FORM 10-KSB
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


(Mark One)

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934 [Fee  Required]

For the fiscal year ended June 30, 1998

[ ]  Transition report  pursuant to Section 13 or 15(d) of the  Securities
     Exchange Act of 1934 [No   Fee   Required]

   For   the   transition   period   from   _______________ to________________

Commission File No. 333-22997


                          ORGANIC FOOD PRODUCTS, INC.
                  --------------------------------------------
                 (Name of Small Business Issuer in its Charter)


         California                                            94-30762-94
--------------------------------                          ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)


550 Monterey Road
Morgan Hill, California                                                  95037
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)



Issuer's telephone number:  (408) 782-1133

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:
                            No Par Value Common Stock
                                (Title of Class)


     Check whether the Registrant (1) 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
                                   -----     -----

                                        1

<PAGE>



     As of September 30, 1998, 7,275,688 shares of the Registrant's no par value
Common Stock were outstanding. As of September 30, 1998, the market value of the
Registrant's no par value Common Stock, excluding shares held by affiliates, was
$8,185,149 based upon a closing bid price of $1.125 per share of Common Stock on
the NASDAQ Smallcap Market.

     Check if there is no disclosure  contained  herein of delinquent  filers in
response to Item 405 of Regulation  S-B, and will not be contained,  to the best
of the Registrant's  knowledge,  in definitive  proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.

     The   Registrant's   revenues  for  its  year  ended  June  30,  1998  were
$12,304,323.

     The following  documents are incorporated by reference into Part III, Items
9 through 12 hereof: None.


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS
-------------------------------

Introduction

     This Form 10-KSB of Organic Food Products,  Inc., ("OFPI" or the "Company")
contains forward-looking statements within the meaning of the Private Litigation
Reform  Act  of  1995  (the  "Litigation  Reform  Act").  These  forward-looking
statements are subject to risks and uncertainties  that may cause actual results
to differ materially.

     The Company was  incorporated  in 1987 as S&D Foods,  Inc., and changed its
name to Garden Valley  Naturals in 1995.  The Company,  doing business as Garden
Valley Naturals from 1987 to 1996, has manufactured and marketed  pesticide-free
("organic")  and  preservative-free  ("all  natural")  pasta sauces,  salsas and
condiments  under the brand names  "Garden  Valley  Naturals"  and "Parrot." The
Company  began  marketing  its Parrot line of salsas in 1987,  its Garden Valley
Naturals  line of  condiments  in 1991 and its Garden  Valley  Naturals  line of
pastas and salsas in 1994.  In June 1996,  the Company  merged with Organic Food
Products ("OFP"), which also marketed a line of organic food products (including
pasta  sauces and salsas,  together  with dry cut pastas and organic  children's
meals) under the  "Millina's  Finest" brand name.  The  surviving  merged entity
operates under the Organic Food Products, Inc. name. In August, 1997 the Company
completed an initial public offering of its securities ("IPO") selling 1,300,000
shares of its Common Stock to the public through three underwriters at $4.00 per
share for gross proceeds of $5,200,000.


                                        2

<PAGE>




     In June, 1996, the Company restructured its Garden Valley Naturals,  Parrot
and Millina's  Finest product lines by (i) eliminating all nonorganic  products,
(ii) eliminating salsas and ketchups sold under the Millina's Finest brand name,
and (iii) adding pasteurized organic fruit juices to its product offerings.

In  February,  1998,  the  Company  acquired  product  lines  from  Sunny  Farms
Corporation of Richmond,  California,  a producer of natural fruit and vegetable
juices for the food  service  market.  Sunny Farms also  markets a line of water
products under the Napa Valley Spring Water brand (see Sunny Farms acquisition).

     In April,  1998, the Company  introduced a new energy drink known as Energy
Plus (E+).  This drink is positioned  to compete with energy drinks  marketed by
Red Bull and Hansens. However, unlike some of the energy drinks, the ingredients
in E+ are healthy and meant to give the user a "natural" lift.

     The Company sells its products either  directly or through  distributors or
independent  commissioned  food brokers and specialty food brokers to (i) health
food and specialty food stores,  (ii) club stores  (including  Price/Costco  and
BJ's) and (iii) retail chain and independent  grocery stores (including Safeway,
A&P, Trader Joe's, Raley's,  Long's and Lucky's). See "Marketing and New Product
Development."

Sunny Farms Acquisition

     In February,  1998, the Company  acquired the natural fruit juice and water
bottling  operations of Sunny Farms  Corporation for a total of $971,171 in cash
(including costs of acquisition) assumption of debt, and the issuance of 566,667
shares of Common Stock of the Company valued at $1,700,000,  including  escrowed
shares valued at $850,000. The release of the escrowed shares is contingent upon
attaining a total of $935,000 in gross profit  relating to Sunny Farms  business
(as defined) during the first year after acquisition.  Accordingly, this portion
of the purchase  price has not yet been  recorded.  The  $963,822  excess of the
remaining  purchase  price  over  identified   inventory  and  fixed  assets  of
approximately $857,000 was accounted for as goodwill.

     The agreement was accounted for as a purchase and, accordingly, the results
of the Sunny Farms operations are included from February 11, 1998 forward.

Strategy

     The  Company's  business  strategy is to (i) increase  revenues by offering
additional  organic food products  through the Company's  existing  distribution
network,  (ii) reduce  costs and  improve  operating  efficiencies  by using the
Company's excess  manufacturing  capabilities to increase the volume of products
it  manufactures  for itself as well as for others,  (iii) expand the  Company's
product lines through  acquisition.  The Company has added new products  through
its strategic purchase of two brands as well as the private label juice business
from Sunny  Farms  Corporation.  New  product  offerings  open new  channels  of



                                       3

<PAGE>


distribution,  expand  revenues  and improve the  utilization  of  manufacturing
facilities,  (iv)expand  the  Company's  current  geographic  and  retail  store
distribution  by offering the Company's  products in new markets and  increasing
distribution in existing markets, and (v) specialize in the marketing of organic
food products.

(i) Offer Additional  Organic Food Products.  Since the merger,  the Company has
developed  new  flavors  and  packages  for its  sauces and salsas to add to its
product offerings.  The Company believes that offering  additional products will
increase revenues without proportionately increasing costs, due to the economies
of scale which result from volume product manufacturing  efficiencies as well as
better utilization of the Company's existing  distribution channels to offer new
products.

(ii) Increase Manufacturing Volumes. The Company believes it can reduce per unit
manufacturing costs by using the Company's excess manufacturing  capabilities to
increase  manufacturing  volume.  The Company  seeks to  increase  the volume of
products it manufactures by increasing  sales of existing  products,  increasing
its new product  offerings  and by  manufacturing  food  products for other food
marketers on a contract basis. In this regard, the Company manufactures pasta
sauces for Trader Joe's,  but has no other finalized  agreements or arrangements
to manufacture for others as of June 30, 1998.

(iv) Expand Geographic and Retail Store Distribution.  Although the Company has
national  geographic  distribution  for its  products  in  health  food  stores,
distribution  of products  through  club stores and grocery  stores is primarily
limited to northern California and the northeast coast of the United States. The
Company is seeking additional  distribution in order to increase its club store,
grocery store, and convenience store sales throughout the United States.


Products

     The  Company  introduces  and  discontinues  products  on a regular  basis,
consistent  with  customary  practices  of  other  firms in the  processed  food
industry.  The  Company's  current  product lines (ranked by percentage of total
sales) are as follows:

Organic Pasta Sauces and Pastas

     The Company  markets  twenty  organic  pasta sauces under the Garden Valley
Organic and Millina's  Finest brand names.  The pasta sauces are all natural and
most are fat-free. Varieties include garden vegetable, sun-dried tomato, roasted
garlic tomato, tomato mushroom, sweet pepper and onions, hot and
spicy, smoked garlic and zesty basil. The Company also offers dry organic pastas
including  spaghetti,  linguini,  fettuccine,  angel  hair,  rotini,  penne  and
bowties.




                                        4

<PAGE>


Organic Salsas

     The Company markets lines of sixteen organic salsas under the Garden Valley
Organic brand name including five varieties of fat-free and vinegar-free  salsas
(sun-dried  tomato,  roasted garlic tomato,  black bean, black bean and corn and
chunky organic tomato) in three levels of heat,  mild,  medium and hot. A medium
green tomatillo salsa is also available.  The Company also markets a line of ten
organic  salsas under the Parrot brand name.  Varieties  include  chunky,  black
bean, tomatillo, spicy gourmet as well as an enchilada sauce.


Natural(preservative free) Juices and Water

     The Company markets a line of natural fruit and vegetable  juices under the
Sunny  Farms  brand  name.  In  addition,  it also  distributes  a line of water
products under the Napa Valley Spring Water brand.


Organic Condiments

     The Company  offers three organic  mustards under the Garden Valley Organic
brand name.  All three  mustards use organic  mustard seed for flavoring and are
offered in yellow,  stoneground and dijon. The Company offers an organic ketchup
and an organic  crushed  garlic  under the  Millina's  Finest  brand  name.  All
condiments are fat-free and sugar-free.

Children's Meals

     The Company offers five canned organic kid's meals, composed of pasta rings
in tomato sauce,  rings in tomato cheese sauce, ABC's & numbers in tomato sauce,
pasta rings and veggie franks, and beans with veggie franks.

Organic (pesticide free) Juices

     The Company  markets a line of  pasteurized  organic fruit juices under the
"Cinagro"  brand  name  in 32  oz.  and  10  oz.  glass  jars.  Flavors  include
Carrot/Lemon Lime, Apple Carrot Smoothie,  Total Tomato,  Veggie Array, Hibiscus
Super "C", Lemon Berry, Tropical Peach, and Very Berry Cranberry.

Functional Beverages

     The Company markets a functional  beverage called Energy Plus (E+), sold in
7.7 oz. cans in a single flavor.

Sales and Distribution

     The Company sells its products either  directly or through  distributors or
independent  commissioned  food brokers and specialty food brokers to (i) health
food and specialty food stores,  (ii) club stores  (including  Price/Costco  and
BJ's),  (iii) retail chain and independent  grocery stores  (including  Safeway,
A&P, Trader Joe's,  Raley's,  Long's and Lucky's) and (iv)  convenience  stores.
Currently the Company's products are offered in over  6,000 health food  stores,


                                        5

<PAGE>



250 club stores and 2,000 grocery stores located in all 50 states and in the Far
East, Middle East,  Canada,  and Europe. The Company currently uses 21 specialty
food  brokers  and 50 food  distributors  to  sell  to  health  food  and  other
independent  retail stores and 8 food brokers to sell to club stores and certain
grocery  store  chains.  The Company also sells  directly to other grocery store
chains.  In order to increase its distribution and sales, the Company will offer
special  promotional  pricing and occasionally may pay "slotting fees" which are
payments made by food  processors and  distributors to retail stores in order to
acquire retail shelf space for their food products.

     A Broker  Incentive  Plan has been  implemented  based against  semi-annual
quotas to motivate  brokers to grow the  business.  The Company has also entered
into  "Preferred  Vendor"  agreements with certain retail store chains to obtain
closer working  relationships and enhanced retail  merchandising and promotional
support. It has also entered into an agreement with California  Beverages in San
Francisco to  distribute  the  Company's  "Energy  Plus"  through a selection of
California Beverages' 2600 accounts in the San Francisco, and is working to push
out to other distributors to expand coverage in the Bay Area.

     The Company is  focusing  on its core  natural  foods  distribution,  while
entering  into  new  distribution  in mass  market  accounts  where  profitable.
Management  believes  there is a major  growth  opportunity  in  expanding  into
conventional  supermarkets  as they become more committed to providing a variety
of organic and natural food products.

Marketing and New Product Development

     A marketing  strategy has been  developed  with distinct  positionings  and
strategy  statements  for  each  of  OFPI's  brands,  that  will  guide  product
development,  channel  development and marketing  communications for the brands.
Each brand has a distinct  target  audience and marketing  efforts will focus on
products  and  product  attributes  that  appeal  specifically  to those  target
audiences.  Focus  and  strategy  has  been  brought  to each  brand,  with  SKU
rationalization   leading  to   discontinuation   for   low-selling   items  and
identification  of  line  extension  opportunities.  A new  product  development
strategy has been  undertaken  that  includes  targeted new products  within the
existing lines,  and the  implementation  of a  cross-functional  team-based new
product   development   process  to  improve  the   execution   of  new  product
introductions.

