<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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 December 31, 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 Number 33-14065-D
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DRY DAIRY INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in charter)
Utah 87-0476117
- ------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
1133 Fourth St., Sarasota, Florida 34236
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (941) 362-0470
---------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
- ------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
---------------
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. (1) Yes [ ]
No [X] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of 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. [X]
State issuer's revenues for its most recent fiscal year: $ -0-
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<PAGE> 2
State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:
At December 31, 1998, the aggregate market value of the voting stock held by
nonaffiliates was $399,124 (based on 26,608,288 shares held by nonaffiliates
multiplied by a bid price of $0.015 per share).
As of December 31, 1998, the Registrant had 45,955,688 shares of common
stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933:
NONE.
<PAGE>
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TABLE OF CONTENTS
PART I PAGE
- ------ ----
ITEM 1. DESCRIPTION OF BUSINESS....................................... 4
ITEM 2. LEGAL PROCEEDINGS............................................. 5
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 6
PART II
- -------
ITEM 4. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...... 6
ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..... 7
ITEM 6. FINANCIAL STATEMENTS.......................................... 8
ITEM 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 8
PART III
- --------
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT........................................................... 8
ITEM 9. EXECUTIVE COMPENSATION........................................ 9
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................ 11
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 12
PART IV
- -------
ITEM 12. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K........ 13
<PAGE>
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Organization and Corporate History
Dry Dairy International, Inc., (the "Company" or "Registrant"), was
incorporated under the laws of the state of Utah on March 6, 1987. On
February 3, 1995, the Company changed its name from Wonder Capital, Inc., to
its current name, Dry Dairy International, Inc. The Company was originally
formed to be a vehicle for ongoing business entities to become public through
a merger or acquisition with the Company.
On March 6, 1987, in connection with its organization, the Company sold
750,000 shares of its common stock to its founders for $5,000 cash.
Thereafter, the Company engaged in a public offering of its securities
pursuant to a Registration Statement on Form S-18 filed with the Securities
and Exchange Commission. On February 11, 1988, the Company closed its initial
public offering having sold 1,990,000 units at the offering price of $0.10 per
unit. Each unit consisted of one share of common stock, par value $0.001 per
share (the "Common Stock") and one Class A warrant and one Class B warrant to
purchase a like number of shares of Common Stock. The offering resulted in
net offering proceeds to the Company of approximately $171,967. The Company
intended to use the funds received in the offering to facilitate the merger
with an existing company. The Class A and Class B warrants have since expired
pursuant to their terms.
The Company subsequently used the funds received in the public offering
in two transactions. The Company received 1,625,000 shares of American
Technology and Information, Inc. in exchange for 2,437,500 shares of the
Company's Common Stock. The Company also entered into an agreement by which
$100,000 was paid to Penny Stock News Communications, Inc. for 50% of future
stock subscription news letter proceeds. A total of $175,000 was paid out in
these transactions and the Company did not receive any material benefit in
return.
Thereafter, the Company attempted to conduct various businesses, but was
unsuccessful in its efforts until the acquisition of Dry Dairy International,
Inc. On December 4, 1994, the Company purchased all the assets of Dry Dairy
International, Inc., a Florida corporation ("Dry Dairy"), pursuant to the
terms and conditions of an Asset Purchase Agreement dated December 4, 1994,
(the "Original Agreement"). Under the terms of the Original Agreement, the
Company acquired all of the assets of Dry Dairy in exchange for 3,000,000
shares of the Company's Common Stock. The 3,000,000 shares of Common Stock
were to be subject to certain performance criteria before they were to be
issued. The Company and the principal owner of Dry Dairy subsequently
renegotiated the purchase price for the Dry Dairy assets based on the
inability to substantiate predecessor cost of the formulas and the other
intangible assets to be acquired. Accordingly, on March 27, 1995, the Company
and Dry Dairy amended the Original Agreement to change the purchase price from
3,000,000 shares of Common Stock to 100,000 shares of Common Stock. No other
changes were made to the Agreement. The amendment to the purchase price did
not change the value of the assets on the Company's books, which at December
31, 1994, was recorded at zero value, but it did reduce the authorized and
issued shares of the Company to 9,287,215 from 12,187,215.
