UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB


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

                       For the period ended March 31, 1998

[ ]      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 : 0 - 27850

                                APPLEWOODS, INC.
              -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)

           Delaware                                    13-3859709
-------------------------------          ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

                              274 Riverside Avenue
                              Westport, Connecticut
                              ---------------------
                    (Address of principal executive offices)

                                      06880
                                      -----
                                   (Zip Code)
                                   ----------

                                (203) 227 - 4912
                                ----------------
               (Registrant's telephone number including area code)



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 and (2) has been subject to such filing requirements for
the past 90 days.

                                                       Yes  [X] No [ ]

        Class                                    Outstanding at May 13, 1998
-----------------------                          ---------------------------
     Common Stock                                          8,472,000

<PAGE>

<TABLE>
<CAPTION>
APPLEWOODS, INC.
-------------------------------------------------------------------------------------------------------------

INDEX
-------------------------------------------------------------------------------------------------------------


PART 1: FINANCIAL INFORMATION                                                                           Page:
<S>                                                                                                         <C>
Item 1.  Financial Statements:

    Condensed Consolidated Balance Sheet as of March 31, 1998 and June 30, 1997                             2

    Condensed Consolidated Statements of Operations for the three months and the nine
    months ended March 31, 1998 and 1997                                                                    3

    Condensed Consolidated Statement of  changes in Stockholder's Equity for the nine months
    ended March 31, 1998                                                                                    4

    Condensed Consolidated Statements of  Cash Flows for the nine months ended
    March 31, 1998 and 1997                                                                                 5

    Notes to Condensed Financial Statements                                                             6 - 7


Item 2.  Management's  Discussion and Analysis of  Financial Condition
              and Results of Operations                                                                8 - 10


PART II:  OTHER INFORMATION:

Item 1.   Legal Proceedings                                                                                11

Item 6.   Exhibits and Reports on Form 8-K                                                                 11

Signatures                                                                                                 12
</TABLE>

                                                    Page 1

<PAGE>

<TABLE>
<CAPTION>
APPLEWOODS, INC.
-----------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------
(Unaudited)
                                                                                   March          June 30
                                                                                 --------------------------
                                                                                    1998            1997
                                                                                    ----            ----
Assets:                                                                          (Unaudited)          *
<S>                                                                              <C>             <C>       
Current Assets:
   Cash                                                                          $  118,763      $  787,367
   Trade Accounts Receivable, net of allowance                                    1,726,769       1,101,706
            for doubtful accounts of $ 220,066 and $39,519, respectively
   Other Receivables                                                                 10,711          96,301
   Inventory                                                                      2,684,317       2,721,295
   Other Current Assets                                                               1,262          56,110
                                                                                 ----------      ----------
Total Current Assets                                                              4,541,822       4,762,779
                                                                                 ----------      ----------

                                                                                 ----------      ----------
Property, Plant and Equipment -Net                                                  554,723         671,865
                                                                                 ----------      ----------

Other Assets:
   Trademarks - Net                                                                 103,532         104,560
   Other Asset due after one year                                                   190,904              --
                                                                                 ----------      ----------
Total Other Assets                                                                  294,436         104,560
                                                                                 ----------      ----------

                                                                                 ----------      ----------
Total Assets                                                                     $5,390,981      $5,539,204
                                                                                 ==========      ==========


Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts Payable                                                              $1,298,110      $  941,747
   Accrued Expenses                                                                 461,966         426,384
   Accrued Taxes                                                                    102,003          62,911
   Other Current Liabilities                                                         52,457          24,928
   Other Current Liabilities - Related Parties                                           --          40,214
                                                                                 ----------      ----------
Total Current Liabilities                                                         1,914,536       1,496,184
                                                                                 ----------      ----------

Long-Term Liabilities
                                                                                 ----------      ----------
   Related Party Debt                                                               190,904              --
                                                                                 ----------      ----------