     The Company's  product  marketing  emphasizes the organic,  all natural and
generally  fat-free content of its products as a healthful and tasty alternative
to similar  traditional  food products.  Each brand is targeted  toward specific
consumer  segments  with  appropriate  products,  flavor  variants,  images  and
messages. The Company promotes its Millina's Finest and Parrot product lines for
sale to natural  food and health  food  stores and the  specialty  or  "gourmet"
departments  of grocery  stores.  The Garden Valley  Naturals line  represents a
lower price point line.  The Company also  promotes a pricing  strategy in which
its  organic  products  are offered at prices  only  slightly  higher than their
non-organic counterparts. 

                                       6

<PAGE>


     One customer (Price/Costco) accounted for 17% of the Company's revenues for
the year ended June 30,  1998,  and 21% of the  Company's  revenues for the year
ended June 30,1997. A loss of this customer would have a material adverse effect
on the Company's operations.

Manufacturing Facilities and Suppliers

     The  Company  manufactures  its  products  in a  24,000  square  foot  food
processing  and  warehouse  facility  it  leases  in  Morgan  Hill,  California.
Manufacturing  involves mixing the product's ingredients in 1,000 gallon kettles
and then bottling, labeling and casing the product for delivery to the customer.
Some products are packaged in shrink-wrapped combination packs consisting of two
or more  separate  products  in one tray.  The Company  manufactures  all of its
products,  except its mustard  condiments,  Kids' Meals, E+ and certain beverage
sizes  and  pastas  which  are  processed  and  packaged  for the  Company  by a
co-packer.  In  addition to the Morgan Hill  facility,  the Company  uses public
warehouse  facilities  on the east  coast of the  United  States  for  inventory
storage and distribution.

     While  many raw  materials  are  available  from a number of  sources,  the
Company currently  purchases its organic tomato products from only two suppliers
and has written agreements covering a majority of its anticipated tomato product
purchases.  Sun  Garden  Packing  Company  accounted  for  20% of the  Company's
purchases  for the year ended June 30,  1998.  The Company  believes  that other
suppliers are available who could provide product at similar prices and terms. A
change  in  suppliers,  however,  could  cause a delay  in  manufacturing  and a
possible loss of sales, which would affect operating results adversely.

Competition

     The natural food and health food industries in general and the pasta sauce,
salsa,   condiment  and  fruit  juice   businesses  in  particular   are  highly
competitive, and there are numerous multinational, regional and local firms that
currently compete, or are capable of competing, with the Company.  Multinational
nonorganic  (i) pasta  sauce  competitors  include  Prego,  Ragu,  Classico  and
Newman's  Own,  (ii) salsa  competitors  include  Pace, El Paso and La Victoria,
(iii) condiment competitors include Heinz, French's and Gulden's, and (iv) fruit
juice  competitors  include Minute Maid and Del Monte. The Company also competes
with  national  pasta  manufacturers  such as RF,  Ronzoni and DeBoles,  smaller
regional or local organic or natural pasta sauce and salsa  competitors  such as
Simply Natural, Muir Glen and Enrico and smaller fruit juice competitors such as
Odwalla  and  Knudsen.  Most of the  Company's  competitors  are larger than the
Company and have more  financial,  marketing and management  resources and brand
name recognition, than the Company.

     Competitive  factors in the pasta sauce,  salsa and related specialty foods
industry include price,  quality,  brand image and flavor. The Company positions
its product  lines to be slightly  more  expensive  than their  nonorganic  food
counterparts but consistent with prices charged by other organic food marketers.
The Company believes its products compete  favorably against other organic foods
with respect to quality and flavor.


                                        7

<PAGE>

Trade Names and Trademarks

     The Company has Federal registration for its "Millina's Finest" and "Parrot
Brand"  trademarks,  and has applied for Federal trademark  registration for its
"Cinagro"  brand.  There can be no  assurance  that any  trademark or trade name
registrations  will  be  granted  to the  Company,  or,  if  granted,  that  the
trademarks or trade names will not be copied or challenged by others.

Government Regulation

     The  Company is subject to  various  Federal,  state and local  regulations
relating to cleanliness,  maintenance of food production equipment, food storage
and food handling, and the Company is subject to unannounced on-site inspections
of its manufacturing facilities. As a manufacturer and distributor of foods, the
Company  is  subject  to  regulation  by the U.S.  Food and Drug  Administration
("FDA"), state food and health boards and local health boards in connection with
the manufacturing, handling, storage, transportation, labeling and processing of
food  products.  In order to offer  organic food  products,  the Company is also
subject to inspection and regulation by the USDA. Regulations in new markets and
future changes in the  regulations  may adversely  impact the Company by raising
the cost to manufacture  and deliver the Company's  products and/or by affecting
the perceived  healthfulness of the Company's products. A failure to comply with
one or more regulatory requirements could interrupt the Company's operations and
result in a variety of  sanctions,  including  fines and the  withdrawal  of the
Company's  products from store shelves.  The Company holds all material licenses
and permits required to conduct its operations.

     The Company is also subject to Federal and state laws establishing  minimum
wages and regulating overtime and working conditions.

Employees

     The Company employs 50 individuals  including its executive officers,  food
production,  processing and warehousing employees and administrative  personnel.
The Company's  employees are not covered by a collective  bargaining  agreement,
but  the  Company   considers  its  employee   relations  to  be   satisfactory.
Additionally,  the Company has  contracted  for the services of four  management
executives  from  Global  Natural  Brands,  Ltd.  (See  Note 3 to the  Financial
Statements and Item 12 Certain Relationships and Related Transactions).

ITEM 2. DESCRIPTION OF PROPERTY
-------------------------------

     The Company  leases  approximately  24,000  square  feet for its  corporate
office,  manufacturing and warehouse facility in Morgan Hill,  California from a
non-affiliate on a seven-year lease expiring April 30, 2003, at a monthly rental
of $6,674 plus rental  escalations  of 3% per year.  The Company is  negotiating
with its landlord to lease to the Company an  additional  30,000  square feet of
space for  additional  warehousing  facilities,  although no such lease has been
executed.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

     Not applicable.

                                        8

<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------

     Not applicable.



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------


     The Company's  Common Stock has traded on the NASDAQ  Smallcap Market under
the symbol "OFPI" since August, 1997.

     The following table sets forth for the quarter  indicated the range of high
and low closing  prices of the Company's  Common Stock as reported by NASDAQ but
does not include retail markup, markdown or commissions.

                                                                    Price 
                                                                ------------
By Quarter Ended:                                              High      Low
-----------------                                              ----      ---

September 30, 1997.......................................    $ 4.3125  $ 3.875
December 31, 1997........................................      4.5625    2.875
March 31, 1998 ..........................................      3.625     2.625
June 30, 1998 ...........................................      4.25      3.00

     As of September  30,  1998,  the Company had  approximately  700 record and
beneficial stockholders.

Dividend Policy

     The Company has not paid cash dividends on its Common Stock in the past and
does not  intend to do so in the near  future.  The  Company  intends  to retain
earnings,  if any, for use in the operation  and expansion of its business.  The
amount of future dividends, if any, will be determined by the Board of Directors
based upon the Company's earnings, financial condition, capital requirements and
other conditions.

     In  connection  with the February,  1998  acquisition  of Sunny Farms,  the
company is  obligated  to pay a 6% "coupon  rate" on the portion of the purchase
price that was paid for in common stock.  Amounts  earned  through June 30, 1998
were not material.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
-------------------------------------------------------------------------------

         The  following  discussion  should  be read  in  conjunction  with  the
financial  statements and related notes and other  information  included in this
report.  The financial  results reported herein do not necessarily  indicate the
financial results that may be achieved by the Company in any future period.


                                        9


<PAGE>

Introduction

     Since  1987,  the  Company  (or  "OFPI")  has   manufactured  and  marketed
pesticide-free  ("organic") and preservative-free  ("all natural") pasta sauces,
salsas  and  condiments  under the brand  names  "Garden  Valley  Naturals"  and
"Parrot."  The Company began  marketing  its Parrot line of salsas in 1987,  its
Garden Valley Naturals line of condiments in 1991 and its Garden Valley Naturals
line of pastas and salsas in 1994. In June,  1996,  the Company merged with OFP,
which also  marketed  (since  1988) a line of organic food  products  (including
pasta  sauces and salsas,  together  with dry cut pastas and organic  children's
meals) under the "Millina's Finest" brand name.

     The Company was incorporated in July, 1987 as S&D Foods,  Inc. In November,
1995,  the Company  changed its name to Garden Valley  Naturals,  Inc.  ("GVN").
Following  its June,  1996 merger with OFP,  the  Company's  name was changed to
Organic Food Products, Inc. In August, 1997 the Company raised gross proceeds of
$5,200,000  through its IPO. The Company sells its products  either  directly or
through distributors or independent commissioned food brokers and specialty food
brokers  to (i)  health  food  and  specialty  food  stores,  (ii)  club  stores
(including  Price/Costco  and  BJ's),  and (iii)  retail  chain and  independent
grocery stores  (including  Safeway,  A&P,  Raley's,  Long's,  Trader Joe's, and
Lucky's).

     The  Company's  operating  results  could  vary from  period to period as a
result of a number of factors,  including the purchasing patterns of significant
customers,  the  timing of new  product  introductions  by the  Company  and its
competitors, the amount of slotting fees and new product development advertising
expenses incurred by the Company,  variations in sales by distribution  channel,
fluctuations in market prices of raw materials and competitive pricing policies.
These  factors  could cause the  Company's  performance  to differ from investor
expectations, resulting in volatility in the price of the Common Stock.

     Investors  should carefully  consider the following  information as well as
other information contained in this Report.  Information included in this Report
contains  "forward-looking  statements"  which can be  identified  by the use of
forward-looking  terminology such as "believes,"  "expects,"  "may," "should" or
"anticipates" or the negative thereof or other variations  thereon or comparable
terminology,  or by discussions of strategy.  See, e.g.,  "Item  1-Strategy." No
assurance can be given that the future  results  covered by the  forward-looking
statements  will  be  achieved.  The  following  matters  constitute  cautionary
statements  identifying  important factors with respect to such  forward-looking
statements,  including certain risks and  uncertainties  that could cause actual
results  to  vary   materially   from  the  future   results   covered  in  such
forward-looking  statements.  Other factors  could also cause actual  results to
vary  materially  from  the  future  results  covered  in  such  forward-looking
statements.

                                        10

<PAGE>






Year Ended June 30, 1998 Compared to Year Ended June 30, 1997

Revenues

     OFPI's revenues for the year ended June 30, 1998 ("1998") were  $12,304,000
compared to $11,379,000  for the year ended June 30, 1997 ("1997"),  an increase
of  $925,000,  or 8.1%  compared  to 48.9%  increase  in 1997.  The  increase in
revenues in 1998 was  primarily  due to the  acquisition  of the  natural  juice
business of Sunny Farms  Corporation  in February of 1998. The 1997 increase was
attributable to the acquisition of OFP in June, 1996.

Cost of Goods Sold

     OFPI's cost of goods sold for 1998 was $9,420,000 or 76.5% of sales, versus
$7,530,000,  or 66.2% of sales for 1997. The increase in cost-of-goods  sold was
due  to  increased  manufacturing  costs  due  to  excess  capacity,   inventory
write-downs,  and higher priced raw food  ingredients for Sunny Farms' products.
Moreover,  Sunny Farms' products were co-packed (manufactured and packaged by an
outside  processor)  from the  time of its  acquisition  through  the end of the
fiscal year. Accordingly, the resultant gross margin was significantly below the
margin which could have been  attained had all products  been  produced by OFPI.
Subsequent  to  year-end,  Sunny Farms has been fully  integrated  into the OFPI
organization  and the  anticipated  synergies  should be attained given that its
products are now being manufactured by OFPI.