<PAGE> 5
Effective February 15, 1995, the Company acquired all of the issued and
outstanding shares of Lombardo's Pastaria, Inc., a Florida corporation
("Lombardo's") through the exchange of 195,122 shares of the Company's Common
Stock, par value $0.001 per share (the "Common Stock"), for all of the issued
and outstanding shares of Lombardo's capital stock, all pursuant to the terms
of an agreement dated February 2, 1995 (the Lombardo's Agreement"). Pursuant
to the terms of the Lombardo's Agreement, 1,000 shares of Lombardo's issued
and outstanding capital stock were converted on a pro rata basis into $100,000
of the Company's Common Stock, which value was determined by the ten day
average closing price of the Company's Common Stock, beginning February 1,
1995, and ending February 14, 1995, the day before the effective date of the
exchange. The ten day average of the bid price was $0.5125, as quoted by the
National Association of Security Dealers' OTC Bulletin Board, resulting in the
issuance of 195,122 shares of the Company's Common Stock to the principal
shareholders of Lombardo's.
On March 15, 1997, the company purchased the assets of Tulip Pita Bread
Center, a Florida corporation in the business of producing specialty breads
and distributing these fresh-baked products to supermarkets and institutions.
Pursuant to the terms of the purchase the Company issued 2,800,000 shares of
restricted Common Stock and $165,000 cash to be paid over 15 months. The
company formed two operating subsidiaries, Tulip bakery, Inc. and NGU
Distribution, Inc., to manage the new business.
In November 1997, the Company paid $250,000 cash to A&C Bakeries, Inc. of
Miami, Florida for the exclusive distribution rights for all fresh-baked
products for the Florida and Georgia markets. Management estimated the annual
sales to be in excess of $7,000,000 from the deal. In January of 1998, A&C
terminated the contract without cause. The Company has filed an arbitration
suit against A&C seeking the return of funds invested and damages from A&C.
In March of 1998, the Company discontinued operations in its NGU
Distribution, Inc. and Tulip Bakery subsidiaries as a result of the losses
resulting from the cancellation of the exclusive distribution agreement. In
June 1998, the Company discontinued operations in its Lombardo's Pastaria,
Inc. subsidiary, as a result of recurring losses in the subsidiary.
The Company has changed its status to a development stage company and
written off the assets that were attributable to its three operating
subsidiaries. Management is now in search of acquisition candidates that will
bring operations to the Company going forward.
Employees
The Company currently employs one person who serves as the Company's
President and Chairman. Professional fees are paid to a controller.
ITEM 2. LEGAL PROCEEDINGS
The Company has filed an arbitration suit in accordance with the terms of
it's distribution agreement with A&C Bakeries, Inc. The Company is seeking to
have it's $250,000 up-front purchase price returned as well as other start-up
costs and damages from the termination of the agreement without cause by A&C.
In addition, the Company has successfully filed for and been awarded an
injunction blocking the withdrawal of funds by A&C Bakeries against a $250,000
letter of credit posted by the Company and guaranteed by a shareholder.
<PAGE> 6
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
PART II
ITEM 4. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table on the following page sets forth, for the respective periods
indicated, the prices for the Company's common stock in the over-the-counter
market as reported by the NASD's OTC Bulletin Board. The bid prices represent
inter-dealer quotations, without adjustments for retail mark-ups, markdowns or
commissions and may not necessarily represent actual transactions.
At December 31, 1998, the Company's Common Stock was quoted on the OTC
Bulletin Board at a bid and asked price of $0.015 and $0.02, respectively.
