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

                                  FORM 10-QSB


(Mark One)


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

          For the quarterly period ended December 31, 1997
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:  0-29050

                            TOMORROW'S MORNING, INC.
       (Exact name of small business issuer as specified in its charter)

 
CALIFORNIA                                     95-4379805
(State or other jurisdiction of               (IRS Employer
incorporation or organization)               Identification No.)


           125 South Barrington Place, Los Angeles, California 90049
                    (Address of principal executive offices)

Issuer's telephone number: (310) 440-2778



Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act  during the past 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  
    _____    _____
                 

Number of shares of common stock outstanding at February 10, 1998: 2,818,692


Transitional Small Business Disclosure Format (check one) : Yes       No  X
                                                                ----     ----

                                                                          Page 1
<PAGE>

                                    PART I
                             FINANCIAL INFORMATION

                             TOMORROW'S MORNING, INC.
                                  BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                      (UNAUDITED)
                                                                                   December 31, 1997         June 30, 1997
                                                                                   -------------------------------------------
<S>                                                                                 <C>                    <C>
                                                              ASSETS
Current assets:
Cash and cash equivalents                                                           $     111,013          $   2,342,849
Accounts receivable                                                                       330,262                  5,380
Prepaid expenses                                                                          191,504                480,721
------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                      632,779              2,828,950
------------------------------------------------------------------------------------------------------------------------------

Fixed assets, net of accumulated depreciation of $27,425
     and $16,786, respectively                                                            112,976                 52,769
Deposits                                                                                   32,472                 31,355
------------------------------------------------------------------------------------------------------------------------------
Total noncurrent assets                                                                   145,448                 84,124
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                        $     778,227          $   2,913,074
==============================================================================================================================

                                          LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Liabilities:
Accounts payable and accrued expenses                                                     680,533                257,385
Deferred revenue                                                                          273,785                 52,603
Contracts payable                                                                           5,731                 31,114
Loans payable                                                                             264,299                264,299
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                               1,224,349                605,401
------------------------------------------------------------------------------------------------------------------------------

Noncurrent portion of contracts payable                                                    16,306                     -
------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                       1,240,655                605,401
------------------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies

Shareholders' (deficit) equity:
Preferred Stock, no par, 1,000,000 shares authorized, no shares issued                         -                      -
Common Stock, no par, 4,540,000 shares authorized, 2,818,692 and
    2,785,998 shares issued and outstanding, respectively                              12,601,862             10,484,681
Loan receivable - shareholder                                                             (82,316)               (96,952)
Accumulated deficit                                                                   (12,981,974)            (8,080,056)
------------------------------------------------------------------------------------------------------------------------------
Total shareholders' (deficit) equity                                                     (462,428)             2,307,673
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' (deficit) equity                                $     778,227          $   2,913,074
==============================================================================================================================

The accompanying notes are an integral part of these financial statements.                                              Page 2
</TABLE>
<PAGE>

                           TOMORROW'S MORNING, INC.
                           STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                    Three months ended                      Six months ended
                                                        December 31,                          December 31,
                                                    1997          1996                     1997          1996
                                               -----------------------------          ----------------------------
<S>                                            <C>              <C>                   <C>               <C>
Revenue:
Subscriptions                                  $      95,834    $      9,806          $    216,216      $   15,735
Reading Partners Program                               5,600               -                 5,950               -
Sponsorships                                               -               -                 7,500               -

----------------------------------------------------------------------------          ----------------------------
Total revenue                                        101,434           9,806                229,666         15,735

Editorial, Production and Distribution Cost          330,330          89,763                537,992        192,311

----------------------------------------------------------------------------          ----------------------------
Gross margin                                        (228,896)        (79,957)              (308,326)      (176,576)

Operating expenses                                 1,096,466         216,787              2,096,468        389,701
Noncash option compensation and consulting fees    1,451,592               -              2,026,204              -
Research and development                             180,820               -                463,460              -

----------------------------------------------------------------------------          ----------------------------
Loss from Operations                              (2,957,774)       (296,744)            (4,894,458)      (566,277)

Legal settlement                                     (30,000)              -                (30,000)             -
Interest expense                                      (1,443)        (40,881)                (2,525)       (81,437)
Interest income                                        5,530             717                 25,865          1,322

