carrying
amount because of the short maturity of those investments. The fair value of the
short and long-term debt is estimated based on interest rates for the same or
similar debt offered to La Victoria having the same or similar remaining
maturities and collateral requirements and approximates the fair value.

F-20
<PAGE> 81

LA VICTORIA FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Earnings (loss) per share: Earnings (loss) per share is based on the
weighted average number of common and common equivalent shares outstanding
during each period.

The Financial Accounting Standards Board (FASB) has issued Statement No.
128, "Earnings Per Share," which supersedes Accounting Principles Board (APB)
Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants and convertible securities, outstanding that trade in a public
market. Those entities that have only common stock outstanding are required to
present basic earnings per-share amounts. All other entities are required to
present basic and diluted per-share amounts. Diluted per-share amounts assume
the conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce a loss or increase the income per common share
from continuing operations. All entities required to present per-share amounts
must initially apply Statement No. 128 for annual and interim periods ending
after December 15, 1997. Earlier application is not permitted.

Because La Victoria has no potential common stock outstanding, La Victoria
will be required to present only basic earnings per share. The adoption of
Statement No. 128 would have had no effect on La Victoria's reported earnings
per share.

NOTE 2. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
MAY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Finished goods............................................ $ 9,016,592 $ 8,595,094
Raw materials............................................. 398,107 436,772
Supplies.................................................. 269,343 959,418
----------- -----------
$ 9,684,042 $ 9,991,234
=========== ===========
</TABLE>

NOTE 3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

The components of property, equipment and leasehold improvements are as
follows:

<TABLE>
<CAPTION>
MAY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Leasehold improvements.................................... $ 1,630,615 $ 1,630,615
Buildings under capital leases............................ 6,471,000 6,471,000
Machinery and equipment................................... 9,289,994 8,901,297
Furniture and fixtures.................................... 515,666 531,985
Autos and trucks.......................................... 125,600 125,600
Construction in progress.................................. 12,716 4,845
----------- -----------
18,045,591 17,665,342
Less accumulated depreciation including amounts applicable
to assets acquired under capital leases of $1,606,993 in
1996 and $1,950,336 in 1997............................. 8,885,118 9,444,766
----------- -----------
$ 9,160,473 $ 8,220,576
=========== ===========
</TABLE>

NOTE 4. LINE OF CREDIT AND LONG-TERM DEBT

La Victoria has a $3,000,000 unsecured line of credit agreement with a
bank. Interest on the line of credit is at the bank's prime rate (8.5% at May
31, 1997) or at LIBOR (5.77% at May 31, 1997) plus 2%, at

F-21
<PAGE> 82

LA VICTORIA FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

La Victoria's option. The agreement expires in September 1997. There were no
amounts outstanding at May 31, 1996 and 1997. La Victoria also has a term note
outstanding with the same bank with a balance as of May 31, 1997 of $1,558,333.
The term note is unsecured and is due in monthly installments of $91,667 plus
interest at 6.48%. Final payment is due in October 1998. Both the line of credit
and the term debt contain covenants requiring the maintenance of certain
financial ratios and minimum tangible net worth. La Victoria was not in
compliance with the cash flow coverage requirement for the year ended May 31,
1997 and has obtained a waiver from the bank of this covenant.

Aggregate maturities of long-term debt as of May 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
<S> <C>
1998..................................................... $1,100,000
1999..................................................... 458,333
----------
$1,558,333
==========
</TABLE>

NOTE 5. LEASE COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Lease commitments: La Victoria leases its facilities from related parties
under three agreements. In July 1995, La Victoria exercised all remaining
options on one of the lease agreements and amended the other two agreements to
provide that all agreements expire in July 2010. As a result, the lease
agreements were reclassified as capital leases. Prior to July 1995, two of the
leases were classified as operating leases. In accordance with FASB Statement
No. 13, the portion of the lease related to the land for one of the facilities
has been classified as operating.

The lease agreements call for monthly rentals of $17,800, $21,860 and
$71,685, with each agreement subject to adjustment every five years beginning in
August 2000, based on changes in the Consumer Price Index. Future increases in
rent payments as a result of these changes are expensed as incurred. La Victoria
is obligated to pay property taxes and insurance plus normal repairs and
maintenance on all of the above facility leases. The implicit interest rates for
each of the agreements is 11.8%, 15.5% and 13.5%, respectively.

La Victoria also leases certain equipment and office space on a
month-to-month basis.

