<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 MARCH 31, 1997


             [ ] 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                              68-011059
                --------                              ---------
           (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, 1996 (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 April 4, 1997 was 5,406,765

                                       1
<PAGE>
 
                       VITAFORT INTERNATIONAL CORPORATION



                                    CONTENTS



                         PART I - FINANCIAL INFORMATION

       __________________________________________________________________
<TABLE>
<CAPTION>
 
 
ITEM 1    Financial Statements:
<S>                                                                        <C>
 
          Condensed Consolidated Balance Sheets - March 31, 1997 and
          March 31, 1996..................................................  3-4
 
          Condensed Consolidated Statements of Operations - Three Month
          Period Ended March 31, 1997 and 1996............................  5
 
          Condensed Consolidated Statements of Cash Flows - Three Month
          Period Ended March 31, 1997 and 1996............................  6
 
          Notes to the Condensed Consolidated Financial Statements........  7-10
 

ITEM 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations........................................... 11-14




                          PART II - OTHER INFORMATION

__________________________________________________________________


          Litigation...................................................... 15-16


          Signature....................................................... 17

</TABLE> 

                                       2
<PAGE>
 
                         ITEM 1.  Financial Statements

                      VITAFORT INTERNATIONAL CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS



                                    ASSETS
                                    ------
<TABLE>
<CAPTION>
                                                    March 31,    December 31,
                                                      1997           1996
                                                   ----------   ------------
                                                   (unaudited)
<S>                                                <C>           <C>
 
Current Assets:
 
     Cash                                          $  393,414      $  188,867
     Accounts receivable-trade, net of allowance
      for doubtful accounts of $67,743 at March
      31, 1997 and $79,994 at December 31, 1996       508,316         430,789
     Notes receivables                                 55,500          56,000
     Other receivables                                  6,887           4,464
     Inventory, net                                   171,259         361,196
     Prepaid expenses and other assets                289,411         271,731
                                                   ----------      ----------
 
               Total Current Assets                 1,424,787       1,313,047
 
Fixed Assets:
     Manufacturing equipment                          290,912         290,912
     Furniture and office equipment                   105,160         105,160
     Computer equipment                               173,294         173,294
                                                   ----------      ----------
               Total Fixed Assets                     569,366         569,366
     Less accumulated depreciation and amortization  (260,060)       (231,592)
                                                   ----------      ----------
               Net Fixed Assets                       309,306         337,774
Other Assets:
     Intangible and other assets                      411,254         481,254
     Less accumulated amortization                    (38,662)        (95,561)
                                                   ----------      ----------
               Net Other Assets                       372,592         385,693
                                                   ==========      ==========

               Total Assets                        $2,106,685      $2,036,514
                                                   ==========      ==========
 
</TABLE>



   See accompanying notes to the condensed consolidated financial statements.

                                       3
<PAGE>
 
                      VITAFORT INTERNATIONAL CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                  LIABILITIES
                                  -----------

<TABLE>
<CAPTION>
 
 
                                                                  March 31,     December 31,
                                                                    1997            1996
                                                                 ------------   -------------
                                                                 (unaudited)
<S>                                                            <C>             <C>
 
Current Liabilities:
     Notes payable                                               $    315,344   $    440,022
     Accounts payable - trade                                       1,031,151        921,919
     Accrued expenses                                                 843,435        789,212
     Current maturities of long-term debt                             187,859         37,859
                                                                 ------------   ------------
                    Total Current Liabilities                       2,377,789      2,189,012
     Long-term debt, exclusive of current maturities                        0              0
                                                                 ------------   ------------
                    Total Liabilities                               2,377,789      2,189,012
 
Stockholders' Equity:
     Series B, 10% Cumulative Convertible Preferred Stock
       $0.01 par value, cumulative, 110,000 shares authorized,
       1,000 shares issued and outstanding at March 31, 1997
       and December 31, 1996; aggregate liquidation preference
       of $50,000 at March 31, 1997 and December 31, 1996.                 10             10
     Series C, Convertible Preferred Stock, $0.01 par value,
       450 shares authorized, 50 shares issued and outstanding
       as of March 31, 1997 and December 31, 1996; aggregate
       liquidation preference of $1 at March 31, 1997 and
       December 31, 1996.                                                   1              1
     Subscribed stock, 751,460 shares at March 31, 1997 and
       303,406 shares at December 31, 1996.                           709,955        341,331
     Common stock, $.0001 par value.  Authorized 9,000,000
       shares at March 31, 1997 and December 31, 1996, issued
       and outstanding 5,155,305 and 4,830,259 shares at
       March 31, 1997 and December 31, 1996, respectively.              8,968          8,886
     Additional paid-in capital                                    20,875,470     20,547,753
     Accumulated deficit                                          (21,865,508)   (21,050,479)
                                                                 ------------   ------------
                    Total Stockholders' Equity                       (271,104)      (152,498)
                                                                 ============   ============
 
