SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
DIPPY FOODS, INC.
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(Exact name of small business issuer as specified in its charter)
NEVADA 33-076348
(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
1161 KNOLLWOOD CIRCLE (714) 816-0150
ANAHEIM, CALIFORNIA 92801 (Issuer's area code and telephone number)
(Address of principal offices)
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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DIPPY FOODS, INC.
Table of Contents
ITEM 1. DESCRIPTION OF BUSINESS.......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........ 8
ITEM 3. DESCRIPTION OF PROPERTY.......................................... 10
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 11
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..... 11
ITEM 6. EXECUTIVE COMPENSATION........................................... 13
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 13
ITEM 8. LEGAL PROCEEDINGS................................................ 13
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......... 13
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.......................... 14
ITEM 11. DESCRIPTION OF SECURITIES........................................ 14
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS........................ 15
ITEM 13. FINANCIAL STATEMENTS............................................. 15
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.................... 15
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS................................ 15
<PAGE>
Dippy Foods, Inc. Form 10-SB 3 / 15
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-SB, particularly under Items 1 and 2,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements of the Issuer to be materially
different from any future results, performance or achievements, expressed or
implied by the forward-looking statements.
BUSINESS DEVELOPMENT
Dippy Foods, Inc. (the "Issuer") was incorporated as Sweetbrier Corporation
under the laws of Nevada on February 23, 1998, for the purpose of developing
mineral properties. Sweetbrier abandoned its mining claims and changed its name
to Dippy Foods, Inc. on September 17, 1998, upon completing a reverse
acquisition with Dippy Foods, Inc., a California corporation in the business of
developing, processing and distributing packaged dipping foods for snacks,
school lunch programs, and disaster relief programs ("Dippy CA"). Dippy CA was
incorporated under the laws of California on May 30, 1997, and began its
operations in January, 1998. The Issuer and Dippy CA together are referred to as
the Company in this Form 10-SB.
The Issuer agreed to acquire all of the outstanding stock of Dippy CA in a
reverse merger in which the total consideration was 6,638,533 shares of Dippy CA
exchanged for 4,569,266 shares of the Issuer under and agreement dated
September, 1998. For accounting purposes, the acquisition has been treated as a
reverse acquisition with Dippy CA as the accounting acquirer. In a reverse
acquisition, the stock issued goes to the accounting acquirer. Since reverse
acquisition accounting is the reverse of normal accounting, the fair market
value of the issuer's stock at the date of the acquisition is valued with a
write up or write down of the issuer's net assets depending on whether the stock
is trading at more or less than book value. If the stock's fair market value
cannot be determined, and the cost is based on the fair market value of the
issuer's net assets, then goodwill is not recognized and the transaction is
valued at the issuer's net tangible assets. The Issuer had no tangible assets
and a very limited trading history. The fair market value of the stock issued
could not be determined. Accordingly, goodwill was not recognized and the
transaction was recorded as a recapitalization of Dippy CA.
The Company has not been involved in any bankruptcy, receivership or similar
proceedings, has not undergone any material reclassification, merger or
consolidation, and has not purchased or sold any significant assets not in the
ordinary course of its business other than as described in this Form 10-SB.
BUSINESS OF THE COMPANY
PRINCIPAL PRODUCTS
The Company develops and produces packaged, nutritious, single-serving meals and
sells them to institutional food- service providers, specifically schools. The
meals are packaged in single-serving, heat-sealed, recyclable trays with colored
labels listing the flavor, nutritional information and manufacturer's bar code.
All meals are shelf-stable for sixty days and require no freezing,
refrigeration, heating or preparation, and can be eaten without utensils. The
products are known as Dippers.
The Company has four Dippers meals--one nacho meal containing corn chips, salsa
and cheese; and three fruit flavored meals containing cinnamon and sugar corn
chips, peanut butter, and a specially blended fruit sauce.
Each lunch meal meets the nutritional requirements of the Food and Drug
Administration for three food groups: bread, protein, and fruits and vegetables.
Combined with a single serving of milk, supplied to all children daily as part
of a federal program, the meals are eligible for the National School Lunch
Program. The program sets out weekly nutritional standards. The schools choose
each week's meals to meet these standards. The Company's meals typically are
served once a month in this program.
<PAGE>
Dippy Foods, Inc. Form 10-SB 4 / 15
The Company is designing Dippers meals to meet the requirements of correctional
facilities and plans to introduce five new Dippers products during 2000: three
for the school market and two for the federal, state and county correctional
facilities market. One school breakfast will contain a bagel chip, cream cheese
and a fruit blend. The other three will contain a breakfast bar and cereal, each
in a different flavor. One corrections breakfast will contain a peanut butter
and jelly combination, 1/2 cup of cereal, 3 slices of bread, and a spoon. The
other will contain a nutrition bar, 2 hard-boiled eggs and 1 cup of cereal.