The total minimum lease commitment under terms of operating and capital
lease agreements for facilities at May 31, 1997, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, OPERATING CAPITAL
------------------ ---------- -----------
<S> <C> <C>
1998....................................................... $ 151,191 $ 951,504
1999....................................................... 147,891 951,504
2000....................................................... 136,416 951,504
2001....................................................... 136,416 951,504
2002....................................................... 136,416 951,504
Thereafter................................................. 1,114,064 7,770,616
---------- -----------
$1,822,394 12,528,136
==========
Less amount representing interest........................ 6,718,974
-----------
$ 5,809,162
===========
</TABLE>

The total rental expense relating to facilities and equipment included in
the statements of income for the years ended May 31, 1995, 1996 and 1997 was
$1,024,829, $998,687 and $849,699, respectively. Rent expense for the years
ended May 31, 1995, 1996 and 1997 include contingent rentals on capital leases
of approximately $210,000 related to increases in the base rent as a result of
increases in the Consumer Price Index.

F-22
<PAGE> 83

LA VICTORIA FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Related party transactions: During the year ended May 31, 1995, La Victoria
purchased $1,174,732 of inventory from a company owned by the shareholders.
There were no purchases from this company during the period ended May 31, 1996
or 1997.

Litigation: La Victoria is party to litigation relating to property damage
and liability claims as well as certain employment-related matters arising in
the ordinary course of business. Management does not believe that the outcome of
the matters will have a material adverse effect on the financial position of La
Victoria.

NOTE 6. INCOME TAX MATTERS

La Victoria's income tax expense (credits) consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Current............................................ $(598,172) $1,240,807 $1,218,259
Deferred........................................... 517,292 (261,208) (630,026)
--------- ---------- ----------
$ (80,880) $ 979,599 $ 588,233
========= ========== ==========
</TABLE>

La Victoria's income tax expense (credits) differs from the federal
statutory rate as follows:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------
1995 1996 1997
--------- -------- ----------
<S> <C> <C> <C>
Statutory rate applied to income (loss) before
taxes.............................................. $(136,000) $825,000 $343,000
State income taxes net of federal benefit............ (23,000) 143,000 74,000
Nondeductible expenses............................... 23,000 9,000 171,000
Limitation on state operating loss carryforwards..... 53,000 -- --
Other................................................ 2,120 2,599 233
--------- -------- --------
$ (80,880) $979,599 $588,233
========= ======== ========
</TABLE>

F-23
<PAGE> 84

LA VICTORIA FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The components of deferred taxes are as follows:

<TABLE>
<CAPTION>
MAY 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Property, equipment and leasehold improvements.............. $(492,000) $(537,000)
Capital leases.............................................. 399,000 542,000
Accounts receivable reserves................................ 20,000 20,000
Accrued vacation pay........................................ 82,000 69,000
Inventory capitalization.................................... 144,000 160,000
Other accrued expenses...................................... 88,974 192,000
Prepaid advertising......................................... (426,000) --
--------- ---------
(184,026) 446,000
Vacation allowance.......................................... -- --
--------- ---------
$(184,026) $ 446,000
========= =========
</TABLE>

The components of net deferred tax assets (liabilities) described above
included in the accompanying balance sheets are as follows:

<TABLE>
<CAPTION>
MAY 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Current assets.............................................. $ -- $451,000
Current (liabilities)....................................... (91,000) --
Noncurrent (liabilities).................................... (93,026) (5,000)
--------- --------
$(184,026) $446,000
========= ========
</TABLE>

NOTE 7. PROFIT SHARING AND PENSION PLANS

La Victoria has a profit sharing plan for those employees who meet the
eligibility requirements set forth in the Plan. Contributions to the Plan are at
the discretion of La Victoria's Board of Directors. For the years ended May 31,
1996 and 1997, contributions totaled $171,962 and $175,000 respectively. For the
year ended May 31, 1995, La Victoria made no contributions.

La Victoria's union employees participate in a defined contribution
retirement plan. Contributions to that Plan are made in accordance with the
negotiated labor contract.

NOTE 8. SHAREHOLDERS' EQUITY

La Victoria is authorized to issue two classes of preferred stock. All
preferred shares are nonvoting and have a liquidation preference over the common
shares.