                    Total Liabilities and Stockholders' Equity   $  2,106,685   $  2,036,514
                                                                 ============   ============
</TABLE>
  See accompanying notes to the condensed consolidated financial statements.

                                       4
<PAGE>
 
                      VITAFORT INTERNATIONAL CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
 
 
                                                    THREE MONTHS ENDED
                                                         MARCH 31,
                                                    ------------------
                                                    1997          1996
                                                    ----          ----
<S>                                             <C>           <C>
                                                       (unaudited)
 
Product Revenue                                 $  770,008    $  846,869
     Less:  Returns and Allowances                  (4,769)       (5,874)
                                                ----------    ----------
Net Sales                                          765,239       840,995
Cost of sales                                      548,288       708,313
                                                ----------    ----------
Gross profit                                       216,951       132,682
 
Operating expenses:
     Product development                            39,350       157,993
     Sales and marketing                           379,797       549,758
     General and administrative                    586,232       322,681
                                                ----------    ----------
 
          Total operating expenses               1,005,379     1,030,432
                                                ----------    ----------
 
Operating loss                                    (788,428)     (897,750)
Other income/(expense)                              14,010        17,094
Interest expense                                   (40,611)       (5,552)
                                                ----------    ----------
 
          Loss before provision for income taxes  (815,029)     (886,208)
Provision for income taxes                               0         1,454
                                                ----------    ----------
 
          Net loss                              $ (815,029)   $ (887,662)
                                                ==========    ==========
 
          Net loss per common share             $    (0.14)   $    (0.35)
                                                ==========    ==========
 
</TABLE>



   See accompanying notes to the condensed consolidated financial statements.

                                       5
<PAGE>
 
                      VITAFORT INTERNATIONAL CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
 
                                                                      THREE MONTHS ENDED
                                                                           MARCH  31,
                                                                 --------------------------
                                                                   1997              1996
                                                                        (unaudited)
<S>                                                              <C>            <C>
 
Cash flows from operations:
     Net loss                                                    $(815,029)   $  (887,662)
     Adjustments to reconcile net loss to net cash used in
          operating activities:
          Depreciation and amortization                             41,569         31,003
     (Increase) decrease in:
          Inventory                                                189,937     (1,016,782)
          Accounts receivable                                      (77,527)      (332,170)
          Prepaids and other assets                                (19,603)       213,283
     Increase (decrease) in:
          Accounts payable                                         109,232        (28,243)
          Accrued expenses                                          54,223       (240,681)
          Other                                                          0       (150,000)
                                                                 ---------    -----------
 
               Net cash used in operating activities              (517,198)    (2,411,252)
                                                                 ---------    -----------
 
Cash flows from investing activities:
     Purchase of property and equipment                                  0       (161,480)
                                                                 ---------    -----------
               Net cash used in investing activities                     0       (161,480)
                                                                 ---------    -----------
 
Cash flows from financing activities:
     Proceeds from issuance of common stock                        696,422      4,145,612
     Proceeds from (repayment of) notes payable, short-term         25,323        (20,461)
     Proceeds from long-term debt                                        0       (123,148)
                                                                 ---------    -----------
               Net cash provided by financing activities           721,745      4,002,003
                                                                 ---------    -----------
 
               Net increase in cash                                204,547      1,429,271
                                                                 ---------    -----------
 
               Cash at beginning of period                         188,867      1,316,406
                                                                 ---------    -----------
 
               Cash at end of period                             $ 393,414    $ 2,745,677
                                                                 =========    ===========
 
Supplemental disclosures of cash flow information:
     Cash paid during the period for interest                    $  40,611    $     4,379
                                                                 =========    ===========
 
Supplemental disclosures of non-cashing investing and financing
activities:
     Issuance of common stock for:
          Payment of deferred compensation                       $       0    $    42,620
                                                                 =========    ===========
 
</TABLE>
   See accompanying notes to the condensed consolidated financial statements.