Fiscal Year Ended December 31, 1996 High Bid Low Bid
- ----------------------------------- -------- -------
First Quarter $0.08 $0.03
Second Quarter $0.37 $0.05
Third Quarter $0.21 $0.08
Fourth Quarter $0.12 $0.08
Fiscal Year Ending December 31, 1997
- ------------------------------------
First Quarter $0.12 $0.08
Second Quarter $0.16 $0.08
Third Quarter $0.14 $0.08
Fourth Quarter $0.12 $0.07
Fiscal Year Ending December 31, 1998
- ------------------------------------
First Quarter $0.09 $0.06
Second Quarter $0.06 $0.03
Third Quarter $0.05 $0.02
Fourth Quarter $0.04 $0.01
Since its inception, the Company has not paid any dividends on its Common
Stock, and the Company does not anticipate that it will pay dividends in the
foreseeable future. At December 31, 1999, the Company had approximately 169
shareholders of record based on information provided by the Company's transfer
agent.
<PAGE>
<PAGE> 7
ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
The Company began the year as a manufacturer and marketer of specialty
pastas and breads to gourmet restaurants and wholesale food service
distributors and supermarkets. Although the Company was producing product for
sale, it did not have sufficient assets to support any substantial future
development, manufacturing or marketing of these products without additional
working capital. When the large investment in the A&C Distribution agreement
was made and ultimately the contract was canceled, the Company was unable to
recover from the losses suffered as a result of the contract cancellation and
was forced to discontinue the operations of it's subsidiaries. Due to the lack
of assets and available funds, the Company s audited financial statements
contain a "going concern" disclosure which places into question the Company s
ability to continue without substantial increases in revenue or financing.
Also, the Company has been classified a development stage company with no
current on-going operations.
On October 20, 1995, the Company completed the sale of a controlling
interest in the Company to Mr. Philip R. Lacerte of Dallas, Texas. The terms
of the purchase agreement provided that the Company issue to Mr. Lacerte,
13,827,500 shares of the Company s restricted common stock, at the time
constituting 50.5% of the Company s total issued and outstanding shares, in
exchange for a cash payment of $110,000 and the extension of a line of credit
for up to $550,000, to meet the Company s then operational needs. Interest on
the line of credit is eight percent (8%) per annum. During the fiscal year
ended December 31, 1997, $520,713 of credit and interest was extended to the
Company under the terms of the line of credit agreement and was owing at
December 31, 1997.
During the fiscal year ended December 31, 1998, the line of credit was
increased to $650,000 and $634,503 of credit and interest was extended under
the terms of the line of credit agreement. This balance is due and owing at
December 31, 1998.
Liquidity and Capital Resources
At December 31, 1998, the Company had total current assets of $161 and
total current liabilities of $1,281,506, resulting in a working capital
deficit of $(1,281,345), as opposed to current assets of $206,443 and total
current liabilities of $783,318 at December 31, 1997, resulting in a working
capital deficit of $(576,885).
During 1998, the Company issued no shares of its common stock. While
during 1997, the Company raised a total of $475,800 in cash from the sale of
6,600,000 restricted shares and the exercise of outstanding options and
warrants at an average price of $0.07. In addition, the Company issued
2,800,000 restricted shares for the purchase of equipment at an average price
of $0.10 and also issued 500,000 shares under an S-8 registration for the
retirement of debt at an average price of $0.10 per share.
Management believes that new acquisitions of companies with current
operations can be successfully financed by third parties. The Company will
continue to seek other sources of financing. Due to the Company's financial
condition it does not anticipate receiving substantial, if any, debt
financing.
<PAGE> 8
Results of Operations
The Company experienced a loss from discontinued operations of $1,347,516
during fiscal year 1998, up from a loss of $1,055,408 from continuing
operations during fiscal year 1997. At December 31, 1998, the Company had an
accumulated deficit of $2,591,722 prior to it's reclassification as a
development stage company, in large part attributed to bad investments prior
to the acquisitions of Dry Dairy and Lombardo's Pastaria, plus the operating
losses incurred by the Company during fiscal year 1995 and 1996. The Company
incurred an accumulated deficit of $1,347,516 during its re-classified
development stage operations of 1998.