The Company plans to develop at least four new products each year.
THE MARKET
The Company has targeted the school food-services market, which enables it to
take advantage of the National School Lunch Program offered by the United States
Department of Agriculture. The USDA has been providing assistance for school
lunches under this program since 1946. The program was established to provide
low-cost or free meals to children who meet the financial criteria set by the
USDA. Schools that participate in the program receive cash reimbursement from
the USDA for each meal they serve. The meals must meet the federal nutrition
requirements and must be served free or at reduced prices to eligible children.
The reimbursement program is administered by the department of education in each
state.
The market for school lunches is very large and growing. Roughly 45 million
meals are served in schools each school day, of which 27 million lunches and 6.5
million breakfasts are free or cost-reduced under the National School Lunch
Program and the School Breakfast Program. The number of breakfasts served is
expected to double by 2002.
Schools are having difficulty keeping up with increasing demand. The number of
eligible children is increasing, causing long cafeteria lines, and the schools'
aging kitchens are unable to produce the high number of meals demanded in the
short time available. The Company's packaged meals can help solve these
problems.
Schools must adhere to the Dietary Guidelines for Americans, which took effect
in the beginning of the 1996-7 school year. These guidelines are often difficult
for food manufacturers to meet, minimizing competition.
The Company can provide meals to schools cost effectively and at an aggressive
price point.
The Company has the ability to develop virtually any product that can be
packaged in a tray. Preliminary investigations indicate a strong interest in the
Company's meals in several other markets, including:
o Federal, state and county correctional facilities
o Major stadium operators (college and pro football, baseball and basketball)
o The military
o Club store retailers and retail grocery chains
o Hospitals
o International exporters
o Major theme parks (e.g. Disneyland, MGM and Knotts Berry Farm)
o Airlines
Correctional Food Service Management, which manages more than 100 facilities
nationwide, has expressed an interest in large orders to service its
institutions, and Ogden Foods and Airmark, both of which operate stadium
concessions, have initiated discussions with the Company.
MARKETING AND DISTRIBUTION
The Company has an oral distribution agreement with U.S. Foodservice to
distribute Dippers. U.S. Foodservice is a major national food distribution
company, with sales of approximately $6 billion per year. U.S. Foodservice has
granted the Company slotting status in its warehouses and stocks the Company's
products at its La Mirada branch near Los Angeles. Slotting (obtaining space on
warehouse racks) is a significant milestone for a food manufacturer, which can
take years to obtain. Broadly speaking, the working agreement includes the
following provisions:
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Dippy Foods, Inc. Form 10-SB 5 / 15
o The Company's sales representative attends monthly U.S. Foodservice local
area sales meetings to generate leads from U.S. Foodservice's agents and to
train the agents in the Company's products. This process began in December,
1998, in Southern California and will continue through 1999 for the
remainder of California.
o The Company's sales representative will accompany U.S. Foodservice's agents
on a "ride along" program to make an initial presentation to potential
customers. The Company's sales rep will follow up these presentations to
take orders and will give the purchase orders to the appropriate U.S.
Foodservice agent.
o The Company will charge U.S. Foodservice $0.85 per meal, FOB the Company's
docks. U.S. Foodservice will charge schools a minimum price equal to the
Company's price to U.S. Foodservice plus 8%. The Company's payment terms
are net 14 days of the Company's shipment to U.S. Foodservice. These
arrangements apply to smaller orders, subject to minimum delivery policies.
The price for products delivered on large orders varies depending on the
services rendered and the volume ordered.
o U.S. Foodservice's sales representative will maintain ongoing service
relationships with Foodservice's directors.
o U.S. Foodservice will pursue other markets, such as hotels, the military,
amusement parks, child care facilities, retail delis and similar
institutions.
U.S. Foodservice has indicated a strong interest in selling or distributing the
Company's products nationwide. Discussions to define this opportunity have been
on hold until production could match orders from large accounts. Now that
significant capacity is on-stream, the Company has begun training U.S.
Foodservice's sales agents and will actively support their efforts. The Company
will closely monitor its expected ramp up in sales activity and production
capacity and will ensure that significant increases in capacity are implemented
as seamlessly and with as few bottlenecks as possible.
The ride along program has resulted in sales. Since the last food show in
October, 1998, this program has resulted in sales to ten additional accounts,
from as little as six cases to a deli to more than 1,200 cases (48,000 units) to
Bakersfield City Schools. The program has generated sales of more than 1,500
cases (60,000 meals) in the first quarter of its implementation.
The Company distributes through ASR Food Service Distributors, Swift Produce
Distributors, Hestbecks, Joseph Web, Goldstar, Pinco, Otay Distributors, and
Giuliano's, all of whom specialize in school distribution in Southern and
Central California. In the school markets, smaller distributors represent a
larger percentage of the industry. These distribution arrangements are important
as major distributors such as U.S. Foodservice generally focus on the largest
customers. Additional arrangements with smaller regional firms will enable the
Company to cover the entire spectrum of the school system. The Company will deal
with distributors as its customers prefer or require.