                                       6
<PAGE>
 
                      VITAFORT INTERNATIONAL CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

                                  (Unaudited)

(1)  General:

     The unaudited condensed 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 have been condensed and 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, 1996 included in the Company's
     Annual Report on Form 10-KSB.

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

(2)  Summary of significant accounting policies:

     (a)  The accompanying condensed consolidated financial statements include
          the accounts of the Company and its subsidiaries. All material inter-
          company accounts and transactions have been eliminated. The
          subsidiaries have had no operations since 1994 and will remain
          inactive in the near future.

     (b)  Inventories are stated at the lower 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.

     (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 or less years.

     (e)  Intangible assets are composed of debt issuance costs, customer lists,
          acquisition costs of Auburn Farms and Nature's Warehouse trademark,
          prepaid professional service contracts and are recorded at cost. The
          acquisition costs associated with Auburn Farms are being amortized on
          a straight-

                                       7
<PAGE>
 
          line basis over twenty years. All other intangible assets are being
          amortized on a straight-line basis over periods not exceeding five
          years.

     (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.

     (g)  Certain 1996 amounts have been reclassified to conform with the 1997
          presentation.

(3)  Net Income (Loss) Per Share:

     Net income (loss) per share of common stock is computed based on the
     weighted average number of shares of common stock outstanding of 5,906,765
     and 2,565,077 for the three-month period ended March 31, 1997 and 1996,
     respectively.  Dividends on Cumulative Preferred Stock are not material.

(4)  Inventory Valuation/Reserve:

     Inventories are stated at the lower cost (first-in, first-out basis) or
     market.  Market-based valuations are based upon estimates and assumptions,
     and are generally limited to slow moving product offerings.  The Company
     established reserves for the potentially slow moving and obsolete
     inventory at December 31, 1996.  The balances in these reserve accounts as
     of March 31, 1997 were $ 805,264.

(5)  Accrued Expenses:

     Accrued expenses as of March 31, 1997 and December 31, 1996 consist of the
     following:
<TABLE>
<CAPTION>
                                             March 31,1997  December 31, 1996
<S>                                          <C>            <C>
     Accrued compensation                        $ 114,653       $  65,570
     Accrued interest payable                          436             436
     Accrued legal fees                             85,040          70,811
     Accrued consulting fees                        22,500          22,500
     Accrued advertising and promotion             285,919         407,359
     Other accrued expenses                        334,887         222,536
                                                 ---------       ---------
     Total Accrued Expenses                      $ 843,435       $ 789,212
                                                 =========       =========
</TABLE>
(6)  Bank Financing:

     The Company is in default with respect to certain financial covenants under
     the terms of its agreement with the secured lender.  Discussions are
     ongoing with respect to curing the defaults, however no assurances can be
     given that such defaults can be cured and that the lender will not request
     full payment of the loan.

     For financial statement purposes, the entire amount is classified as a
     current liability.

                                       8
<PAGE>
 
(7)  Notes Payable and Long-term Debt:
<TABLE>
<CAPTION>
                                                       Current   Long Term       Total
                                                       -------   ---------       -----
     
<S>                                                    <C>       <C>            <C>
          10% anticipated note payable, terms are
          currently under negotiation                  $150,000  $       0     $ 150,000
          14% note payable, due in monthly
          installments of $4,033, including interest,
          through October 1997 Secured by certain
          of the Company's fixed assets.                 37,859          0        37,859
                                                       --------  ---------      --------
 
                                                       $187,859  $       0     $ 187,859
                                                       ========  =========     =========
</TABLE>
(8)  Stockholders' Equity:
   
     During the three-month period ended March 31, 1997, the following common
     stock transactions occurred:

     a.   The Company issued 70,000 shares at a value of $1.125 per share as
          settlement for a contract dispute.

     b.   The Company issued 20,000 shares at a value of $1.125 per share to a
          former employee as compensation for consulting services and past
          unpaid accrued vacation.

     c.   The Company issued 183,100 shares at $1.00 per share for options
          exercised under the Non-Incentive Stock Option Plan. Such options were
          exercised in lieu of payroll compensation and other various expenses
          by non-officers of the Company.

     d.   The Company entered into a subscription agreement in February 1997,
          with an investor who purchased 500,000 shares of common stock at $1.00
          per share. At funding, a 10% fee was paid to a facilitator and
          warrants were given to that same facilitator to purchase 125,000
          shares of common stock at a price of $1.375 per share.