     Additionally, subsequent to year-end, organizational changes have been made
within the manufacturing and purchasing  functions.  Management is continuing to
evaluate  additional  potential  operating and cost efficiencies,  including the
possibility  of  outsourcing  certain  copacking,   if  suitable  cost-efficient
arrangements  could be  found.  As a result,  management  believes  that  OFPI's
operations will become more efficient and purchasing  costs will decrease by the
end of the 1999 fiscal  year,  producing  reductions  in  cost-of-goods  sold in
subsequent periods.

Sales and Marketing Expenses

     OFPI's  sales and  marketing  expense for 1998 as  $3,049,000,  or 24.8% of
sales,  versus  $2,409,000 or 21.2% of sales for 1997. The increase in sales and
marketing expense was due to increases in personnel and increases in promotional
activities such as in-store demonstrations, etc.

General and Administrative Expenses

     OFPI's general and  administrative  expenses for 1998 were  $1,922,000,  or
15.6% of sales,  versus  $1,119,000  or 9.8% of sales for 1997.  This change was
due,  in  large  part,  to  increases  in  professional  services,  legal  fees,
accounting  and tax services and such other costs  incidental to OFPI becoming a
public  company.   Moreover,   notes  receivable  from  stockholder,   $168,000,
separation costs associated with the former Chief Executive  Officer,  $167,000,
and  $217,000   associated   with  a  failed   acquisition   were  written  off.
Additionally, contributing to this increase were $154,000 in expenses associated
with  retaining  the Global  Natural  Brands  Management  Team during the fourth
quarter of 1998.


                                        11

<PAGE>

Loss on Write-down of Fixed Assets and Goodwill

     During 1998, the Company  determined that certain goodwill and fixed assets
were impaired,  based on estimations of expected  undiscounted future cash flows
from  operations  under  current  operating  conditions.  Discounted  cash  flow
estimates  under the same operating  assumptions  indicated that they may not be
sufficient to recover the cost of the goodwill arising from the purchase of OFP,
and  accordingly,  goodwill of  $2,182,401  was written off.  The related  fixed
assets were reduced by $240,024 to its fair value as estimated by appraisal from
an independent  third party.  The resulting total $2,422,425 loss is included in
"Loss on write-down of fixed assets and goodwill" in the accompanying statements
of  operations.  The affected fixed assets will be depreciated at their new book
basis over  their  remaining  useful  life.  Unamortized  goodwill  of  $923,156
relating to the February,  1998 Sunny Farms  acquisition  was not affected,  and
will be reevaluated in future years on an ongoing basis.

Net Interest Expense

     OFPI's interest expense for 1998 was $102,000 versus $261,000 for 1997. The
decrease in interest  expense  resulted from a 60% reduction in notes payable as
well as a decrease in the  utilization  of the revolving  credit line due to the
application  of IPO  proceeds  to pay down  debt.  (See  Liquidity  and  Capital
Resources).

Deferred Tax Assets

     Since the Company could not determine that it was more likely then not that
the  deferred  tax assets  would be realized,  a 100%  valuation  allowance  was
provided.

Year 2000 Compliance

     Organic Food Products Inc., uses computer  software that may be impacted by
the year 2000  problem,  and also relys upon vendors of  equipment  and services
whose products may be impacted by the year 2000 problem. The Company's year 2000
compliance  issues  include:  1) the  equipment  it  uses  in its  manufacturing
process;  2) the  hardware  and  third-party  software  it  uses  for  corporate
administration;  3) the  services of  third-party  providers  it  purchases  for
certain   professional   services;   and  4)  the  external   services  such  as
telecommunications  and electrical  power. The Company has initiated a plan that
will attempt to identify all computer hardware and software, plant equipment and
services upon which it relies that may be impacted.  After identification of any
problem areas, the Company will verify whether or not those products or services
are year 2000 compliant.  The plan includes  contacting those vendors or service
providers to determine  their  compliance  or plans to become  complaint  before
December 31, 1999.  It is the intent of the Company to complete  this process by
December 31, 1998.

     The Company uses various pieces of equipment in its  manufacturing  process
that may contain computer chips that could be affected by the year 2000 problem.
The company has started, but not completed a program to identify which pieces of
equipment could be affected and how the affected equipment could be updated.


                                       12

<PAGE>



     The  Company's   corporate   administrative   and  operating   systems  are
exclusively  PC-based  using a  commercially  available  software  package.  The
Company has  received  written  confirmation  from the legal  department  of the
software developer confirming that it is year 2000 compliant.

     The  Company  uses  outside  service   providers  for  the  processing  and
administration  of its payroll,  401(k)  retirement  plan and insurance  benefit
programs.  Although a survey of these services providers has not been completed,
the Company believes that these providers will have systems,  and based upon its
initial  efforts to date as described  herein,  and does not anticipate that any
other information  technology  projects will be delayed in the future due to the
year 2000 problem.

     The Company has not deferred any  information  technology  projects to date
due to the need to assess or ensure year 2000  compliance  of its  systems,  and
based  upon  its  initial  efforts  to date as  described  herein,  and does not
anticipate that any other information technology projects will be delayed in the
future due to the year 2000 problem.

     For the reasons mentioned  herein,  the Company does not anticipate that it
will  have an  incomplete  or  untimely  resolution  of the year  2000  problem.
Although  the  total  costs of  compliance  have not been  completely  assessed,
management  does not  believe  they will be material  in nature.  As  previously
mentioned,  with regard to items (1) - (3), the Company  believes it has or will
achieve year 2000  compliance  in advance of December 31, 1999.  With respect to
external  companies that provide  telecommunications  and electrical  power, the
Company is less certain about the impact of their  non-compliance  regarding the
year 2000  problem.  Clearly,  the loss of these  services  would create a major
disruption of the Company's normal operations.  Given this scenario, the Company
would be required  to obtain  these  services  from other  sources.  The cost of
switching to other utility providers has not been assessed.

     Issues similar to these also face the Company's customers.  The Company has
not yet  completed  an  assessment  of year  2000  readiness  of its  customers.
However,  based on initial  discussions with certain customers,  management does
not currently  believe that business with those customers will be  significantly
disrupted by the year 2000 problem.

Seasonality

     The Company is  experiencing  some  seasonal  fluctuation  in revenues.  In
relation to product purchasing, the Company will seasonally contract for certain
product  for the entire year at harvest  time or at planting  time to secure raw
materials  through the year. These purchases take place annually,  with payments
being made  quarterly and are effected to reduce the risk of price swings due to
demand fluctuations.  These annual purchases can occasionally create overages or
shortages in inventory.  The Company's intention to sell certain excess bulk raw
materials to other  manufacturers may assist in reducing any overages and should
allow for more effective purchasing of the required raw materials.


                                       13

<PAGE>

Liquidity and Capital Resources

     During the year, the Company completed its initial public offering (IPO) of
1,495,000  shares of Common  Stock at $4.00 per  share,  for gross  proceeds  at
$5,902,000  (including  195,000  underwriters'  over-allotment  shares  sold  at
$3.60).  The net proceeds of approximately  $4,596,000  (after offering costs of
$1,806,000) was used to pay down approximately  $3,613,000 of existing debt. The
balance was used for working  capital  purposes,  to purchase raw  materials and
equipment,  to repay  debt and to  provide  marketing  funds  to  introduce  new
products  and  to  introduce  existing  products  into  new  markets.  Equipment
purchases were used for retooling and to acquire additional  packaging equipment
to convert, when required, production from boxed cases to shrink wrap cases.

     The Company also used an equipment  line  provided by its lender to finance
the purchase of juice  bottling  equipment as part of its  acquisition  of Sunny
Farms. Such equipment line was retired during 1998.

     As of June 30, 1998, the Company's cash position was limited.  The purchase
of nearly  $700,000  of  inventory  during  the  Sunny  Farms  acquisition,  the
investment in plant equipment and the cash outlays and lost sales resulting from
from a temporary product withdrawal, have placed severe strains on the Company's
cash position.  The Company has,  subsequent to year end,  received a commitment
from a lender to provide a  $3,000,000  revolving  line of credit and a $500,000
equipment  line to replace an existing  $1,000,000  revolving  line. The Company
believes that with this substantial increase in credit facilities,  coupled with
anticipated  cost  savings in the area of  manufacturing,  should be adequate to
fund the  Company's  estimated  cash  requirements  for the year ending June 30,
1999. There can be no assurances,  however,  that all of the anticipated savings
can be attained by year end.

     During  1998,  the  Company  used  $1,215,000  in  operations,  compared to
$1,755,000 in 1997. The decreased use of cash resulted primarily from additional
cash received from customers, due to the increase in sales, offset by $1,332,000
in increased  payments to suppliers  due to costs of the increased  sales.  Cash
used in investing  activities  was  $1,624,000  in 1998  compared to $322,000 in
1997, due to the Sunny Farms acquisition as well as increased purchases of fixed
assets.

     Cash  provided by  financing  activities  increased to  $2,818,000  in 1998
compared to  $1,949,000 in 1997.  Proceeds from sale of stock to Global  Natural
Brands,  Ltd. and the IPO mentioned above were $5,517,000 compared to $1,718,000
from a private  placement in 1997(offset by $350,000 in deferred  offering costs
in preparation for the IPO).

     The Company's  future results of operations  and the other  forward-looking
statements contained in this document,  in particular the statements  concerning
plant efficiencies and capacities,  capital spending,  research and development,
competition,  marketing  and  manufacturing  operations  and  other  information
provided herein involve a number of risks and uncertainties.  In addition to the
factors discussed above, among the other factors that could cause actual results
to differ  materially are general  business  conditions and the general economy;
competitors' pricing and marketing efforts; availability of third-party material
products at reasonable prices; risk of nonpayment of accounts receivable;  risks
of  inventory  obsolescence  due to shifts in market  demand;  timing of product
introductions; and litigation involving product liabilities and consumer issues.


                                       14

<PAGE>


New Applicable Account Pronouncements

     During 1997,  the Financial  Accounting  Standards  Board released SFAS No.
130,  Reporting  Comprehensive  Income.  SFAS 130, which is effective for fiscal
years beginning after December 15, 1997, establishes standards for reporting and
display of  comprehensive  income and its  components in the entity's  financial
statements.  The  objective of SFAS 130 is to report a measure of all changes in
the equity of an enterprise  that result from  transactions  and other  economic
events of the  period.  Comprehensive  income is the total of net income and all
other  non-owner  changes  in  equity.  SFAS  130  does not  address  issues  of
recognition  or measurement  for  comprehensive  income and its components  and,
therefore,  it will not have an impact on the financial  condition or results of
the Company upon adoption.

     The Financial  Accounting  Standards Board also recently  released SFAS No.
131, Disclosures about Segments of an Enterprise and Related  Information.  This
Statement, which is also effective for fiscal years beginning after December 15,
1997,  requires  reporting  of  financial  and  descriptive   information  about
reportable   operating  segments.   Operating  segments  are  components  of  an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate  resources  and in  assessing  performance.  The  Company  believes  it
operates in only one business segment,  production and distribution of processed
organic  foods,  and has  already  substantially  complied  with any  additional
disclosure  requirements.  SFAS 131 does not address  issues of  recognition  or
measurement in the basic financial  statements,  and thus will have no impact on
the Company's financial condition or results of operation upon adoption.
























                                       15
<PAGE>




ITEM 7. FINANCIAL STATEMENTS
------------------------------

                REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To The Shareholders and Board of Directors of Organic Food Products, Inc.



We have audited the accompanying balance sheet of Organic Food Products, Inc. as
of  June  30,  1998,  and the  related  statements  of  operations,  changes  in
shareholders'  equity,  and cash flows for the year then ended.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Organic Food Products,  Inc.
as of June 30, 1998, and the results of its operations, changes in shareholders'
equity,  and its cash flows for the year then ended in conformity with generally
accepted accounting principles.


BDO SEIDMAN, LLP
Certified Public Accountants
San Francisco, California

September 23, 1998, except for Note 6,
as to which the date is October 9, 1998











                                      F-1

<PAGE>







                REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To The Shareholders and Board of Directors of Organic Food Products, Inc.