Stockholders' Equity:
   Series A Preferred Stock - $.0001 Par Value,
      500,000 Shares Authorized, 243,911and 249,911Shares Issued and
      and Outstanding, respectively                                                      24              25
   Common Stock, $.0001 Par Value,
      30,000,000 Shares Authorized,  8,472,000 Shares Issued and Outstanding            847             847
   Additional Paid-In Capital                                                    12,010,018      12,040,017
   Accumulated Deficit                                                           (8,961,271)     (8,232,366)
   Cumulative Foreign Currency Translation Adjustment                               235,923         234,497
                                                                                 ----------      ----------
Total Stockholders' Equity                                                        3,285,541       4,043,020

                                                                                 ==========      ==========
Total Liabilities and Stockholders' Equity                                       $5,390,981      $5,539,204
                                                                                 ==========      ==========

* The  Balance  Sheet at June 30,  1997 is derived  from the  audited  financial
statements at that date,  but does not include all the  information  required by
generally accepted accounting principles for complete financial statements.

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

                                                   Page 2

<PAGE>

<TABLE>
<CAPTION>
APPLEWOODS, INC.
-------------------------------------------------------------------------------------------------

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------------------
(Unaudited)

                                             Three Months Ended            Nine Months Ended
                                                   March 31                     March 31
                                          -------------------------     -------------------------
                                             1998           1997           1998           1997
<S>                                       <C>            <C>            <C>           <C>        
Revenues:
   Product Sales                          $1,160,570     $1,277,706     $5,657,320    $ 3,768,406
   Storefitting and License Revenue          429,495        216,817      1,480,871        719,129

                                          ----------     ----------     ----------    -----------
     Total Revenues                        1,590,065      1,494,523      7,138,191      4,487,535
                                          ----------     ----------     ----------    -----------

Cost of Sales:
   Product Sales                             718,342        926,638      3,660,703      2,716,676
   Storefitting and License Revenue          278,661        192,888        921,194        543,231

                                          ----------     ----------     ----------    -----------
      Total Cost of Sales:                   997,003      1,119,526      4,581,897      3,259,907
                                          ----------     ----------     ----------    -----------

   Gross Profit                              593,062        374,997      2,556,294      1,227,628

Selling, General and Admin. Expenses         900,904        976,182      3,301,888      2,558,428
Consultancy Fees                                  --        248,250             --        744,750

                                          ----------     ----------     ----------    -----------
Loss from Operations:                       (307,842)      (849,435)      (745,594)    (2,075,550)
                                          ----------     ----------     ----------    -----------

Other Income (Expense):

   Foreign Exchange Gain (Loss)               44,272        (93,172)        24,772         55,722
   Interest Income                                --         10,523          4,896         69,504
   Interest Expense                          (12,979)            --        (12,979)            --
                                          ----------     ----------     ----------    -----------
          Total Other Income (Expense)        31,293        (82,649)        16,689        125,226
                                          ----------     ----------     ----------    -----------

Loss before Income Taxes                    (276,549)      (932,084)      (728,905)    (1,950,324)

Provision for Income Taxes                        --             --             --             --

                                          ----------     ----------     ----------    -----------
Net Loss                                  $ (276,549)    $ (932,084)    $ (728,905)   $(1,950,324)
                                          ==========     ==========     ==========    ===========

Net Loss per share, basic and diluted     $    (0.03)         (0.11)         (0.09)         (0.23)
                                          ==========     ==========     ==========    ===========

Weighted average number of shares          8,472,000      8,524,364      8,472,000      8,524,364
                                          ==========     ==========     ==========    ===========
</TABLE>

                   See accompanying notes to the condensed financial statements

                                              Page 3
<PAGE>

<TABLE>
<CAPTION>
APPLEWOODS, INC.
------------------------------------------------

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
(Unaudited)
                                                                                                           
                                                         Common Stock               Series A Preferred     
                                                         ------------               ------------------     
                                                     Shares        Amount         Shares         Amount    
                                                     ------        ------         ------         ------    

<S>                                                 <C>             <C>          <C>               <C>     
Balance - June 30, 1997                             8,472,000       $847         249,911           $25     