(9)  Going Concern:

     The Company's condensed consolidated financial statements have been
     prepared assuming that the Company will continue as a going concern.  At
     March 31, 1997, current assets were exceeded by current liabilities by
     $953,002 and the Company's accumulated deficit aggregates ($21,865,508).
     The Company's ability to continue operations is dependent upon its ability
     to reach a satisfactory level of profitability and to generate sufficient
     cash flow resources to meet ongoing obligations.  The accompanying
     condensed consolidated financial statements do not include any adjustments
     that might result from the outcome of these uncertainties.

                                       9
<PAGE>
 
(10) Subsequent Events:

     The Company entered into a subscription agreement in April 1997, with
     another investor for $500,000 of Preferred 1997 Series "A" stock. The
     preferred stock has a cumulative dividend rate of 6% percent with no voting
     rights. The conversion price is the lower of $1.25 per share or a thirty
     percent (30%) discount to the market price at the time of conversion. The
     preferred stock is convertible at any time. The facilitator received a 10%
     fee from proceeds, as well as warrants to purchase 35,000 shares of common
     stock at an exercise price of $1.00 per share.

     In April 1997, the Company agreed in principle with ATCOLP INVESTMENT
     PARTNERS, a California Limited Partnership (the "Lender"), in which Donald
     Wohl, a Director of the Company, is the general partner, for a loan in the
     amount of $300,000 (the "Loan"), to fund the payment of legal fees in
     connection with the Company's arbitration against the Keebler Company.  The
     loan will be evidenced by a note which bears interest at the lesser of 15%
     per annum or the highest rate allowed by law with recourse solely to the
     net proceeds of the arbitration, if any.  If the Company does not realize
     any net proceeds from the arbitration, the Loan will be canceled and the
     Lender will receive a warrant for the purchase of 400,000 shares of the
     Company's Common Stock at $.01 per share.  If the Loan is repaid through
     the application of the net proceeds of the arbitration, the Lender will
     receive warrants for the purchase of 200,000 shares of common stock at $.01
     per share and a percentage of net proceeds of the arbitration equal to 15%
     of the first $1,000,000 of net proceeds; 20% of the net proceeds greater
     than $1,000,000 and less than $3,000,000; and, 25% of net proceeds above
     $3,000,000.  The Loan was approved by the disinterested members of the
     Company's Board of Directors, and was on terms no less favorable to the
     Company than were available from non-affiliated lenders.

                                       10
<PAGE>
 
                      VITAFORT INTERNATIONAL CORPORATION

      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, THE IMPACT OF QUALITY
PROBLEMS EXPERIENCED IN 1996, THE LACK OF ADEQUATE CAPITAL TO FUND CONTINUING
OPERATIONS, 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.

Results of Operations:

     The Company, after going through a tumultuous year in 1996 as a result of
     the production problems, continues to be adversely affected by these 1996
     problems and attempted to focus on the ongoing business while at the same
     time preparing for the arbitration with the Keebler Company which commenced
     in May.

     The sales effort in the first quarter was severely hampered both by the
     negative impact of the mold problems encountered during 1996 and the
     liquidity issues resulting from the reduction in sales and offset costs
     incurred by the Company toward the end of 1996.

     To offset these adverse conditions, the Company is exploring revisions to
     its existing products to both differentiate them from those tainted from
     last year's production problems and to offer the consumer a similar product
     under different brand names.

Net Sales:

     For the three months ended March 31, 1997, net sales were $765,239 compared
     to $840,995 for the same period in 1996, a reduction of $ 75,756 or
     approximately 9%.  This decline was most principally in the Caketts line of
     products, where the sales dropped from 49.0% of sales in the 1996 quarter
     ended March 31 to 18.2% of sales for the same period in 1997.  The Company
     believes that the mold problems encountered last year contributes to this
     significant decline in revenue for this product.  The Company intends to
     transition away from Caketts to brands not affected by the mold problem.
     The Company may market its Caketts formulae under a different brand name if
     it is able to raise adequate capital. The Company has introduced a new
     product called Toast N' Jammers, which accounted for $ 228,220 or 29.8% of
     overall net sales for the quarter ended March 31, 1997. There were no Toast
     N' Jammers sales for the comparable quarter of the previous year.

                                       11
<PAGE>
 
Gross Profit:

     The gross profit was $ 216,951 or 28.4% of net sales for the three months
     ended March 31, 1997 compared to $ 132,682 or 15.8% for the same period in
     1996.  The improvement in gross profit margin is the result of the change
     in product mix which has better gross margins.  The Company also sold the
     Caketts and other products at less than the original cost of the product
     but greater than the existing inventory value.

