<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                 FORM 10-QSB


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

               For the quarterly period ended SEPTEMBER 30, 1998


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

              For the transition period from ________ to ________

                         Commission File Number 0-18438
                                                -------


                       VITAFORT INTERNATIONAL CORPORATION
                       ----------------------------------
             Exact name of Registrant as specified in its charter)

                 DELAWARE                            68-0110509
                 --------                            ----------
            (State or other Jurisdiction of       (I.R.S. Employer
            incorporation or organization)     Identification Number)

           1800 AVENUE OF THE STARS, SUITE 480, LOS ANGELES, CA 90067
           ----------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)


                              (310) 552-6393
                              --------------
              (Registrant's telephone number, including area code)


Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act of 1934 of during the preceding twelve
months ended December 31, 1997 (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety days.

                    Yes:   X           No:
                          ---              ---

The number of shares of the Registrant's Common Stock, par value $.0001 per
share outstanding on November 13, 1998,  is 7,639,353.

                                       1
<PAGE>
 
                       VITAFORT INTERNATIONAL CORPORATION

                                    CONTENTS


<TABLE>
<S>                                                                       <C>
                         PART 1  FINANCIAL INFORMATION

______________________________________________________________________________
                                        

ITEM 1.   Consolidated Financial Statements:
 
          Balance Sheets  September 30, 1998 (unaudited) and
          December 31, 1997.............................................  3-4

          Statements of Operations
          Three Month Periods Ended September 30, 1998 and 1997
          (unaudited)...................................................  5
          Nine Month Periods Ended September 30, 1998 and 1997
          (unaudited)...................................................  6

          Statement of Stockholders' Equity (Deficit)
          Nine Month Period Ended September 30, 1998 (unaudited)........  7

          Statements of Cash Flows
          Nine Month Periods Ended September 30, 1998 and 1997
          (unaudited)...................................................  8

          Notes to the Financial Statements (unaudited).................  9-15

ITEM 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations..................................... 16-20



                           PART II  OTHER INFORMATION

______________________________________________________________________________


          Litigation.................................................... 21-22

          Signature..................................................... 23
</TABLE> 

                                       2
<PAGE>


          VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEET
            As of September 30, 1998 and December 31, 1997

                                    ASSETS
                                    ------ 
<TABLE> 
<CAPTION> 
                                                                         September 30,                         December 31,
                                                                           1998                                   1997
                                                                        -------------                         ------------
                                                                        (Unaudited)
Current assets
<S>                                                                    <C>                                     <C> 
  Cash and cash equivalents                                              $   227,384                         $  2,199,036 
  Accounts receivable, less allowance                                                                                     
    for doubtful accounts                                                    629,334                              412,289 
  Inventories (Notes 3 and 8)                                                585,133                              247,611 
  Notes receivable - related party                                           104,758                               10,000 
  Prepaid expenses and other current assets (Note 4)                         322,247                              269,268 
                                                                         -----------                         ------------
    Total Current Assets                                                   1,868,856                            3,138,204 
                                                                         -----------                         ------------ 

Equipment                                                                                                                 
  Manufacturing equipment                                                    310,794                              290,912 
  Furniture and equipment                                                    126,667                              105,160 
  Computer equipment                                                         209,574                              193,571 
                                                                         -----------                         ------------
                                                                             647,035                              589,643 
  Less accumulated depreciation                                             (439,006)                            (347,493)
                                                                         -----------                         ------------
                                                                             208,029                              242,150 
                                                                         -----------                         ------------
Other Assets                                                                                                              
  Intangible assets, net of accumulated amortization                                                                      
   of $144,103 and $73,163 (Notes 2 and 6)                                   602,173                              338,091 
  Advances to Global International Sourcing (Note 6)                                                              193,818 
  Other assets                                                                   875                                  -         
                                                                         -----------                         ------------
    Total Other Assets                                                       603,048                              531,909 
                                                                         -----------                         ------------
                                                                         $ 2,679,933                         $  3,912,263 
                                                                         ===========                         ============   
</TABLE> 

See accompanying notes to consolidated financial statements

                                  3
<PAGE>
 
 
               VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                As of September 30, 1998 and December 31, 1997

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
<TABLE> 
<CAPTION> 
                                                                     September 30,       December 31,
                                                                          1998               1997
                                                                     --------------      -------------
                                                                       (Unaudited)
<S>                                                                  <C>                 <C> 
Current liabilities
  Notes payable - bank                                                $     97,119        $     60,757
  Notes payable - others (Note 8)                                          479,909             283,898                        
  Accounts payable                                                       1,238,172             909,315                        
  Accrued expenses (Note 5)                                                 58,249             342,437                        
  Current maturities of long-term debt                                           -              37,859                        
                                                                      ------------        ------------
    Total Current Liabilities                                            1,813,449           1,634,266                        
                                                                      ------------        ------------
Long-term debt                                                             548,352
Commitments and contingencies (Notes 10 and 11)                                                                               
                                                                                                                              
Stockholders' equity                                                                                                          
  Series A, 6% Cumulative Convertible Preferred Stock,                                                                        
   $0.01 par value cumulative; 1,701 shares authorized,                                                                       
   issued & outstanding, 1,701 and 750 shares,                                  17                   8                        
   liquidation preference of $1,701,000 and $750,000 (Note 8)                                                            
  Series B, 10% Cumulative Convertible Preferred Stock,                                                                       
   $.01 par value; authorized 110,000 shares; issued and                                                                      
   outstanding 1,000 shares, aggregate liquidation preference                   10                  10                        
   of $50,000                                                                                                                 
  Series C, Convertible Preferred Stock, $.01 par value;                                                                      
   authorized 450 shares; issued and outstanding 50 shares,                      1                   1                        
   aggregate liquidation preference of $50,000                                                                                
                                                                                                                              
  Common stock, $.0001 par value; authorized 30,000,000                                                                       
   shares; issued and outstanding  7,639,353 and 6,683,853                   8,959               8,863                        
   shares (Note 9)                                                                                                            
                                                                                                                              