NOTE 9. CONCENTRATIONS

At May 31, 1997, La Victoria had approximately $4,822,000 deposited at a
single financial institution. Deposits are insured by the FDIC up to $100,000.
La Victoria had also invested in $5,100,000 of commercial paper with the same
institution as of May 31, 1996 and had made no commercial paper investments with
the same institution as of May 31, 1997. The investments are typically under 15
days in duration.

Substantially all of La Victoria's manufacturing labor is covered by a
negotiated union contract which expires in 2000.

F-24
<PAGE> 85

LA VICTORIA FOODS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

La Victoria had sales to the following customers that individually
accounted for more than 10% of La Victoria's total revenue.

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
American Stores Company................................... $3,592,256 $3,742,841 $3,725,417
Safeway, Inc.............................................. 5,223,806 5,502,598 4,781,965
</TABLE>

NOTE 10. ADVERTISING

At May 31, 1996 and 1997, $1,064,906 and $0 of advertising was reported as
prepaid expenses, respectively. Advertising expense was $4,939,284, $1,937,217
and $2,510,339 for the years ended May 31, 1995, 1996 and 1997, respectively.

NOTE 11. DISCRETIONARY BONUSES AND FEES

La Victoria pays discretionary bonuses to their officers and key employees.
The amounts of these bonuses charged for the years ended May 31, 1995, 1996 and
1997 were approximately $0, $710,000 and $925,000, respectively, including $0,
$550,000 and $725,000, respectively for bonuses paid to shareholders. In
addition, during the year ended May 31, 1997, La Victoria paid $725,000 to
related parties to reimburse expenses incurred in connection with the
acquisition of 50% ownership of La Victoria by LV Foods.

NOTE 12. SUBSEQUENT EVENT

La Victoria's shareholders have agreed to transfer their shares to
Authentic Specialty Foods, Inc. conditioned upon the successful completion of an
initial public offering of common stock of Authentic Specialty Foods, Inc.
Immediately prior to the closing of the sale, La Victoria will declare a $4
million dividend to its existing shareholders. In addition, La Victoria entered
into an employment contract with its President for $360,000 annually plus
bonuses. The contract expires in 2002. In the event of termination without
cause, the contract requires La Victoria to pay the greater of $1,980,000 or
$660,000 times the number of years remaining on the contract.

NOTE 13. SUPPLEMENTAL CASH FLOWS INFORMATION

<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest................................... $ 885,673 $ 996,438 $ 998,663
=========== ========== ==========
Income taxes, net of refunds received...... $(1,430,172) $ 934,807 $1,375,259
=========== ========== ==========
Supplemental Schedule of Noncash Investing and
Financing Activities, capital lease
obligations incurred for use of buildings..... $ -- $3,040,000 $ --
=========== ========== ==========
</TABLE>

F-25
<PAGE> 86

==========================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
The La Victoria Acquisition............... 12
Use of Proceeds........................... 13
Dividend Policy........................... 14
Capitalization............................ 15
Dilution.................................. 16
Unaudited Pro Forma Consolidated Financial
Statements.............................. 17
Selected Financial Data................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 23
Business.................................. 34
The Shansby Group......................... 44
Management................................ 45
Certain Transactions...................... 50
Principal Shareholders.................... 52
Description of Capital Stock.............. 53
Shares Eligible for Future Sale........... 56
Underwriting.............................. 57
Legal Matters............................. 58
Experts................................... 58
Available Information..................... 59
Index to Financial Statements............. F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

==========================================================
==========================================================

4,100,000 SHARES

[CALIDAD LOGO] [LA VICTORIA LOGO]

AUTHENTIC SPECIALTY
FOODS, INC.

COMMON STOCK

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

PROSPECTUS
---------------------------
CRUTTENDEN ROTH
INCORPORATED

SUTRO & CO. INCORPORATED

WEDBUSH MORGAN SECURITIES

, 1997

==========================================================
<PAGE> 87

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses of the offering are estimated to be as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $15,717
NASD filing fee............................................. 5,687
NASDAQ listing fee.......................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Printing expenses........................................... *
Transfer Agent fees......................................... *
Miscellaneous............................................... *
-------
TOTAL............................................. $ *
=======
</TABLE>

