<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, 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 May 19, 1998 is 7,004,852.

                                       1
<PAGE>
 
                      VITAFORT INTERNATIONAL CORPORATION

                                   CONTENTS


                         PART 1 - FINANCIAL INFORMATION

<TABLE> 
<CAPTION> 
________________________________________________________________________________
ITEM 1.   Consolidated Financial Statements:
<C>       <S>                                                                 <C>
          Balance Sheet March 31, 1998 (unaudited).......................     3-4
 
          Statements of Operations
          Three Month Periods Ended March 31, 1998 and 1997 (unaudited)...     5
 
          Statement of Stockholders' Equity (Deficit)
          Three Month Period Ended March 31, 1998 (unaudited).............     6
 
          Statements of Cash Flows
          Three Month Periods Ended March 31, 1998 and 1997 (unaudited)...     7
 
          Notes to the Financial Statements (unaudited)...................     8-12


ITEM 2.   Management's Discussion and Analysis of Financial Condition 
          and Results of Operations.......................................    13-16



                          PART II - OTHER INFORMATION

________________________________________________________________________________

          Litigation......................................................    17

          Signature.......................................................    18
</TABLE> 

                                       2
<PAGE>
 
               VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                             As of March 31, 1998
<TABLE>
<CAPTION>
                                    ASSETS
                                    ------
<S>                                                                             <C>
Current assets
  Cash and cash equivalents                                                     $ 1,068,943
  Accounts receivable, trade, less allowance for doubtful accounts of $25,743       507,644
  Inventories (Note 3)                                                              311,811
  Notes receivable - related party                                                  104,290
  Prepaid expenses and other current assets (Note 4)                                393,999
                                                                                -----------
    Total Current Assets                                                          2,386,687
                                                                                -----------

Equipment
  Manufacturing equipment                                                           290,912
  Furniture and equipment                                                           126,667
  Computer equipment                                                                195,821
                                                                                -----------
                                                                                    613,400
  Less accumulated depreciation                                                    (376,975)
                                                                                -----------
                                                                                    236,425
                                                                                -----------

Other Assets
  Intangible assets, net of accumulated amortization of $99,278 (Note 6)            517,089
  Other assets                                                                        1,100
                                                                                -----------
    Total Other Assets                                                              518,189
                                                                                -----------
                                                                                $ 3,141,301
                                                                                ===========

</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>
 
               VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                             As of March 31, 1998

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------


<TABLE>
<CAPTION>
<S>                                                                <C>
Current liabilities
  Notes payable - bank                                             $     28,485
  Notes payable - others                                                152,210
  Accounts payable                                                      765,787
  Accrued expenses (Note 5)                                             231,479
  Current maturities of long-term debt (Note 7)                          37,859
                                                                   ------------
    Total Current Liabilities                                         1,215,820
                                                                   ------------


Commitments and contingencies (Notes 9 and 10)

Stockholders' equity 
  Series A, 6% Cumulative Convertible Preferred Stock,
   $0.01 par value cumulative; 1,701 shares authorized,
   issued & outstanding (Note 8)                                             17
  Series B, 10% Cumulative Convertible Preferred Stock,
   $.01 par value; authorized 1l0,000 shares; issued and
   outstanding 1,000 shares                                                  10
  Series C, Convertible Preferred Stock, $.01 par value;
   authorized 450 shares; issued and outstanding 50 shares                    1

  Common stock, $.0001 par value; authorized 30,000,000
   shares; issued and outstanding  6,973,853 shares (Note 8)              8,892

  Additional paid-in-capital (Note 8)                                24,027,291
  Accumulated deficit                                               (22,110,730)
                                                                   ------------
    Total Stockholders' Equity                                        1,925,481
                                                                   ------------
                                                                   $  3,141,301
                                                                   ============
</TABLE>

           See accompanying notes to condensed financial statements

                                       4
<PAGE>
 
              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     March 31,
                                                               1998           1997
                                                           -----------      ---------
<S>                                                        <C>              <C>
Net revenues                                               $   732,641      $ 765,239