  Additional paid-in-capital (Note 9)                                   25,160,480          23,152,312                        
  Accumulated deficit                                                 $(24,851,335)        (20,883,197)                       
                                                                      ------------        ------------
    Total Stockholders' Equity                                             318,132           2,277,997                        
                                                                      ------------        ------------
                                                                      $  2,679,933        $  3,912,263
                                                                      ============        ============
</TABLE> 

          See accompanying notes to consolidated financial statements

                                       4
<PAGE>

              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE> 
<CAPTION> 

                                                                  Three Months Ended
                                                                     September 30,
                                                                 1998           1997               
                                                             -----------    -----------            
<S>                                                          <C>            <C> 
Net revenues                                                 $   805,511    $   322,116                                          
                                                                                                                                 
Cost of sales                                                    403,092        196,226                                          
                                                             -----------    -----------            
      Gross profit                                               402,419        125,890                                          
                                                             -----------    -----------             
Operating expenses                                                                                                               
  Research and development                                       140,667        123,137                                          
  Sales and marketing                                            621,708        257,016                                          
  General and administrative                                     647,295          3,227                                          
                                                             -----------    -----------            
    Total operating expenses                                   1,409,671        383,380                                           
                                                             -----------    -----------               
    Loss from operations                                      (1,007,252)      (257,490)             
                                                                                                                                 
Other income (expense)                                                                                                           
  Litigation recovery, net of costs                                  -        4,886,947              
  Other income (expense)                                             385         (3,409)             
  Interest income                                                  2,834         47,742              
  Interest expense                                               (51,296)       (53,585)             
                                                             -----------    -----------            
    Total other income (expense)                                 (48,077)     4,877,695              
                                                             -----------    -----------                
    (Loss) income before income tax expense                   (1,055,329)     4,620,205              
                                                                                                                                 
State income tax expense                                             207              -                              
                                                             -----------    -----------            
Net (loss) income                                             (1,055,536)     4,620,205              
Deemed dividend to preferred shareholders (Note 9)              (279,250)                                                        
                                                             -----------                           
Net (loss) income allocable to common shareholders            (1,334,786)     4,620,205              
                                                             ===========    ===========            
(Loss) income per share                                      $     (0.18)   $      0.67            
                                                             ===========    ===========                
Weighted average number of common shares outstanding           7,547,094      6,868,277              
                                                             ===========    ===========            
</TABLE> 

          See accompanying notes to consolidated financial statements

                                       5

<PAGE>
              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                                   September 30,
                                                                               1998            1997
                                                                           -----------      -----------
<S>                                                                        <C>              <C> 
Net revenues                                                               $ 1,555,505      $ 1,497,223
                                                       
Cost of sales                                                                  951,407        1,078,854
                                                                           -----------      -----------
                                                       
      Gross profit                                                             604,098          418,369
                                                                           -----------      -----------
                                                       
Operating expenses                                     
  Research and development                                                     280,251          179,268
  Sales and marketing                                                        1,368,052          996,242
  General and administrative                                                 2,121,026        1,894,114
                                                                           -----------      -----------
    Total operating expenses                                                 3,769,330        3,069,624
                                                                           -----------      -----------
                                                       
    Loss from operations                                                    (3,165,232)      (2,651,255)
                                                       
Other income (expense)                                 
  Litigation recovery, net or costs                                                           4,886,947
  Other income (expense)                                                       (60,000)          19,710
  Interest income                                                               38,851           47,742
  Interest expense                                                            (149,202)        (153,138)
                                                                           -----------      -----------
    Total other income (expense)                                              (170,351)       4,801,261
                                                                           -----------      -----------
                                                       
    (Loss) income before income tax expense                                 (3,335,583)       2,150,006
                                                       
State income tax expense                                                         3,407               -
                                                                           -----------      -----------
                                                       
Net (loss) income                                                           (3,338,990)       2,150,006
Deemed dividend to preferred shareholders (Note 9)                            (629,148)        (305,749)
                                                                           -----------      -----------
Net (loss) income allocable to common shareholders                          (3,968,138)       1,844,257
                                                                           ===========      ===========
                                                       
(Loss) income per share                                                         ($0.55)     $      0.32
                                                                           ===========      ===========
                                                       
Weighted average number of common shares outstanding                         7,178,791        5,762,985
                                                                           ===========      ===========
</TABLE> 



          See accompanying notes to consolidated financial statements

                             6
<PAGE>
              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     Nine Months Ended September 30, 1998
                                  (Unaudited)
<TABLE> 
<CAPTION> 
                                                          Series A                           
                                                         Cumulative           Series B           Series C
                                                         Convertible         Convertible        Convertible        
                                                       Preferred Stock     Preferred Stock    Preferred Stock     Common Stock     
                                                    -------------------- ------------------- ------------------ -------------------
                                                     Shares     Amount     Shares   Amount    Shares   Amount    Shares     Amount 
                                                    --------- ---------- --------- --------- -------- --------- --------- ---------
                                                                                                                                    
<S>                                                 <C>       <C>        <C>        <C>       <C>      <C>      <C>        <C> 
Balance, January 1, 1998                                750        $8      1,000        $10       50       $1    6,683,853   $8,863
                                                                                                                                    
Series A Preferred issued in connection with                                                                                        
  a private placement, net of expenses                  500         5                                                              
                                                                                                                                    
Common stock isssued as settlement of contract                                                                                      
  disputes                                                                                                        115,000        12
                                                                                                                                    
Exercise of stock options                                                                                         239,500        24
                                                                                                                                    
Stock issued for acquisition of marketing contract                                                                 60,000         6
                                                                                                                                    
Stock issued for services                                                                                         541,000        54
                                                                                                                                    
Preferred stock dividends                               451         4                                                              
                                                                                                                                    
Net Loss                                                                                                                           
                                                    --------- ---------- --------- --------- -------- ---------  --------- ---------
Balance, September 30, 1998                           1,701       $17      1,000        $10       50       $1    7,639,353   $8,959

<CAPTION> 

                                                                                                                                   
                                                                                                                                   
                                                    Additional                                                                     
                                                     Paid-In         Accumulated
                                                     Capital           Deficit           Total
                                                   ------------      ------------      ----------
<S>                                                <C>               <C>               <C> 
Balance, January 1, 1998                            $23,152,312      ($20,083,197)     $2,277,997
                                                                                                                                   
Series A Preferred issued in connection with                                                                                       
  a private placement, net of expenses                  498,995                           499,000
                                                                                                                                   
Common stock isssued as settlement of contract                                                                                     
  disputes                                               94,176                            94,188
                                                                                                                                   
Exercise of stock options                               213,634                           213,658
                                                                                                                                   
Stock issued for acquisition of marketing contract       43,118                            43,124
                                                                                                                                   
Stock issued for services                               529,101                           529,155
                                                                                                                                   
Preferred stock dividends                               629,144          (629,144)             -
                                                                                                                                   
Net Loss                                                               (3,338,990)     (3,338,990)
                                                   ------------      ------------      ----------
Balance, September 30, 1998                                          $(24,051,335)      $318,132)
                                                   ============      ============      ==========
</TABLE> 


         See accompanying notes to consolidated financial statements.

