SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


            Quarterly Report Pursuant to Section 13 or 15(d) X of the
                        Securities Exchange Act of 1934.
                For the quarterly period ended March 31, 1998 or


            Transition Report Pursuant to Section 13 or 15(d) of the
           Securities Exchange Act of 1934. For the transition period
                             from_______ to _______.


                          Commission File Number 01912

                                VACU-DRY COMPANY

             (Exact name of registrant as specified in its charter)


     California                                       94-1069729
(State of incorporation)                     (IRS Employer Identification #)

7765 Healdsburg Ave., Sebastopol, California              95472
(Address of principal executive offices)                (Zip Code)


Registrant's telephone number, including area code:      707/829-4600

                                 Not-Applicable
  ----------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

YES: __X__   NO:_____

As of May 12, 1998,  there were 1,509,438  shares of common stock, no par value,
outstanding.


<PAGE>


                                Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements

                                VACU-DRY COMPANY
                         CONDENSED STATEMENT OF EARNINGS
                                   (UNAUDITED)
<TABLE>
<S>                       <C>               <C>            <C>                <C>    
                          Nine Months       Nine Months    Three Months       Three Months
                            Ended              Ended          Ended              Ended 
                           3/31/98            3/31/97        3/31/98            3/31/97
REVENUES:
  Net sales               $19,897,000       $18,233,000     $6,208,000         $5,894,000

  Other                       342,000           531,000        116,000            176,000
                          -----------       -----------     ----------         ----------
    Total revenue         $20,239,000       $18,764,000     $6,324,000         $6,070,000
                          -----------       -----------     ----------         ----------

COST & EXPENSES:

  Cost of sales            16,465,000        16,208,000      5,007,000          5,392,000

  Selling, general &
    administrative          2,270,000         1,625,000      1,025,000            545,000

  Interest                    215,000           175,000         90,000             82,000
                          -----------       -----------     ----------         ----------
    Total cost & expenses $18,950,000       $18,008,000     $6,122,000         $6,019,000
                          -----------       -----------     ----------         ----------

EARNINGS BEFORE 
  INCOME TAXES              1,289,000           756,000        202,000             51,000

PROVISION FOR INCOME TAXES    438,000           306,000         68,000             24,000
                             --------          --------       --------           --------
NET EARNINGS                 $851,000          $450,000       $134,000            $27,000
                             ========          ========       ========            =======


EARNINGS PER COMMON SHARE       $.53              $.27           $.09               $.02
                                =====             ====           ====               ====



WEIGHTED AVERAGE COMMON
    SHARES                 1,604,779         1,650,001      1,525,274          1,638,739
                          ==========         =========      =========          =========

                    See notes to interim financial statements
</TABLE>

<PAGE>

                                VACU-DRY COMPANY
                                 Balance Sheets
                                  (Unaudited)
                             (Dollars in thousands)
<TABLE>
<S>                    <C>         <C>        <C>                                             <C>          <C>          <C>
CURRENT ASSETS:        3/31/98     3/31/97    6/30/97   CURRENT LIABILITIES:                  3/31/98      3/31/97      6/30/97
                       -------     -------    -------                                          ------      -------      -------

Cash                      $194        $250       $283   Borrowings under line of credit           $750     $3,428          $1,354

Accounts receivable      2,570       2,306      1,567   Current maturities of long-term debt       595        576             557

Other receivable            16          27         70   Accounts payable                         1,369      1,461             490

Inventories              7,853       7,692      5,055   Accrued payroll & related liabilities      761        742             539

Prepaid expenses            17          16        131   Accrued expenses                           318        123             173

Current deferred taxes     240         225        239   Income taxes payable                        30        -0-             -0-
                                                                                                    --        ---             ---
                       -------     -------     ------
Total current assets   $10,890    $ 10,516     $7,345   Total current liabilities               $3,823     $6,330          $3,113
                                                                                                ------     ------          ------


                                                         Borrowings  under line of credit        1,850       -0-             -0-

                                                         Long-term debt net of 
                                                             current maturities                  2,185      1,927           1,808
                                                                                                 -----      -----           -----
Net property, plant &
equipment               6,665       7,337       7,231    Total long-term debt                    4,035      1,927           1,808
                                                                                                 -----      -----           -----

                      
                                                         DEFERRED INCOME TAXES                     826        843             826
                                                                                                   ---        ---             ---


                                                         SHAREHOLDERS' EQUITY;