----------------------------------------------------------------------------          ----------------------------
Loss before income taxes                          (2,983,687)       (336,908)            (4,901,118)      (646,392)

Income taxes                                               -               -                    800            800
----------------------------------------------------------------------------          ----------------------------
Net loss                                       $  (2,983,687)   $   (336,908)         $  (4,901,918)   $  (647,192)
============================================================================          ============================
Net loss per share                             $       (1.07)   $      (0.28)         $       (1.75)   $     (0.54)
============================================================================         =============================

Weighted average number
     of shares outstanding                         2,800,528       1,199,189             2,793,263       1,199,189
                                               =============================          ============================

The accompanying notes are an integral part of these financial statements.                                 Page 3
</TABLE>
<PAGE>

                           TOMORROW'S MORNING, INC.
            STATEMENT OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
                                                  Common Stock
                                           ------------------------------  Loan Receivable    Accumulated
                                               Shares         Amount         Shareholder        Deficit            Total
                                           ---------------------------------------------------------------------------------
<S>                                           <C>             <C>               <C>             <C>             <C>
Balance - June 30, 1996                       1,026,494       3,268,800         (27,575)        (5,124,377)       (1,883,152)

Issuance of common stock                      1,167,277       5,347,724                                            5,347,724
Stock issuance costs                                           (304,528)                                            (304,528)
Conversion of 6% convertible notes              105,144         262,500                                              262,500
Conversion of 7% convertible notes              432,083       1,080,207                                            1,080,207
Debt issuance costs                                            (202,589)                                            (202,589)
Capital contribution-compensation                               166,667                                              166,667
Shareholder loans                                                               (69,377)                             (69,377)
Stock option compensation                                       733,400                                              733,400
Issuance of common stock for services            55,000         132,500                                              132,500
Net loss, 1997                                                                                  (2,955,679)       (2,955,679)

----------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997                       2,785,998    $ 10,484,681       $ (96,952)      $ (8,080,056)     $  2,307,673

Stock option compensation                                     1,918,634                                            1,918,634
Stock issued - settlement of litigation           5,000          30,000                                               30,000
Stock options exercised                          27,694         168,548                                              168,548
Repayments - shareholder loans                                                   14,636                               14,636
Net loss, six months ended December 31, 1997                                                    (4,901,918)       (4,901,918)
----------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 (Unaudited)       2,818,692    $ 12,601,862       $ (82,316)      $(12,981,974)     $   (462,428)
============================================================================================================================
The accompanying notes are an integral part of these financial statements.                                            Page 4
</TABLE>
<PAGE>

                           TOMORROW'S MORNING, INC.
                           STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                Six months ended
                                                                                   December 31,
                                                                               1997          1996
                                                                          ----------------------------
<S>                                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                                  $  (4,901,918)   $(647,192)

Items reconciling net loss to cash used by operating activities:
Depreciation                                                                     10,639        2,460
Amortization of debt issuance costs                                                 -         29,408
Noncash litigation settlement                                                    30,000         -
Noncash compensation and consulting expense                                   2,026,204      125,000
Changes in operating assets and liabilities:
     Accounts receivable                                                       (324,882)        (682)
     Prepaid expenses                                                           289,217         -
     Deposits                                                                    (1,117)        -
     Accounts and interest payable and accrued expenses                         423,149      187,794
     Deferred revenue                                                           221,182       19,289
-----------------------------------------------------------------------------------------------------
Net cash used by operating activities                                        (2,227,526)    (283,923)
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets                                                     (70,847)        -
-----------------------------------------------------------------------------------------------------
Net cash used by investing activities                                           (70,847)        -
-----------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable                                                       4,000      317,276
Proceeds from contract payable                                                   23,471         -
Proceeds from exercise of stock options                                          60,978         -
Repayments from shareholder, net of unpaid interest                              14,636         -
Repayments under contract payable                                               (32,548)        -
Repayments of loans payable                                                      (4,000)        -
Loans to shareholder                                                               -         (11,322)
Cash paid for offering costs                                                       -         (76,938)
-----------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                        66,537      229,016
-----------------------------------------------------------------------------------------------------