                                       7
<PAGE>


               VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                            Nine Months Ended
                                                                              September 30,
                                                                             1998           1997
                                                                          ----------     ----------
<S>                                                                       <C>            <C> 
Increase (Decrease) in Cash and Cash Equivalents

Cash flows from operating activities:
    Net (loss) income                                                      $(3,338,990)   $2,150,006
    Depreciation and amortization                                              136,207       124,708
    Allowance for doubtful accounts                                                          (12,250)
    Stock issued for services                                                  214,706            -
    Changes in operating assets and liabilities:
      (Increase) decrease in:
        Accounts receivable,                                                   105,500       (69,640)
        Inventories                                                           (332,522)       92,206
        Prepaid expenses and other current assets                               57,983        29,403
        Other assets                                                              (875)           -
       Increase (decrease) in:
        Accounts payable                                                       541,443        75,969
        Accrued expenses                                                      (284,188)     (180,781)
                                                                           -----------    ----------
          Cash and cash equivalents used in operating activities            (2,900,736)    2,209,621
                                                                           -----------    ----------
Cash flows from investing activities:
  Purchase of equipment                                                        (42,392)       (6,912)
  Advances to related parties                                                     (468)           -
  Advances to Global International                                            (285,385)           -
  Cash acquired through acquisition of Global International Sourcing            75,462            -
                                                                           -----------    ----------
         Cash and cash equivalents used in investing activities               (252,783)       (6,912)
                                                                           -----------    ----------
Cash flows from financing activities:
  Proceeds from issuance of stock                                              499,000     1,633,050
  Proceeds from notes payable, short term                                      948,352       150,000
  Proceeds of line of credit                                                    36,363            -
  Repayments of notes payable                                                 (301,848)     (576,683)
                                                                           -----------    ----------
         Cash and cash equivalents provided by financing activities          1,181,867     1,206,367
                                                                           -----------    ----------

Increase (decrease) in cash and cash equivalents                            (1,971,652)    3,409,076
Cash and cash equivalents, beginning of period                               2,199,036       188,867
                                                                           -----------    ----------
Cash and cash equivalents, end of period                                   $   227,384    $3,597,943
                                                                           ===========    ==========
Supplemental  disclosure of cash flow information
  Cash paid during the period for:
    Interest                                                               $   149,202    $   45,000
    Income taxes                                                           $    (3,407)           -

Supplemental disclosure of non-cash operating, investing, and
  financial activities
    Stock issued for accounts payable                                      $   519,692    $  683,870
    Stock issued for prepaid consulting services                           $   102,602            -
    Stock issued for acquisition of marketing contract                     $    43,125            -
    Acquisition of Global International Sourcing:
         Assets acquired, net of cash                                      $   535,786
         Liabilities assumed, including $522,328 due to Vitafort           $   829,461
</TABLE> 

          See accompanying notes to consolidated financial statements

                                       8
<PAGE>
 
              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

                                        
NOTE 1 - GENERAL

     The unaudited consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and, in the opinion
of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented.  The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.

     As contemplated by the Securities and Exchange Commission (SEC) under item
310(b) of Regulation S-B, the accompanying consolidated financial statements and
related footnotes do not contain certain information that will be included in
the Company's annual consolidated financial statements and footnotes thereto.
For further information, refer to the consolidated financial statements and
related footnotes for the year ended December 31, 1997 included in the Company's
Annual Report on Form 10-KSB/A filed August 14, 1998.

   The Company is presently engaged in formulating, marketing and distributing
fat-free, low fat and reduced fat foods.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (a)  The accompanying consolidated financial statements include the
          accounts of the Company and its subsidiaries. All material
          intercompany accounts and transactions have been eliminated.

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

     (c)  Prepaid assets include product introduction expenses (which are
          recorded at cost and amortized over the economic life thereof), but
          not in excess of twelve months, consulting and other prepaids.

     (d)  Fixed assets are composed of manufacturing equipment, furniture,
          office equipment, and computer equipment and are recorded at cost.
          Depreciation is computed on a straight-line basis over the estimated
          useful life, generally five years or less.

     (e)  Intangible assets, which are recorded at cost, are composed of debt
          issuance costs, acquisition costs of Auburn Farms and Natures
          Warehouse trademarks, and goodwill associated with the acquisition of
          Global International Sourcing, Inc. The acquisition costs associated
          with trademarks and goodwill are being amortized on a straight-line
          basis over twenty years. All other intangible assets are being
          amortized on a straight-line basis over periods not exceeding five
          years. These costs are reviewed by management periodically and written
          down to the value of the future benefit expected to be derived.

     (f)  For the purpose of cash flow, the Company considers all highly liquid
          investments purchased with an original maturity of three months or
          less to be cash equivalents.

                                       9
<PAGE>
 
     (g)  For the three and nine months ended September 30, 1998 and 1997, basic
          and diluted loss per share have been compiled using the weighted
          average number of common shares outstanding during the period. Options
          and warrants outstanding to purchase shares of common stock at various
          prices per share at September 30, 1998, were not included in the
          computation of diluted loss per share, as the effect would be
          antidilutive. For the loss at September 30, 1998, the numerator in the
          computation was adjusted by deducting the preferred deemed dividend to
          arrive at the net loss allocable to common shareholders. Dividends on
          cumulative preferred stock are not material.

     (h)  Advertising: Costs are expensed as incurred or prepaid until the
          advertisement is published, at which time the related costs are
          expensed.