                                                         Capital stock                           2,826      3,626           3,635
                                                         Retained earnings                       6,045      5,127           5,194
                                                                                                 -----      -----           -----

                                                         Total shareholders' equity              8,871      8,753           8,829

                      ______     _______     _______         Total liabilities and             _______    _______         _______
Total Assets         $17,555     $17,853     $14,576           shareholders' equity            $17,555    $17,853         $14,576
                     =======     =======     =======                                           =======    =======         =======

                       See notes to interim financial statements
</TABLE>

<PAGE>

                                VACU-DRY COMPANY
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997


CASH FLOWS FROM OPERATING ACTIVITIES:                 1998                1997
                                                      ----                ----

  Net earnings                                       $851,000           $450,000
                                                      --------          --------
Adjustments to reconcile net earnings to net
     cash used for operating activities  -

       Depreciation expense                           821,000           787,000

       Deferred income tax provision                   (1,000)           95,000

 Changes in certain assets & liabilities
     (Increase)decrease in receivables               (949,000)          351,000
     (Increase) in inventories                     (2,798,000)       (4,262,000)
     Decrease in prepaid assets                       114,000           100,000
     Increase in accounts payable                     879,000           783,000
       Increase in accrued expenses                   145,000            17,000
       Increase in accrued payroll
          & related liabilities                       222,000           266,000
       Increase(decrease)in income taxes payable       30,000           (32,000)
                                                    ----------        ----------
           Total adjustments                       (1,537,000)       (1,895,000)
                                                   -----------        ----------
       Net cash used for operating
           activities                                (686,000)       (1,445,000)
                                                    ----------        ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Capital expenditures                          (255,000)         (401,000)
                                                     _________         _________
       Net cash (used for) investing activities      (255,000)         (401,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
       Additional borrowings under the
          line of credit                            8,385,000         6,483,000
       Payments on line of credit                  (7,139,000)       (3,881,000)
       Employee purchase of Company stock              26,000            32,000
       Repurchase of common stock                       -0-            (407,000)
       Principal payments of long-term debt          (420,000)         (345,000)
                                                    ---------         ---------
       Net cash provided by financing
           activities                                 852,000         1,882,000
                                                    ---------         ---------
NET (DECREASE) IN CASH                                (89,000)           36,000

CASH AT THE BEGINNING OF THE YEAR                     283,000           214,000
                                                     --------          --------
TOTAL CASH AT THE END OF THE PERIOD                  $194,000          $250,000
                                                    =========          ========

Supplemental Disclosure of Non-Cash Activities
      Repurchase of stock through the
           issuance of notes payable                 $835,000            $ -0-
                                                    =========            =====

             See notes to interim financial statements



<PAGE>
                         VACU-DRY COMPANY

                 NOTES TO INTERIM FINANCIAL STATEMENTS
                    NINE MONTHS ENDED MARCH 31, 1998


Note 1  -

      The accompanying 1998 and 1997 unaudited interim financial statements have
      been  prepared  pursuant  to the  rules  of the  Securities  and  Exchange
      Commission . Certain  information  and  disclosures  normally  included in
      annual financial statements prepared in accordance with generally accepted
      accounting  principles  have been  condensed  or omitted  pursuant to such
      rules and regulations, although the Company believes these disclosures are
      adequate  to make  the  information  not  misleading.  In the  opinion  of
      management,  all  adjustments  necessary for a fair  presentation  for the
      period presented have been reflected and are of a normal recurring nature.
      These interim financial  statements should be read in conjunction with the
      financial  statements and notes thereto for each of the three years in the
      period ended June 30, 1997.  The results of operations  for the nine month
      period ended March 31, 1998 are not  indicative of the results that may be
      achieved for the entire year ending June 30, 1998.

      Reclassification  - Certain 1996 amounts were  reclassified  to conform to
      the 1997 presentation.

Note 2  - Inventories  -

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

      Inventories  at  March  31,  1998  and June  30,  1997,  consisted  of the
      following:

                                    3/31/98          6/30/97
                  Finished goods   6,551,000       $4,208,000

                  Work in progress   597,000          291,000

                  Raw materials, &
                       containers    705,000          556,000
                                  ----------       ----------
                                  $7,853,000       $5,055,000
                                  ==========       ==========


  Note 3  - Statement of Cash Flows  -

       Interest  and  income  tax  payments  reflected  in  the  Consolidated
       Statement of Cash Flows were as follows:

                                               1998                 1997
                                               ----                 ----

                           Interest paid       $210,000          $159,000
                           Income taxes paid   $409,000          $261,000


Note 4  - Revolving Line of Credit -

      The Company  entered into a new revolving  credit  agreement with the Bank
      during the second quarter ended December 31, 1997.  Under this  agreement,
      the Company can borrow at the Bank's  prime rate with  repayment  terms of
      two years or at LIBOR with a short-term maturity.