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

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Bylaws of the Company provide that the Company shall indemnify (i) its
directors, (ii) its directors serving at its request as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise and (iii) its
officers, against reasonable expenses incurred by them in connection with the
defense of any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative, or investigative, any
appeal in such an action, suit, or proceeding, and any inquiry or investigation
that could lead to such an action, suit, or proceeding, where the person who
was, is, or is threatened to be made a named defendant or respondent in a
proceeding was named because the person is or was a director or an officer of
the Company. The foregoing indemnification is conditioned upon a determination
(i) by a majority vote of a quorum consisting of directors who at the time of
the vote are not named defendants or respondents in the proceeding, (ii) if such
a quorum cannot be obtained, by a majority vote of a committee of the Board of
Directors, designated to act in the matter by a majority vote of all directors
who at the time of the vote are not named defendants or respondents in the
proceeding, (iii) by special legal counsel selected by the Board of Directors or
a committee of the Board by vote as set forth in subsection (i) or (ii), or, if
such a quorum cannot be obtained and such a committee cannot be established, by
a majority vote of all directors, or (iv) by the shareholders in a vote that
excludes the shares held by directors who are named defendants or respondents in
the proceeding, that such person (1) conducted himself in good faith, (2)
reasonably believed, in the case of conduct in his official capacity as a
director or officer of the Company, that his conduct was in the Company's best
interest, and in all other cases, that his conduct was at least not opposed to
the Company's best interest, and (3) in the case of any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful. Notwithstanding the
foregoing, the Company shall indemnify each director and officer against
reasonable expenses incurred by him in connection with a proceeding in which he
is a party because he is a director or officer if he has been wholly successful,
on the merits or otherwise, in the defense of the proceeding. A director or
officer, found liable on the basis that personal benefit was improperly received
by him, or found liable to the Company, may be indemnified but the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding and shall not be made in respect of any
proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the Company.

The Company's Bylaws also provide that reasonable expenses incurred by a
director or officer who was, is or is threatened to be named a defendant or
respondent in a proceeding may be paid or reimbursed by the Company in advance
of the final disposition of the proceeding after (i) the Company receives a
written

II-1
<PAGE> 88

affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification under the Company's Bylaws
and a written undertaking by or on behalf of the director or officer to repay
the amount paid or reimbursed if it is ultimately determined that he has not met
that standard or if it is ultimately determined that indemnification of the
director against expenses incurred by him in connection with that proceeding is
prohibited by law and (ii) a determination is made that the facts then known to
those making the determination would not preclude indemnification under the
Company's Bylaws. The Bylaws of the Company also provide that the Company may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company or who is or was serving at
the Company's request as a director, officer, partner, venturer, proprietor,
trustee, employee or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, in accordance with Article 2.02-1 of the Texas
Business Corporation Act.

In addition, the Company's Restated Articles of Incorporation provide that
a director of the Company will not be liable to the Company or its shareholders
for monetary damages for an act or omission in the director's capacity as a
director, except in the case of (i) a breach of the director's duty of loyalty
to the Company or its shareholders, (ii) an act or omission not in good faith
that constitutes a breach of duty of the director to the Company or an act or
omission that involves intentional misconduct or a knowing violation of the law,
(iii) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office, or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute. The Restated Articles
of Incorporation also excuse a director from liability to the fullest extent
permitted by any provisions of the statutes of Texas enacted in the future that
further limit the liability of a director.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In 1994, Mr. Graffunder and Mr. Hillin received grants of 85,000 and 51,000
shares of Common Stock, respectively. These grants were made in connection with
the commencement of employment with the Company by Mr. Graffunder and Mr.
Hillin, and were subject to forfeiture restrictions lapsing over a four-year
period. No cash consideration was received by the Company in connection with
these grants, which were exempt from registration under the Securities Act
because no sale of securities was involved within the meaning of the Securities
Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<S> <S>
*1.1 -- Form of Underwriting Agreement
**2.1 -- Contribution and Exchange Agreement between the Company,
Robert C. Tanklage, TSG2 L.P., TSG2 Management, L.L.C.
and Keith Lively, dated June 20, 1997
**3.1 -- Restated Articles of Incorporation of the Company
*3.2 -- Bylaws of the Company
*4.1 -- Specimen Common Stock certificate
**4.2 -- Consulting Agreement between Calidad Foods, Inc. and
Joseph Patoskie, dated November 22, 1995
**4.3 -- Consulting Agreement between Calidad Foods, Inc. and
Richard Patoskie, dated November 22, 1995
**4.4 -- Secured Promissory Note, dated April 10, 1997 in favor of
Carolyn M. Johnson, Trustee
*4.5 -- Term Loan Agreement between Union Bank of California,
N.A. and La Victoria Foods, Inc., dated November 3, 1993
</TABLE>