     (i)  Reporting on the Cost of Start-Up Activities: Statement of Position 
          98-5, "Reporting on the Costs of Start-Up Activities," ("SOP 98-5")
          issued by the Accounting Standards Executive Committee is effective
          for financial statements with fiscal years beginning after December
          15, 1998. SOP 98-5 requires that the costs of start-up activities
          should be expensed as incurred. At the time of adopting this SOP, the
          initial application should be reported as the cumulative effect of a
          change in accounting principles. At September 30, 1998, and December
          31, 1997, the Company capitalized product introduction costs of
          $37,250 and $10,711, respectively. These costs are considered as 
          start-up activities under SOP 98-5. The Company does not believe that
          the adoption of this SOP will have a material effect on its financial
          position, results of operations or cash flows.


NOTE 3  INVENTORIES

     Inventories are stated at the lower of cost (first in, first out) or
market. Market-based valuations are based upon estimates and assumptions, and
are generally limited to slow moving product offerings. Inventory consists of
the following:

<TABLE> 
<CAPTION> 
                                                        September 30, 1998          December 31, 1997
                                                        ------------------          ----------------- 
<S>                                                     <C>                         <C> 
   Finished goods                                            $329,927                    $ 30,188
   Packaging and raw material                                 255,206                     217,423      
                                                             --------                    --------      
                                                             $585,133                    $247,611
                                                             ========                    ========
</TABLE> 

NOTE 4  PREPAID EXPENSES AND OTHER CURRENT ASSETS

    Prepaid expenses and other current assets consist of the following:

<TABLE> 
<CAPTION> 
                                                        September 30, 1998          December 31, 1997
                                                        ------------------          ----------------- 
<S>                                                     <C>                         <C> 
   Deposits                                                  $     -                     $  1,100
   Product introduction costs                                  37,250                      10,711   
   Insurance                                                   66,250                      36,377
   Consulting                                                 200,747                     108,080   
   Other prepaids                                              18,000                     113,000 
                                                             --------                    --------      
       Total prepaid expenses and other current assets       $322,247                    $269,268
                                                             ========                    ========
</TABLE>

                                       10
<PAGE>
 
NOTE 5 - ACCRUED EXPENSES

   Accrued expenses consist of the following:

<TABLE> 
<CAPTION> 
                                                        September 30, 1998          December 31, 1997
                                                        ------------------          ----------------- 
<S>                                                     <C>                         <C> 
   Accrued compensation                                       $36,179                    $156,764
   Accrued legal fees                                               -                      40,112
   Accrued consulting fees                                          -                       4,919
   Other accrued expenses                                      22,070                     140,642
                                                              -------                    --------
   Total accrued expenses                                     $58,249                    $342,437
                                                              =======                    ========
</TABLE>

NOTE 6  ACQUISITION OF SUBSIDIARY

     As of March 31, 1998, the Company acquired 100% of the outstanding stock of
Global International Sourcing, Inc. (Global) for $25.  The acquisition was
accounted for as a purchase and the operations of Global are included herein
commencing April 1, 1998.  The assets and liabilities of Global were recorded at
fair value and resulted in goodwill of $218,213.  Had the Company consolidated
its operating performance for the nine months ended September 30, 1998, the
results would have been as follows:

<TABLE> 
<S>                                                    <C> 
     Net Sales                                         $ 1,941,310
     Gross Profit                                          648,953
     Net Loss                                           (3,454,369)
     Net Loss Allocable to Common Shareholders          (4,083,517)
     Net Loss Per Share                                     ($0.57)
</TABLE> 

     Global was formed in October 1997 and its financial position and results of
operations are not material compared to the Company's financial position at
December 31, 1997 or its results of operations for the year ended December 31,
1997.


NOTE 7  CONVERTIBLE DEBENTURE

     On August 24, 1998, the Company issued a convertible debenture due August 
24, 2000 and received proceeds in the amount of $548,352. Interest is payable 
quarterly or at the time of conversion if such conversion is prior to a quarter 
end until the principal is paid in full or has been converted. Each payment 
shall be paid in cash or in common stock, at the Company's option. The holder of
the debenture shall have the right 120 days following August 24, 1998, at its 
option, to convert it, plus any accrued interest, into shares of common stock at
any time prior to the maturity date. The conversion rate shall be at 75% of the 
5 day average closing bid price as reported for the 5 consecutive trading days 
immediately preceding the conversion date.

NOTE 8  NOTES PAYABLE

     Bank
     ----
     On June 26, 1998, the Company's current lender, Coast Business Credit
("Bank") notified the Company that it would not renew the credit line when it
expired on August 31, 1998.  The Bank also agreed to eliminate from its
collateral the inventory to be used for the Purchase Order Financing discussed
below.  

                                       11
<PAGE>
 
The Company is in negotiations with other lenders to replace Coast Business
Credit and believes it will do so at rates and terms similar to those of Coast
Business Credit.

     Other
     -----
     In June 1998, the Company entered into purchase order financing agreements
which provided the Company with $400,000 to purchase inventory.  These advances
bear interest at 15% per annum and are to be repaid from the proceeds of the
related sales of the inventory if the inventory level falls below the amount of
the financing.  In addition, the lender received options to purchase 100,000
shares of the Company's common stock at $1.00 per share.  The Company has
pledged its inventory as collateral for these advances.


NOTE 9 - STOCKHOLDERS' EQUITY

     During the nine month period ended September 30, 1998, the following stock
transactions occurred, all of which were valued at fair market:

     (a)  The Company issued 85,000 shares of common stock at a value of $1.00
          per share as settlement for contract disputes previously recorded as a
          liability.

     (b)  The Company issued 30,000 shares of common stock at a value of $.30625
          per share as settlement of a contract dispute related to consulting
          services previously recorded as a liability.

     (c)  The Company issued 60,000 shares of common stock at a value of $.71875
          per share and forgave a $25,000 note receivable in exchange for the
          distribution rights with respect to all marshmallow products in North
          America. The Company also received $5,000 of sample inventory and
          $15,000 of furniture and equipment as part of this transaction.

     (d)  The Company issued 100,000 shares of common stock at a value of $0.74
          per share upon the exercise of an option granted a consultant in
          exchange for future consulting services.