                                VACU-DRY COMPANY

                      NOTES TO INTERIM FINANCIAL STATEMENTS
                        NINE MONTHS ENDED MARCH 31, 1998




Note 5 - Income Taxes

   The effective income tax rate for the nine month period ending March 31, 1998
   is 34%, which is comparable to the effective tax rate for the year ended June
   30, 1997.

Note 6 - Subsequent Event -

   On April 21, 1998, the Company executed a letter of intent to acquire  
   substantially all of the business and assets of Made In Nature,Inc., a
   natural foods company headquartered in San Rafael, California.

   The  acquisition,   which  would  be  accomplished  through  a  wholly  owned
   subsidiary,is  conditioned upon acceptable  completion of due diligence,  the
   resolution of certain current  obligations on the part of Made In Nature, and
   board approval of both companies.  The letter of intent calls for the Company
   to  acquire  the  business  and its  assets  free and  clear of all liens and
   liabilities except those specifically assumed.

Note 7 - Stock Repurchase -

   On January 9 and 20, 1998,  the Company  completed the purchase of two blocks
   of its Common Stock aggregating  139,100 shares,  equal to approximately 8.5%
   of its outstanding  Common Stock.  The shares were purchased in two privately
   negotiated transactions. The purchase price in each transaction was $6.00 per
   share.   Payment  was  made  by  delivery  of  the  Company's   subordinated,
   interest-only notes. The notes bear interest at 8.5% per annum and are due in
   full in five years.



<PAGE>

Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations


THIS  FORM 10-Q  CONTAINS  FORWARD-LOOKING  STATEMENTS  WHICH  INVOLVE  RISK AND
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS MAY DIFFER  SIGNIFICANTLY  FROM THE
RESULTS  DISCUSSED IN THE  FORWARD-LOOKING  STATEMENTS AS A RESULT OF CERTAIN OF
THE FACTORS SET FORTH IN THE  COMPANY'S  ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED JUNE 30, 1997.

The financial  statements herein presented for the quarters ended March 31, 1998
and 1997,  reflect all the  adjustments  that in the opinion of  management  are
necessary for the fair  presentation  of the  financial  position and results of
operations  for the period  then  ended.  All  adjustments  during  the  periods
presented, are of a normal recurring nature.

Liquidity and Capital Resources

Because the Company's  operations are seasonal in nature,  the Company's  liquid
resources fluctuate during the year. The inventory and accounts payable balances
are  normally at their  lowest  level as of the end of the fiscal year and their
highest level as of the end of the second quarter. This seasonal increase in the
accounts  payable balance results in a temporary  increase in the Debt to Equity
ratio. The level of inventories are very comparable to March 31,1997 however, we
are  anticipating  that our inventory  balances at the end of the current fiscal
year will be lower than last year. The net working  capital as of March 31, 1998
increased by $2,881,000,  from  $4,186,000 as March 31, 1997 to $7,067,000 as of
March 31, 1998. Of this increase,  $1,850,000 was a result of the refinancing of
the line of credit to a term of two years (See Note 4 to Financial  Statements).
The remaining increase was primarily a result of the improved earnings.

The Company's  operating capital is obtained from external and internal sources.
The Company's  largest external source is a revolving line of credit provided by
a bank at the Bank's prime rate.  The Company  increased  the total limit of its
revolving  line of credit to $4,500,000  in  anticipation  of higher  short-term
borrowing  requirements as a direct result of a condensed  production period and
the related increase in the inventory  levels. As of March 31, 1998, the Company
had $1,900,000 of available  borrowings on the line of credit.  This compares to
$72,000 of available  funds as of March 31, 1997 on a total line of  $3,500,000.
As of March 31, 1998,  the Company was in  compliance  with all of the covenants
and restrictions related to its outstanding debt. As of January 1998 the Company
signed a long-term lease for  approximately  one-half of the previously  vacated
portion of this facility.  The Company has secured a new  short-term  tenant for
the balance of the available  space.  This lease expires  January 31, 1999.  The
Company is in the process of  negotiating  a long-term  lease with a new tenant,
beginning  February  1, 1999.  The Company  continues  to lease a portion of its
operating facility and is in negotiations with the primary tenant on a long-term
lease. The current lease was extended and expires on May 31, 1998.