Cost of sales                                                  609,522        548,288
                                                           -----------      ---------
      Gross profit                                             123,119        216,951
                                                           -----------      ---------
Operating expenses
  Research and development                                      61,359         39,350
  Sales and marketing                                          419,949        379,797
  General and administrative                                   724,884        586,232
                                                           -----------      ---------
    Total Operating Expenses                                 1,206,192      1,005,379
                                                           -----------      ---------

    Loss from Operations                                    (1,083,073)      (788,428)

Other income           
  Other income                                                   2,927         14,010
  Interest income                                               30,826           --
  Interest expense                                             (47,870)       (40,611)
                                                           -----------      ---------
  Total other income (expense)                                 (14,117)       (26,601)
                                                           -----------      ---------
    Loss before income tax expense                          (1,097,190)      (815,029)
                                                           -----------      ---------
Income tax expense
  Current                                                        3,200           --
  Deferred                                                        --             --
                                                           -----------      ---------
                                                                 3,200           --
                                                           -----------      ---------

Net loss                                                    (1,100,390)      (815,029)
Deemed dividend to preferred shareholders (Note 8)            (163,728)          --
                                                           -----------      ---------
Net loss allocable to common shareholders                   (1,264,118)      (815,029)
                                                           ===========      =========
Loss per share
    Net loss                                                $    (0.18)    $    (0.14)
                                                            ==========     ==========
    Weighted average number of common shares outstanding     6,856,961      5,821,635
                                                            ==========     ==========
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>
 
              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                       THREE MONTHS ENDED MARCH 31, 1998


<TABLE> 
<CAPTION> 
                                                            Series A
                                                           Cumulative              Series B             Series C
                                                           Convertible           Convertible           Convertible
                                                         Preferred Stock       Preferred Stock       Preferred Stock
                                                         ---------------       ---------------       ---------------
                                                         Shares   Amount       Shares   Amount       Shares   Amount
                                                         ------   ------       ------   ------       ------   ------
<S>                                                      <C>        <C>       <C>      <C>          <C>      <C> 
Balance, January 1, 1998                                    750      $ 8        1,000      $10           50       $1
                                                                                                           
Series A Preferred issued in connection with                                                               
  a private placement, net of expenses                      500        5                                 
                                                                                                           
Common stock issued as settlement of contract                                                              
  disputes                                                                                                 
                                                                                                           
Exercise of stock options                                                                                  
                                                                                                           
Stock issued for acquisition of marketing contract                                                         
                                                                                                           
Preferred stock dividends                                   451        4                                 
                                                                                                           
Net Loss                                                                                                   
                                                          -----      ---       -----      ---           --       --
Balance, March 31, 1998                                   1,701      $17       1,000      $10           50       $1
                                                          =====      ===       =====      ===           ==       ==
 

                                                                                    Additional
                                                                 Common Stock         Paid-In         Accumulated
                                                             Shares       Amount      Capital           Deficit           Total
                                                             ------       ------      -------           -------           -----
Balance, January 1, 1998                                   6,683,853      $8,863     $23,115,727     $(20,846,612)      $2,277,997

Series A Preferred issued in connection with
  a private placement, net of expenses                                                   498,995                           499,000

Common stock issued as settlement of contract
  disputes                                                   115,000          12         116,738                           116,750

Exercise of stock options                                    115,000          11          88,989                            89,000

Stock issued for acquisition of marketing contract            60,000           6          43,118                            43,124

Preferred stock dividends                                                                163,724         (163,728)              (0)

Net Loss                                                                                               (1,100,390)      (1,100,390)
                                                           ---------      ------     -----------     ------------       ----------
Balance, March 31, 1998                                    6,793,853      $8,892     $24,027,290     $ 24,027,291       $1,925,481
                                                           =========      ======     ===========     ============       ==========

</TABLE>
     See accompanying notes to condensed consolidated financial statements

                                       6
<PAGE>
 
                VITAFORT INTERATIONAL CORPORTION & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Three Months Ended March 31,
                                                                          1998          1997
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Increase (Decrease) in Cash and Cash Equivalents