Foreign Currency Translation Adjustment                    --         --              --            --     

Repurchase of stock                                        --         --          (6,000)           (1)    

Net Loss                                                   --         --              --            --     


                                                    --------------------------------------------------     
Balance - March 31, 1998*                           8,472,000       $847         243,911           $24     
                                                    ==================================================     
</TABLE>

<TABLE>
<CAPTION>
                                                                                     Foreign
                                                    Additional                       Currency         Total
                                                     Paid-In       Accumulated      Translation    Stockholders'
                                                     Capital         Deficit        Adjustments       Equity
                                                     -------         -------        -----------       ------

<S>                                               <C>             <C>                <C>           <C>       
Balance - June 30, 1997                           $12,040,017     $(8,232,366)       $234,497      $4,043,020


Foreign Currency Translation Adjustment                    --              --           1,426           1,426

Repurchase of stock                                   (29,999)             --              --         (30,000)

Net Loss                                                   --        (728,905)             --        (728,905)


                                                  -----------------------------------------------------------
Balance - March 31, 1998*                         $12,010,018     $(8,961,271)       $235,923      $3,285,541
                                                  ===========================================================

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


                                                     Page 4

<PAGE>
<TABLE>
<CAPTION>
APPLEWOODS, INC.
---------------------------------------------------------------------------------

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------
(Unaudited)                                                 Nine Months Ended
                                                                March 31
                                                        -------------------------
                                                           1998          1997
Cash Flows from Operating Activities:                      ----          ----
<S>                                                     <C>          <C>
      Net Loss                                          $(728,905)   $(1,950,324)
 Adjustment to Reconcile Net Loss to Net
 Cash Used for Operating Activities
      Depreciation                                        227,281        219,088
      Amortization of Trademarks                           33,883         25,062
      Non-Cash Consulting Fees                                 --        720,000

Changes in Assets and Liabilities
      Trade Accounts Receivable                          (625,063)      (319,573)
      Other Receivables                                    85,590         22,980
      Inventory                                            36,978     (1,074,430)
      Other Current Assets                                 54,848        (62,996)
      Other Assets                                             --         24,750
      Accounts Payable                                    356,363         77,290
      Accrued Expenses                                     35,583        262,504
      Accrued Taxes                                        39,092          8,384
      Other Current Liabilities                            27,529         82,738
      Other Current Liabilities - Related Parties         (40,214)       (10,294)
                                                        ---------    -----------
Net Cash - Operating Activities                          (497,035)    (1,974,821)
                                                        ---------    -----------

Investing Activities
      Purchase of Property and Equipment                 (107,307)      (494,902)
      Investment in Trademarks                            (31,986)       (39,298)
      Other Asset due after one year                     (190,904)            --
                                                        ---------    -----------
Net Cash - Investing Activities                          (330,197)      (534,200)
                                                        ---------    -----------

Financing Activities
      Preferred Stock Repurchase                          (30,000)            --
      Loan from Related Party                             190,904             --
                                                        ---------    -----------
Net Cash - Financing Activities                           160,904             --
                                                        ---------    -----------

                                                        ---------    -----------
Effect of Exchange Rate Changes On Cash                    (2,276)        91,995
                                                        ---------    -----------

Net Decrease In Cash                                     (668,604)    (2,417,026)

Cash  - Beginning of Period                               787,367      3,958,168
                                                        ---------    -----------
Cash  - End of Period                                   $ 118,763    $ 1,541,142
                                                        =========    ===========


Supplemental  Disclosures of Cash Flow  Information
  Cash paid during the period for:
      Interest                                          $   4,698    $        --
      Income Taxes                                      $      --    $        --
</TABLE>

           See accompanying notes to the condensed financial statements

                                      Page 5
<PAGE>
APPLEWOODS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------


(1)      SIGNIFICANT ACCOUNTING POLICIES

         Significant  Accounting  Policies of Applewoods,  Inc., (the "Company")
are set forth in the  Company's  Annual Report on Form 10-KSB for the year ended
June 30, 1997 ( the  "Company's  Form 10-KSB") as filed with the  Securities and
Exchange Commission on October 14, 1997.

