UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JULY 31, 2000
--------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to _________________
Commission file number _______________________
DIPPY FOODS, INC.
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(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C>
Incorporated in the State of Nevada 33-076348
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
16581 Channel Lane, Huntington Beach, California 92649
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (714) 816-0150
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the last 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 13, 2000
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Common Stock - $0.001 par value 19,579,266
Transitional Small Business Disclosure Format (Check one): YES [X] NO [ ]
<PAGE>
DIPPY FOODS, INC. FORM 10-QSB PAGE 2 OF 7
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See unaudited financial statements for the period ended July 31, 2000
attached to this Form 10-QSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE FOLLOWING PRESENTATION OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF DIPPY
FOODS, INC. SHOULD BE READ IN CONJUNCTION WITH DIPPY FOODS, INC. CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED HEREIN.
Dippy has targeted the school food-services market, with which it
intends to take advantage of the National School Lunch Program offered by the
United States Department of Agriculture. Dippy is intending to expand into the
National School Breakfast and After School Snack Programs.
Dippy's initial school lunch product "Dippers" consists of four
combinations of corn chips and various dips. Dippers can be eaten without
utensils, are packaged in single-serving, heat-sealed, recyclable trays, are
shelf-stable for sixty days and require no freezing, refrigeration, heating or
preparation. Each lunch meal combined with a single serving of milk meets the
nutritional requirements of the Food and Drug Administration. Dippy has designed
three new types of dippers to meet the standards of the National School
Breakfast program.
Dippy derives revenue from the sale of lunch Dippers. Dippy currently
makes $0.11 per unit on the Nachos and $0.09 per unit on the fruit Dippers. This
is expected to change to $0.29 per unit for both the Nachos and Fruit Dippers
upon the purchase and installation of new processing equipment. Dippy expects to
make $0.14 per unit on the breakfast Dippers.
Dippy has three full-time employees and does not expect significant
changes in the number of its employees. Dippy is currently operating out of the
primary residence of the president.
Dippy has incurred significant losses since inception, and as of July
31, 2000 had accumulated net losses of $1,474,275. Included in this accumulated
deficit is $472,000 in non-cash expenses related to recording the fair value of
a director's uncompensated services of $100,000 and a $372,000 settlement
payable to a former director.
These conditions raise substantial doubt about Dippy's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of those
uncertainties.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JULY 31,
2000 AND 1999
Actual Results For July 31, 2000 Compared to July 31 1999
<TABLE>
<CAPTION>
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July 31 July 31 Percentage
2000 1999 change
$ $ %
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<S> <C> <C> <C>
Revenues 36,148 88,650 (59)
Costs of goods sold 27,386 83,331 (67)
Gross Profit 8,762 5,319 65
Selling, general, & administrative expenses 111,128 93,275 19
Interest expense 18,135 1,218 1,389
Net loss (120,501) (89,174) 35
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</TABLE>
REVENUES
Revenue decreased $52,502 or 59% from $88,650 for the quarter ended
July 31, 1999 to $36,148 for the quarter ended July 31, 2000 primarily due to
Dippy's preparation for the production of the newly introduced breakfast meals.
<PAGE>
DIPPY FOODS, INC. FORM 10-QSB PAGE 3 OF 7
Revenue is expected to increase during fiscal 2001 due to the new
breakfast line and the development of a retail strategy for inventory that is
not sold to schools. The first of the breakfast meals were delivered at the end
of July 2000.
COST OF SALES
Cost of sales decreased $55,945 or 67% from $83,331 for the quarter
ended July 31, 1999 to $27,386 for the quarter ended July 31, 2000. As a percent
of revenue, the gross margin increased from 6% for the quarter ended July 31,
1999 to 24% for the quarter ended July 31, 2000. These changes were primarily
due to the decrease in sales, which required the purchase of fewer ingredients.
Dippy also retained a new co-packer that is more efficient and has reduced the
waste of ingredients, therefore reducing the cost of sales and increasing the
gross margin.