     (e)  The Company issued 15,000 shares of common stock at a value of $1.00
          per share upon the exercise of an option granted a consultant in
          exchange for services rendered previously recorded as a liability.

     (f)  The Company entered into a subscription agreement in March 1998 with
          an unrelated investor for $500,000 for 500 shares of 1997 Series A
          Preferred Stock. The preferred stock has a cumulative dividend of 6%
          with no voting rights. The preferred stock is convertible beginning
          August 10, 1998 at a 21.5% discount if the fair market value of the
          stock on the date of conversion is $0.6875 per share or less. If the
          fair market value of the stock on the date of conversion is more than
          $0.6875 per share, the preferred stock is convertible at fair market
          value. However, if the preferred shares are converted at fair market
          value, the preferred shareholder will receive sufficient warrants upon
          conversion to purchase common stock at $0.6875 per share to generate a
          $275 profit per share of preferred stock converted.

          As part of this transaction, the Company also issued 451 shares of
          preferred stock, as well as warrants to purchase 282,422 shares of
          common stock at $0.6875 per share to the holders of the 1997 Series A
          Preferred Stock in exchange for the preferred stockholders accepting
          an adjustment in the terms of the 1997 Series A Preferred Stock.  The
          warrants may be exercised over a five year period beginning August 10,
          1998.

                                       12
<PAGE>
 
          For accounting purposes, the issuance of the warrants to the 1997
          Series A Preferred stockholders results in a deemed dividend of
          $147,381 which will be recognized as a deemed dividend at a rate of
          $24,564 per month through August 10, 1998.

          The modified terms of the 1,701 total shares of 1997 Series A
          Preferred Stock outstanding would result in an issuance of 787,563
          warrants to purchase shares of common stock.  The value of these
          potential warrants issued is reflected as an original issued discount
          of $411,128 at the time of the transaction.  This original issue
          discount is being treated as a deemed dividend that will be recognized
          at a rate of $68,521 per month through August 10, 1998.

     (g)  The Company issued 40,000 shares of common stock at a value of $1.00
          per share upon the exercise of an option granted to a consultant in
          exchange for consulting services.

     (h)  The Company issued 37,500 shares of common stock at a value of $1.004
          per share upon the exercise of an option granted a previous employee
          as part of a litigation settlement.

     (i)  The Company issued 339,500 shares of common stock at a value of $1.00
          per share in June 1998 under an S-8 filing as payment for services
          rendered and to be rendered.

     (j)  The Company issued 49,500 shares of common stock at a value of $.805
          per share to various consultants and professional firms for previous
          services rendered.

     (k)  The Company issued 47,000 shares of common stock at a value of $1.00
          per share upon the exercise of an option granted to a consultant in
          exchange for future consulting services.

     (l)  The Company issued 125,000 shares of common stock to officers at a
          value of $1.00 per share in payment of accrued bonuses.

     (m)  The Company issued 20,000 shares of common stock at a value of $.94
          per share to a consultant in payment of services rendered.

     (n)  The Company issued 7,000 shares of common stock at a value of $.86 per
          share to a consultant in payment of services rendered.


NOTE 10  GOING CONCERN

     The Company has prepared the financial statements included herewith
assuming that the Company will continue as a going concern. The Company has
continued to suffer recurring losses from operations through September 30, 1998.
As of September 30, 1998, the Company has working capital of $55,407. The
Company needs to raise additional capital and realize a satisfactory level of
profitability from its current and future operations in order to remain a viable
entity. The Company's auditors have included an explanatory paragraph in their
report for the year ended December 31, 1997 indicating there is substantial
doubt regarding the Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of any uncertainty. The Company is attempting
to raise additional capital to meet future financial obligations, but may not be
able to do so. Should the Company not be able to raise additional capital, it
may have to severely curtail operations.


                                       13
<PAGE>
 
NOTE 11 - LITIGATION

     The Company is subject to pending claims and litigation, the most
significant of which are discussed below.

     In December 1994, Lloyd Gaunt, who invested an aggregate of $75,000 in
certain of the Company's private placements, initiated an action in Superior
Court, Orange County, California against his stockbroker, two national brokerage
firms, several companies in which he had invested; and, certain of those
company's officers.  Included among the defendants was the Company and its then
Chief Executive Officer.  The complaint seeks damages in an unspecified amount
in excess of $500,000 and punitive damages in an unspecified amount in excess of
$5,000,000. The Court has dismissed the class action claims as to the Company
and granted a motion that the claims against the brokerage firms and associated
persons must be submitted to arbitration.   The Plaintiff has appealed that
ruling.  The Company denies any liability to the plaintiff and intends to
vigorously defend this action.  The Company notes that the plaintiff sold a
portion of the securities he purchased from the Company, realizing a profit;
that the balance of the securities became salable under Rule 144; and that, if
sold, the Plaintiff `s losses might be as little as $15,000.

     In connection with the acquisition of assets of Auburn Farms, Inc.,
("AFI"), the Company acquired the intellectual property and certain claims of
AFI which it was asserting against AFI's co-packer, New Life Bakers ("New Life")
and against a customer of New Life, Barbara's Bakery ("Barbara's"). In May 1996,
the Company filed an action in federal court alleging Lanham Act violations,
misappropriation of trade secrets, unfair competition, conspiracy and related
claims arising out of New Life and Barbara's misappropriation of Auburn Farms'
principal products. Although no trial date has been set, the Company expects the
case to proceed to a jury trial in the first half of 1999.

     On March 25, 1998, New Life and Barbara's purported to purchase from AFI's
bankruptcy estate certain claims against Barbara's and New Life for $300,000.
The purchased claims do not include any of the claims previously acquired by the
Company. The Company has been advised by outside litigation counsel that
evidence supports a claim for damages in excess of $3 million for the
destruction of AFI's and Vitafort's business and intellectual property rights.
The Company may be obligated to pay a portion of any recovery against New Life
to AFI's bankruptcy estate and/or its creditors.  The Company intends to pursue
this litigation vigorously.  There is no assurance given that the Company will
receive any recovery.