Change in cash and cash equivalents                                          (2,231,836)     (54,907)

Cash and cash equivalents at beginning of period                              2,342,849       24,526
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents /(overdraft) at end of period                   $     111,013    $ (30,381)
=====================================================================================================

The accompanying notes are an integral part of these financial statements.                      Page 5
</TABLE>
<PAGE>
 
                           TOMORROW'S MORNING, INC.
                       NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    Interim Financial Statements:
 
    The accompanying financial statements include all adjustments (consisting of
    only normal recurring accruals) which are, in the opinion of management,
    necessary for a fair presentation of the results of operations for the
    periods presented. Interim results are not necessarily indicative of the
    results to be expected for a full year. The financial statements should be
    read in conjunction with the financial statements included in the annual
    report of Tomorrow's Morning, Inc. (the "Company") on Form 10-KSB for the
    year ended June 30, 1997.

    Nature of Business:

    The Company was incorporated in June 1992 in the State of California and is
    engaged in the publication of a children's weekly newspaper. Through June
    30, 1997, the Company was devoting substantially all of its efforts toward
    establishing new business and product. During the three months ended
    September 30, 1997, significant orders were received for its current
    product; therefore, as of September 30, 1997, the Company was no longer
    considered a development stage enterprise, as defined in Financial
    Accounting Standards Board Statement No. 7.

    Basis of Presentation:

    For the six months ended December 31, 1997, the Company had negative cash
    flows from operations of $2,227,526 and incurred a net loss of $4,901,918.
    The Company expects its losses to continue for at least the short term as
    the Company's expenses continue to greatly exceed its income. The Company's
    future profitability depends on: (i) the development of complementary
    products; (ii) completion and successful marketing of the SCOOP(TM) CD-ROM
    journalism game; (iii) the formation of joint-marketing alliances for
    corporate sponsorship of schools through the Company's Reading Partners
    Program; (iv) getting one or more television shows, or interstitial news
    "flashes", on the air; and (v) expansion into ancillary publishing and
    merchandising through redirecting the Company's content and/or licensing the
    Company's characters and identity. The Company has used all of the net
    proceeds of its initial public offering and finds that it requires
    substantial additional funds in order to reach the above long-term goals. In
    addition, the Company requires an immediate infusion of working capital to
    continue its present operations. There can, however, be no guarantee that
    the Company will be able to obtain such additional long- and short-term
    funds or that, if obtained, it will be able to achieve or sustain
    significant revenues or profitability in the future .

    Revenue Recognition:

    Subscription sales are recorded as deferred revenue at the time of sale.
    Revenues from subscriptions are recognized ratably over the subscription
    period as newspapers are delivered. Deferred revenue represents unfulfilled
    subscription sales at period-end.

                                                                          Page 6
<PAGE>
 
                            TOMORROW'S MORNING, INC.
                       NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                       
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
 
     Advertising:

     The Company expenses the costs of all general advertising in the period
     incurred. Advertising expense was approximately $25,000 and $12,000 for the
     three months ended December 31, 1997 and 1996, respectively. For the six
     months ended December 31, 1997 and 1996, advertising expense was
     approximately $58,000 and $32,000, respectively.  In accordance with the
     American Institute of Certified Public Accountants' Statement of Position
     93-7 "Reporting on Advertising Costs", costs associated with the Company's
     direct response marketing efforts have been deferred and will be amortized
     over the period in which the related revenue is recognized. At December 31,
     1997 and June 30, 1997, these deferred costs were approximately $911,000
     and $106,000, respectively, with $567,497 and $851,691 of related
     amortization having been recorded in the three and six months ended
     December 31, 1997 and no amortization at June 30, 1997. At December 31,
     1996, there were no deferred direct marketing costs. Management
     periodically reviews the recoverability of deferred advertising costs.

                                        
2.   LOANS PAYABLE:

     These loans payable are demand loans that have no stated repayment
     schedule. As such, they are being carried as current liabilities. These
     loans bear no interest and are unsecured. Included in loans payable as of
     December 31, 1997 and June 30, 1997 are loans of $198,799 due to related
     parties which include certain shareholders.