ITEM 6. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
ITEM 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or
financial disclosure.
PART III
ITEM 8. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth as of December 31, 1998, the name, age,
and position of each executive officer and director and the term of office of
each director of the Company.
Name Age Position Director or Officer Since
---- --- -------- -------------------------
Robert L. Matzig 42 President & CEO December 1995
* The Company accepted the resignations of Philip R. Lacerte, Rosemarie
Drygala and Rainer M. Drygala during the 1998 fiscal year.
Biographical Information
Set forth below is certain biographical information for each of the
Company's Officers and Directors:
Robert L. Matzig graduated from Texas Christian University, Fort Worth, Texas,
in 1979. Mr. Matzig began his professional career with Lacerte Software
Corporation, in direct sales of software products. He worked for three years
with Arthur Andersen & Co. managing a direct sales force selling software
products to nationwide tax professionals. He held similar positions with
Accountants Micro Systems, Inc. and SCS/Compute before joining Rosenthal
Collins Group in 1993 to work with client development and marketing programs
for commodity traders and managed accounts. Mr. Matzig joined the Company in
September 1995, and was appointed to the vacated position of President and
C.E.O. in December 1995.
<PAGE> 9
Each director of the Company serves for a term of one year and until his
successor is elected at the Company's annual shareholders' meeting and is
qualified, subject to removal by the Company's shareholders. Each officer
serves, at the pleasure of the board of directors, for a term of one year and
until his successor is elected at the annual meeting of the board of directors
and is qualified.
Compliance with Section 16(a) of the Exchange Act
The Company is not subject to the requirements of Section 16(a) of the
Exchange Act.
ITEM 9. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1998, the
end of the Company's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Matzig 1998 $20,000 -0- -0- -0- -0- -0- -0-
President & CEO 1997 $51,000 -0- -0- -0- -0- -0- -0-
1996 $60,000 -0- -0- -0- -0- -0- -0-
</TABLE>
Employment Contracts and Termination of Employment and Changes in Control
Arrangements
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named as a director,
executive officer, promoter or control person above which would in any way
result in payments to any such person because of his resignation, retirement,
or other termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities following a changing in control of the Company.
except as noted below:
Board Compensation
The Company's directors receive no compensation or cost reimbursement for
attendance at board meetings.
<PAGE> 10
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1999, the name and the
number of shares of the Company's Common Stock, par value $0.001 per share,
held of record or beneficially by each person who held of record, or was known
by the Company to own beneficially, more than 5% of the 45,995,688 issued and
outstanding shares of the Company's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.
Security Ownership of Certain Beneficial Owners
Title
of Name and Address Amount and Nature of Percentage
Class Beneficial Owner Beneficial Ownership(1) of Class
- ----- ---------------- -------------------- ----------
Common Philip R. Lacerte D 16,718,400 36.34
13155 Noel Road, Suite 2200
Dallas, Texas 75240
Security Ownership of Management of the Company
Title
of Name and Position of Amount and Nature of Percentage
Class Officer and/or Director Beneficial Ownership(1) of Class
- ----- ----------------------- -------------------- ----------
Common Philip R. Lacerte, Chairman ---See Table Above---
Common Robert L. Matzig, Pres. & CEO D 169,050 0.37
Common Amikan Grosman, Manager D 2,500,000 5.44
All Officers and Directors
as a Group (4 person) D 19,387,400 42.15
(1) Indirect and Direct ownership are referenced by an "I" or "D",
respectively. All shares owned directly are owned beneficially and of record
and such shareholder has sole voting, investment, and dispositive power,
unless otherwise noted.