The  Company  has  increased  its capital  expenditure  budget from  $532,000 to
$625,000  for the fiscal year ended June 30,  1998.  For the nine  months  ended
March 31, 1998, the Company has spent  $255,000 of this budget.  These funds are
being  primarily  used to purchase new and  refurbish  existing  equipment.  The
Company anticipates financing these assets through internally generated funds.

On  April  21,  1998,  the  Company  executed  a letter  of  intent  to  acquire
substantially all of the business and assets of Made In Nature,  Inc., a natural
food  marketer  of  organic  consumer  packaged  goods  located  in San  Rafael,
California.  The letter of intent  calls for the Company to acquire the business
and its  assets  free and  clear  of all  liens  and  liabilities  except  those
specifically assumed.


<PAGE>


Results of Operations

Quarter

Net sales  increased  $314,000 or 5% in the third  quarter of fiscal 1998.  This
increase  was  entirely  from higher unit sales volume as the average sale price
declined  slightly.  The largest  increase  was from low moisture  sales,  which
increased $976,000 however;  lower sales in other product  categories  partially
offset  the  increase.  Other  revenue  decreased  $60,000  as a result  of less
non-recurring income.

Cost of sales for the quarter ended March 31, 1998 decreased from 91.5% to 80.6%
of net sales. This decrease was primarily a result of reduced product costs.

Selling,  general and  administrative  expenses increased $480,000 or 88% in the
third  quarter.  This  increase  was a result of costs  incurred  as a result of
exploration of new strategic initiatives,  an accrual for the employee incentive
plan and Stock Appreciation Rights expense.

Interest  expense  increased  $8,000  as  a  result  of  our  increased  average
borrowings on the line of credit during the quarter.


Year-to Date

Net sales increased $1,664,000 or 9.1% for the nine months ended March 31, 1998.
This  increase  was  entirely  from higher unit sales volume as the average sale
price  declined  slightly.  The  increase was  predominately  across all product
lines,  but  particularly  in vacuum,  drum drying and Zoria Farms sales.  Other
revenue decreased $189,000 as a result of non-recurring  revenue earned in 1997.
The Company's real estate income is comparable to last year.

Cost of sales as a percent  of net sales  decreased  from  88.9% as of March 31,
1997 to 82.7% as of March 31,  1998.  Although the average  sales price  dropped
slightly,  the  margin  increased  as a result  of lower  raw  material  prices,
improved yields and other production efficiencies.

Selling, general and administrative expenses increased $645,000 or 39.7% through
the nine  months  ended  March 31,  1998.  This  increase  was a result of costs
incurred as a result of exploration of new strategic initiatives, an accrual for
the employee incentive plan and Stock Appreciation Rights expense.

Interest expense increased $40,000 as a result of our higher average  borrowings
on the line of credit.




<PAGE>

                                    PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings

             There are no material legal proceedings pending.


Item 2.  Changes in Securities

            There are no material changes in securities.

                  The Company's revolving line of credit agreement with its Bank
                  dated (December 1, 1997),  includes a covenant which prohibits
                  the  declaring  or paying of any dividend or  distribution  in
                  either  cash,  stock or any other  property  on the  Company's
                  stock  now  or  hereafter  outstanding,  nor  redeem,  retire,
                  repurchase  or  otherwise  acquire  shares of any class of the
                  Company's  stock now or  hereafter  outstanding,  without  the
                  prior approval by the Bank. The Company received approval from
                  the Bank  prior to the  repurchase  of the  139,100  shares of
                  common stock in January 1998.

Item 4...Submission of Matters to a Vote of Security Holders.

            No matters were submitted to a vote of security holders during
            the period covered by this report.


Item 6.  Exhibits & Reports on Form 8-K

                  a.       Exhibits  -  none

                    (27) Financial Data Schedule (by electronic filing only)

                  b.       Reports on Form 8-K  -

                  Filed  January 22,  1998,  repurchase  of two blocks of common
                  stock aggregating 139,100 shares.


<PAGE>




                                   SIGNATURES


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





                                            VACU-DRY COMPANY


Date: May 15, 1998                          /s/ Gary L. Hess
      ------------

                                            -----------------------
                                             Gary L. Hess, President

Date: May 15, 1998                          /s/ Tom Eakin
      ------------

                                            -----------------------
                                             Tom Eakin, VP, Finance


<PAGE>