(2)      BASIS OF PREPARING UNAUDITED CONDENSED FINANCIAL STATEMENTS

         The Company  incurred net losses of $3,312,576  and  $2,315,074 and net
cash outflows from  operations of $2,718,693  and  $1,888,676 in the years ended
June 30, 1997 and 1996,  respectively.  For the nine months ended March 31, 1998
and 1997,  the Company  incurred net losses of $728,905 and  $1,950,324  and net
cash outflows of $497,035 and $1,974,821, respectively.  Management has prepared
projected  cash flow  information  for the period  ending March 31, 1999. On the
basis of these projections, management considers that the Company may be able to
continue to operate through that date with credit facilities which are currently
being  renegotiated.   However,   these  projections  are  estimates  of  future
performance  over which the Company  can give no  assurances.  Accordingly,  the
financial  statements  have been  prepared on a going  concern  basis and do not
include any adjustments that might result from the outcome of this uncertainty.

(3)      BASIS OF REPORTING

         The accompanying  unaudited  condensed  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and with the  instructions to Form 10-QSB and Regulation
S-B.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.  In the opinion of the management,  all adjustments (consisting only
of  normal  recurring   items)  which  are  considered   necessary  for  a  fair
presentation  have been included.  These  financial  statements  must be read in
conjunction with the Company's Form 10-KSB.  The operating  results for the nine
months ended March 31, 1998 are not  necessarily  indicative of the results that
may be expected for the year ending June 30, 1998.

(4)      PROPERTY, PLANT & EQUIPMENT

         Property, Plant & Equipment is comprised of the following:

                                   March 31,    June 30,
                                     1998         1997
                                     ----         ----

Plant & Machinery                   728,516   $  695,058
Office Equipment & Fittings         539,955      457,786
Motor Vehicles                       39,768       39,524
                                 ----------   ----------
                                  1,308,239    1,192,368

Less: Accumulated depreciation      753,516      520,503
                                 ----------   ----------

                                 $  554,723   $  671,865
                                 ==========   ==========

                                     Page 6
<PAGE>

APPLEWOODS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------



(5)      TRADEMARKS

         Trademarks is comprised of the following:

                                March 31,     June 30,
                                     1998         1997
                                ---------     --------

Cost                             $248,254     $214,587

Less: Accumulated amortization    144,722      110,027
                                 --------     --------

                                 $103,532     $104,560
                                 ========     ========

(6)     INVENTORY

        Inventory is comprised of the following:

                                March 31,     June 30,
                                     1998         1997
                                ---------     --------

Raw Materials                  $1,012,239   $1,046,084
Work in Progress                  127,800      134,878
Finished Goods                  1,544,278    1,540,333
                               ----------   ----------
                               $2,684,317   $2,721,295
                               ==========   ==========



(7)      EARNINGS PER SHARE

                  Earnings per share for the three and nine month  periods ended
         March 31, 1998 have been computed in accordance  with the provisions of
         Statement of Financial  Accounting  Standards 128,  Earnings per Share.
         Basic and  diluted  earnings  per share  are the same  because,  as the
         Company has incurred net losses in both periods, the incremental shares
         from the assumed exercise of outstanding stock options are not included
         in computing  the diluted per share  amounts.  The  application  of the
         provisions of Statement 128 to the  computations  of earnings per share
         for the three  and nine  month  periods  ended  March 31,  1997 have no
         impact on the amounts previously reported.

                                     Page 7

<PAGE>
                                APPLEWOODS, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

         Applewoods,  Inc.,  a  Delaware  corporation,  ("AI"),  was  formed  in
September  1995  to  acquire  all  of  the   outstanding   stock  of  Applewoods
International  Limited  ("AIL"),  a company  registered  in Great  Britain.  The
acquisition was recorded as a recapitalization  of AIL, with AI as the acquirer.
AI and AIL are collectively referred to as the "Company ".