3.   CONTRACTS PAYABLE:

     In March 1997, the Company entered into a short-term financing contract for
     an insurance policy covering its directors and officers. As of December 31,
     1997, the balance of the contract was fully paid.

     In the six months ended December 31, 1997, the Company entered into lease
     contracts to purchase office equipment and a telephone system. The
     contracts provide for a fair-market-value purchase at the end of the lease
     terms. In accordance with Statement of Financial Accounting Standards No.
     13 (SFAS 13), the Company has capitalized the cost of the equipment.

     Lease commitments for capital leases with remaining terms of more than one
     year at December 31, 1997 are as follows:

<TABLE>
<CAPTION>

        FYE June 30:
        ------------
        <S>                   <C>
          1998                $  2,865
          1999                   5,731
          2000                   5,731
          2001                   4,123
          2002                   3,586
          2003                     299
                              --------
          Total               $ 22,337
                              ========

</TABLE>

                                                                          Page 7
<PAGE>
 
                            TOMORROW'S MORNING, INC.
                       NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

4.   COMMITMENTS AND CONTINGENCIES (CONTINUED):

     Leases:

     On July 1, 1997, the Company entered into an operating lease for new office
     facilities in Los Angeles. The lease continues until June 30, 2001 with
     monthly rent of $7,514 beginning September 1, 1997. The lease provides for
     annual base rent increases of 3% commencing July 1, 1998. The chief
     executive officer of the Company has signed a personal guarantee of the
     lease that expires after the second year of the lease.

     The Company also leases office facilities in Ann Arbor, Michigan on a one-
     year operating lease that commenced May 1997. The monthly rental is $252
     for twelve months expiring May 31, 1998.

     Rent expense for the three and six months ended December 31, 1997 was
     $21,894 and $30,032, respectively. For the three and six months ended
     December 31, 1996, rent expense was $11,250 and $22,500, respectively.

     In addition to the above office leases, the Company also leases an auto and
     office equipment under operating leases with remaining terms of more than
     one year.

     Lease commitments for operating leases with remaining terms of more than
     one year at December 31, 1997 are as follows:
<TABLE>
          <S>                 <C>
          1998                $  51,480
          1999                  102,640
          2000                   96,645
          2001                   93,914
                               --------
 
          Total               $ 367,222
                              =========
</TABLE>
     Software Development Agreement:

     During the year ended June 30, 1996, the Company entered into a software
     development agreement for the development of a CD-ROM journalism game
     called "SCOOP(TM)". Pursuant to the agreement, the budgeted costs to
     develop the CD-ROM game shall not exceed $1,210,000; through December 31,
     1997, expenditures for "SCOOP(TM)" were approximately $820,000 of which
     $72,500 is included in prepaid expenses.

     The Year 2000 Issue:

     The Company has begun addressing the potential impact of the Year 2000
     Issue by inquiring of its vendors, customers, and others it does business
     with, regarding the effect it may have on the Company's operations and
     relationships with these entities. Internally, the Company has completed an
     initial review of its operations to determine areas that need to be further
     investigated regarding the effect of the Year 2000 Issues. At this point in
     time, the Company believes that the Year 2000 Issues as to its own
     information systems will not have a material effect on its operations.

5.   NONCASH TRANSACTIONS:

     The Company's Variable Non-dilutive Stock Option Agreements were amended
     during the quarter ended December 31, 1997 to remove the variable and non-
     dilutive features, effectively freezing the number of common shares the
     optionees were previously granted. The effect of the amendments was a
     charge to earnings of $1,344,022. Charges related to these options totaled
     $1,918,634 for the six months ended December 31, 1997

     In addition to the above transactions, options previously granted by the
     Company were exercised by various unrelated parties during the three month
     period ended December 31, 1997. The exercise of these options resulted in a
     charge to earnings totaling $107,570.

     On December 4, 1997, the Company settled litigation with a shareholder by
     issuing 5,000 shares of common stock. The charge to earnings regarding this
     transaction was $30,000.