We  have  audited  the  accompanying   statements  of  operations,   changes  in
shareholders'  equity,  and cash flows of Organic Food  Products,  Inc., for the
year ended June 30, 1997. These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the results of  operations,  changes in  shareholders'
equity,  and cash flow of Organic Food  Products,  Inc., for the year ended June
30, 1997, in conformity with generally accepted accounting principles.


Semple & Cooper, LLP
Certified Public Accountants

Phoenix, Arizona
September 24, 1997


















                                      F-2
<PAGE>


                          ORGANIC FOOD PRODUCTS, INC.
                                  BALANCE SHEET
                                 June 30, 1998

                                     ASSETS


Current Assets:
   Cash                                                              $    41,585
   Accounts receivable, less allowance for
      bad debts, spoils and returns, and
      manufacturer charge back adjustments
      of $324,493 (Notes 1, 6 and 7)                                   1,096,285

   Inventory, net (Notes 1, 2, 3, 5, 6, and 7)                         3,693,986
   Prepaid expenses                                                      187,469
   Receivable from related party (Note 3)                                 50,000
                                                                     -----------

             Total Current Assets                                      5,069,325

Fixed Assets (Notes 1, 4, 5, and 6)                                    1,263,007

Goodwill (Note 1, 4 and 9)                                               923,515
                                                                     -----------


              Total Asets                                             $7,255,847
                                                                     ===========













                   The Accompanying Notes are an Integral Part
                           of the Financial Statements


                                       F-3

<PAGE>


                          ORGANIC FOOD PRODUCTS, INC.
                           BALANCE SHEET (Continued)
                                 June 30, 1998

                      LIABILITIES AND SHAREHOLDERS' EQUITY


Current Liabilities:
   Notes payable (Note 6)                                           $   992,589
   Accounts payable                                                   1,613,279
   Accrued wages and taxes                                              199,221
   Accrued liabilities                                                   76,318
   Notes payable - related parties -
     current portion (Note 3)                                           462,754
                                                                    -----------

          Total Current Liabilities                                   3,344,161
                                                                    -----------

Notes payable - related parties
   - long-term portion (Note 3)                                          34,484
                                                                    -----------

   Total Liabilities                                                  3,378,645
                                                                    -----------

Commitments (Notes 3, 5, 6, and7)


Shareholders' Equity (Note 8):
   Common stock
     No par value, 20,000,000 shares authorized,
     7,275,688 issued and outstanding                                 9,851,687
   Accumulated deficit                                               (5,974,485)
                                                                    -----------

                                                                      3,877,202
                                                                    -----------

   Total Liabilities and Shareholders' Equity                       $ 7,255,847
                                                                    ===========





                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       F-4

<PAGE>


                          ORGANIC FOOD PRODUCTS, INC.
                            STATEMENTS OF OPERATIONS
                   For The Years Ended June 30, 1998 and 1997

                                                   June 30,          June 30,
                                                     1998              1997
                                                 ------------      ------------

Revenues (Notes 1 and 8)                         $ 12,304,323      $ 11,378,916

Cost of Goods Sold (Notes 3 and 8)                  9,419,802         7,530,270
                                                 ------------      ------------

Gross Profit                                        2,884,521         3,848,646
                                                 ------------      ------------
Sales and Marketing Expense                         3,048,865         2,408,864

General and Administrative
 Expenses (Note 3)                                  1,922,030         1,118,686

Loss on  Write-down of
  Fixed Assets and Goodwill                         2,410,936              --
  (Note 4)
                                                 ------------      ------------
                                                    7,381,831         3,527,550
                                                 ------------      ------------

Income (Loss) from Operations                      (4,497,310)          321,096

Interest Income (Expense), Net                       (102,413)         (261,376)

Other Income (Expense), Net                           (34,719)           11,447
                                                 ------------      ------------

Income (Loss) before Provision for
  Income Taxes                                     (4,634,442)           71,167

Provision for Deferred Income Tax
  Benefit (Expense)(Note 1 and 11)                     15,200           (16,000)
                                                 ------------      ------------

Net Income (Loss)                                $ (4,619,242)     $     55,167
                                                 ============      ============

Basic and Diluted Earnings
  (loss) per Share (Notes 1 and 9)               $       (.69)     $        .01
                                                 ============      ============
Weighted Average Number of Shares
  Outstanding (Notes 1 and 9)                       6,696,945         5,692,830
                                                 ============      ============


                  The Accompanying Notes are an Integral Part
                          of the Financial Statements

                                      F-5

<PAGE>
<TABLE>
<CAPTION>

                                                ORGANIC FOOD PRODUCTS, INC.
                                STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

                                                                                        
                                                                            
                                                                                 
                                                                                                              Total
                                                Common Stock              Additional                     Shareholders'
                                            ------------------------       Paid-in       Accumulated         Equity
(See Note 9)                                  Shares        Amount         Capital        (Deficit)        (Deficit)
-------------                                 ------        ------         -------        ---------      -------------

<S>                                         <C>           <C>             <C>             <C>             <C>        
Balance at July 1, 1996                     4,500,000     $ 2,317,400     $     --        $(1,410,410)      $   906,990

Proceeds from private
  offering, net of
  costs of $340,462                           823,500       1,718,288           --               --
                                                                                                            1,718,288
Repurchase of shares                          (31,250)        (78,125)          --               --           (78,125)

Stock issued for
  director expenses                             5,663          14,157           --               --            14,157

Net income for the
 year ended June 30,
   1997                                           --              --            --             55,167          55,167
                                          -----------     -----------     ----------      -----------     -----------

Balance at June 30, 1997                    5,297,913       3,971,720           --         (1,355,243)      2,616,477

Repurchase of Shares                          (40,000)       (100,000)          --               --          (100,000)

Proceeds from initial
  public offering, net
  of costs of $1,306,404                    1,495,000       4,595,566           --               --         4,595,566

Stock issued for director
  expenses                                     17,200          34,401           --               --            34,401

Stock issued for
  acquisition of
  Sunny Farms, Inc.                           283,333         850,000           --               --           850,000

Proceeds from sale of stock
  to Global Natural Brands                    222,222         500,000           --               --           500,000

Net loss for the year ended
  June 30, 1998                                  --              --             --         (4,619,242)     (4,619,242)

                                          -----------     -----------     ----------      -----------     -----------
Balance at June 30,
  1998                                      7,275,688     $ 9,851,687     $     --        $(5,974,485)    $ 3,877,202
                                          ===========     ===========     ==========      ===========     ===========



                                     The Accompanying Notes are an Integral Part
                                              of the Financial Statements

                                                          F-6
</TABLE>

<PAGE>

                           ORGANIC FOOD PRODUCTS, INC.
                            STATEMENTS OF CASH FLOWS
                   For The Years Ended June 30, 1998 and 1997


(See Note 12)                                          1998            1997
-------------                                      ------------    ------------

Increase (Decrease) in Cash:
Cash flows from operating activities:
    Cash received from customers                   $ 12,501,929    $ 10,745,430
    Cash paid to suppliers and employees            (13,781,403)    (12,449,168)
    Interest paid                                      (114,413)       (142,966)
    Interest received                                    12,000            --
    Income taxes received                               167,694          91,753
    Income taxes paid                                      (800)           --
                                                   ------------    ------------
      Net cash used by operating
        activities                                   (1,214,993)     (1,754,951)
                                                   ------------    ------------
Cash flows from investing activities:
    Purchase of fixed assets                           (603,915)       (243,596)
    Advances to shareholder                             (84,000)        (84,000)
    Cash received from sale of fixed assets              34,600           5,483
    Purchase of Sunny Farms                            (971,171)           --
                                                   ------------    ------------
      Net cash used by investing
        activities                                   (1,624,486)       (322,113)
                                                   ------------    ------------

Cash flows from financing activities:
    Repayment of notes payable and capital lease       (832,349)       (140,627)
    Repayment of notes payable
      - related parties                              (1,766,416)       (257,685)
    Proceeds from notes payable                            --         1,057,178
    Proceeds from issuance of stock                   5,516,904       1,718,288
    Re-purchase of common stock                        (100,000)        (78,125)
    Deferred offering costs                                --          (350,113)
                                                   ------------    ------------
      Net cash provided by financing
        activities                                    2,818,139       1,948,916
                                                   ------------    ------------
Net decrease in cash                                    (21,340)       (128,148)

Cash at beginning of year                                62,925         191,073
                                                   ------------    ------------

Cash at end of year                                $     41,585    $     62,925
                                                   ============    ============




                   The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       F-7

<PAGE>

                           ORGANIC FOOD PRODUCTS, INC.
                      STATEMENTS OF CASH FLOWS (Continued)
                   For The Years Ended June 30, 1998 and 1997


                                                       1998            1997
                                                    -----------    -----------
Reconciliation of Net Income (Loss) to Net Cash
  Used by Operating Activities:

Net Income (Loss)                                   $(4,619,242)   $    55,167
                                                    -----------    -----------
Adjustments to reconcile net income (loss)
to net cash  used by  operating activities:

      Depreciation and amortization                     345,352        235,875
      Loan discount amortization                           --          118,410
      Inventory financed through notes payable             --          222,523
         Loan to shareholders forgiven                  168,000           --
         Loss on write-down of fixed assets                --             --
           and goodwill                               2,410,977           --
      Stock issued for director's expenses               34,401         14,157
         Provision for reserves against
           receivables                                  160,981           --
         Provision for reserve for inventory
           obsolesence                                   85,000           --
         Deferred income taxes                          (16,000)        16,000

  Changes in Assets and Liabilities:
      Accounts receivable, net                           36,625       (525,549)
      Inventory                                         410,061     (2,021,955)
      Prepaid expenses                                 (152,022)       (10,207)
      Income tax refund receivable                      167,694         91,753
      Deposits and other                                  8,378         15,625
      Accounts payable                                 (461,227)        44,272
      Accrued liabilities                               206,029        (11,022)
                                                    -----------    -----------

                                                      3,404,249     (1,810,118)
                                                    -----------    -----------

Net cash used by operating activities               $(1,214,993)   $(1,754,951)
                                                    ===========    ===========







                  The Accompanying Notes are an Integral Part
                           of the Financial Statements

                                       F-8

<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies, Nature of Operations and Use of
     Estimates:

     Nature of Operations:

     Organic  Food  Products,  Inc.  ("OFPI" or the  "Company")  is a California
     corporation incorporated on July 7, 1987. The principal business purpose of
     the Company is the  production  and  distribution  of organic food products
     throughout the United States.

     Pervasiveness of Estimates:

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     Stock-Based Compensation:

     Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
     Stock-Based Compensation" established a fair value method of Accounting for
     stock-based  compensation  plans  and for  transactions  in which an entity
     acquires  goods or  services  from  non-employees  in  exchange  for equity
     instruments.  SFAS 123 encourages, but does not require companies to record
     compensation cost for stock-based  employee  compensation.  The Company has
     chosen  to  continue  to  account  for  employee  stock-based  compensation
     utilizing the intrinsic  value method  prescribed in Accounting  Principles
     Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees."

     Accordingly,  compensation  cost for employee  stock options is measured as
     the excess,  if any, of the fair market price of the Company's stock at the
     date of grant over the amount an  employee  must pay to acquire  the stock.
     Options granted to  non-employees  are recorded at the estimated fair value
     of the option granted over the service period.  Pro forma disclosure of net
     income and earnings per share is provided as if the Company had elected the
     fair value method of accounting for all stock-based compensation awards.

     Accounts Receivable and Allowances

     The Company  provides  allowances  for  estimated  credit  losses,  product
     returns,  spoilage,  and other  manufacturer  charge back  adjustments (for
     advertising  allowances,  etc.) at a level deemed appropriate to adequately
     provide for known and inherent risks related to such amounts.