<PAGE>
<PAGE> 11
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others.
On October 20, 1995, the Company completed the sale of a controlling
interest in the Company to Mr. Philip R. Lacerte of Dallas, Texas. The terms
of the purchase agreement provided that the Company issue to Mr. Lacerte,
13,827,500 shares of the Company's restricted common stock, constituting 50.5%
of the Company's total issued and outstanding shares, in exchange for a cash
payment of $110,000 and the extension of a line of credit for up to $250,000,
to meet the Company's current operational needs. Interest on the line of
credit is 8% per annum.
In April of 1997, the Company purchased equipment and distribution routes
from Tulip Pita Bread II ("Tulip"). The agreement to purchase the equipment
line calls for the Company to pay $165,000 and 1,600,000 shares of its
restricted common stock to the owners of the equipment line. In a separate
purchase agreement, Tulip's distribution rights and delivery system were
purchased for 1,200,000 restricted shares. In addition, the Company assumed
up to $45,000 of existing Tulip debt. The owners of Tulip became employees of
the Company; however, they resigned in March of 1998.
Other than the transaction described above, for the periods indicted,
there were no material transactions, or series of similar transactions, since
the beginning of the Company's last fiscal year, or any currently proposed
transactions, or series of similar transactions, to which the Company was or
is to be party, in which the amount involved exceeds $60,000, and in which any
director or executive officer, or any security holder who is known by the
Company to own of record or beneficially more than 5% of any class of the
Company's common stock, or any member of the immediate family of any of the
foregoing persons, has an interest.
Indebtedness of Management
There were no material transactions, or series of similar transactions,
since the beginning of the Company's last fiscal year, or any currently
proposed transactions, or series of similar transactions, to which the Company
was or is to be a party, in which the amount involved exceeds $60,000 and in
which any director or executive officer, or any security holder who is known
to the Company to own of record or beneficially more than 5% of any class of
the Company's common stock, or any member of the immediate family of any of
the foregoing persons, has an interest.
Transactions with Promoters
The Company was organized more than five years ago; hence transactions
between the Company and its promoters or founders are not deemed to be
material.
<PAGE>
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ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
- ----------------- ----
Independent Auditor's Report of Jones, Jensen & Company.................. 13
Consolidated Balance Sheet as of December 31, 1998....................... 14
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997............................................. 16
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997........................................ 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997.............................................. 18
Notes to Consolidated Financial Statements............................... 19
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report:
None.
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------- --------- ----------------- ------------
3 3(i) Amendment to Articles of Incorporation This Filing
27 27 Financial Data Schedule This Filing
(b) Reports on Form 8-K. There were no reports on Form 8-K filed with the
Commission during the quarter ended December 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
DRY DAIRY INTERNATIONAL, INC.
Date: October 22, 1999 By /S/ Robert L. Matzig, President and CEO
<PAGE>
<PAGE> 13
[Jones, Jensen & Company Letterhead]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Dry Dairy International, Inc. and Subsidiaries
(A Development Stage Company)
Sarasota, Florida
We have audited the accompanying consolidated balance sheets of Dry Diary
International, Inc. and Subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Dry Dairy International, Inc. and Subsidiaries (a Development Stage
Company)as of December 31, 1998 and the consolidated results of their
operations and their cash flows for the years ended December 31, 1998 and 1997
and from inception of the development stage on January 1, 1998 through
December 31, 1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has suffered recurring losses from operations and has
limited operating capital which together raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/S/ JONES, JENSEN & COMPANY