                                                                          Page 8
<PAGE>
 
                            TOMORROW'S MORNING, INC.
                       NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

6.   INCOME TAXES:

     The Company had deferred tax assets of approximately $3,567,000 and
     $2,665,000 as of December 31, 1997 and June 30, 1997, respectively, which
     have been offset by 100% valuation allowances of $3,567,000 and $2,665,000,
     respectively.  The deferred tax assets are primarily due to the Company's
     federal and state net operating loss (NOL's) carryforwards available to
     offset future taxable income, if any, of approximately $8,300,000, which
     expire in years up to 2012. However, ultimate utilization of these NOL's is
     dependent on future taxable income of the Company, subject to certain
     limitations, as defined under Section 382 of the Internal Revenue Code.

                                                                          Page 9
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion contains trend information and other forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 that involve a number of risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those identified
below in "Overview."

OVERVIEW. For the quarter ended December 31, 1997, revenues were $101,434 and
the Company experienced a net loss of $2,983,687, as compared to revenues of
$9,806 and a net loss of $336,908 for the three months ended December 31, 1996.
For the six months ended December 31, 1997, revenues were $229,666 and the
Company incurred a net loss of $4,901,918, as compared to revenues of $15,735
and a net loss of $647,192 for the six months ended December 31, 1996. On March
28, 1997, the Company completed its initial public offering which had commenced
on February 10, 1997 (the "IPO"). As a result of the IPO, the Company received
net proceeds of $5,347,724 (before deducting certain expenses payable by the
Company). However, in addition to the losses noted above, the Company continues
to sustain substantial losses, which are expected to continue for at least the
short term as the Company's expenses continue to greatly exceed its income. The
Company's future profitability depends on: (i) the development of complementary
products; (ii) completion and successful marketing of the SCOOP(TM) CD-ROM
journalism game; (iii) the formation of joint-marketing alliances for corporate
sponsorship of school subscriptions to Tomorrow's Morning (the "Newspaper")
                                       ------------------
through the Company's Reading Partners Program; (iv) getting one or more
television shows, or interstitial news "flashes", on the air; and (v) expansion
into ancillary publishing and merchandising through redirecting the Company's
content and/or licensing the Company's characters and identity. As shown in Part
II below under "Item 2 -Changes in Securities and Use of Proceeds," the Company
has used all of the net proceeds of the IPO and finds that it requires
substantial additional funds in order to reach the above long-term goals. In
addition, as discussed below in "Liquidity and Capital Resources," the Company
requires an immediate infusion of working capital to continue its present
operations. There can, however, be no guarantee that the Company will be able to
obtain such additional long- and short-term funds or that, if obtained, it will
be able to achieve or sustain significant revenues or profitability in the
future.

RESULTS OF OPERATIONS:

Three Month Periods Ended December 31, 1997 and 1996:

Revenues for the quarter ended December 31, 1997 were $101,434, as compared to
$9,806 for the three months ended December 31, 1996. This increase in revenues
of approximately 930% was primarily the result of the Company's Spring 1997 and
Fall 1997 direct response advertising campaigns (the "1997 Advertising
Campaigns"), which have generated orders for approximately 125,000 subscriptions
net of cancellations through December 31, 1997. Costs and expenses increased to
$3,090,651 during the three months ended December 31, 1997, well up from
$347,431 during the quarter ended December 31, 1996. About half of this
approximately 790% increase was the result of $1,451,592 of noncash compensation
and consulting expense being recognized in connection with the freezing of the
Company's variable nondilutive stock options as well as the exercise by
unrelated parties of stock options that were previously granted by the Company.
In addition, marketing expense of approximately $610,000 related to the 1997
Advertising Campaigns, as well as $180,820 of research and development costs
associated with the SCOOP(TM) CD-ROM were charged to operations in the quarter.

Total interest expense for the quarter ended December 31, 1997 was $1,443, as
compared to $40,881 for the same three month period in 1996. This decrease of
approximately 96% is attributable to the IPO, which resulted in all of the
Company's convertible notes (6% Convertible Notes due 1996, 6% Convertible Notes
due 1997 and 7% Convertible Notes due 1999) being automatically converted into
537,227 shares of Common Stock. Due to those conversions, all interest costs
associated with those notes stopped accruing in March 1997.

For the three months ended December 31, 1997, the Company experienced a net loss
of $2,983,687, an increase of approximately 790% from the $336,908 net loss
incurred in the three months ended December 31, 1996. The increase in net loss
was primarily due to the factors described above with respect to costs,
operating expenses and noncash expenses, partially offset by a decrease in
interest expense.