                                      F-9
<PAGE>

                          ORGANIC FOOD PRODUCTS, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)

1.   Summary of Significant Accounting Policies, Nature of Operations and Use of
     Estimates (Continued):

     The allowances are based on reviews of loss, return,  spoilage,  adjustment
     history,   contractual  relationships  with  customers,   current  economic
     conditions,  and other  factors  that  deserve  recognition  in  estimating
     potential losses.  While management uses the best information  available in
     making its  determination,  the  ultimate  recovery of  recorded  accounts,
     notes, and other receivables is also dependent on future economic and other
     conditions that may be beyond management's control.

     Inventory:

     Inventory  is stated at the lower of cost,  first-in,  first-out  method or
     market.

     Earnings Per Share:

     In February 1997, the financial  Accounting Standards Board issued SFAS No.
     128,  Earnings  Per  Share,  which  supersedes  APB No.  15,  the  existing
     authoritative  guidance. SFAS No. 128 is effective for financial statements
     for periods ending after December 15, 1997, and requires restatement of all
     prior-period earnings per share data presented.  The new statement modifies
     the  calculations  of  primary  and fully  diluted  earnings  per share and
     replaces them with basic and diluted earnings per share. Basic earnings per
     share  is  computed  by  dividing   income  or  loss  available  to  common
     shareholders by the weighted average number of shares actually  outstanding
     for the period.  Diluted earnings per share reflect the potential  dilution
     of  securities  that could share in the  earnings of an entity.  Because of
     losses in 1998,  the decline in market  price below the  exercise  price of
     certain  options and warrants,  and differences of less than $.01 per share
     due to certain  other  options and  warrants,  other  potentially  dilutive
     securities  are  either  anti-dilutive  or  have  no  effect.  Accordingly,
     calculations under the new standard, which was adopted in the quarter ended
     December 31, 1997 were the same as those under the prior method.

     Income Taxes:

     The Company accounts for corporate income taxes in accordance with SFAS No.
     109,  "Accounting for Income Taxes",  which requires an asset and liability
     approach.  This approach  results in the recognition of deferred tax assets
     (future  tax  benefits)  and   liabilities  for  the  expected  future  tax
     consequences  of temporary  timing  differences  between the book  carrying
     amounts and the tax basis of assets and  liabilities.  Future tax  benefits
     are subject to a valuation  allowance to the extent of the likelihood  that
     the deferred tax assets may not be realized.


                                      F-10

<PAGE>


                          ORGANIC FOOD PRODUCTS, INC.
                   NOTES TO FINANCIAL STATEMENTS (Continued)


     Revenue Recognition:

     The Company  recognizes  revenues  through  sales of products  primarily to
     grocery and club store  chains.  Sales are recorded  when goods are shipped
     for most  customers  and upon  delivery to retail  locations for the Direct
     Store  Delivery  program.  Potential  returns,   adjustments  and  spoilage
     allowances are provided for in accounts receivable allowances and accruals.

     Fixed Assets:

     Fixed  Assets are  recorded at cost.  Depreciation  is  provided  using the
     straight-line  method  over  the  estimated  useful  lives  of the  assets.
     Maintenance  and repairs  that neither  materially  add to the value of the
     property  nor  appreciably  prolong  its life are  charged  to  expense  as
     incurred. Betterments or renewals are capitalized when incurred.

     Goodwill:

     Goodwill  represents  the  excess of the cost of  companies  or  operations
     acquired  over  the  fair  value  of  their  net  assets  at  the  date  of
     acquisition,  and  is  amortized  on  the  straight-line  method  over  the
     estimated  period of  benefit,  generally  15 years.  Amortization  expense
     charged  to  operations  for the  year  ended  June  30,  1998 and 1997 was
     $135,194 and $94,887.  The Company  evaluates the estimated net  realizable
     value of its goodwill at each balance sheet date,  and records  write-downs
     if the net book value  exceeds net  realizable  value (see also "Long Lived
     Assets").

     Long-Lived Assets:

     Long-lived assets,  including fixed assets,  goodwill, and other intangible
     assets, are assessed for possible  impairment whenever events or changes in
     circumstances indicate that the carrying amounts may not be recoverable, or
     whenever  management has committed to a plan to dispose of the assets. Such
     assets are carried at the lower of book value or fair value as estimated by
     management based on appraisals,  current market value, and comparable sales
     value,  as  appropriate.  Assets  to be  held  and  used  affected  by such
     impairment  loss are  depreciated or amortized at their new carrying amount
     over the remaining  estimated life; assets to be sold or otherwise disposed
     of are not subject to further depreciation or amortization.  In determining
     whether an impairment  exists,  the company uses  undiscounted  future cash
     flows compared to the carrying value of assets.

     Fair Value of Financial Instruments:

     The Company's notes payable approximate fair value based on rates currently
     available  from the bank for debt with similar  terms and  maturities.  The
     fair value of notes payable - related parties  approximates  the book value
     due to shortness of the  remaining  term.  The fair value of the  Company's
     commitments  to  purchase  inventory  is based  on  current  market  prices
     available  to the  Company.  The  carrying  amounts of accounts  receivable
     approximate fair value because of the short maturity of these items.


                                      F-11

<PAGE>

                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


     
     Other New Accounting Pronouncements:

     During 1997,  the Financial  Accounting  Standards  Board released SFAS No.
     130,  Reporting  Comprehensive  Income.  SFAS 130,  which is effective  for
     fiscal years beginning after December 15, 1997,  establishes  standards for
     reporting  and display of  comprehensive  income and its  components in the
     entity's  financial  statements.  The  objective of SFAS 130 is to report a
     measure of all  changes in the equity of an  enterprise  that  result  from
     transactions and other economic events of the period.  Comprehensive income
     is the total of net income and all other non-owner changes in equity.  SFAS
     130 does not address issues of recognition or measurement for comprehensive
     income and its components and, therefore, it will not have an impact on the
     financial condition or results of the Company upon adoption.

     The Financial  Accounting  Standards Board also recently  released SFAS No.
     131,  Disclosures about Segments of an Enterprise and Related  Information.
     This  Statement,  which is also effective for fiscal years  beginning after
     December  15,  1997,   requires  reporting  of  financial  and  descriptive
     information about reportable  operating  segments.  Operating  segments are
     components of an enterprise about which separate  financial  information is
     available that is evaluated regularly by the chief operating decision maker
     in deciding how to allocate  resources  and in assessing  performance.  The
     Company believes it operates in only one business  segment,  production and
     distribution  of processed  organic  foods,  and has already  substantially
     complied with any  additional  disclosure  requirements.  SFAS 131 does not
     address  issues  of  recognition  or  measurement  in the  basic  financial
     statements,  and  thus  will  have no  impact  on the  Company's  financial
     condition or results of operation upon adoption.

2.    Inventory:

      As of June 30, 1998, inventory consisted of the following:
            Raw materials                                            $1,513,659
                  Finished goods                                      2,305,327
                                                                      3,818,986
                  Less: reserve for obsolete inventory                 (125,000)
                                                                     ----------
                                                                     $3,693,986
                                                                     ==========
3.   Related Party Transactions:

     Advances to Shareholder:

     As of June 30, 1997, the Company had advanced  $168,000 to a shareholder in
     accordance  with  an  employment  agreement.  The  advance  was  unsecured,
     non-interest  bearing, and considered  short-term in nature. As of June 30,
     1998, this agreement was eliminated and future payments were discontinued.

                                      F-12
<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


     The balance of the non-interest  bearing note ($168,000) was written off at
     June 30, 1998.

     Notes Payable - Related Parties:

     At  June  30,  1998,  notes  payable  -  related  parties,  consist  of the
     following:

     Two (2) 6% interest bearing notes payable for $248,619 to two (2) corporate
     shareholders,  with monthly  payments of $20,000,  including  principal and
     interest until paid in full; unsecured and subordinated to other secured
     parties.                                                          $497,238
                                                                        ========
A schedule of future minimum principal payments due on notes payable outstanding
at June 30, 1998, is as follows:

                   Year Ending
                     June 30,                     Amount
                   -----------                   --------
                      1999                       $462,754
                      2000                         34,484
                                                 --------
                                                 $497,238
                                                 ========

Organic Ingredients,  Inc. ("OGI"), a company 50% owned by Mr. Battendieri,  the
Company's President,  supplies certain organic ingredients used primarily in the
Company's  fruit juice  products.  Total purchases from OGI amounted to $564,450
during fiscal year 1998. The price of, and terms for, the  ingredients are fair,
reasonable and consistent  with prices and terms which would be available to the
Company from third parties.

Management Services Contract:

In April 1998,  the  Company  contracted  for  management  services  from Global
Natural Brands, Inc. (Global). Under the contract,  Global provides the services
of four  individuals  to fill the  offices  of Chief  Executive  Officer,  Chief
Financial  Officer,  Vice  President - Sales &  Distribution  and Vice President
Marketing for a four-year period ending June 30, 2002. The contract provides for
minimum annual cash payments to Global of $300,000,  with  escalations  based on
certain earnings performance and acquisition attainment conditions. In addition,
up to 1,808,784  options to purchase the Company's  Common Stock may vest over a
total of four  years  based on  certain  stock  price and  earnings  improvement
performance  conditions.  Each set of vested options,  with an exercise price of
$2.25, expires four years after date of vesting.  (See Note 10). Upon any change
in ownership interest of more than 50% of the capital stock of the Company,  the
balance of the minimum annual cash payments for the remaining contractual period
shall become due and payable and all stock options will vest immediately.

                                      F-13

<PAGE>

                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


Under the agreement, $154,135 in management fees and related relocation expenses
was  incurred  during the year ended June 30,  1998.  Additionally,  Global also
agreed to reimburse the Company $50,000 in costs related to a failed acquisition
of an unrelated third party during the year ended June 30, 1998.

4. Fixed Assets and Goodwill:

A summary of fixed assets at June 30, 1998 is as follows:

                                                  Estimated
                                                 Useful Life


      Computer software and equipment             5 years         $   53,750
      Leasehold improvements                      7 years            182,994
      Machinery and equipment                  7-20 years          1,036,259
      Office equipment                            5 years             52,500
      Printing plates                             7 years             28,998
      Vehicles                                    5 years             19,542
                                                                   1,373,863
                                                                   ---------
      Accumulated depreciation                                      (110,856)
                                                                   --------- 
                                                                  $1,263,007
                                                                  ==========

During 1998, the Company  determined that certain goodwill and fixed assets were
impaired,  based on estimations of expected  undiscounted future cash flows from
operations under current  operating  conditions.  Discounted cash flow estimates
under the same operating  assumptions indicated that there may not be sufficient
cash flows to recover the cost of the goodwill arising from the purchase of OFP,
and  accordingly,  goodwill of  $2,182,401  was written off.  The related  fixed
assets were  reduced by $240,024 to their fair value as  estimated  by appraisal
from an independent third party. The resulting total $2,422,425 loss is included
in "Loss on  write-down  of  fixed  assets  and  goodwill"  in the  accompanying
statements of operations. The affected fixed assets will be depreciated at their
new book basis over the remaining useful life.  Unamortized goodwill of $923,156
relating  to the  February  1998 Sunny  Farms  acquisition  (See Note 5) was not
affected, and will be reevaluated in future years on an ongoing basis.

For the years ended June 30, 1998 and 1997,  depreciation  expense was  $210,158
and $140,988,respectively.

5. Acquisition of Sunny Farms

In February,  1998,  OFPI  acquired the natural  fruit juice and water  bottling
operations of Sunny Farms Corporation for a total of $971,171 in cash (including
costs of acquisition) and assumption of debt, and the  issuance  of Common Stock




                                      F-14


<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


of the Company valued at $1,700,000.  Of the total purchase  price,  $850,000 of
the Common Stock portion is contingent upon certain performance  conditions over
the first year after acquisition and, accordingly, has not yet been recorded.

The $963,822 excess of the remaining  purchase price over  identified  inventory
and fixed assets of approximately $857,000 was accounted for as goodwill.

The agreement was accounted for as a purchase and,  accordingly,  the results of
the Sunny Farms  operations  are included from  February 11, 1998  forward.  Pro
forma unaudited  estimated  results of operations as if the acquisition had been
made effective  July 1, 1996,  beginning of the first period  presented,  are as
follows:
                                         Year ended June 30,
                                       1998              1997
                                    -----------       -----------
Revenues                            $15,486,000       $18,498,000

Net loss                             (5,059,000)       (1,061,000)

Loss per share                      $      (.75)      $      (.18)

Only the basic shares  issued in February  1998 not subject to forfeit (see Note
9) are included in the above pro forma computations of loss per share.