     The impact of production problems of the past continue to be a drag on the
     Company's earnings.  The storage charges for the three months ended March
     31, 1997 are in excess of $ 70,000 and are directly related to the
     necessity of storing product, that is proving difficult to market because
     of the 1996 problems, in refrigerated warehouses and, in some cases, in
     deep freeze warehouses.  The Company is attempting to liquidate these
     products as soon as possible and has, it believes, adequate reserves to
     mitigate the potential losses resulting from selling these products at a
     price that may be below the Company's inventory carrying cost.

Product Development:

     The losses suffered last year and the liquidity crises that resulted from
     those losses has forced the Company to significantly reduce its
     expenditures on product development.  For the three months ended March 31,
     1997, the Company spent $39,350 on product development as opposed to 
     $ 157,993 for the same period in 1996.  The majority of this reduction was
     the elimination of the Company employees involved in this effort and their
     related expenses.

     In addition, the Company continues to move foreword in the cooperative
     product development in conjunction with co-packers that it is currently
     utilizing to produce the Company's products and that it intends to use in
     the future.

Sales and Marketing:

     Sales and marketing expenses for the three months ended March 31, 1997 were
     $ 379,797 compared to $549,758 for the three months ended March 31, 1996, a
     decrease of $169,961 or 30.9%.  The reduction is primarily due to staff
     reductions resulting from the production problems of 1996 and the liquidity
     condition associated with the decline in revenue and customer loyalty.  The
     significant reductions were in the areas of product promotion, travel and
     trade show presence where the liquidity issue forced major reductions in
     expenditures in these areas.

     The Company, however, is sharpening its focus on those customers that
     worked with the Company in 1996 and are continuing to provide support to
     the Company during this early period of 1997.  While the Company has
     continued to lose some customers, the customers that remain with the
     Company form the basic foundation of the sales program during the early
     part of 1997 as the Company begins to bring new products to market.

                                       12
<PAGE>
 
General and Administrative:

     The general and administrative expenses of the Company for the three months
     ended March 31, 1997 were $ 586,232 as opposed to $ 322,681 for the same
     three month period in 1996, an increase of $ 263,551 or 81.7%.  The largest
     increase was in the area of professional services, which was $ 338,108 for
     the first quarter of 1997 compared to $71,259 for the first quarter of
     1996, an increase of $ 266,849 over the same quarter for 1996.  The Company
     anticipates that the level of expenditures for the litigations, as reported
     in the Company's 10-KSB, will continue during the second quarter of 1997,
     which ends June 30, but these costs should be reduced significantly after
     that time period.

Other Income (Expenses) including interest:

     The reduction in other income is due to the loss of interest income from
     the investment of excess cash that the Company had in the first quarter of
     1996, which it has had to spend during the balance of 1996 as a result of
     the decline in sales due to the production problems.
<TABLE>
<CAPTION>
 
 
Liquidity and Capital Resources:
                                                     Three Months Ended March 31,
                                                        1997             1996
                                                     ----------       -----------
<S>                                               <C>              <C>
     Net Cash (Used) for Operations                  $(517,198)       $(2,411,252)
     Net Cash (Used) for Investing Activities                0           (161,480)
     Net Cash Provided by Financing Activities         721,745          4,002,003
 
     Working Capital Surplus (Deficit)                (953,002)         4,501,437
</TABLE>

                                       13
<PAGE>
 
Trends:

     The Company continues to attempt to conserve cash by reducing expenses
     wherever possible.  Additionally, the liquidity problems of 1996 have
     forced the Company to reduce the on hand inventory levels which have
     further eroded the Company's ability to ship orders to its customers
     complete and on time.  The Company has been further damaged by the increase
     in the amount of payment reductions by the Company's customers for product
     spoilage, shelf space allotment charges (slotting fees), advertising
     expenses, and other expenses related to the product problems of 1996.  This
     has reduced the amount the Company's lender will allow to be advanced as
     loans on new invoices issued by the Company, further reducing incoming cash
     flow.

     Operating losses continue to hamper the cash position of the Company and
     are straining the relationships between the Company's suppliers and the
     Company, thereby jeopardizing the Company's ability to purchase inventory
     in adequate quantities sufficient to meet customer demand.