Cash flows from operating activities:
    Net loss                                                          $(1,100,390)   $  (815,029)
    Depreciation and amortization                                          55,598         41,569
    Stock issued for services                                              12,334           --
    Changes in operating assets and liabilities:
      (Increase) decrease in:
        Accounts receivable, trade, net                                   (66,459)       (77,527)
        Inventories                                                       (59,200)       189,937
        Other current assets                                              (16,315)       (19,603)
        Other assets                                                       (1,100)          --
       Increase (decrease) in:
        Accounts payable                                                 (107,257)       109,232
        Accrued expenses                                                 (110,960)        54,223
                                                                      -----------    -----------
          Cash and cash equivalents used in operating activities       (1,393,749)      (517,198)
                                                                      -----------    -----------

Cash flows from investing activities:
  Purchase of equipment                                                    (8,756)          --
  Advances to related parties                                             (68,142)          --
  Cash acquired through acquisition of subsidiary                           5,515           --
                                                                      -----------    
         Cash and cash equivalents used in investing activities           (71,383)          --
                                                                      -----------    -----------

Cash flows from financing activities:
  Proceeds from issuance of stock                                         499,000        696,422
  Repayments of line of credit                                            (32,272)        25,323
  Repayments of notes payable                                            (131,689)          --
                                                                      -----------    -----------
         Cash and cash equivalents provided by financing activities       335,039        721,745
                                                                      -----------    -----------

Increase (decrease) in cash and cash equivalents                       (1,130,093)       204,547
Cash and cash equivalents, beginning of period                          2,199,036        188,867
                                                                      -----------    -----------
Cash and cash equivalents, end of period                              $ 1,068,943    $   393,414
                                                                      -----------    -----------
Supplemental disclosure of cash flow information
  Cash paid during the period for:
    Interest                                                          $    47,870    $    40,611
    Income taxes                                                      $     3,200           --

Supplemental disclosure of non-cash operating, investing, and
  financial activities
    Stock issued for accounts payable                                 $   131,750           --
    Stock issued for prepaid consulting services                           61,666
    Stock issued for acquisition of marketing contract                     43,124

</TABLE>
     See accompanying notes to condensed consolidated financial statements

                                       7
<PAGE>
 
              VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

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 Form 
10-KSB filed March 31, 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.

   (g)  For the three months ended March 31, 1998, basic loss per share has
        been computed using the weighted average number of common shares
        outstanding during the period. Dividends on cumulative preferred stock
        are not material.

                                       8
<PAGE>
 
    (h)   Advertising: General costs are expensed as incurred or prepaid until
          the advertisement is published, at which time the related costs are
          expensed.


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:

                                        March 31, 1998
                                        --------------
 
   Finished goods                         $  116,599
   Packaging and raw material                195,212      
                                          ----------
                                          $  311,811
                                          ==========

NOTE 4 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS

    Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
                                               

                                                                  March 31, 1998
                                                                  --------------
<S>                                                               <C>
Product introduction costs                                              $ 14,250
Insurance                                                                 65,816
Consulting                                                               137,714
Other prepaids                                                           176,219
                                                                        --------
                                               
  Total prepaid and other current assets                                $393,999
                                                                        ========
</TABLE> 
NOTE 5 -- ACCRUED EXPENSES

Accrued expenses consist of the following:
<TABLE> 
<CAPTION> 
                                                                  March 31, 1998
                                                                  --------------
<S>                                                               <C> 
Accrued compensation                                                    $145,122
Accrued commissions                                                       17,295
Other accrued expenses                                                    69,062
                                                                        --------
                                                 
 Total accrued expenses                                                 $231,479
                                                                        ========
</TABLE>

NOTE 6 -- ACQUISITION OF SUBSIDIARY

     Effective January 1, 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. The assets and liabilities of Global were recorded at fair value and
resulted in goodwill of $111,427 which will be amortized over 20 years.