II-2
<PAGE> 89

<TABLE>

<S> <C>
*4.6 -- Amendment to Term Loan Agreement between Union Bank of
California, N.A. and La Victoria Foods, Inc., dated June
, 1997
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*10.1 -- Employment Agreement between Herman L. Graffunder and
Calidad Foods, Inc., dated June 19, 1997
*10.2 -- Employment Agreement between Samuel E. Hillin, Jr. and
Calidad Foods, Inc., dated June 19, 1997
**10.3 -- Authentic Specialty Foods, Inc. 1997 Stock Plan
**10.4 -- Sublease Agreement between A-1 Freeman Relocation System,
Inc. and Calidad Foods, Inc., dated August 1, 1995
**10.5 -- Lease and Agreement between Tanklage Investments Ltd. and
La Victoria Foods, Inc., dated February 1, 1993
**10.6 -- Lease and Agreement between Robert C. Tanklage, Carolyn
M. Johnson and Frank Barclay, Trustees, and La Victoria
Foods, Inc., dated August 1, 1985
**10.7 -- Lease and Agreement between Henry C. Tanklage, Erika A.
Tanklage and Louis N. Mantalica, Trustees, and La
Victoria Foods, Inc., dated November 28, 1974
*10.8 -- Warrant Purchase Agreement between the Company and
Shansby Partners, L.L.C., dated June , 1997
*10.9 -- Registration Rights Agreement between Calidad Foods, Inc.
and Robert C. Tanklage, dated June , 1997
*10.10 -- Advisory Agreement between the Company and Shansby
Partners, L.L.C., dated June 1, 1997
*10.11 -- Employment Agreement between Robert C. Tanklage and La
Victoria Foods, Inc., dated May 31, 1997
16.1 -- Letter from Rylander, Clay & Opitz, L.L.P., dated August
6, 1997, regarding change in certifying accountant
23.1 -- Consent of McGladrey & Pullen, LLP
23.2 -- Consent of Rylander, Clay & Opitz, L.L.P.
23.3 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
**23.4 -- Consent of Robert K. Swanson as a person to be named to
serve as a director
**23.5 -- Consent of Charles A. Lynch as a person to be named to
serve as a director
**23.6 -- Consent of Tim G. Bruer as a person to be named to serve
as a director
24.1 -- Power of Attorney (included on the signature page to this
Registration Statement)
**27.1 -- Financial Data Schedule

- ---------------
</TABLE>

* To be filed by amendment.

** Previously filed.

(b) Consolidated Financial Statement Schedules

All schedules are omitted because the required information is inapplicable
or the information is presented in the Financial Statements or related notes.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such

II-3
<PAGE> 90

indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 91

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Grand Prairie, State of Texas, on the 6th day of August, 1997.

AUTHENTIC SPECIALTY FOODS, INC.

By /s/ SAMUEL E. HILLIN, JR.

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

Samuel E. Hillin, Jr.

Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

KEITH R. LIVELY* Chief Executive Officer, August 6, 1997
- ----------------------------------------------------- Chairman of the Board and
Keith R. Lively Director (Principal Executive
Officer)

HERMAN L. GRAFFUNDER* President and Director August 6, 1997
- -----------------------------------------------------
Herman L. Graffunder

/s/ SAMUEL E. HILLIN, JR. Chief Financial Officer August 6, 1997
- ----------------------------------------------------- (Principal Financial and
Samuel E. Hillin, Jr. Accounting Officer)

J. GARY SHANSBY* Director August 6, 1997
- -----------------------------------------------------
J. Gary Shansby

CHARLES H. ESSERMAN* Director August 6, 1997
- -----------------------------------------------------
Charles H. Esserman

*By /s/ SAMUEL E. HILLIN, JR.
--------------------------------------------------
Samuel E. Hillin, Jr.
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 92