         The  business of the Company is the  establishment  of licensed  retail
stores to sell  "natural"  soaps,  toiletries  and related  gift  products.  The
Company  manufactures both the products and the associated  storefittings at its
premises in Devon, England. During the past three years, the Company has pursued
an active policy of  developing  original  product  lines  in-house and sourcing
accessory  products  from  around  the  world.  This is  essential  to provide a
sufficient  range and variety of products to make the stores  successful.  It is
anticipated  that this  range  development  will  continue  for the  foreseeable
future.

         This Form 10-QSB contains  forward looking  information that is subject
to certain risks,  trends and  uncertainties  that could cause actual results to
differ materially from those projected.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

         The  Company's  revenues  are  generated  from the sale of  products to
licensees and distributors, and an initial license fee charged for all necessary
construction  items and services  that  include the design and  fixturing of the
retail  space.  Total  revenues  for the three  months  increased by 6% over the
previous year. Within this, product sales decreased by 9% over the previous year
as product sales in 1997 benefited  from  significant  exceptional  distribution
sales of product  outside the licensed  store  network.  At March 31, 1998,  the
Company had 85 licensed  stores  operating  compared  with 58 at March 31, 1997.
Storefitting and license revenue increased by 98%.

         The gross  profit  percentage  for the three  months to March 31,  1998
increased from 25% to 37%. Product margin increased from 27% to 38%, because, in
1997,  high  provisions  made against  inventory  obsolescence  reduced  product
margin.  The margin generated by storefitting and license revenue increased from
11% to 35%,  reflecting the higher activity in storefitting in 1998, compared to
1997.

         Selling,  general  and  administrative  expenses  decreased  by  8%  to
approximately  $901,000  this year from  approximately  $976,000 in the previous
year, as a result of lower product development costs.

         The Company  benefited from a foreign exchange gain of $44,272 compared
with a loss in  1997 of  $93,172.  Interest  expense  of  $12,979  has  replaced
interest  income  in 1997 of  $10,523,  because  the  Company  used  its  credit
facilities during the quarter to March 31, 1998.

NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997

         The  Company's  revenues  are  generated  from the sale of  products to
licensees and distributors, and an initial license fee charged for all necessary
construction  items and services  that  include the design and  fixturing of the
retail  space.  Total  revenues  for the nine months  increased  by 59% over the
previous  year.  Within this,  product sales  increased by 50% over the previous
year,  essentially due to the increased number and quality of retail stores.  At
March 31, 1998, the Company had 85 licensed stores operating compared with 58 at
March 31, 1997. Storefitting and license revenue increased by 106%.

                                     Page 8
<PAGE>

                                APPLEWOODS, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


NINE MONTHS  ENDED MARCH 31, 1998  COMPARED TO NINE MONTHS  ENDED MARCH 31, 1997
(CONTINUED)

         The gross  profit  percentage  for the nine  months  to March 31,  1998
increased from 27% to 36%. Product margin increased from 28% to 35%, because, in
1997,  high  provisions  made against  inventory  obsolescence  reduced  product
margin.  The margin generated by storefitting and license revenue increased from
24% to 38%, reflecting the higher level of activity in 1998, compared to 1997.

         Selling,  general  and  administrative  expenses  increased  by  29% to
approximately $3,302,000 this year from approximately $2,558,000 in the previous
year.  Approximately  9% of the increase relates to provision made against Trade
Accounts  Receivable from Southeast Asia, as a result of the decline of economic
conditions in such  regions.  The  remaining  increase is from sales  promotion,
travel and product development,  which all relates to the efforts by the Company
to develop the worldwide market for its products.

         The Company  benefited from a foreign exchange gain of $24,772 compared
with a gain in 1997 of  $55,722.  Net  interest  expense of $8,083 has  replaced
interest  income in 1997 of  $69,504,  because  the  Company has used its credit
facilities  in the  current  period;  in the nine  months to March 31,  1997 the
Company held cash funds.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31,  1998,  the Company had working  capital of  approximately
$2,627,000, including cash of approximately $119,000.