                                                                         Page 10
<PAGE>
 
Six Month Periods Ended December 31, 1997 and 1996:

Revenues for the six months ended December 31, 1997 were $229,666, as compared
to $15,735 for the six months ended December 30, 1996. This approximately
fifteen-fold increase in revenues was primarily the result of the 1997
Advertising Campaigns. In the six months ended December 31, 1996, no formalized
marketing was occurring. Costs and expenses increased to $5,156,649 during the
six months ended December 31, 1997, well up from $663,449 during the six months
ended December 31, 1996. This approximately 680% increase includes $2,026,204 of
noncash compensation and consulting expense that was recognized in connection
with the freezing of the Company's variable nondilutive stock options as well as
the exercise by unrelated parties of stock options that were previously granted
by the Company and approximately $960,000 of marketing expense related to the
Company's 1997 Advertising Campaigns, as well as $463,460 of research and
development costs associated with the SCOOP(TM) CD-ROM.

Total interest expense for the six months ended December 31, 1997 was $2,525, as
compared to $81,437 for the same six month period in 1996. This decrease of
approximately 97% is attributable to the IPO, which resulted in all of the
Company's convertible notes being automatically converted into 537,227 shares of
Common Stock. Due to those conversions, all interest costs associated with those
notes stopped accruing in March 1997.

For the six months ended December 31, 1997, the Company experienced a net loss
of $4,901,918, an increase of approximately 660% from the $647,192 net loss
incurred in the six months ended December 31, 1996. The increase in net loss was
primarily due to the factors described above with respect to costs, operating
expenses and noncash expenses, partially offset by a decrease in interest
expense.


LIQUIDITY AND CAPITAL RESOURCES. To date, the Company's primary capital needs
have been to fund the development and growth of the Newspaper (including the
costs of its marketing campaign in Fall 1995 and the 1997 Advertising Campaigns)
and the research and development of synergistic children's media products. Prior
to the IPO, the Company's primary sources of financing were proceeds from the
sale of Common Stock and certain promissory notes convertible into Common Stock,
as well as various short-term loans. Since inception, sales of the Newspaper and
certain custom-published Newspaper inserts have been essentially the sole source
of Company revenue. To the extent that sales of the Newspaper are directed at
schools (which are currently the source of most subscriptions), such business is
seasonal, with most sales taking place between September and June. Seasonality
is not believed to be a factor with non-school sales.

In June 1997, the Company completed the first phase of its 1997 Advertising
Campaigns, which resulted in the Company receiving orders approximating $150,000
for approximately 50,000 subscriptions beginning in September 1997. As of
September 30, 1997, the second phase of the 1997 Advertising Campaigns had
generated orders for approximately 300,000 additional subscriptions, initially
resulting in total orders of approximately 350,000 generated by the 1997
Advertising Campaigns. However, through December 31, 1997, approximately 225,000
of those subscriptions have been canceled. While it is not presently known how
much of the remaining potential revenue will actually be realized, the results
of the 1997 Advertising Campaigns are still encouraging and have resulted in
greatly increased subscription revenue through December 31, 1997.

As of December 31, 1997, the Company had current assets of $632,779, virtually
all of which were derived from the results of its 1997 Advertising Campaigns. To
date, the Company has utilized all of its IPO proceeds and those subscription
receivables already collected in a variety of ways. Although there can be no
guarantees, such use, when combined with the additional required funding
described below, should, in time, provide increased funds from operations
through avenues such as (i) increased bulk subscription sales to schools,
libraries and hospitals, and individual subscription sales for home delivery,
(ii) periodic revenue from Newspaper inserts sponsored by corporate and
philanthropic organizations, plus additional contract publishing for
distribution through such sponsors' own channels, (iii) sales of the SCOOP(TM)
CD-ROM game/learning system and other related products, (iv) revenues from
proposed on-line activities, including subscription dues, sponsorship of
specific areas of the Company's website and advertising, (iv) royalties from,
and direct sales of, the Company's proposed ancillary publishing products, such
as supplemental educational materials, calendars, posters, playing cards and
games, (v) fees from the creation, production and syndication of proposed TV
shows and (vi) revenues from direct sales and licensing royalties of Company-
related merchandise.