6.   Notes Payable:

     At June 30, 1998 notes payable consist of the following:

     Revolving line of credit with Wells
     Fargo Bank for $1,000,000, interest
     at the  bank's  prime  rate plus 1%
     per annum (9.5% at June 30,  1998),
     interest    due    monthly,    with
     principal  balance  due in  full in
     October,  1998;  collateralized  by
     various corporate assets.  Replaced
     subsequent  to year end  (See  Note
     (1) below.                                                     $   874,853

     Interest-bearing  note  payable  to
     Deere Park Capital  Management a 1%
     per month.                                                         100,000

     Other                                                               17,736
                                                                     ----------
                                                                     $  992,589
                                                                     ==========

     (1)  On October 9, 1998,  a new  financing  agreement  with Finova  Capital
          Corporation was signed for a prime plus 2.5% $3,000,000 revolving line
          Of credit to be secured by  inventory  and  receivables,  as well as a
          $500,000 equipment line.


                                      F-15


<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


7.   Commitments:

     Inventory Purchases:

     The Company is committed to purchase  raw  materials  over the next year at
     contracted  prices.  At June 30,  1998,  these future  committed  purchases
     aggregated  approximately  $1,846,000 based on the contracted  prices.  The
     Company has no other material future commitments.

     Lease Obligations:

     The Company leases office,  warehouse and production  space in Morgan Hill,
     California  under a  non-cancellable  operating lease  agreement,  expiring
     April,  2003.  Rent expense under this lease  agreement for the years ended
     June 30, 1998 and 1997 was $102,590 and $78,732 respectively.

     A schedule of future minimum lease  payments due under the  non-cancellable
     operating leases at June 30, 1998, is as follows:


                    Year
                   Ending
                   ------
                    1999                                $  83,585
                    2000                                   83,545
                    2001                                   85,820
                    2002                                   88,395
                 Subsequent                                60,097
                                                       ----------

                                                       $  401,442
                                                       ==========
     Employment Contracts:

     The Company entered into  employment  contracts with two (2) key employees.
     The contracts  were to expire  through  July,  1999 and provide for minimum
     annual salaries,  adjusted for cost-of-living changes, and incentives based
     on the Company's  attainment of specified levels of sales and earnings.  As
     of June 30,  1998,  contracts  were  terminated  by  mutual  agreement  and
     approximately  $167,000  still  due  under  one of the  contracts  has been
     accrued.

     In connection  with the Sunny Farms  acquisition  (see Note 5), the Company
     entered  into  employment  agreements  with two former  employees  of Sunny
     Farms. The agreements expire in February,  2000 and provide for payments of
     the remaining base salaries  (aggregating  approximately $12,000 per month)
     in the event of  termination  other  than for cause or  resignation  of the
     employee (s).




                                      F-16

<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


8.   Significant Concentrations:

     For the years  ended June 30, 1998 and 1997,  the Company had one  customer
     which accounted for  approximately  seventeen  percent (17%) and twenty-one
     percent (21%),  respectively,  of the total sales volume.  At June 30, 1998
     and 1997, the amounts due from the customer included in accounts receivable
     were $128,662 and $374,591, respectively.

     For the year  ended June 30,  1998,  the  Company  had one  supplier  which
     accounted  for an aggregate of  approximately  twenty  percent (20%) of the
     total purchases.  For the year ended June 30, 1997, the Company had one (1)
     supplier which accounted for approximately  thirty-one percent (31%) of the
     total  purchases.  At June 30,  1998 and  1997,  the  amounts  due to these
     suppliers   included  in  accounts   payable  were  $84,022  and  $473,658,
     respectively.  The Company  believes that other suppliers are available who
     could provide  product at similar  prices and terms. A change in suppliers,
     however, could cause a delay in manufacturing and a possible loss of sales,
     which would affect operating results adversely.

9.   Shareholders' Equity:

     Common Stock:

     The Company  completed a private  placement  offering during the year ended
     June 30, 1997 at a gross price of $2.50 per share.  The  proceeds  from the
     offering of 823,500 shares were $1,718,288, net of costs of $340,462.

     The Company  completed its initial public  offering of 1,495,000  shares of
     its no par value common stock at a price of $4.00 per share sold (including
     195,000  underwriters  over-allotment  shares at $3.60 per share) under its
     Registration  Statement and Prospectus dated August 8, 1997. Gross proceeds
     of approximately $5,900,000 were received by the Company.

     In  connection  with the  management  contract  discussed in Note 3, Global
     purchased a total of 222,222 shares of the Company's  Common Stock in June,
     1998 for  $500,000,  and has  committed  to invest an  additional  $500,000
     before  the  earlier  of  30  days  after   completion  of  an  acquisition
     transaction  (as defined) or April 15,  1999.  The  agreement  targeted the
     value  of the  purchases  at  $2.50  per  share.  OFPI  committed  to issue
     additional  shares to bring the market  value of the shares  issued back to
     the  purchase  amount if the market value of the Common Stock was less than
     $2.50 per share for the average of the closing prices on specified  trading
     dates in August and September, 1998 (with a minimum assigned value of $2.25
     per share).  Under this  provision,  the Company  issued 22,222  additional
     shares in  connection  with the first  $500,000  purchase,  and will  issue
     222,222  shares in total for the second  purchase.  The  additional  shares
     related to the first purchase are treated as if they were outstanding since
     the June, 1998 date of sale of the initial related shares.


                                      F-17

<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


     In connection with the February, 1998 Sunny Farms acquisition,  the Company
     issued a total of 425,000 shares at $4.00 per share,  of which 212,500 were
     placed in escrow.  The release of the escrowed  shares is contingent on the
     attainment of certain future performance conditions.

     The agreement also provided for issuance of additional shares if the market
     price of the  Company's  shares  was not at least  $4.00  per share for the
     average of the closing  prices on specified  trading dates in August,  1998
     (with a minimum assigned value of $3.00 per share).

     As a result of the market price guarantee, the Company issued an additional
     166,667  shares (of which 83,333  shares are held in escrow) in  connection
     with the purchase.  The  additional  shares not subject to  forfeiture  are
     treated as if they were  outstanding  for the entire period since the Sunny
     Farms acquisition date.

10.  Stock Options and Warrants:
     Options:

     The Company has a stock option plan  pursuant to which  options to purchase
     shares of the  Company's  common  stock may be  granted  to  employees  and
     directors.  The plan  provides that the option price shall not be less than
     the fair  market  value of the  shares on the date of  grant,  and that the
     options expire ten years after grant.  Options  generally vest ratably over
     four or five year periods for employees, and up to two years for directors.
     At June 30,  1998,  there were  625,000  shares  reserved for options to be
     granted under the plan.

The following table shows activity in outstanding options during 1998 and 1997:

                                           1998                    1997
                                  ---------------------    --------------------
                                                                       Weighted
                                                 Averge               Average
                                                Exercise              Exercise
                                     Shares      Price     Shares      Price

Outstanding, beginning of year      625,000     $ 2.11     483,000     $ 2.00
Granted - employees and directors    40,000     $ 3.34     142,000     $ 2.50
Granted - management services     1,808,784     $ 2.25        -           -
Canceled or Expired                (131,000)    $ 2.50        -           -
Outstanding, end of year          2,342,784     $ 2.26     625,000     $ 2.11
                                  =========     ======     =======     ======
Options exercisable at year end     283,000     $ 2.00     311,000     $ 2.10
                                  =========     ======     =======     ======
Weighted average fair value of options
 granted during the year - employee
 and director shares only                       $ 1.75                  $ 0.29
                                                ======                  ======




                                      F-18


<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


The following table shows information for options  outstanding or exercisable as
of June 30, 1998:
<TABLE>
<CAPTION>
                                            Outstanding                   Exercisable
                                              Weighted                      Weighted
                                               Average                       Average
                                              Remaining  Average            Remaining Average
                                            Contractual Exercise           Contractual Exercise
                                  Shares       Life      Price      Shares     Life    Price
                                ---------   ----------  -------     ------- ---------  --------
Range of Exercise Prices
<S>                            <C>             <C>      <C>        <C>         <C>    <C>   
$2.00 to $2.99                  2,302,724       6.6      $ 2.24     283,000     6.8    $ 2.00
$3.00 to $3.34                     40,000      10.0      $ 3.34        -         -         -
                                ---------      ----      ------     -------     ---    ------
                                2,342,724       6.3      $ 2.26     283,000     6.8    $ 2.00
                                =========      ====      ======     =======     ===    ======
</TABLE>


In 1998,  the Company also  granted  options for  1,808,784  shares at $2.25 per
share to the management  company providing  executive  management  services (see
Note 3). The options vest over a four year period  beginning April 15, 1998, and
are exercisable for four years after vesting.  Vesting of each year's options is
dependent upon  performance  conditions  relating to improvement in earnings and
share price for which targets are to be  established  yearly.  The fair value of
the options  will be recorded  as expense  upon  attainment  or  probability  of
attainment of the  performance  target over the service period.  However,  as of
June 30, 1998, no such targets have been set by OFPI and the management company,
and, accordingly, no amounts have been included in expense.

All stock options  issued to employees  have an exercise price not less than the
fair  market  value of the  Company's  common  stock on the  date of  grant.  In
accordance  with  accounting  for such options  utilizing  the  intrinsic  value
method,  there is no related  compensation  expense  recorded  in the  Company's
financial  statements.  Had compensation cost for stock-based  compensation been
determined  based on the fair value of the options at the grant dates consistent
with the method of SFAS 123, the Company's net  income(loss) and earnings (loss)
per share for the years ended June 30, 1998 and 1997,  would have been  adjusted
to the pro forma amounts presented below:

                                          June 30,               June 30,
                                           1998                   1997
                                           ----                   ----

        Net income (loss)
          As reported                   $(4,619,233)           $   55,167
          Pro forma                     $(4,622,802)           $   13,987

        Earnings (loss) per share
          As reported                   $ (.69)                $      .01
          Pro forma                     $ (.69)                $       -


                                      F-19

<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


The fair value of option grants are estimated on the date of grant utilizing the
Black-Scholes option-pricing model, with the following assumptions for grants in
the years  ended June 30,  1998 and 1997,  respectively:  expected  life of five
years, expected volatility of 50.4% and 14.4%,  risk-free interest rates of 5.6%
and 8%, and no dividend yield.  The fair value at date of grant for director and
employee  options  for 1998  and 1997  approximated  $1.75  and $.29 per  share,
respectively.  The fair value of the 1998 management company options,  estimated
as of September 23,1998, the date of this report, approximated $.50 per share.

Warrants:

The Company  issued  warrants to an  underwriter  in  connection  with a private
placement  offering  in  1995.  As of  June  30,  1998,  150,000  warrants  were
outstanding  at exercise  prices of $2.00 per share,  expiring  on December  31,
2002.

In addition,  the Company  issued  warrants to  individuals  in connection  with
various ten percent  (10%)  promissory  note  agreements in 1997. As of June 30,
1998,  200,666  warrants were outstanding at exercise prices of $3.00 per share,
expiring on December 31, 1999.

In connection with its August,  1997 IPO, the Company issued 130,000 warrants to
purchase  shares of common stock at $4.80 per share,  expiring in August,  2002.
Also in 1998,  the  Company  issued  warrants  at $2.625 per share  expiring  in
February, 2003 in exchange for services related to the Sunny Farms acquisition.
(See Note 5).