Until very recently, the Company handled all distribution internally: either the
sales representative handled the shipments or, for larger orders, the Company
hired a common carrier. The Company will continue to drop ship all orders that
are not handled through distribution agreements and will use common carriers for
larger orders. The Company bills these costs to the customer.
SOURCES, RAW MATERIALS AND PRINCIPAL SUPPLIERS
The Company has agreements with several food suppliers to provide high-quality
ingredients and specially blended products required by the Company's recipes. In
particular, the co-branding agreement with Hunt-Wesson, Inc. and ConAgra Brands,
Inc. provides for low prices for peanut butter, fruit blends, and salsa under
the brand names of Peter Pan and Knott's Berry Farm. Refer to "Patents, Trade
Marks, Licences and other Agreements or Labor Contracts" under this item.
In July, 1999, the Company was approved as a Donated Food Processor for the
1999-2000 school year in an agreement between the California Department of
Education and the Company. This agreement enables the Company to participate in
the USDA's Commodity School Program, which donates agricultural commodities to
schools participating in the National School Lunch Program. School districts can
exchange these commodity foods for credits on finished products. The school
districts and companies that participate in the program both benefit.
<PAGE>
Dippy Foods, Inc. Form 10-SB 6 / 15
Some items such as peanut butter have limited menu-planning alternatives and can
be effectively used by the Company, which can realize significant cost savings
under this program. The schools prefer to buy meals by exchanging commodities
because their facilities and resources are not adequate to handle food storage,
preparation and distribution.
As the Company expands into the national arena, it anticipates signing
agreements with major co-packers. Discussions with large food processors such as
Phillchic, American CoPack, and Overhill Farms have indicated that they would be
interested in production contracts once the Company's production reaches two to
three million units per month.
As an alternative to contracting with co-packing companies, the Company is
investigating the possibility of purchasing and installing its own tray-line, a
"horizontal form fill and seal" unit, with a view to reducing production costs,
particularly from lower tray costs. Such a production line could easily be
accommodated in the Company's Knollwood warehouse or in the Signal Hill plant.
Refer to Item 3. Description of Property for a description of the Knollwood and
Signal Hill properties.
COMPETITION
Although other companies produce frozen and refrigerated meals, no other company
with fresh meals participates in the school lunch or corrections programs. For
example, Oscar Meyer makes "Lunchable" products including nachos, a pizza pack,
cold hamburger and hot dog packs, and a cheese and cracker product. Jimmy Dean
makes similar refrigerated products leverage their sausage products. Neither
company has entered the school food-service or corrections markets.
Management believes that additional competition will enter the market at some
point and believes that the following factors will mitigate the competition:
Flavor Combinations. The Company has designed its products with the school
market specifically in mind. The low margins in this market do not offer a
strong incentive for larger food distributors.
New Flavors. The Company will introduce new meals on a regular basis.
Packaging Well-tailored to Consumer. The Company's packaging appeals directly to
the younger school audience, where the Company hopes to build brand loyalty, and
its co-branding arrangement with Hunt-Wesson and ConAgra give it brand
recognition, enhancing its marketing appeal generally.
Price Point. Dippers are priced attractively for schools--from $0.85 to $1.20
per meal. These prices represent a low margin for the Company. The Company's
management believes that the economics of the school lunch program work in its
favor and that other producers of fresh products that compete directly with
Dippers will focus on other, more profitable markets. For example, the Oscar
Meyer nachos product is available in supermarkets and sells for two or three
times the price of Dippers. Even after discounts for supermarket markups,
Dippers prices are more attractive than mainstream products.
Nutrition. To date, producers of similar fresh meals (e.g. Oscar Meyer, Jimmy
Dean) do not qualify for the National School Lunch Program because these
products contain too much fat and sodium and not enough bread, protein, and
fruit.
Customer Support. The school niche is specialized and requires a considerable
amount of customer service. The Company intends to maintain its high level of
service. Major food suppliers have limited interest in pursuing these accounts,
preferring to service the low-maintenance national retailers and distributors.
Management believes that most major manufacturers are set up to pursue and
service the traditional, mass-market retailers. Penetrating the school lunch
market would require that potential competitors undertake a major overhaul of
their products and revise their price points and marketing techniques.
STATUS OF PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
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Dippy Foods, Inc. Form 10-SB 7 / 15
The Company has not publicly announced any new products or services.
PATENTS, TRADE MARKS, LICENCES AND OTHER AGREEMENTS OR LABOR CONTRACTS
The Company has a licence agreement with ConAgra Brands, Inc. and Hunt-Wesson,
Inc. dated May 19, 1999. Under the agreement, Hunt-Wesson and ConAgra granted
the Company a non-exclusive, royalty-free licence to use the trademarks PETER
PAN and KNOTT'S BERRY FARMS until December 31, 2008. The Company annually must
buy certain minimum quantities of the licensor's fruit fillings and peanut
butter and use them exclusively in all of its products except those products
destined for the school districts that are part of the Commodity School Program.