     While the Company is in default with the primary lender of the Company,
     there are ongoing discussions concerning the Company's condition and both
     parties are seeking a resolution to the existing default condition.  The
     lender continues to advance funds to the Company under the loan agreement,
     but at reduced advance rates on the accounts receivable line because of the
     historical payment deductions by the Company's customers.

     The Company continues to attempt to bridge the difference between the
     actual cash generated from operations and the cash disbursements required
     to meet ongoing obligations by raising capital.  The fund raising has
     successfully maintained the current liquidity level of the Company but the
     continued expense of litigation and the deficits from operations have
     severely curtailed the Company in its ability to raise additional capital
     without diluting the Company's existing stockholders.

     The Company is attempting to raise additional capital to meet the working
     capital deficiency, 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.

     Although the Company is considered a going concern at the present time,
     there is no guarantee in the future that the Company will be able to
     achieve a level of profitability that will result in the elimination of the
     going concern issue from the Company's financial condition.  The management
     of the Company, however, believes that the Company may achieve
     profitability in the future, but there is significant risk involved in
     attempting to achieve such profitability and there can be no assurance that
     the Company will be able to survive while it attempts to do so.

                                       14
<PAGE>
 
                           Item 2. Other Information

                      VITAFORT INTERNATIONAL CORPORATION

                                  LITIGATION

     On November 1, 1995, Keebler Company (Keebler) and the Company entered into
a co-packer agreement (the Agreement) to manufacture Caketts.  In 1996, the 
Company suffered losses and terminations of business relationships by a number 
of the Company's distributors, retailers and brokers due to mold in the Cakett 
product.  In August 1996, Keebler gave the Company thirty (30) days notice of 
termination of the Agreement between the parties, and indicated that it had 
discontinued further production of the Company's product.  The Agreement between
Keebler and the Company provides for the binding arbitration of disputes.  On 
August 15, 1996, the Company filed a demand for arbitration seeking compensatory
damages, which is scheduled to be heard during May 1997.  The Company is seeking
damages in excess of $5,000,000.  In defending the arbitration proceeding, 
Keebler had alleged that Vitafort was responsible for the quality control 
problems and failed to comply with certain labeling requirements.  Keebler has 
filed a counterclaim against the Company for breach of contract which alleges 
damages in excess of $300,000.  The Company believes that Keebler breached the 
agreement by failing to meet its warranties to Vitafort to manufacture the 
products in an acceptable process manner, improperly terminating the agreement; 
and, made intentional misrepresentations regarding the cause of the mold 
problems.

     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 could recoup his entire investment and realize a profit on 
his $75,000 investment.

     In February 1996, Cottage Bakery, Inc., a former co-packer of Fudgets, 
initiated a lawsuit against the Company in Superior Court, San Joaquin County, 
California.  The Complaint alleges breach of contract and fraud against the 
Company and seeks damages in an unspecified amount in excess of $150,000.  The 
Company disputes this liability and filed a cross complaint

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<PAGE>

against Cottage Bakery. The parties have executed a settlement agreement which
does not subject the Company to any material liability.

     In connection with the acquisition of assets of Auburn Farms, Inc., (AFI) 
under the FPA, the Company acquired certain rights of AFI against its co-packer 
and against Barbara's Bakery.  The Company is pursuing these rights, and in May 
1996, initiated an action alleging Lanham Act violations, misappropriation of 
trade secrets, unfair competition and related claims.  The defendants have filed
counterclaims against the Company and Auburn Farms alleging various tort and 
contract claims.  The litigation is in the early stages and the Company intends 
to vigorously pursue the same.

     Michel's Bakery, Inc., a former co-packer of Fudgets, initiated an action 
in state court in Philadelphia, Pennsylvania, seeking damages in excess of 
$140,000 under various contract and tort theories.  In November 1996, the 
Company removed this action to the Federal District Court for the Eastern 
District of Pennsylvania.  The Company has filed a counterclaim alleging breach 
of contract and other claims relating to the product manufactured by Michel's.  
The parties have agreed to discuss a settlement which, if completed, would be
favorable to the Company. If, however, the matter is not resolved through
mediation, the Company intends to vigorously prosecute this lawsuit.

     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 has sustained, without leave to amend, a demurrer
to the claims against Mark Beychok and sustained the demur, with leave to amend,
against the Company.  Mr. Ellis recently filed an amended complaint against the 
Company.  The litigation is in its early stages and the Company will vigorously 
defend the action.

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<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:  May 20, 1997

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