11.  Income Taxes and Deferred Income Taxes:

     A reconciliation of the Federal statutory rate to the tax provision of the
     corresponding years is as follows:


                                                    1998               1997
                                                 ----------         ----------
         Tax benefit (expense) at effective
           Federal statutory rate                $1,564,800         $   (8,800)

         Non deductible expense                     (10,900)            (2,600)

         Valuation limitation on deferred
           tax assets                            (1,749,600)               -

         State income taxe expense (benefit),
           net of Federal effect                    210,900             (4,600)
                                                   ----------       ----------
                                                   $ 15,200         $  (16,000)
                                                   ==========       ==========


                                      F-20

<PAGE>


                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


Deferred tax assets at June 30, 1998 are as follows:

              Net operating losses                        $   888,200
              Goodwill amortization and
                  write-down                                  712,700
              Depreciation and fixed asset
                  write-down                                   11,900
              Allowances against receivables                  110,300
              State income taxes, net of Federal
                  benefits                                    234,000
              Other                                            42,700
                                                           ----------
              Total                                         1,999,800
              Valuation allowance                          (1,999,800)
                                                           ---------- 
              Net                                          $    --
                                                           ===========

     Since the Company  could not determine it was more likely than not that the
     deferred tax assets would be realized,  a 100% valuation allowance has been
     provided.

     At June 30,  1998,  the Company had  Federal and state net  operating  loss
     carryforwards  available to offset future Federal and state taxable income,
     in the approximate  amounts of $2,612,000 and $1,426,000,  expiring through
     June 30, 2013 and 2003, respectively. Should the Company's ownership change
     by more than 50%, the annual  amount of net  operating  loss  carryforward,
     available for future use would be limited.

















                                      F-21
<PAGE>




                           ORGANIC FOOD PRODUCTS, INC.
                    NOTES TO FINANCIAL STATEMENTS (Continued)


12.  Statements of Cash Flows:

     Non-Cash Investing and Financing Activities:


     The Company  recognized  investing and financing  activities  that affected
     assets and  liabilities,  but did not result in cash  receipts or payments.
     These non-cash activities are as follows:

                                                       Year Ended   Year Ended
                                                        June 30      June 30
                                                         1998          1997

             Write-off of goodwill                    $2,182,401          --

    Issuance of stock for a portion of Sunny
               Farms acquisition                        $850,000          --

             Deferred offering costs charged to         $421,338          --
               Shareholder's equity

             Write-down of fixed assets                 $240,024          --

             Stock issued for director expenses          $34,401       $14,157

    Inventory financed  through the issuance
               of a note payable                            --        $222,523

             Asset additions financed through the
               issuance of notes payable                    --        $141,186

             Interest imputed on a  discounted  note
               payable                                      --        $118,410

             Asset additions financed through capital
               lease obligations                            --        $ 23,752
















                                      F-22

<PAGE>



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

     On June 18, 1998 Organic Food  Products,  Inc. (the  "Company")  elected to
terminate  its  relationship  with  Semple  &  Cooper,  LLP,  as  the  Company's
independent  public  accountants.  Semple & Cooper's  reports  on the  financial
statements  for the past two years (1) did not  contain an adverse  opinion or a
disclaimer  opinion,  (2) nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.

     On  July  17,  1998,  the  Company  appointed  BDO  Seidman,  LLP,  as  its
independent  auditor.  The Company did not consult  with BDO with respect to the
application  of  accounting  principles  to  a  specified  transaction,   either
completed or proposed, or the type of audit report that might be rendered on the
Company's financial  statements,  nor did the Company consult with BDO regarding
the subject of any disagreement with its former  independent  public accountants
or with  respect to any events  required  to be reported  pursuant to  paragraph
(a)(1)(v) or Item 304 with respect to such former independent accountants.

     The decision to change  accountants  was approved by the audit committee of
the Company.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT
--------------------------------------------------------------------------------

Directors and Executive Officers

     The  name,  age,  position,  and term of  office  of each of the  Company's
executive officers and directors are set forth below:
                                                                      Held
                                                                     Position
      Name                  Age             Position                  Since
      ----                  ---             --------                 --------
James F. Swallow             54        Chief Executive Officer
                                       and Director                    1998
David J. O'Gorman            49        Chief Financial Officer         1998
John Battendieri             51        Director                        1996
Kenneth A. Steel Jr. (1)     40        Director                        1996
Charles B. Bonner (1) (2)    56        Director                        1996
Charles R. Dyer (2)          54        Director                        1996

-----------------

(1)  Member of the Audit Committee.

(2) Member of the Compensation Committee.

     Directors  hold office for a period of one year from their  election at the
annual meeting of  shareholders  or until their  successors are duly elected and
qualified.  Officers of the Company are elected by, and serve at the  discretion
of, the Board of Directors.

                                       16
<PAGE>



Background

     The  following is a summary of the business  experience  of each  executive
officer and director of the Company for at least the last five years:

     James F. Swallow is the former Chief Operating Officer of Select Beverages,
Inc.,  1995-1997,  and former managing  director of Swedish  operations for A.T.
Kearney, a global management consultant,  1993-1994.  He has also been a manager
of the  Chicago  branch  of Sonoco  Products  Company,  1978-1980,  and has held
operations management positions with Proctor & Gamble, 1975-1978. He has a BS in
general  engineering  from the U.S. Air Force Academy and an MBA from California
State University.

     David  J.  O'Gorman  is  a  former  Senior  Vice  President,   Finance  and
Administration  & Chief Financial  Officer of the Chicago  Mercantile  Exchange,
1983-1993.  In addition, he was one of the founding staff members of the Chicago
Board Options Exchange,  1972-1979, where he served as Treasurer. He also served
as the Vice President of Operations and Chief Financial Officer for the New York
Futures Exchange,  1979-1982. He received degrees in Accounting and Finance from
Southern Illinois University.

     John Battendieri  founded OFP in 1988 and was its President until it merged
with the  Company in June 1996.  In 1987,  he founded  Santa Cruz  Naturals,  an
organic fruit juice company,  which he sold to Smuckers Corporation in 1992. For
more than 25 years,  Mr.  Battendieri  has grown,  developed and marketed a wide
variety of natural food products.  Mr. Battendieri sells organic  ingredients to
the Company through Organic Ingredients, Inc., a company in which he holds a 50%
ownership interest. See "Item 12."

     Kenneth A. Steel,  Jr. has been  employed  by K.A.  Steel  Chemicals,  Inc.
("K.A.  Steel") since 1978 and has been its Executive Vice President since 1979.
K.A. Steel is a privately-held Chicago, Illinois based chemical company in which
Mr. Steel holds primary  responsibilities  for sales,  marketing and  operations
management.

     Charles B. Bonner has been President and majority shareholder since 1990 of
Pacific  Resources  Inc., a Fresno,  California  merger/acquisition  and venture
capital firm. From 1975 to 1989, he was President of Bonner Packing  Company,  a
California  dried fruit  producer and  marketer.  Mr. Bonner has been a director
(since  1993) and an officer  (from 1993 to 1994) of  Monterey  Pasta,  Inc.,  a
publicly  traded pasta and salsa  manufacturer.  Mr. Bonner earned a Bachelor of
Arts degree from Stanford University.

     Charles R. Dyer founded and has been an executive  officer and principal of
Monterey Bay Food Group,  a marketing  consultant  to the food  industry,  since
1979.  Mr.  Dyer  earned  a  Bachelor  of Arts  degree  from the  University  of
California.




                                       17

<PAGE>





ITEM 10. EXECUTIVE COMPENSATION
--------------------------------

     The following table discloses compensation paid to certain of the Company's
executive officer for the year's ended June 30, 1998 and 1997:

<TABLE>
<CAPTION>

                                                              All Other
Name and Principal                                            Options/     
 Position                           Year       Salary $       SARS (#)      Compensation ($)
 --------                           ----      ----------      --------      ----------------

<S>                                 <C>       <C>             <C>             <C>
James F. Swallow                    1998      $      1(3)     1,808,784(3)
 Chief Executive Officer

Floyd R. Hill                       1998      $123,000
 Chief Executive Officer            1997      $110,000          200,000(1)

John Battendieri                    1998      $110,000                         $168,000 (2)
 President                          1997      $110,000                         $250,000 (2)
</TABLE>


(1)  See "1995 Stock Option Plan" and Item 11


(2)  Represents  the  assumption  of a $250,000  obligation  due from OFP to Mr.
     Battendieri,  which was assumed and paid by the Company in connection  with
     the OFP merger.

(3)  Mr. Swallow is an employee of Global Natural  Brands Ltd.  (Global),  which
     provides executive management services to the Company (see Item 12. Certain
     Relationships and Related Transactions).  During 1998, the Company incurred
     $154,135 in management  fees and expenses with Global.  The agreement  with
     Global provides for the grant of up to 1,808,784 options subject to certain
     performance   conditions.   The  options  are  attributed  to  Mr.  Swallow
     beneficially through his ownership interest in Global.





                                       18

<PAGE>


Mr. Hill was  initially  granted  stock  options to purchase  200,000  shares of
Common Stock at $2.00 per share in connection with his November, 1995 employment
with the Company, all of which are fully vested. Subsequently,  as a part of his
July, 1996 employment  agreement,  Mr. Hill was issued stock options to purchase
an additional  200,000  shares of the Company's  Common Stock at $2.50 per share
exercisable until July, 2003, all of which have vested. Mr. Hill's agreement was
renegotiated  on February 19, 1998 at which time he resigned as Chief  Executive
Officer. Subsequent to that renegotiation, Mr. Hill left the Company and amounts
due under the February 19th agreement have been accrued at year end.

Upon completion of the merger with OFPI, the Company and Mr.  Battendieri (OFP's
then  President and currently the  Company's  OFPI's  President)  entered into a
three-year  employment  agreement  expiring  June,  1999,  which provides for an
annual  salary of $110,000.  The  contract  originally  called for  non-interest
bearing  loans of  $7,000  per  month  during  the full  term of the  employment
agreement  repayable the earlier of August 11, 1999 or upon  termination  of the
employment agreement.  As of June 30, 1998, the aggregate $168,000 loaned to Mr.
Battendieri under the agreement was forgiven by the Company.  The Company agreed
to the loan arrangement as a negotiated part of its merger with OFP.

     The Company's nonsalaried directors do not receive any cash compensation as
directors,  although they are reimbursed for out-of-pocket expenses in attending
Board of  Directors'  meetings.  They have also been  granted  an  aggregate  of
100,000 stock options under the Company's 1995 Stock Option Plan  exercisable at
prices of $2.00 to $2.50 per share.

1995 Stock Option Plan

     In  November,  1995,  the Company  adopted a stock option plan (the "Plan")
which provides for the grant of stock options  intended to qualify as "incentive
stock options" or "nonqualified stock options" within the meaning of Section 422
of the United States Internal Revenue Code of 1986 (the "Code"). Incentive stock
options are issuable only to eligible  officers,  directors and key employees of
the Company.

     The  Plan is  administered  by the  Board of  Directors.  The  Company  had
reserved  625,000 shares of Common Stock for issuance under the Plan.  Under the
Plan, the Board of Directors  determines which  individuals  shall receive stock
options,  the time period  during  which the options may be  partially  or fully
exercised, the number of shares of Common Stock that may be purchased under each
option and the option price.

     For incentive  stock options (i) the per share exercise price of the Common
Stock may not be less than the fair market value of the Common Stock on the date
the option is granted and (ii) no person who owns,  directly or  indirectly,  at
the time of the  granting of an  incentive  stock  option,  more than 10% of the
total  combined  voting power of all classes of stock of the Company is eligible
to receive  stock  options  unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option on the date of grant.

                                       19

<PAGE>

No stock  options may be  transferred  by an optionee  other than by will or the
laws of descent and  distribution  and, during the lifetime of an optionee,  the
option may only be exercisable  by the optionee.  Stock options may be exercised
only if the option holder remains continuously  associated with the Company from
the date of grant to the date of exercise.  Stock options under the Plan must be
granted  within ten years from the effective date of the Plan. The exercise date
of a stock option granted under the Plan cannot be later than ten years from the
date of grant.  Any options that expire  unexercised  or that  terminate upon an
optionee's ceasing to be employed by the Company become available once again for
issuance.  Shares issued upon exercise of an option will rank equally with other
shares then outstanding.

     As of June 30, 1998,  534,000 stock options were outstanding under the plan
for  officers,  directors  and  employees  (400,000 for  executive  officers and
directors) at exercise prices of $2.00 to $3.34 per share.