The licensor has the right to cancel the contract if the Company does not buy
the minimum amounts.
The Company has an oral contract for production labor with the Feedback
Foundation, which participates in the national Meals on Wheels program. The
Feedback Foundation charges between $0.10 and $0.25 per unit produced depending
upon the monthly volume. The contract may be ended by either party at any time.
Jon Stevenson has registered copyrights to the cover art that the Company uses
on its packaged meals. Mr. Stevenson, a director and the president of the
Company, has assigned his interest in the copyright to the Company under an oral
agreement in consideration of shares in the Company's common stock. The Company
intends to formalize the agreement in writing.
The Company has no other copyrights, patents or trade marks and is not a party
to any other licence or franchise agreements, concessions, royalty agreements or
labor contracts.
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS
The Company had two major customers in the fiscal year ended 1999.
These were the Bakersfield City Schools and US Foodservice, who generated 29.2%
and 14.7% of the Company's sales revenue respectively, for a total of 43.9%,
down from five major customers in the prior period. These were Bellflower
Unified School District, Carlsbad, Covina Valley School District, Paramount
Unified School District and South Whittier School District, who generated 91.6%
of the Company's sales revenue. The Company now has more than thirty customers
and is increasing this number monthly and lessening its dependence on a few
major customers.
REQUIREMENT FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
The Company is not required to obtain government approval of its products unless
it wants to participate in government programs. The Company's products meets the
standards of the National School Lunch Program and the Company has been approved
for participation in the Commodity School Program.
EFFECT OF GOVERNMENTAL REGULATIONS ON THE COMPANY'S BUSINESS
The National School Lunch Program and the Commodity School Program are central
to the Company's business strategy. The elimination of these programs could have
a materially adverse affect on the Company's operations.
EXPENDITURES ON RESEARCH AND DEVELOPMENT DURING THE LAST TWO FISCAL YEARS
The Company has spent approximately $16,710 on research and development during
the last two fiscal years.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company is not required to comply with any environmental laws but is
sensitive to environmental concerns and uses recyclable materials whenever
possible.
NUMBER OF EMPLOYEES
The Company has a total of five full-time employees.
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Dippy Foods, Inc. Form 10-SB 8 / 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Table 1 sets out the percentage of total revenues represented by certain items
reflected in the Company's income statement for the fiscal periods indicated and
the percentage increase or decrease in the items over the prior period.
<TABLE>
<CAPTION>
Table 1
Percentage Changes in Operations
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PERCENTAGE OF TOTAL REVENUE PERCENTAGE CHANGE
------------------------------- ------------------------
FISCAL PERIODS ENDED APRIL
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1999 1998 1998 vs. 1999
----------------- ---------------- ---------------------
<S> <C> <C> <C>
Total revenues 100.00% 100.00% 550.82
Cost of goods 95.61 86.00 623.57
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Gross profit 4.39 14.00 103.95
Selling, general and administrative expenses 418.33 269.04 911.94
---------------- ----------------
Loss from operations 413.95 255.04 956.30
Interest expense 2.51 -- --
---------------- ----------------
Net loss 416.46 255.04 962.71
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</TABLE>
Revenues. Revenues for the year ended April 30, 1999, were $191,933,
representing a 550.82% increase over the $29,491 the Company realized in revenue
during period ended April 30, 1998. The Company spent its first year on product
development and market research. Any sales during this period were incidental.
The Company's first sales of any significance began in August, 1998, for the
1998-9 school year. The Company has increased its customer base among school
districts in Southern California. Its orders by August, 1999, alone for the
1999-2000 school year exceed all of last year's sales to school districts. The
Company believes that its sales growth will continue on this trend as more
schools look for more convenience foods to satisfy their free and subsidized
meal programs.
The Company intends to continue its focus on the National School Lunch Program
and the School Breakfast Program. It believes that the size of the school market
and the lack of competition for this market create potential for growth, but is
also developing a retail strategy for inventory that is not sold to schools.
Costco's broker initiated discussions with the Company in the spring of 1999 and
expressed an interest in Dippers. Costco has approved the Company's proposed
point-of-sale packaging for retail outlets and agreed that any order must be a
certain minimum in order for the Company to afford the start-up costs. Although
its margins on sales to retailers such as Costco are higher than its margins on
sales to school districts, management believes that the school districts present
a greater potential for growth.