Accordingly, cost of sales as a percent of sales is expected to
decrease due to the installation of the new horizontal form, fill and seal
tray-line machine. The new tray line will produce 80 units per minute or
approximately 1.5 million units a month assuming a 16-hour production day. This
should reduce production costs, particularly the cost of trays and labels, by
$0.07, and labor costs from between $0.06 and $0.10 per unit, depending upon
production levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased in the quarter
ended July 31, 2000 from the quarter ended July 31, 1999 by $17,853 or 19% due
primarily to an increase of (1) $4,580 in equipment rental charges, (2) $2,562
in legal fees, (3) $3,882 in office supplies, (4) $4,621 in printing and
production, (5) $4,000 in public relations, and (6) $6,440 in commissions offset
by a decrease in (i) payroll of $3,057 and (ii) marketing of $6,071.
With the exception of an increase in advertising expense for the launch
of the new breakfast program, Dippy believes that its selling, general and
administrative costs can remain fairly static and will decrease as a percentage
of revenue as its sales volume grows.
DEFERRED TAX ASSETS
Dippy has deferred tax assets of $394,000 at July 31, 2000 and $361,182
at April 30, 2000. Management has established a valuation allowance equal to the
full amount of the deferred tax assets because Dippy's ability to use these
losses is uncertain.
Depreciation is expected to increase in future periods primarily due to
the acquisition of new processing equipment.
The net operating losses incurred by Dippy CA 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.
The Issuer's unused annual limitations may be carried over to future
years until the net operating losses expire.
INTEREST EXPENSE
Interest expense increased from the quarter ended July 31, 1999 to the
quarter ended July 31, 2000 by $16,917 or 1,389% due primarily to interest
accrued on notes payable.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, Dippy had $1,667 in cash and a working capital
deficit of $1,090,854. During the quarter ended July 31, 2000, cash decreased by
$2,968 and Dippy used $110,969 in operations, primarily due to the operating
loss of Dippy of $120,501. A decrease in working capital of $161,323 was
primarily due to a $4,248 increase in accounts receivable, $5,249 decrease in
inventory, $28,997 increase in deposits for the Styro Solve Industrial machine
with debunker, a $28,814 increase in accounts payable and accruals and a
$109,980 increase in
<PAGE>
DIPPY FOODS, INC. FORM 10-QSB PAGE 4 OF 7
convertible notes payable. Dippy used $7,479 in investing activities to purchase
equipment. Dippy generated $115,480 in financing activities, primarily due to
net proceeds from issuance of notes payable, repayment of the line of credit of
$44,500 offset by a decrease in restricted cash that was used to repay the line
of credit. However, Dippy has accumulated a deficit of $1,474,275 since
inception and has a stockholders' deficit of $1,028,142 at July 31,2000.
Dippy anticipates funding its working capital needs for the next twelve
months through (1) the equity capital markets, (2) increased sales particularly
with the addition of the breakfast line, (3) further reductions in overhead and
cost of sales.
Although the foregoing actions are expected to cover Dippy's
anticipated cash needs for working capital and capital expenditures for at least
the next twelve months, no assurance can be given that Dippy will be able to
raise sufficient cash to meet these cash requirements.
Management plans to improve its cash flow and operating results by
raising additional capital through private placements of stock and by increasing
sales to a number of new school districts. Dippy cannot ensure, however, that
these plans will be successful.
The new horizontal form, seal and fill tray-line will be purchased for
a price of $166,000. Dippy has $81,322 on deposit, and expects to raise the
balance in capital markets. Dippy will install the machine at the Global Food
Management Group's "Global" facility. Global is Dippy's co-packer. Dippy
believes that the new machine will enable it to produce more efficiently.
Dippy is involved in two separate matters of litigation or potential
litigation. Dippy believes that it will prevail in these matters. Dippy's
lawyers estimate the potential costs associated with the litigation to be
$35,000.00. Included in the cost of litigation is the settlement agreement with
a former director. If Dippy does not prevail in this matter, cash flow will be
immediately impaired by $100,000.