     On October 9, 1996, a complaint was filed in Superior Court, the County of
Los Angeles, in an action entitled "Eloy Louis Ellis vs. Vitafort, Inc., a
Delaware Corporation; Mark Beychok and Does 1-50 inclusive." The complaint
alleges Breach of Oral Contract, Breach of Written Contract, and other similar
claims arising out of the consulting relationship that previously existed
between the Company and Mr. Ellis. The Complaint seeks damages in an unspecified
amount. The court dismissed the complaint against Mark Beychok without leave to
amend. Mr. Ellis recently filed an amended complaint against the Company. The
Company is defending the action vigorously and trial is imminent. In a related
action, the Company filed a lawsuit against Ellis charging violations of Section
16(b) of the Securities Exchange Act of 1934 (short swing profits). Ellis sold
stock in violation of that section and, therefore, the profits, estimated at
$20,000, belong to the Company. In March 1998, the court ruled in favor of the
Company in this matter and awarded $21,260. Ellis has appealed the ruling. On
June 2, 1998 the parties resolved both the Ellis issues. Under the terms of the
agreement, the settlement is treated as confidential and the public response has
been agreed to as follows: "The matter has been resolved."

     On September 25, 1998, a complaint was filed in Superior Court, the County
of Los Angeles, in an action entitled "Jonathan Neil & Associates, Inc., a
California corporation vs. Vitafort International Corporation, a Delaware
corporation and Does 1 through 50 inclusive."  The complaint is for "Money for
Goods and Services Sold and Delivered, Account Stated, and Open Book Account."
The plaintiff is the assignor for Stone Container Corporation who are alleging
the defendant is indebted in the amount of $29,476.96 plus interest and
attorneys' fees.  The Company is vigorously defending the suit.

     On September 29, 1998, a complaint was filed in Superior Court, the County
of Los Angeles, in an action entitled "Kirtland & Packard LLP, a California
Limited Liability Partnership vs. Vitafort, Inc., a Delaware Corporation; and
Does 1-25 inclusive."  The complaint alleges Breach of Contract, Fraud,
Negligent Misrepresentation, Common Counts, Breach of Implied Covenant of Good
Faith and Fair Dealing, Negligent Performance of Contract, and Declaratory
Relief, arising out of a contract for legal services.  The Complaint seeks
damages in the amount of $85,000.00 plus interest and attorneys fees, and for
such other and further relief as the Court deems just and proper.   The Company
is vigorously defending the suit.


                                      14
<PAGE>
 
           ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AS RESULTS OF OPERATIONS

                                  (Unaudited)
                                        
  CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE
                   SECURITIES LITIGATION REFORM ACT OF 1995:

EXCEPT FOR HISTORICAL FACTS, ALL MATTERS DISCUSSED IN THIS REPORT WHICH ARE
FORWARD LOOKING INVOLVE A HIGH DEGREE OF RISKS AND UNCERTAINTIES.  POTENTIAL
RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, COMPETITIVE PRESSURES
FROM OTHER FOOD COMPANIES AND WITHIN THE GROCERY INDUSTRY, ECONOMIC CONDITIONS
IN THE COMPANY'S PRIMARY MARKETS AND OTHER UNCERTAINTIES DETAILED FROM TIME TO
TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.

Three Months and Nine Months Ended September 30, 1998 and 1997
--------------------------------------------------------------

Results of Operations:

     A significant portion of the Company's efforts in new product development
culminated in the manufacture and shipment of two new product lines during the
first half of 1998:  Toast `N Jammers Low Fat Toaster Pastries and The Wizard of
Oz brand marshmallows.  The development of Juliette's Private Collection Low Fat
Cookies was completed in the second quarter and, because consumer demand and
overall retail cookie sales are relatively unaffected by the seasons, the timing
of their introduction will not present serious obstacles to distribution over
the remainder of 1998.  Management is encouraged by steady retail sales of Toast
`N Jammers at Trader Joe's.

     At the end of the second quarter, the majority of the inventory of
marshmallow product was at the Mexican border undergoing inspection by both the
Food and Drug Administration and the U. S. Customs Service.  Both inspections
are routine; however, this was the first significant shipment of marshmallows
and thus the procedure and process took longer than anticipated.  When the
product finally was released and delivered to the Company's subcontracted public
warehouse, there was not enough time to receive the goods, process the orders,
and re-ship the product to the customers.  Thus, revenue of $257,004 was
recorded in July for the third quarter that would have been recorded in June
were it not for the inspection delays encountered.

     Overcoming retailer resistance resulting from problems in the past with
Vitafort Fudgets and Caketts previously reported remains an obstacle; however,
recent orders for The Wizard of Oz marshmallows to some of those retailers point
to a reconsideration of past resistance.  Management hopes that these
marshmallows will help overcome lingering resistance by others to all of the
Company's products.  The Company is presently using acceptance by these
retailers to help restore its former position in other markets, especially in
its home state of California.

     From the standpoint of the Company's retailers, successful sell-through and
restocking of the products are one way to re-establish the level of credibility
the Company enjoyed prior to the manufacturing problem referred to above.  The
planned promotion of the re-release of The Wizard of Oz motion picture by Warner
Bros. and the Company's tie-ins as an official licensee are an important element
of the Fall marketing activities to support retail sales.

     The acquisition of Global International Sourcing has to date proved
fortuitous because Global handled the manufacturing arrangements for the "The
Wizard of Oz" brand marshmallows.  The 

                                       15
<PAGE>
 
Company plans to make full use of Global's sourcing skills in the future for
rounding out the licensed products brands with the additional snack food
products needed for continuity and category growth.

Net Revenues:

     For the three months ended September 30, 1998, net sales were $805,511
compared to $322,116 for the same period in 1997, an increase of $483,395 or
approximately 150%. As stated above, $257,004 of revenue was recorded in the
third rather than the second quarter due to a customs inspection delay. Without
this extraordinary event, revenue would have been $548,507, or an increase of
$226,391 over the same period in the prior year. The loss of Fudgets and Caketts
sales, which in the three months ended September 30, 1997 were $151,989, were
not replaced by any other of the Company's other products, but sales of these
products were not sufficient to allow substantial overall sales growth. In May
1998, the Company discontinued the Caketts line of three products and two of the
three Fudget products. The introduction of The Wizard of Oz(TM) marshmallows in
the second quarter of 1998 generated sales of $531,566 for the three months
ended September 30, 1998 compared to no sales for the same period in 1997. The
Auburn Farms/Natures Warehouse product lines weakened somewhat in the quarter
ended September 30, 1998 where sales were $238,813 compared to $119,546 for the
same period in 1997. Global International Sourcing contributed $108,004 in sales
during the three month period ended September 30, 1998.