Cost of Goods. The cost of goods increased to 95.61% of revenue in the year
ended April 30, 1999, from 86% in the period ended April 30, 1998. This 9.61%
increase is due primarily to the increase in the cost of the cheese package
included in the Dippers nachos. The cost of the individual packages of cheese is
approximately $0.31 per meal compared to a total cost of approximately $0.75 per
nacho meal. The Company intends to buy a tray-line that will enable it to seal
the cheese in the Dippers tray, eliminating the need to buy the sealed packages
of cheese that it is now using, and believes that its costs will decrease by
approximately $0.20 per nacho meal for ingredients and 50% for labor.
The Company is planning to buy its own manufacturing facility to reduce
production costs and to increase sales, both of which will enable it to increase
its production volume and realize economies of scale from the increase in its
demand for raw materials. Refer to "Liquidity and Capital Resources" below for a
discussion of the Company's plans to buy the production facility.
Selling, General and Administrative Expenses. These costs for the year ended
April 30, 1999, were $802,916, or 418.33% of revenue, compared to $79,344, or
269.04% of revenues for the period ended April 30, 1998. The Company believes
that its selling, general and administrative costs can remain fairly static and
decrease as a percentage of revenue as its sales volume grows. These costs
include a one-time wage settlement of cash and stock valued at $372,000 and
$100,000 of non-cash compensation, which represent 46.33% and 12.45%
<PAGE>
Dippy Foods, Inc. Form 10-SB 9 / 15
respectively of the Company's administrative costs for the year, and the
research and development costs that the Company incurred developing its products
and marketing program.
Deferred Tax Assets. The Company has deferred tax assets of $181,131 in the year
ended April 30, 1999, and $36,054 in period ended April 30, 1998. Management has
established a valuation allowance equal to the full amount of the deferred tax
assets because the Company's ability to carry the net operating losses forward
is uncertain. The net operating losses incurred before the reverse merger on
September 17, 1998, are limited annually due to the change of ownership (as
defined in Section 382 of the Internal Revenue Code) that resulted from the
reverse merger. Unused annual limitations may be carried over to future years
until the net operating losses expire.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations principally from private placements and
loans from related parties. Management believes that increasing sales will
increase its cash flow from operations in the current fiscal year but the
Company continues to depend upon private placements or public offerings to fund
its operations. If the Company completes its purchase of the Signal Hill plant
and the tray-line, it believes that its ingredients and materials costs will
decrease by approximately $0.20 per unit and its labor costs will decrease by
$0.07 to $0.12 per unit, for an average cost reduction of approximately $0.30
per unit, compared to current total costs of $0.75 per unit for the nacho
Dippers and $0.64 per unit for the peanut butter and jam Dippers.
The Company intends to finance its acquisition of the Signal Hill property with
cash and debt. Under the terms of the proposed purchase agreement, the price is
$1,075,000, the down payment required is $250,000, and the Company must buy the
installed production equipment for $50,000, for a total cost of $1,125,000. The
Company is discussing mortgage terms with several lenders and anticipates that
it can borrow approximately $800,000 against the appraised value of the
property, leaving a shortfall of $325,000. The price of the tray-line is
$500,000 and the required down payment is $125,000. The Company is negotiating
with several leasing companies for the financing of the $375,000 shortfall. Both
of these agreements are conditional upon the finalization of the acquisition
terms and the arrangement of the mortgage and lease financing and are not yet
fixed obligations. The Company's cash requirements to complete these purchases
is approximately $500,000, including estimated closing costs. The Company
intends to rely on the equity capital markets for this amount but there is no
assurance that the Company can raise the required capital.
The Company intends to sub-let the Knollwood property for the remainder of the
term, which ends December 31, 2001, if it completes its purchase of the Signal
Hill property and has a tentative agreement with a tenant for $0.15 more pre
square foot than its lease obligation.
The Company had a working capital deficiency of $208,972 at the year ended April
30, 1999, compared to $39,305 in the period ended April 30, 1998. The deficiency
is largely attributable to the increase in wages, travel and trade show
attendance, and to the considerable research, development and other start-up
costs that the Company incurred developing the characters and scenarios on its
labels and the costumes used to represent the characters when the marketing team
visits schools and other end users. The Company believes that the operation of
the Signal Hill property and the sub-letting of the Knollwood property will
decrease the Company's monthly fixed overhead by approximately $2,800.
Cash used in operating activities for the year ended April 30, 1999, was
$282,622, an increase of approximately $248,993 over the cash used in the prior
period. The increase in cash used is due primarily to a higher net operating
loss of $799,317, offset by depreciation and amortization, a settlement accrual,
and non-cash compensation. Cash invested in the year ended April 30, 1999, was
$36,614, an increase of approximately $26,000 over the cash invested in the
prior period. This increase was due primarily to the purchase of equipment and
an investment in a certificate of deposit. Cash flows from financing activities
for the year ended April 30, 1999, were $316,955, an increase of approximately
$270,000 over the prior period. This increase represents the proceeds from
shares issued and notes payable.