Dippy is considering employment contracts with its three full-time
employees that could result in its payroll doubling.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
Dippy has funded its operations principally from borrowings secured by
notes payable.
DEBT INSTRUMENTS
Dippy borrowed $693,360.95 from the lenders set out in the table below.
Promissory Notes
Payee Date Principal Sum
--------------------------------- ---------------------- ---------------
Bellevue Investments Ltd. June 2, 1999 $200,000.00
Silverado Farms Inc. August 20, 1999 15,000.00
Silverado Farms Inc. September 9, 1999 50,000.00
Silverado Farms Inc. October 12, 1999 50,000.00
Silverado Farms Inc. November 8, 1999 10,000.00
Silverado Farms Inc. November 9, 1999 10,000.00
Silverado Farms Inc. November 18, 1999 10,000.00
Silverado Farms Inc. November 19, 1999 13,360.95
Silverado Farms Inc. November 29, 1999 25,000.00
Silverado Farms Inc. December 1, 1999 100,000.00
Money Layer Ltd February 26, 2000 100,000.00
Money Layer Ltd. May 18, 2000 35,000.00
Money Layer Ltd. June 5, 2000 15,000.00
Money Layer Ltd. June 22, 2000 60,000.00
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$693,360.95
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<PAGE>
DIPPY FOODS, INC. FORM 10-QSB PAGE 5 OF 7
Dippy gave a promissory note to each of the payees as evidence of the
debt. The principal sum is due in 12 months from the date of the loan together
with interest accrued on the outstanding principal balance at the rate of 12%
per annum. Dippy may pay the interest on the first day of the following month or
may accrue the interest and pay it with the principal sum on the maturity date.
Dippy may repay the principal sum and any accrued interest in whole or in part
at any time without penalty. With any payment made, the funds will be applied
first to unpaid interest. If Dippy becomes bankrupt or insolvent, or sells all
its assets, or if a corporate event occurs (as defined in the promissory note)
the debt is due and payable without demand. The lender may convert any portion
of the outstanding debt or any portion of accrued interest into shares of Dippy
at a price per share that is equal to the average closing price of Dippy's
common stock from the date of the promissory note to the date of conversion.
On August 4, 2000, Bellevue Investments Ltd. elected to convert the
$200,000 due on its June 2, 1999 note plus $25,385 of accrued interest into
shares of Dippy's common stock. The shares have not been issued as of the date
of this filing. Silverado Farms, Inc. has also advised Dippy that it will
convert into shares both the $15,000 note due on August 20, 2000 plus accrued
interest of $1,904 and the $50,000 note due on September 9, 2000 plus accrued
interest of $6,347.
INFLATION
Dippy does not believe that inflation will have a material impact on
its future operations.
UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS
Certain parts of this Form 10-QSB may contain "forward-looking
statements" within the meaning of the Securities Exchange Act of 1934 based on
current management expectations. Actual results could differ materially from
those in the forward-looking statements due to a number of uncertainties,
including, but not limited to, those discussed in this section. Factors that
could cause future results to differ from these expectations include general
economic conditions particularly related to demand for Dippy's services; changes
in business strategy; competitive factors (including the introduction or
enhancement of competitive services); pricing pressures; changes in operating
expenses; inability to attract or retain consulting, sales and/or development
talent; changes in customer requirements; and/or evolving industry standards.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Dippy is not a party to any pending legal proceedings, and to the best
of Dippy's knowledge, none of Dippy's property or assets are the subject of any
pending legal proceedings, except for the following:
(a) Feedback Foundation, Inc.
A dispute has arisen between Dippy and its former co-packer, Feedback
Foundation, Inc., regarding two invoices totalling $49,620. The dispute arises
from the spoilage of salsa used in the production of Nacho Dippers. Dippy's
investigation revealed that the spoilage occurred while the salsa was being
prepared for production. As a result of the quality control standards of Dippy,
there was no consumption of the defective product. In the opinion of management,
the preparation of the ingredients and the production of product are within the
scope of the co-packer's control and responsibility. Dippy and Feedback have not
been able to reach an amicable agreement. On March 6, 2000, Feedback filed a
lawsuit claiming breach of contract, fraud and non-payment of invoices. Feedback
is suing for not less than $149,620. Dippy is in the process of filing a counter
suit for a yet unspecified amount. Management is confident that Dippy will
prevail in the lawsuit.