     For the nine months ended September 30, 1998, net sales were $1,555,505
compared to $1,497,223 for the same period in 1997, an increase of $58,282. The
sales totals reflect a declining product mix with losses of Caketts and Fudget
sales being offset by sales of marshmallows and Toast `N Jammers. The Company
introduced The Wizard of Oz marshmallows under its Avenue of the Stars(TM) brand
in the month of June 1998 and recorded sales at the end of the second quarter of
$92,736. Sales of $624,334 were recorded in the third quarter. The Auburn
Farms/Natures Warehouse product lines continued to weaken in the nine months
ended September 30, 1998 where sales were $668,861 compared to $707,400 for the
same period in 1997.

Gross Profit:

     Gross profit increased from $125,890 or 39% for the three months ended
September 30, 1997 to $402,419 or 50% for the three months ended September 30,
1998, an increase of $276,529.  The increase reflects a shift in product mix for
1998.

     Gross profit increased from $418,369 for the nine months ended September
30, 1997 to $604,098 for the nine months ended September 30, 1998, an increase
of $185,729.  The increase is due to sales of products with higher margins.
 
Operating Expenses:

     Overall operating expenses for the three month period ended September 30,
1998 have increased over the previous year period by $1,026,291 due to the 
rollout of new products offset by proceeds received from the Keebler settlement.

                                       16
<PAGE>
 
     Overall operating expenses for the nine month period ended September 30,
1998 have increased over the previous year by $699,706 due to the rollout of
new products offset by proceeds received from the Keebler settlement.

Research and Development:

     Total expenses for product development in the quarter ended September 30,
1998 were $140,667 compared to $123,137 for the same period in 1997, an increase
of $17,530. The majority of the increase in expenses was related to the
employment of outside consultants to assist the staff in insuring development of
new formulations and product design. In addition, these consultants were working
with the Company's co-packers to maintain acceptable quality assurance and to
insure that quality control measures are in place during the manufacturing
process of the Company's products. The cost for the three months ended September
30, 1998 for outside consultants was $81,981 compared to $122,512 for the same
period in 1997, a decrease of $40,531 because fewer consultants were used.

     Total expenses for product development in the nine months ended September
30, 1998 were $280,251 compared to $179,268 for the same period in 1997, an
increase of $100,983. The majority of the increase in expenses was related to
the employment of outside consultants to continue the effort in new product
development, design and sourcing. The cost for the nine months ended September
30, 1998 for outside consultants was $163,252 compared to $146,883 for the same
period in 1997, an increase of $16,369.

Sales and Marketing:

     Total sales and marketing expenses for the quarter ended September 30, 1998
were $621,708 compared to $257,016 for the three months ended September 30,
1997, an increase of $364,692. Global International Sourcing sales and marketing
expenses for the quarter ended September 30, 1998 were $149,268, while Vitafort
sales and marketing expenses were $472,440. Without the acquisition of Global,
the overall sales and marketing expenses for the quarter would have been more
than the previous year period by $215,424. The increase in Vitafort expenses
were primarily in sales promotion expenses, $52,648 and product introduction
fees, $29,776, all of which are related to increased sales efforts.

     Total sales and marketing expenses for the nine months ended September 30,
1998 were $1,368,052 compared to $996,242 for the nine months ended September
30, 1997, an increase of $371,810. Global International Sourcing sales and
marketing expenses for the nine months ended September 30, 1998 were $354,271,
while Vitafort sales and marketing expenses were $1,013,781. The increase in
Vitafort expenses were primarily in the areas of sales promotion expenses,
$96,406 and product introduction fees, $36,859 related to increased sales
efforts.

General and Administrative:

     For the quarter ended September 30, 1998, total general and administrative
expenses were $647,295 compared to $3,227 for the same quarter ended September
30, 1997 an increase of $644,068. The increase of $644,068 was caused by
proceeds from the Keebler settlement which were received during the 3 months
ended September 30, 1997 being offset to the general and administrative expenses
for that period. Staff increases and related expenses increased by $149,019 for
the three months ended September 30, 1998 compared to the three

                                       17
<PAGE>
 
months ended September 30, 1997 due to the conversion of certain staff positions
from temporary consulting classifications to permanent employees.  The decrease
is in the professional services, especially legal, where the expense level
declined from $333,775 for the three months ended September 30, 1997 to $307,219
for the three months ended September 30, 1998, a decrease of $26,556 which was
accomplished principally through the resolution of certain legal proceedings.

     For the nine months ended September 30, 1998, total general and
administrative expenses were $2,121,026 compared to $1,894,114 for the same
period in 1997, an increase of $226,912.  Staff increases and related expenses
increased by $496,558 for the nine months ended September 30, 1998 compared to
the nine months ended September 30, 1997, as temporary positions in 1997 were
converted to permanent positions in 1998.  The professional expenses were
reduced by $675,278 for the nine months ended September 30, 1997 from $1,710,167
to $1,034,889 for the nine months period ended September 30, 1998.

Other Income (Expense):

     The interest income continues to reflect the Company's investment of excess
cash in short term investment instruments.  As the amount of the total
investment declines due to cash requirements, the amount of income will also
decline.

     The other expense recognizes the effect of the lawsuit settled in the
current quarter.

Liquidity and Capital Resources:

<TABLE> 
<CAPTION> 
                                                         Nine Months Ended
                                                           September  30,
                                                      1998               1997
                                               ------------------   ---------------
<S>                                            <C>                  <C>
Net Cash Used for Operations                         $(2,938,595)      $(2,209,621)
Net Cash Used for Investing Activities               (   252,783)           (6,912)
Net Cash Provided by Financing Activities              1,219,726         1,206,367
Working Capital (Deficit)                                 55,407         3,409,076
</TABLE>

     The Company continues to expend resources in the product development area
for the scheduled introduction of new products.  The Company's financial
condition continues to impair its ability to obtain credit terms with new co-
packers.  This will put additional pressure on the liquidity of the Company and
may impede its ability to produce product.  Although the Company believes the
new products, which have higher gross profit margins, can allow the Company to
reach an operating profit, there is no guarantee that the Company will be able
to reach such revenue levels.  Nor is there any assurance that the Company will
be able to meet its future cash obligations without additional external funding
and improved sales.  Neither additional financing nor improved sales can be
guaranteed to occur in the future.