The Company's capital expenditures to date have been limited to a delivery
vehicle, production equipment and office equipment. It proposes to spend
$1,625,000 to buy and upgrade its production facilities during the current year,
which the Company believes will reduce its production costs.
<PAGE>
Dippy Foods, Inc. Form 10-SB 10 / 15
The independent certified public accountants opinion included going concern
language due the Company's limited operating history, negative working capital,
and deficit accumulated since inception. Management plans to increase its cash
flow to finance its business plan by raising capital through private placements,
reducing its production costs by owning its own production facility, and by
increasing its sales to new school districts and to the retail market through
retailers such as Costco, but cannot be sure that this plan will succeed.
YEAR 2000 ISSUES
The Company has assessed its internal systems and inquired of third parties
whose systems might present a Year 2000 risk to determine whether the Year 2000
presents issues that will affect its operations. The Company's Knollwood plant
and the proposed Signal Hill plant are mechanical and rely on human labor. The
Signal Hill plant is approximately 25 years old, and neither plant has any parts
that, to the best of the Company's knowledge, are vulnerable to Year-2000
issues. The Company's office computers and other hardware and software have been
tested and found to be Year-2000 compliant but can easily be replaced should
unanticipated issues arise.
The Company has contacted or is in the process of contacting its suppliers and
other providers of goods and services to determine their ability to do business
in the year 2000 and takes these issues into consideration when it selects its
suppliers, but is considering contingency plans should problems arise. The
Company can buy its ingredients and other supplies from any number of different
suppliers and is not reliant on one specific supplier. The Company believes, as
a result of its inquiries to date, that the Year 2000 will not disrupt its
supply of ingredients or other supplies and services.
The Company's costs to date in connection with Year-2000 issues have been
immaterial. The Company does not anticipate that it will incur any material cost
or that Year-2000 issues will materially affect its operations, however the
Company cannot be sure that Year-2000 issues will not adversely affect its
operations.
ITEM 3. DESCRIPTION OF PROPERTY
KNOLLWOOD PROPERTY
The Company operates from a leased warehouse with offices at 1161 Knollwood
Circle, Anaheim, California. The property consists of a concrete tilt-up
building of approximately 10,524 square feet located in a light industrial area.
The rent is $5,788 per month and escalates annually to $5,999 in the final year.
The lease expires December 31, 2001. The Company intends to sub-let the
Knollwood property if it completes its purchase of the Signal Hill Property
described below.
SIGNAL HILL PROPERTY
The Company has an agreement dated August 13, 1999, to buy a production plant in
Signal Hill, California, for $1,075,000. The property consists of 15,297 square
feet of industrial warehouse with offices on approximately 43,995 square feet of
land. The purchase price is $1,075,000 for the land and buildings. The agreement
requires a down payment of $250,000 and is subject to the Company's obtaining a
mortgage for the balance and signing an agreement with the seller for the
Company's purchase of the production equipment located in the building for
$50,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Table 2 lists the persons who are known to the Company to be the beneficial
owners of more than five percent of the Issuer's equity securities.
<PAGE>
Dippy Foods, Inc. Form 10-SB 11 / 15
<TABLE>
<CAPTION>
Table 2
Beneficial Owners of more than 5%
- --------------------------------------------------------------------------------------------------------
(2) (3) (4)
(1) Name and address of Number and nature of Percent
Title of class beneficial owner beneficial ownership of class
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares Jon Stevenson 4,000,000*
379 Newport Avenue, #9
Long Beach, California 90814 direct 20.43%
- --------------------------------------------------------------------------------------------------------
Common shares Philip Yee 4,000,000
Vancouver, B.C. direct+ 20.43%
- --------------------------------------------------------------------------------------------------------
*Upon the completion of the share exchange. Refer to Item 10. "Recent Sales of Unregistered Securities".
+Mr. Yee is on the list of shareholders, but whether he is a beneficial owner is not known to the Company.
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
Table 3 lists the Company's directors and executive officers who are the
beneficial owners of the Issuer's equity securities.
<TABLE>
<CAPTION>
Table 3
Beneficial Ownership of Management
- -----------------------------------------------------------------------------------------------------
(2) (3) (4)
(1) Name and address of Number and nature of Percent
Title of class beneficial owner beneficial ownership of Class
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jon Stevenson 4,000,000*
Common shares 379 Newport Avenue, #9 20.43%
Long Beach, California 90814 direct
- -----------------------------------------------------------------------------------------------------
*Upon the completion of the share exchange. Refer to Item 10. "Recent Sales of Unregistered Securities".
</TABLE>
CHANGE IN CONTROL
The Company is not aware of any arrangements that may result in a change of
control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
Jon Stevenson and Munjit Johal are the directors of the Issuer. Jon Stevenson
and Erin Stevenson are the directors of Dippy CA. The Company's management and
development team are listed in Table 4.