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
**2.1 -- Contribution and Exchange Agreement between the Company,
Robert C. Tanklage, TSG2 L.P., TSG2 Management, L.L.C.
and Keith Lively, dated June 20, 1997
**3.1 -- Restated Articles of Incorporation of the Company
*3.2 -- Bylaws of the Company
*4.1 -- Specimen Common Stock certificate
**4.2 -- Consulting Agreement between Calidad Foods, Inc. and
Joseph Patoskie, dated November 22, 1995
**4.3 -- Consulting Agreement between Calidad Foods, Inc. and
Richard Patoskie, dated November 22, 1995
**4.4 -- Secured Promissory Note, dated April 10, 1997 in favor of
Carolyn M. Johnson, Trustee
*4.5 -- Term Loan Agreement between Union Bank of California,
N.A. and La Victoria Foods, Inc., dated November 3, 1993
*4.6 -- Amendment to Term Loan Agreement between Union Bank of
California, N.A. and La Victoria Foods, Inc., dated June
, 1997
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*10.1 -- Employment Agreement between Herman L. Graffunder and
Calidad Foods, Inc., dated June 19, 1997
*10.2 -- Employment Agreement between Samuel E. Hillin, Jr. and
Calidad Foods, Inc., dated June 19, 1997
**10.3 -- Authentic Specialty Foods, Inc. 1997 Stock Plan
**10.4 -- Sublease Agreement between A-1 Freeman Relocation System,
Inc. and Calidad Foods, Inc., dated August 1, 1995
**10.5 -- Lease and Agreement between Tanklage Investments Ltd. and
La Victoria Foods, Inc., dated February 1, 1993
**10.6 -- Lease and Agreement between Robert C. Tanklage, Carolyn
M. Johnson and Frank Barclay, Trustees, and La Victoria
Foods, Inc., dated August 1, 1985
**10.7 -- Lease and Agreement between Henry C. Tanklage, Erika A.
Tanklage and Louis N. Mantalica, Trustees, and La
Victoria Foods, Inc., dated November 28, 1974
*10.8 -- Warrant Purchase Agreement between the Company and
Shansby Partners, L.L.C., dated June , 1997
*10.9 -- Registration Rights Agreement between Calidad Foods, Inc.
and Robert C. Tanklage, dated June , 1997
*10.10 -- Advisory Agreement between the Company and Shansby
Partners, L.L.C., dated June 1, 1997
*10.11 -- Employment Agreement between Robert C. Tanklage and La
Victoria Foods, Inc., dated May 31, 1997
16.1 -- Letter from Rylander, Clay & Opitz, L.L.P., dated August
6, 1997, regarding change in certifying accountant
23.1 -- Consent of McGladrey & Pullen, LLP
23.2 -- Consent of Rylander, Clay & Opitz, L.L.P.
23.3 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
**23.4 -- Consent of Robert K. Swanson as a person to be named to
serve as a director
**23.5 -- Consent of Charles A. Lynch as a person to be named to
serve as a director
**23.6 -- Consent of Tim G. Bruer as a person to be named to serve
as a director
24.1 -- Power of Attorney (included on the signature page to this
Registration Statement)
**27.1 -- Financial Data Schedule
</TABLE>

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

* To be filed by amendment.

** Previously filed.

<PAGE> 1

Exhibit 16.1

Securities and Exchange Commission
Washington, D.C. 20549

We were previously the independent accountants for Authentic Specialty
Foods, Inc., and on March 15, 1996 we reported on the financial statements of
Authentic Specialty Foods, Inc. as of and for the two years ended December
31,1995. On April 18, 1997, we were dismissed as independent accountants of
Authentic Specialty Foods, Inc. We have read Authentic Specialty Foods, Inc.'s
statements included under the heading "Experts" in the registration statement
on Form S-1 and prospectus of Authentic Specialty Foods, Inc., and we agree
with such statements.

/s/ RYLANDER, CLAY & OPTIZ, L.L.P.
----------------------------------
RYLANDER, CLAY & OPITZ, L.L.P.

Fort Worth, Texas
August 6, 1997

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement of Form S-1
of our report, dated April 25, 1997, relating to the financial statements of
Authentic Specialty Foods, Inc., and of our report dated June 26, 1997, relating
to the financial statements of La Victoria Foods, Inc. We also consent to the
reference to our Firm under the captions "Experts" and "Selected Financial
Data" in the Prospectus.

/s/ McGLADREY & PULLEN, LLP
----------------------------
McGLADREY & PULLEN, LLP

Minneapolis, Minnesota
August 6, 1997

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement of Form S-1 of our
report, dated May 15, 1996, relating to the financial statements of Authentic
Specialty Foods, Inc. (formerly Calidad Foods, Inc.). We also consent to the
reference to our Firm under the captions "Experts" and "Selected Financial
Data" in the Prospectus.

/s/ RYLANDER, CLAY & OPITZ, L.L.P.
-------------------------------------
RYLANDER, CLAY & OPITZ, L.L.P.

Fort Worth, Texas
August 6, 1997