     The Company has suffered recurring losses from operations as of September
30, 1998.  Although the Company has raised additional capital, it has not
generated sufficient revenue-producing activity to sustain its operations.  The
Company's independent certified public accountants have included a modification
to their opinion which indicates there is substantial doubt about the Company's
ability to continue as a going concern.  See "Note 10" to the consolidated
financial statements for additional information.  The Company is attempting to
raise additional capital to meet future working capital requirements, but may
not be able to do so.  Should the Company not be able to raise additional
capital, it may have to curtail operations.

                                       18
<PAGE>
 
ITEM 2.  OTHER INFORMATION

                       VITAFORT INTERNATIONAL CORPORATION

                                   LITIGATION
                                        

     In December 1994, Lloyd Gaunt, who invested an aggregate of $75,000 in
certain of the Company's private placements, initiated an action in Superior
Court, Orange County, California against his stockbroker, two national brokerage
firms, several companies in which he had invested; and, certain of those
company's officers.  Included among the defendants was the Company and its then
Chief Executive Officer.  The complaint seeks damages in an unspecified amount
in excess of $500,000 and punitive damages in an unspecified amount in excess of
$5,000,000. The Court has dismissed the class action claims as to the Company
and granted a motion that the claims against the brokerage firms and associated
persons must be submitted to arbitration.   The Plaintiff has appealed that
ruling.  The Company denies any liability to the plaintiff and intends to
vigorously defend this action.  The Company notes that the plaintiff sold a
portion of the securities he purchased from the Company, realizing a profit;
that the balance of the securities became salable under Rule 144; and that, if
sold, the Plaintiff `s losses might be as little as $15,000.

     In connection with the acquisition of assets of Auburn Farms, Inc.,
("AFI"), the Company acquired the intellectual property and certain claims of
AFI which it was asserting against AFI's co-packer, New Life Bakers ("New Life")
and against a customer of New Life, Barbara's Bakery ("Barbara's").  In May
1996, the Company filed an action in federal court alleging Lanham Act
violations, misappropriation of trade secrets, unfair competition, conspiracy
and related claims arising out of New Life and Barbara's misappropriation of
Auburn Farms' principal products.  Although no trial date has been set, the
Company expects the case to proceed to a jury trial in the first half of 1999.

     On March 25, 1998, New Life and Barbara's purported to purchase from AFI's
bankruptcy estate certain claims against Barbara's and New Life for $300,000.
The purchased claims do not include any of the claims previously acquired by the
Company.  The Company has been advised by outside litigation counsel that
evidence supports a claim for damages in excess of $3 million for the
destruction of AFI's and Vitafort's business and intellectual property rights.
The Company may be obligated to pay a portion of any recovery against New Life
to AFI's bankruptcy estate and/or its creditors.  The Company intends to pursue
this litigation vigorously.  There is no assurance given that the Company will
receive any recovery.

     On October 9, 1996, a complaint was filed in Superior Court, the County of
Los Angeles, in an action entitled "Eloy Louis Ellis vs. Vitafort, Inc., a
Delaware Corporation; Mark Beychok and Does 1-50 inclusive." The complaint
alleges Breach of Oral Contract, Breach of Written Contract, and other similar
claims arising out of the consulting relationship that previously existed
between the Company and Mr. Ellis. The Complaint seeks damages in an unspecified
amount. The court dismissed the complaint against Mark Beychok without leave to
amend. Mr. Ellis recently filed an amended complaint against the Company. The
Company is defending the action vigorously and trial is imminent. In a related
action, the Company filed a lawsuit against Ellis charging violations of Section
16(b) of the Securities Exchange Act of 1934 (short swing profits). Ellis sold
stock in violation of that section and, therefore, the profits, estimated at
$20,000, belong to the Company. In March 1998, the court ruled in favor of the
Company in this matter and awarded $21,260. Ellis has appealed the ruling. On
June 2, 1998 the parties resolved both the Ellis issues. Under the terms of the
agreement, the settlement is treated as confidential and the public response has
been agreed to as follows: "The matter has been resolved."

                                       19
<PAGE>
 
     On September 25, 1998, a complaint was filed in Superior Court, the County
of Los Angeles, in an action entitled "Jonathan Neil & Associates, Inc., a
California corporation vs. Vitafort International Corporation, a Delaware
corporation and Does 1 through 50 inclusive."  The complaint is for "Money for
Goods and Services Sold and Delivered, Account Stated, and Open Book Account."
The plaintiff is the assignor for Stone Container Corporation who are alleging
the defendant is indebted in the amount of $29,476.96 plus interest and
attorneys' fees.  The Company is vigorously defending the suit.

     On September 29, 1998, a complaint was filed in Superior Court, the County
of Los Angeles, in an action entitled "Kirtland & Packard LLP, a California
Limited Liability Partnership vs. Vitafort, Inc., a Delaware Corporation; and
Does 1-25 inclusive."  The complaint alleges Breach of Contract, Fraud,
Negligent Misrepresentation, Common Counts, Breach of Implied Covenant of Good
Faith and Fair Dealing, Negligent Performance of Contract, and Declaratory
Relief, arising out of a contract for legal services.  The Complaint seeks
damages in the amount of $85,000.00 plus interest and attorneys fees, and for
such other and further relief as the Court deems just and proper.   The Company
is vigorously defending the suit.

                                       20
<PAGE>
 
                       VITAFORT INTERNATIONAL CORPORATION

                                   SIGNATURE
                                        



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



                       VITAFORT INTERNATIONAL CORPORATION
                       ----------------------------------
                                   (Company)



                              /s/ Mark Beychok
                            -----------------------
                                  Mark Beychok
                            Chief Executive Officer

                                        
                                        

                                        
                                        



                           Date:   November 20, 1998

                                       21