                                                                         Page 11
<PAGE>
 
In the Company's fiscal quarter ended September 30, 1997, the Company began
seeking approximately $500,000 to $1,000,000 in outside debt and/or equity
funding in order to be able to complete the development of SCOOP(TM) without
having to use existing funds. To date, the Company has not obtained that
funding. However, because of the importance of SCOOP(TM) to the future of the
Company, the Company has continued to fund development of that product out of
existing funds. This, combined with a greater than expected number of
subscription cancellations, has depleted the Company's working capital to a
greater extent than was previously expected. At this point, the Company is
experiencing some difficulty in meeting financial obligations to certain of its
trade creditors, primarily the vendor which prints the Newspaper. As a result,
in order for the Company to continue its present and prospective activities in
the near-term, the Company must raise approximately $500,000 to $1,000,000
through bank borrowings, public or private debt or equity offerings, or
otherwise. In addition to ongoing discussions with prospective lenders, as well
as continued solicitation of Newspaper sponsorships through the Reading Partners
Program, the Company is attempting to raise at least a portion of the needed
short-term funds through the private issuance of convertible preferred stock to
certain persons who are already Company shareholders. The Company is also
continuing discussions with several prospective distributors of SCOOP(TM), which
could result in a royalty advance to the Company of up to $1 million in the near
future. There can be no guarantee that such funding will be available on terms
favorable to the Company or its shareholders, if at all. If needed funds are not
available, the Company will be required to curtail its operations (including,
but not limited to, publication of the Newspaper and the ongoing development of
SCOOP(TM)), which will have a material adverse effect on the Company's business,
operating results and financial condition.

As to longer-term funding requirements, the Company is continuing discussions as
to a larger equity offering, which commenced in December 1997 in an attempt to
maintain the Company's listing on The Nasdaq SmallCap Market by increasing its
"net tangible assets" to at least $3 million in order to meet Nasdaq's new
continued listing requirements. Through its investment bankers and its own
contacts, the Company is also investigating other approaches to obtain long-term
operating funds while also maximizing shareholder value. To date, those
approaches include, but are not limited to, a possible merger with the
appropriate entity or a sale of the Company or its assets. There can be no
guarantee that any of the Company's efforts will be successful or, if
successful, that they will result in a transaction on terms favorable to the
Company or its shareholders. If needed long-term funds are not available, the
Company may be required to curtail its operations, which could have a material
adverse effect on the Company's business, operating results and financial
condition.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("FAS 128"). FAS 128 will change the computation,
presentation and disclosure requirements for earnings per share. FAS 128
requires presentation of "basic" and "diluted" earnings per share, as defined,
on the face of the income statement for all entities with complex capital
structures. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997 and requires restatement of all prior period
earnings per share amounts. Management does not believe that this pronouncement
will have a material impact on its earnings per share amounts when adopted in
fiscal 1998.

On June 30, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("FAS 130"). FAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. FAS 130 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. Management is currently evaluating the
requirements of FAS 130.

                                                                         Page 12
<PAGE>
 
PART II

                               OTHER INFORMATION


Item 2.    Changes in Securities and Use of Proceeds


(a)  Not applicable


(b)  Not applicable


(c)  On December 4, 1997, the Company privately issued 5,000 shares of Common
     Stock to Howard Miekle in settlement of litigation. The securities were
     issued in reliance on the exemption provided in Section 4(2) of the
     Securities Act of 1933 because no public offering was involved.

     On December 22, 1997, the Company privately issued 22,246 shares of Common
     Stock to Michael Weinstock for $50,000 upon his exercise of previously
     issued stock options. The securities were issued in reliance on the
     exemption provided in Section 4(2) of the Securities Act of 1933 because no
     public offering was involved.