<TABLE>
<CAPTION>
Table 4
Directors and Officers
- ------------------------------------------------------------------------------------------------
Office
----------------------------------------------------------------------------
Officer The Issuer Dippy CA
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Jon Stevenson CEO, President, Chairman CEO, President, Chairman
Munjit S. Johal Chief Financial Officer, Secretary Chief Financial Officer
Erin Stevenson Corporate Secretary , Executive
VP, Director of Trade Show
Services
- ------------------------------------------------------------------------------------------------
</TABLE>
Jon Stevenson, 37, has been with the Company since its inception. He is involved
in all aspects of product development and packaging. His responsibilities
include direct sales, sales development, public relations and developing the
marketing program for the Company. He is also responsible for the training
program developed for the distributors' representatives and the sales broker
representatives contracted to the Company.
Mr. Stevenson has been in the food service industry for more than sixteen years.
He was formerly employed by Rykoff and U.S. Foodservice Company, one of the
largest broadline distribution companies in the world. Jon left U.S. Foodservice
in November, 1997, to focus his full energies on the Company.
<PAGE>
Dippy Foods, Inc. Form 10-SB 12 / 15
Munjit S. Johal, 44, has been with the Company since September, 1998, and is
responsible for all aspects of the Company's financial management. He has a
Master of Business Administration degree from the University of San Francisco
and a Bachelor of Arts degree from the University of California, Los Angeles.
Mr. Johal was the chief financial officer of Bengal Recycling, Inc., a
California corporation, from February, 1996, to July, 1997; a senior vice
president and compliance officer and an asset manager for Pacific Heritage Bank
in Torrance, California, from 1990 to 1995; a vice president and compliance and
consulting associate for banks in Glendale and Newport Beach, California; and an
analytical manager and financial analyst for Federal Home Loan Bank of San
Francisco from 1981 to 1987.
Erin Stevenson, 35, has been with the Company for two years. She worked in sales
and marketing with major retail stores for ten years from 1982 to 1992, as a
manager or owner of small retailers from 1992 to 1994, and as a self-employed
massage therapist from 1994 to 1997. She is responsible for show selections and
product sales and participates in designing the customer service program for the
Company.
SIGNIFICANT EMPLOYEES
No other employees are expected to make significant contributions to the
business of the Company.
FAMILY RELATIONSHIPS
Erin Stevenson is Jon Stevenson's sister.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of the Company's directors, officers, promoters or control persons officer
during the past five years:
1. Was a general partner or executive officer of a business that had a
bankruptcy petition filed by or against it either at the time of the
bankruptcy or within the two years before the bankruptcy, except for Munjit
Johal, who was the chief financial officer for seventeen months until July,
1997, of Bengal Recycling, Inc., a California corporation that filed under
chapter 7 of the United States Bankruptcy Code on September 4, 1998;
2. Was convicted in a criminal proceeding or been subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
3. Was subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities; and
4. Was found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
The Company has three executive officers, only one of whose total annual salary
has exceeded $100,000 since its inception in May, 1997. The Company does not
have an employee stock option plan and has granted no other form of compensation
to its executive officers. The Company does not have written employment
contracts with its executive officers. Table 5 sets out the annual executive
compensation of the Company's chief executive officer for the fiscal periods
ended April 30, 1999, and 1998.
Table 5
Executive Compensation
- --------------------------------------------------------
Annual compensation
----------------------------
Name of executive 1999 1998
- --------------------------------------------------------
Jon Stevenson, CEO $125,793 $ 4,500
- --------------------------------------------------------
<PAGE>
Dippy Foods, Inc. Form 10-SB 13 / 15
Mr. Stevenson's compensation includes $100,000 which was contributed to capital.
The Company does not compensate its directors for acting as directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH INSIDERS
No member of management, executive officer or security holder has had any direct
or indirect interest in any transaction to which the Company was a party other
than Mr. Stevenson's agreement to assign the copyrights to the Company.
TRANSACTIONS WITH PROMOTERS
The Company's promoters have not received anything of value from the Company nor
are they entitled to receive anything of value from the Company.
ITEM 8. LEGAL PROCEEDINGS
The Company is not a party to any pending or threatened legal proceedings.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Issuer has been quoted on the NASD OTC Bulletin Board since September, 1998,
under the symbol DPPI. Table 6 gives the high and low bid information for each
fiscal quarter since the Issuer's common shares have been quoted. The bid
information was obtained from mytrack.com, the Internet site of Track Data
Corporation, and reflects inter-dealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
Table 6
Bid Information
- ------------------------------------------------
Fiscal quarter ended High Low
- ------------------------------------------------
31 Oct 1998 $1.25 $0.65
31 Jan 1999 $0.99 $0.65
30 Apr 1999 $0.77 $0.38
31 Jul 1999 $1.03 $0.25
- ------------------------------------------------
HOLDERS
The Issuer has approximately 1,200 holders of common shares.