(b) Al Diamond
Dippy believes Mr. Diamond failed to perform his obligations under the
Settlement Agreement and has taken
<PAGE>
DIPPY FOODS, INC. FORM 10-QSB PAGE 6 OF 7
the position that the Settlement Agreement with Mr. Diamond is null and void.
Management is deciding whether to take action against Mr. Diamond for the return
of the remaining corporate materials and for the return of any monies paid to
Mr. Diamond under the Settlement Agreement.
ITEM 2. CHANGES IN SECURITIES.
During the first quarter of the fiscal year covered by this report, (i)
Dippy did not modify the instruments defining the rights of its shareholders,
(ii) no rights of any shareholders were limited or qualified by any other class
of securities, and (iii) Dippy did not sell any unregistered equity securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the first quarter of the fiscal year covered by this report, no
material default has occurred with respect to any indebtedness of Dippy. Also
during this quarter, no material arrearage in the payment of dividends has
occurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the first quarter of the fiscal
year covered by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
All Exhibits required to be filed with the Form 10-QSB are incorporated
by reference to Dippy's previously filed Form 10-SB and Form 10-KSB.
(B) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by Dippy during the quarter
ended July 31, 2000.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
Dippy has caused this report to be signed on its behalf by the undersigned, who
are duly authorized.
DIPPY FOODS, INC.
By: /S/ JON STEVENSON
--------------------------------
Name: JON STEVENSON
------------------------------
Title: DIRECTOR AND PRESIDENT
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Dated: SEPTEMBER 13, 2000
-----------------------------
<PAGE>
DIPPY FOODS INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
July 31, 2000 April 30, 2000
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<S> <C> <C>
ASSETS
Current Assets:
Cash 1,667 4,635
Restricted Cash 10,000 60,000
Accounts Receivable 13,528 9,280
Inventory 51,145 56,394
Prepaid Expenses 1,215 2,353
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Total Current Assets 77,555 132,662
Fixed Assets, net 29,913 24,385
Deposits 131,108 102,111
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TOTAL ASSETS: 238,576 259,158
========== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank Line of Credit -- 44,500
Accounts Payable 143,189 124,508
Accrued Expenses 82,901 72,768
Convertible Notes Payable 693,361 583,381
Current Portion of Long-Term Debt 2,958 3,036
Current Portion of Settlement Payable 246,000 234,000
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Total Current Liabilities 1,168,409 1,062,193
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Security Deposit, Sublease 6,314 --
Long-Term Debt, net of current portion 9,995 10,606
Settlement Payable, net of current portion 82,000 94,000
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Total Liabilities: 1,266,718 1,166,799
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Stockholders' Deficit:
Common Stock, authorized 200,000,000 shares, at $0.001 par value; 19,579 19,579
19,579,266 common shares issued and outstanding
Additional Paid-In Capital 426,554 426,554
Accumulated Deficit (1,474,275) (1,353,774)
---------- --------
Total Stockholders' Deficit: (1,028,142) (907,641)
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT: 238,576 259,158
========== ========
</TABLE>
Page 1 of 5
<PAGE>
DIPPY FOODS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(120,501) $ (89,174)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 1,951 1,789
Increase (Decrease) from changes in:
Accounts Receivable (4,248) 5,214
Inventory 5,249 (71,916)
Prepaid Expenses 1,138 1,543
Deposits (28,997) --
Accounts Payable and Accruals 28,125 (21,587)
Due to Related Parties -- 28,152
Security Deposit 6,314 --
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Net cash used in operating activities (110,969) (145,979)
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Purchase of equipment (7,479) (2,523)
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Net cash used in investing activities (7,479) (2,523)
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CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash, decrease 50,000 (50,000)
Bank overdraft -- (9,229)
Line of credit, decrease (44,500) 42,500
Convertible notes payable, increase 109,980 200,000