(d)  With respect to the IPO, the Company's registration statement under the
     Securities Act of 1933 became effective on February 10, 1997 (File No. 333-
     04792-LA) and commenced on that date, offering up to 2,000,000 shares of no
     par value Common Stock (aggregate offering price: $10,000,000) and up to
     900,000 Common Stock Purchase Warrants (aggregate offering price:
     $225,000). The Common Stock Purchase Warrants (the "Warrants") entitle the
     holder to purchase one share of Common Stock at an exercise price of $6.50
     per share until February 10, 2000 and are redeemable for $0.35 each under
     certain circumstances. The offering was conducted on a "best efforts" basis
     (minimum 1,100,000 shares of Common Stock), with J.E. Liss & Company
     Incorporated as the Managing Placement Agent. The IPO terminated on March
     28, 1997, at which point the Company had sold 1,167,277 shares of Common
     Stock (aggregate offering price: $5,836,385) and all 900,000 Warrants
     (aggregate offering price: $225,000). All securities were sold for the
     account of the Company.

     From the effective date of the IPO until December 31, 1997, the following
     expenses were incurred for the Company's account in connection with the IPO
     (none of which are estimates) All such payments were direct or indirect
     payments to persons or entities other than directors, officers, affiliates
     or 10% or greater security holders of the Company:

<TABLE>
<CAPTION>
      TYPES OF EXPENSE                                                                  AMOUNT
      ----------------                                                                  ------
      <S>                                                                             <C>
      Underwriting discounts and commissions                                          $ 566,739
      Finder's fees                                                                       - 0 -
      Expenses paid to or for the Managing Placement Agent                              121,228
      Other expenses                                                                    228,283
                                                                                      ---------
      Total                                                                           $ 916,250
                                                                                      =========
</TABLE>

As a result of the above expenses, the IPO resulted in net offering proceeds
to the Company of $5,145,135.

                                                                         Page 13
<PAGE>
 
From the effective date of the IPO until December 31, 1997, the Company has used
IPO proceeds for the following purposes (none of which are estimates):

<TABLE>
<CAPTION>
TYPES OF EXPENSE                                                                    AMOUNT
------------------                                                                  ------
<S>                                                                              <C>
Construction of plant, building and facilities                                   $   19,995
Purchase and installation of machinery and equipment                                115,790
Purchase of real estate                                                               - 0 -
Acquisition of other businesses                                                       - 0 -
Repayment of indebtedness                                                           398,732
Working capital                                                                   3,840,903
Temporary investments:
      Money market account                                                                0
Other purposes in excess of $100,000:
      Development costs of Interactive CD-ROM Game                                  769,715
</TABLE>


Except for $50,000 of debt repayment and $319,417 in salaries paid to the
Company's officers and a director who is also an employee, all of the above
payments were made directly or indirectly to persons or entities other than
directors, officers, affiliates or 10% or greater security holders of the
Company. The above use of proceeds does not represent a material change from the
use of proceeds described in the IPO prospectus.



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


(a)  The following Exhibits are attached hereto:

<TABLE>
<CAPTION>
     EXHIBIT NO.                                        DESCRIPTION
     -----------                                        -----------     
     <C>                            <S> 
        10                          Second Amendment to Stock Option Agreement dated as of November 3, 1997
                                    between the Registrant and Adam Linter
        11                          Computation of earnings per share
        27                          Financial Data Schedule
</TABLE>
 

(b)  One report on Form 8-K was filed during the Company's fiscal quarter ended
     December 31, 1997. Such report was filed on November 12, 1997 with respect
     to an event described in Item 9 of Form 8-K ("Sale of Equity Securities
     Pursuant to Regulation S") which occurred on November 7, 1997. No financial
     statements were filed in connection with that report.

                                                                         Page 14
<PAGE>
 
                                   SIGNATURES



In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.



                                    TOMORROW'S MORNING, INC.



Dated: February 23, 1998            By:      /s/    STEVEN RAFT
                                          ----------------------------------
                                                    Steven Raft
                                                    Chief Financial Officer

                                                                         Page 15
<PAGE>
 
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

                                                                                               SEQUENTIALLY
EXHIBIT NUMBER                            DESCRIPTION                                          NUMBERED PAGE
--------------                            -----------                                          -------------

<C>             <S>                                                                            <C>

     10         Second Amendment to Stock Option Agreement dated as of November 3, 1997              17
                between the Registrant and Adam Linter

     11         Computation of earnings per share                                                    18

     27         Financial Data Schedule                                                              19
</TABLE>

                                                                         Page 16