DIVIDENDS
The Issuer has declared no dividends on its common shares and is not subject to
any restrictions that limit its ability to pay dividends on its common shares.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The Issuer was incorporated on February 23, 1998, and issued 6,000,000 common
shares to seven corporate shareholders and 4,000,000 common shares to the former
president for a total offering price of $24,000 in March, 1998; 30,000 common
shares to thirty persons for a total offering price of $30,000 in April, 1998;
and 4,980,000 common shares to eight subscribers for a total offering price of
$249,000 in July, 1999. All of these shares were issued in reliance on Rule 504
of the Securities Act of 1933. The Issuer is in the process of issuing 4,569,266
common shares to the shareholders of Dippy CA in exchange for all of their
shares of Dippy CA under an agreement dated September, 1998, accepted by the
shareholders of Dippy CA at its annual general meeting held on February 27,
1999. These shares are subject to the trading restrictions of Rule 144. Upon the
completion of the share
<PAGE>
Dippy Foods, Inc. Form 10-SB 14 / 15
exchange, the Issuer will have 19,579,266 common shares outstanding. The Issuer
paid no underwriting discounts or commissions in connection with any of its
share offerings.
The Issuer agreed to issue 400,000 common shares to a former director at and
executive officer the rate of 100,000 shares a year for four years under a
settlement agreement dated February 1, 1999. None of these shares has been
issued.
ITEM 11. DESCRIPTION OF SECURITIES
COMMON OR PREFERRED STOCK
The Company has one class of common stock. All common shares participate equally
in dividends, voting and preemption rights.
The Company's charter documents contain no provision that would delay, defer or
prevent a change in control of the Company.
DEBT SECURITIES
The Company has no debt securities.
OTHER SECURITIES TO BE REGISTERED
The Issuer is not registering any other securities.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company will indemnify its directors and officers from any action, suit or
proceeding, whether civil, criminal, administrative, or investigative to the
extent that indemnification is legally permissible under the laws of Nevada and
California. No director or officer is personally liable to the Company or its
stockholders for damages for breach of fiduciary duty as a director or officer.
Directors and officers may be held liable to the Company or its stockholders for
acts or omissions that involve intentional misconduct, fraud, a knowing
violation of law, or the payment of dividends in violation of the Nevada Revised
Statutes. The directors may cause the Company to buy and maintain insurance on
behalf of any person who is or was a director of the Company.
No controlling person, director or officer of the Company is otherwise insured
or indemnified by any statute, charter provisions, by-laws, contract or other
arrangement.
ITEM 13. FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's first independent certified public accountants, Andersen Andersen
& Strong, were appointed by the former management of the Issuer. The Company's
current independent certified public accountants, BDO Seidman, LLP, were
appointed by the current management on August 1999.
The Issuer has had no disagreements with Andersen Andersen & Strong within the
meaning of Item 304 of Regulation SB on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure in
connection with the audit of the Issuer's financial statements for the year
ended April 30, 1999, and the period from February 23, 1998 (the date of the
Issuer's formation) to April 30, 1998, that would have caused Andersen Andersen
& Strong to issue an adverse opinion or disclaimer of opinion, or to modify
their report as to uncertainty, audit scope or accounting principles if the
disagreements had not been resolved to their satisfaction.
No reportable events (as defined in Item 304 or Regulation SB) occurred with
Andersen Andersen & Strong during
<PAGE>
Dippy Foods, Inc. Form 10-SB 15 / 15
the period audited. The Company has not consulted with BDO Seidman, LLP
regarding the application of accounting principles to a specific transaction or
the type of audit opinion that might be rendered on the financial statements
during the period audited by Andersen Andersen & Strong.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS 1
1. Financial Statements
2. Articles of Incorporation
3. Certificate of Amendment to Articles of Incorporation changing the
Issuer's name to Dippy Foods, Inc.
4. Bylaws
5. Amended Exchange Agreement dated September, 1998, among Dippy Foods, Inc.
(Nevada), Dippy Foods, Inc. (California) and the shareholders of Dippy
Foods, Inc. (California) for the Issuer's acquisition of Dippy Foods,
Inc., (California)
6. Standard Industrial/Commercial Single-tenant Lease--Gross dated December
16, 1998, between Ae Sil Park as lessor and Dippy Foods, Inc. as lessee
for the lease of the Knollwood Circle property
7. License Agreement dated May 19, 1999, between ConAgra Brands, Inc. and
Hunt-Wesson, Inc. as licensor and Dippy Foods, Inc. as licensee
8. Financial data schedule
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, who are duly authorized.
Dated August 31, 1999
DIPPY FOODS, INC.
a Nevada corporation
/s/
- --------------------------------------------
Jon Stevenson
Chief Executive Officer, President
/s/
- --------------------------------------------
Munjit Johal
Chief Financial Officer
- ----------------------
1 Exhibits except financial statements to be filed by amendment.