                                       9
<PAGE>
 
NOTE 7 -- CURRENT MATURITIES OF LONG-TERM DEBT:

     The note consists of a $37,859 14% note payable, due in monthly
installments of $4,033, including interest, through October 1997, secured by
certain of the Company's fixed assets. The agreement with the secured lender,
Coast Business Credit, included a provision that halted payments on this note.


NOTE 8 -- STOCKHOLDERS' EQUITY

     During the three month period ended March 31, 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 $1.058
          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 shares for $500,000 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.

                                       10
<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.

          In addition, the original issue discount of $411,128 related to the
          conversion terms of the 1997 Series A Preferred Stock is being treated
          as a deemed dividend which will be recognized at a rate of $68,521 per
          month through August 10, 1998.


NOTE 9 -- GOING CONCERN

     The Company has prepared the financial statements included herewith
assuming that the Company will continue as a going concern. Although the Company
received $6,750,000 as proceeds from the Keebler arbitration in 1997, it must
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.

NOTE 10 -- 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)
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, Auburn Farms and Mark Beychok alleging
various tort and contract claims.  The litigation is in the early stages and the
Company intends to vigorously pursue the same.

     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

                                       11
<PAGE>
 
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.

                                       12
<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 Ended September 30, 1998 and 1997
----------------------------------------------

Results of Operations:

     The Company continues to focus on the development of new products and the
repair of customer relationships, especially in the northeast, where the
majority of the customers for Fudgets and Caketts were located and thus a
significant portion of the past problems and off-sets.  Progress was made in the
development area for new products to be introduced in the second and third
quarters of 1998.  However, the lack of sales velocity, especially in the
Fudgets and Caketts product lines has negatively impacted the overall results.
Consolidation of the warehouse facilities was completed in the first quarter and
should bring the Company savings for the balance of the year compared to the
cost of maintaining separate facilities.  Additionally, the Company has
reestablished credit terms with the majority of its co-packers and has finalized
negotiations for payment schedules for some of its significant creditors.

     The proceeds from the Keebler Company arbitration continue to support the
Company's immediate cash requirements through the current period of product
development and customer reestablishment.  The new products, with targeted
improved margins, should improve the sales levels for the second quarter of 1998
and beyond, although there can be no assurance that the Company can maintain any
significant increased level of sales over any extended time periods.

     The acquisition of Global International Sourcing in the first quarter of
1998 has improved the Company's access to overseas products.  This should result
in improved gross profit margins to the Company's ongoing operations.
Additionally, Global brings its own customers and sales level to the Company,
although functioning primarily as a broker, it does not provide the same gross
profit levels targeted for the Company's current business areas.

     The development programs for new products continue, with certain of these
products scheduled for release in the second and third quarters of 1998.  While
such introductions may have little, if any, impact in the quarter the product is
introduced due to the amount of time required for distribution into the
channels, it should provide a cascading effect over future periods.

Net Revenues:

     For the three months ended March 31, 1998, net sales were $732,641 compared
to $765,239 for the same period in 1997, a decrease of $32,598 or approximately
4.3%. The loss of Fudgets and Caketts sales, which in the three months ended
March 31, 1997 were $361,701, were not replaced by any other of the Company's
other products. In May 1998, the Company discontinued the Caketts line of three

                                      13
<PAGE>
 
          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AS RESULTS OF OPERATIONS

                                  (Unaudited)


products and two of the three Fudget products.  The introduction of Juliette's
Private Collection chocolate truffles in the last quarter of 1997 continued in
this first quarter of 1998 where sales were $70,091 for the three months ended
March 31, 1998 compared to no sales for the same period in 1997.  The Auburn
Farms/Natures Warehouse product lines weakened somewhat in the quarter ended
March 31, 1998 where sales were $210,371 compared to $362,021 for the same
period in 1997.  The loss of Auburn Farms sales reflects the Company's opinion
that consumer tastes are shifting from the no fat products, which are usually
associated with no taste, to reduced fat products which do provide the consumer
with reasonably good taste.  Most of the new products scheduled for introduction
are either reduced fat or low fat.
Global International Sourcing contributed $385,805 in sales during the three
month period ended March 31, 1998.