         During the nine  months to March 31,  1998,  the  Company  used cash of
approximately $497,000 to fund operations.  Contributing to this use of cash was
a loss  from  operations  of  approximately  $729,000,  and an  increase  in the
Company's  accounts  receivable  of  approximately  $625,000.  Accounts  payable
increased  by  approximately  $356,000.  Net cash used in  investing  activities
increased  to  $330,000  mainly due to the  establishment  of a Company  factory
outlet store, and the payment of a rent deposit.

         The Company has capital  commitments at March 31, 1998 arising from the
relocation  of its  headquarters  facility in  England,  planned for the quarter
ending June 30,  1998.  During March 1998,  the Company  signed a lease and rent
deposit for a plant and  offices  sited in England;  the rent  deposit  required
payment in March of a deposit classified as an other asset due after one year at
March 31,  1998.  The payment of the deposit was financed by a loan secured by a
debenture,  the written terms of which are being finalized, on the assets of the
Company for an  equivalent  amount from Mr.  Roger M. Buoy,  the Chairman of the
Board and Chief Executive  Officer of the Company.  This loan is to be repayable
on demand,  although  the written  agreement  has yet to be  executed.  Interest
received by the Company on the deposit is to be paid to Mr.  Roger M. Buoy under
the proposed terms of the loan. The Company has also entered an agreement with a
specialist   outsourcing  Company  to  warehouse  and  distribute  its  finished
products;   these  combined  changes  offer  the  Company  improved  production,
warehousing and  distribution  capability,  in a more favorable  location,  at a
reduced cost base.

         The  Company's  financial  statements  have  been  prepared  on a going
concern  basis  because  management  believes,  based on cash  flow  projections
through  March 31, 1999,  that the Company may be able to continue  through that
date using credit facilities which will be renegotiable  during that period. The
Company has negotiated  credit  facilities to finance the business  through May,
and it was  agreed  as part of  these  negotiations  that Mr.  Roger M.  Buoy be
required to give a personal guarantee to the Company's bankers.  This obligation
to provide such  guarantee  will be included  within the  Debenture  referred to
above. In recognition of the cash restraints on the Company,  Mr. Roger M. Buoy,
Chief Executive Officer,  has agreed to defer his salary commencing March, 1998.
Mr. Tony E. Swash, Chief Operating Officer, has also deferred part of his salary
commencing March, 1998.

                                     Page 9
<PAGE>

                                APPLEWOODS, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

         The  Internal  Revenue  Service of the  Department  of the Treasury are
undertaking an examination of the Form 1120 U.S.  Corporation  Income Tax Return
for the year  ending  June 30,  1996.  The  Company  does not  believe  that any
significant  liability  will be  incurred  as a result of this  examination  and
therefore no liability has been accrued in the financial statements at March 31,
1998.

IMPACT OF INFLATION

         Inflation has not been a major factor in the Company's  business  since
inception. There can be no assurances that this will continue.

SEASONALITY

         The  Company  experiences  considerable  seasonal  fluctuation  in  its
quarterly results due to the pre-Christmas  retail sales period. In the last two
years,  an average of 34% of annual  product sales were generated in the October
to  December  quarter.  Quarterly  results  should  therefore  be viewed in this
context.

                                     Page 10
<PAGE>

PART II  -  OTHER INFORMATION
--------------------------------------------------------------------------------

ITEM 1.  LEGAL PROCEEDINGS

Reference is made to the  disclosure  for this item in the Company's Form 10-QSB
for the quarter ended December 31, 1997.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits as required by Item 601 of Regulation S-K:

None Required.

(B) Reports on Form 8-K

None.

                                     Page 11
<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.



                                    APPLEWOODS, INC.



         Date:   May 13, 1998

                                    By: /s/ ROGER M. BUOY
                                        ----------------------------------------
                                            Roger M. Buoy,
                                            Chairman and Chief Executive Officer

                                     Page 12

<PAGE>