Option Grants in Last Fiscal Year

     The following table sets forth the options granted to the executive officer
named  below for the year ended June 30,  1998.  During the year,  there were no
exercises of stock options by the executive officers named below:

                             INDIVIDUAL GRANTS
                  ----------------------------------------------    Potential
                    Number         % of Total                        Realizable
                  Of Securities      Options                    Value on 6/30/98
                   Underlying        Granted  Exercise               Alternative
                     Options      to Employees or Base Expiration    Grant Date
                     Granted        in 1998     Price     Date          Value
                     -------        -------     -----     ----          -----

James F. Swallow  1,808,784 (1)     N/A (2)    $2.25    Variable (3)    N/A (4)

(1)  Includes  options granted to Global,  attributed to Mr. Swallow through his
     partial ownership of Global.

(2)  These  options  are granted to Global,  a  management  company,  and not to
     individual employees.

(3)  Options vest only upon attainment of certain performance  conditions over a
     four year  period  beginning  April 15,  1998.  Each batch of options  that
     actually vests will expire four years after vesting.

(4)  Options  will  be  measured  upon  actual  attainment  of  the  performance
     conditions, which correspond to the vesting dates (first vesting date April
     15, 1999).

Aggregated  option  exercises  in last  fiscal  year and fiscal  year end option
values:
                  Number of Securities            Value of Unexercised
                 Underlying Unexercisable            In-the-money
                 Options at June 30, 1998        Options at June 30, 1998
                 -------------------------       -------------------------
   Name          Exercisable Unexercisable       Exercisable Unexercisable
   ----          ----------- -------------       ----------- -------------

James F. Swallow           0    1,808,784                 0   $2,030,282
Floyd R. Hill        300,000            0          $287,500            0

(1)  Includes  1,808,784 shares granted to Global, and attributed to Mr. Swallow
     through his partial ownership of Global.

                                       20

<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     The  following  table sets forth  information  concerning  the  holdings of
Common Stock by each person who, as of the date June 30,  1998,  holds of record
or is known by the Company to hold  beneficially  or of record,  more than 5% of
the Company's Common Stock, by each director, and by all directors and executive
officers  as a group.  All shares  are owned  beneficially  and of  record.  The
address of all persons  (unless  otherwise  noted in the footnotes  below) is in
care of the Company at 550 Monterey Road, Morgan Hill, California.

   Name                           Amount of Ownership           Percent of Class
   ----                           -------------------           ----------------
   Floyd R. Hill(1)                     451,200                      5.5
   John Battendieri                   2,102,499                     25.9
   Kenneth A. Steel(2)                  380,019                      4.6
   Charles B. Bonner(3)                  25,000                       *
   Charles R. Dyer(4)                    47,000                       *
   Dean E. Nicholson                    450,000                      5.5
   Steven A. Reedy                      450,000                      5.5
   James F. Swallow (5)                 222,222                      2.7
   All officers and directors
   as a group (6 persons)
   (2)(3)(4)(5)(6)                    2,776,740                     34.1
-------
*    Less than 1%

(1)  Includes  options to purchase  200,000  shares of Common Stock at $2.00 per
     share and 100,000  shares of Common Stock at $2.50 per share  granted under
     the 1995 Stock Option Plan.

(2)  Includes  options to purchase  30,000  shares of Common  Stock at $2.00 per
     share and 20,000  shares of Common Stock at $2.50 per share  granted  under
     the 1995 Stock Option Plan. Includes 25,328 warrants owned by Mr. Steel and
     an  additional  25,328 owned  beneficially  by Mr.  Steel  belonging to his
     brother, Robert Steel, to purchase Common Stock at $2.625 per share.

(3)  Includes  stock options to purchase  20,000 shares of Common Stock at $2.00
     per share and  20,000  shares  of Common  Stock at $2.50 per share  granted
     under the 1995 Stock Option Plan.

(4)  Includes  stock options to purchase  25,000 shares of Common Stock at $2.50
     per share granted through the 1995 Stock Option Plan.

(5)  Includes  222,222  shares  beneficially  owned by Mr.  Swallow  through his
     ownership  in  Global  Natural  Brands,  Ltd.  (Global).  Does not  include
     1,808,784  option  granted  to Global  which  are  subject  to  performance
     requirements and have not vested.

(6)  Includes  222,222  shares  owned  beneficially  by  executive  officers Mr.
     Swallow,  and Mr. David O'Gorman,  and by Mr. Ronald B.  Balsbaugh,  Mr. J.
     Bradley Barbeau, and through their ownership of Global.

                                       21
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     In April 1998, the Company  contracted for management  services from Global
Natural Brands, Inc. (Global). Under the contract,  Global provides the services
of four  individuals  to fill the  offices  of Chief  Executive  Officer,  Chief
Financial  Officer,  Vice  President - Sales &  Distribution  and Vice President
marketing.  The contract  provides for minimum annual cash payments to Global of
$300,000, with escalations based on certain earnings performance and acquisition
attainment  conditions.  In addition,  up to  1,808,784  options to purchase the
Company's  Common  Stock may vest over a total of five  years  based on  certain
stock price and earnings improvement performance conditions.  Each set of vested
options,  with an  exercise  price of $2.25,  expires  four years  after date of
vesting.  Upon any change in ownership  interest of more than 50% of the capital
stock of the Company,  the balance of the minimum  annual cash  payments for the
remaining  contractual period shall become due and payable and all stock options
will vest immediately.(See Note 10 to the financial statements).

     In connection with the agreement,  Global  purchased  222,222 shares of the
Company's Common Stock in June 1998 for $500,000, and has committed to invest an
additional  $500,000  before  the  earlier  of 30 days  after  completion  of an
acquisition  transaction (as defined) or April 15, 1999. The agreement  targeted
the  value  of the  purchases  at  $2.50  per  share.  OFPI  committed  to issue
additional  shares to bring the market  value of the shares  issued  back to the
purchase  amount if the market  value of the Common Stock is less than $2.50 per
share for the average of the closing prices for the 20 trading days after August
11, 1998,  the end of the lock-up  period related to the private and public sale
of securities  held by Sentra  Securities  Corporation  in  connection  with the
Company's  1997 IPO (with a minimum  assigned  value of $2.25 per share).  Under
this provision,  the Company issued 22,222  additional shares in connection with
the first  $500,000  purchase,  and will issue  222,222  shares in total for the
second purchase.

     Under the terms of Mr. Battendieri's June, 1996 employment  agreement,  the
Company was required to advance to Mr. Battendieri non-interest bearing loans of
$7,000 per month during the full term of his employment agreement, which expires
in June 1999. As of June 30, 1998,  this portion of the agreement was eliminated
and future payments were discontinued.  The balance of the non-interest  bearing
note ($168,000) was written off effective June 30, 1998.

     Organic Ingredients,  Inc. ("OGI"), a company 50% owned by Mr. Battendieri,
the Company's President,  supplies certain organic ingredients used primarily in
the  Company's  fruit  juice  products.  Total  purchases  from OGI  amounted to
$564,450  during fiscal year 1998. The price of, and terms for, the  ingredients
are fair,  reasonable  and  consistent  with  prices  and terms  which  would be
available to the Company from third parties.

     The  Company   believes  that  the  terms  and   conditions  of  the  above
transactions  were fair,  reasonable and consistent with terms the Company could
have obtained from unaffiliated third parties.  Any future transactions with the
Company's executive officers or directors will be entered into on terms that are
no less favorable to the Company than those that are available from unaffiliated
third parties,  and all such  transactions will be approved by a majority of the
Company's disinterested directors.


                                       22

 <PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
     (a) Exhibits:

Exhibit No.     Title
-----------     -----

      1.01      Form of Underwriting Agreement (1)
      1.02      Form of Selected Dealer Agreement (1)
      1.03      Form of Representatives' Warrant (1)
      1.04      Form of Amended Underwriting Agreement (1)
      1.05      Form of Amended Selected Dealer Agreement (1)
      1.06      Form of Amended Representatives' Warrant (1)
      1.07      Form of Lock-Up Agreement (1)
      2.01      January 21, 1998  Agreement of Purchase and Sale of Assets
                between the Registrant and Sunny Farms Corporation (2)
      2.02      February 10, 1998 Amendment to Agreement of Purchase and Sale of
                Assets between the Registrant and Sunny Farms Corporation (2)
      3.01      Articles of Incorporation of the Registrant, as amended (1)
      3.02      Bylaws of the Registrant (1)
     10.01      1995 Employee Stock Option Plan (1)
     10.02      Office and Warehouse Lease (Morgan Hill, California) (1)
     10.03      Employment Agreement with Mr. Hill (1)
     10.04      Employment Agreement with Mr. Battendieri (1)
     10.05      Merger Agreement between the Registrant (Garden Valley Naturals,
                Inc.) And Organic Food Products, Inc. (1)
     10.06      Loan Agreement with Mr. Steel (1)
     10.07      Stock Redemption Agreement with Messrs. Nicholson and Reedy (1)
     10.08      Settlement Agreement with Mr. Nicholson (1)
     10.09      First Amendment to Stock Redemption Agreement (1)
     10.10      Amendment to Promissory Notes issued to Messrs. Nicholson and
                Reedy (1)
     10.11      Form of Subscription Agreement, Promissory Note and Warrant for
                Bridge Loan (1)
     10.12      Management Services Agreement between the Registrant and Global
                Natural Brands, Ltd., effective April 15, 1998 (3)
     10.13      1995 Stock Option Plan (4)
     10.14      Incentive Stock Option Agreement (4)
     10.15      Non-qualified Stock Option Agreement (4)
     27.01      Financial Data Schedule (1)


(1) Incorporated by reference to the Registrant's Registration Statement on Form
    SB-2, File No. 333-22997, declared effective on August 11, 1997.

(2) Incorporated by reference to exhibits filed with the  Registrant's  Form 8-K
    on February 25, 1998.

(3) Incorporated by reference to exhibits filed with the  Registrant's  Form 8-K
    on May 19, 1998.

(4) Incorporated by reference to exhibits filed with the  Registrant's  Form S-8
    on August 26, 1998.


                                       23

<PAGE>




     (b) Reports on Form 8-K during the quarter ended June 30, 1998:

- Report on Form 8-K/A  filed on April 27,  1998 to report  pro forma  financial
information and file financial  statements required under Item 7 (related to the
February 25, 1998 Form 8-K which  reported the  acquisition of certain assets of
Sunny Farms Corporation).

- Report on Form 8-K filed on May 19,  1998  which  reported  the  signing  of a
management services agreement with Global Natural Brands, Ltd.

- Report  on Form 8-K  filed  June 22,  1998 to report  the  termination  of the
Company's  relationship  with Semple & Cooper,  LLP,  the  Company's  Certifying
Accountants  (a form 8-K/A was  subsequently  filed July 23,  1998 to report the
appointment of BDO Seidman, LLP, as the Company's new Certifying Accountants).





                                       24

<PAGE>





                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly  caused  this  Report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized, in Morgan Hill, California, on October 8, 1997.

                                   ORGANIC FOOD PRODUCTS, INC.



                                   By: /s/ David J. O'Gorman
                                      ------------------------------------------
                                      David J. O'Gorman
                                      Chief Financial Officer

     Pursuant to the  requirements  of the  Securities  Act of 1933, as amended,
this  Report  has  been  signed  below by the  following  persons  on the  dates
indicated.

         Signature                       Title                        Date
         ---------                       -----                        ----


/s/ James F. Swallow             Chief Executive Officer         October 7, 1998
- -----------------------------    and Director
James F. Swallow

/s/ David J. O'Gorman            Chief Financial Officer         October 7, 1998
- -----------------------------
David J. O'Gorman

/s/ John Battendieri             Director                        October 7, 1998
- -----------------------------
John Battendieri

/s/ Kenneth A. Steel Jr.         Director                        October 7, 1998
- -----------------------------
Kenneth A. Steel, Jr.

/s/ Charles B. Bonner            Director                        October 7, 1998
- -----------------------------
Charles B. Bonner


/s/ Charles R. Dyer              Director                        October 7, 1998
- --------------------------------------------
Charles R. Dyer




                                       25