Gross Profit:

     Gross profit decreased from $216,951 for the three months ended March 31,
1997 to $123,119 for the three months ended March 31, 1998, a decrease of
$93,832.  The decline is due to the low gross profit margins, which are normally
generated from Global.  For the quarter ended March 31, 1998, Global gross
profit was $44,855 or 11.6% of net revenues while the other operating units of
Vitafort contributed $78,263 or 22.6% of net revenues.  In addition, the Company
removed from inventory prepaid packaging for certain of its products where the
labeling no longer complied with the Food and Drug Administration guidelines for
ingredient listing.  This removal was due to a new law passed at the end of 1997
requiring certain changes in ingredient listing guidelines.  For the quarter
ended March 31, 1998, the Company charged approximately $49,362 to cost of sales
for this labeling change.  Excluding this charge, the gross profit margin the
non-Global business in this quarter would have been $127,625 or 36.7%, which is
close to Vitafort's gross profit margin target.

Operating Expenses:

     Overall operating expenses have increased over the previous year due to
overall staff increases as the Company again begins to increase its efforts in
the sales and marketing area and in administrative functions to improve support
for the overall anticipated increase in volume.  The anticipated decrease in
legal expenses has not occurred due to the concentration of effort in the
defense of the Ellis case and the increasing effort in the Barbara's/New Life
litigation.  Finally, the other professional fees associated with the audit for
December 31, 1997 were primarily incurred in the quarter ended March 31, 1998
while in 1997 the majority of costs and expenses were incurred in the second
calendar quarter.  The Company is hopeful that the level of professional
accounting expenses will decline in the subsequent quarters. The legal expenses,
however, may continue for some time in the future, although the Company is
searching for off balance sheet financing of the Barbara's/New Life litigation.

Research and Development:

     Total expenses for product development in the quarter ended March 31, 1998
were $61,359 compared to $39,350 for the same period in 1997, an increase of
$22,009.  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.  In addition, these consultants were working with the Company's
co-packers to

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

                                  (Unaudited)


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 March 31, 1998 for outside
consultants was $51,750 compared to $24,371 for the same period in 1997, an
increase of $27,379.

Sales and Marketing:

     Total sales and marketing expenses for the quarter ended March 31, 1998
were $419,949 compared to $379,797 for the three months ended March 31, 1997, an
increase of $40,152.  Global International Sourcing sales and marketing expenses
for the quarter ended March 31, 1998 were $161,852 while Vitafort sales and
marketing expenses were $258,097.  Without the acquisition of Global, the
overall sales and marketing expenses for the quarter would have been less than
the previous year period by $121,700.  The decrease in Vitafort expenses were
primarily in the areas of commissions, $20,833, sales promotion expenses,
$55,088 and product introduction fees, $95,546, all of which are related to the
decline in overall sales volume.  These reductions were offset by the $43,417
increase in staffing costs to support the introduction of new products and the
increase in customer service.

General and Administrative:

     For the quarter ended March 31, 1998, total general and administrative
expenses were $724,884 compared to $586,232 for the same quarter ended March 31,
1997 an increase of $138,652. Staff increases and related expenses increased by
$122,044 for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997 due to the addition of a new Chief Operating Officer and
the conversion of certain staff positions from temporary consulting
classifications to permanent employees.  The Company also incurred an increase
in the building lease of its facilities when the lease expired in August 1997.

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.
<TABLE>
<CAPTION>
 
Liquidity and Capital Resources:
                                                         Three Months Ended
                                                              March 31,
                                                          1998            1997
                                                       -----------     --------- 
<S>                                                    <C>             <C>
 
Net Cash Used for Operations                           $(1,393,749)    $(517,198)
Net Cash Used for Investing Activities                     (71,383)            -
Net Cash Provided by Financing Activities                  335,039       721,745
Working Capital (Deficit)                                1,170,867      (875,965)
</TABLE>

                                                                15