Settlement payable, decrease -- (12,000)
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Net cash from financing activities 115,480 171,271
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Increase (decrease) in cash (2,968) 22,769
Cash, beginning of period 4,635 --
--------- ---------
Cash, end of period $ 1,667 $ 22,769
========= =========
Supplemental Disclosure for the Statement of Cash Flows
Cash Paid during the year for:
Interest $ 1,558 $ 1,218
</TABLE>
Page 2 of 5
<PAGE>
DIPPY FOODS INC
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
July 31, 2000 and July 31, 1999
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Revenues $ 36,148 $ 88,650
Cost of Goods Sold 27,386 83,331
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Gross Profit 8,762 5,319
Selling, General & Administrative Expenses 111,128 93,275
------------ ------------
Loss from Operations (102,366) (87,956)
Interest Expense (18,135) ( 1,218)
------------ ------------
Net Loss for the period $ (120,501) $ (89,174)
============ ============
Basic and Diluted Weighted Average Shares Outstanding 19,579,266 15,194,701
============ ============
Basic and Diluted Loss per Share $ (0.01) $ (0.01)
============ ============
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Page 3 of 5
<PAGE>
DIPPY FOODS INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000 and 1999
NOTE 1 - GENERAL MATTERS
Principles of Consolidation
The accompanying financial statements include accounts of Dippy-CA for all
periods presented and the accounts of Dippy-NV subsequent to September 17, 1998.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared assuming
Dippy will continue as a going concern, which contemplates the realization of
the assets and the satisfaction of liabilities in the normal course of business.
The carrying amounts of assets and liabilities presented in the fianancial
statements do not purport to present realizable or settlement values. However,
Dippy has limited operating history resulting in an accumulated deficit of
$1,474,275 since inception, negative working capital of $1,090,854 and a
stockholders' deficit of $1,028,142 at July 31, 2000. These conditions raise
substantial doubt about Dippy's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of those uncertainties.
Interim Financial Statements
The financial statements for the three-months end July 31, 2000 and July 31,
1999 are unaudited, and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations for this
interim period. The results of operations for the three-months period ended July
31, 2000 are not necessarily indicative of the results to be expected for any
other interim period or the entire year.
NOTE 2 - CONVERTIBLE DEBT
Convertible debt consists of $693,361 in notes payable bearing interest at 12%,
payable monthly, unsecured, due at various dates between June 2, 2000 and June
22, 2001, convertible at the option of the payee into shares of the Companys'
common stock at a per share price equal to the average closing price of the
Company's stock from the date of the note to the date of conversion. During the
period $200,000, in notes payable and $32,145 accrued interest came due. These
debt holders have elected to convert these amounts into shares of the Company's
common stock. The shares have not been issued as of this filing. Silverado
Farms, Inc., has also advised the Company that it will convert their notes for
$15,000 and $50,000 due on August 20, 2000, and September 9, 2000, plus accrued
interest of $1094 and $6347, into shares of common stock the Company.
NOTE 3 - MAJOR CUSTOMERS AND SUPPLIERS
The following table is a listing of all customers with sales exceeding 10% of
total revenue.
Three Months Ended Three Months Ended
Customer July 31, 2000 July 31, 1999
-------------------------------------------------------------------------
A 29% 10%
B 27% 23%
C - 34%
D - 14%
Page 4 of 5
<PAGE>
DIPPY FOODS INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000 and 1999
The following table is a listing of all vendors with purchases exceeding 10% of
total cost of goods sold.
Three Months Ended Three Months Ended
Vendor July 31, 2000 July 31, 1999
-------------------------------------------------------------------------
A 53% 18%
B 26% 20%
C 22% 32%
NOTE 4 - RELATED PARTY TRANSACTIONS
Dippy has reflected as a fixed asset the financed purchase of a vehicle and as
an operating lease, the lease of another vehicle that are not held in Dippy's
name. Dippy has agreed with the owner/leaseholder to assume the obligations
therewith.
Page 5 of 5