Salt Lake City, Utah
September 15, 1999
<PAGE>
<PAGE> 14
DRY DAIRY INTERNATIONAL, INC. AND SUBIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1998
------------
[S] [C]
CURRENT ASSETS:
Cash $ 161
---------
Total Current Assets 161
---------
TOTAL ASSETS $ 161
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Reserve for discontinued operations (Note 6) $ 594,336
Notes payable - shareholder (Note 7) 50,000
Accrued interest payable 2,667
Line of credit - related party (Note 5) 634,503
---------
Total Current Liabilities 1,281,506
---------
TOTAL LIABILITIES 1,281,506
---------
STOCKHOLDERS' EQUITY:
Stock authorized 150,000,000 shares at $0.001
par value; 45,995,688 shares issued and
outstanding 45,996
Additional paid-in capital 2,611,897
Accumulated deficit prior to the
development stage (2,591,722)
Accumulated deficit from the inception
of the development stage (1,347,516)
---------
Total Stockholders' Equity (Deficit) (1,281,345)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 161
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 15
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
From
Inception of the
Development Stage
On January 1,
For the Years Ended 1998 Through
December 31, December 31,
------------------------------------------------
1997 1996 1998
------------ ------------ -----------
REVENUES $ - $ - $ -
EXPENSES - - -
------------ ------------ ------------
Loss From Operations
Before Loss From
Discontinued Operations - - -
------------ ------------ ------------
LOSS FROM CONTINUING
OPERATIONS - - -
------------ ------------ ------------
LOSS FROM DISCONTINUED
OPERATIONS (Note 6) 1,347,516 1,055,408 1,347,516
------------ ------------ -----------
NET (LOSS) $ (1,347,516) $ (1,055,408) $(1,347,516)
============ ============ ===========
BASIC (LOSS)PER SHARE $ (0.03) $ (0.02)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 45,995,688 42,903,270
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 16
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 35,295,688 $ 35,296 $1,707,797 $(1,536,314)
Common stock issued for cash at $0.075 per share 3,800,000 3,800 281,200 -
Common stock issued for equipment
at $0.075 per share 2,800,000 2,800 277,200 -
Common stock issued for cash at $0.10 per share 1,000,000 1,000 99,000 -
Common stock issued for cash at $0.05 per share 1,800,000 1,800 89,000 -
Common stock issued for debt payment
at $0.10 per share 500,000 500 50,500 -
Reverse cancelled shares 800,000 800 107,200 -
Net loss for year ended December 31, 1997 - - - (1,055,048)
---------- ---------- ---------- -----------
Balance, December 31, 1997 45,995,688 $ 45,996 $2,611,897 $(2,591,722)
Net loss for year ended December 31, 1998 - - - (1,347,516)
---------- ---------- ---------- -----------
Balance, December 31, 1998 45,995,688 $ 45,996 $2,611,897 $(3,939,238)
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
<PAGE> 17
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception of the
Development Stage
On January 1,
For the Years Ended 1998 Through
December 31, December 31,
----------------------------------------------
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,347,516) $(1,055,406) $(1,347,516)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Common stock issued for rent - 51,000 -
Common stock issued for services - 108,000 -
Loss on deposit allowance - 250,000 -
Depreciation - 71,145 -
Loss on discontinued operations 851,596 - 851,596
Changes in operating assets and liabilities:
(Increase) in accounts receivable - (46,828) -
(Increase) in inventory - (63,048) -
(Increase) decrease in deposits and other
receivables - (260,039) -
Increase (decrease) in accounts payable and
other current payables 173,655 108,790 173,655
------------ ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (322,265) (836,388) (322,265)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment - (153,356) -
------------ ------------ ------------
Net Cash Used By Investing Activities - (153,356) -
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from notes and line of
credit payable - related party 330,419 520,713 330,419
Repayment of line of credit - related party - (16,374) -
Repayment of notes payable (7,993) - (7,993)
Issuance of common stock for cash - 475,800 -
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 322,426 980,139 322,426
------------ ------------ ------------
INCREASE (DECREASE) IN CASH $ 161 (9,605) 161
CASH AT BEGINNING OF YEAR - 9,605 161
------------ ------------ ------------
CASH AT END OF YEAR $ 161 $ - $ 161
============ ============ ============
Supplemental Cash Flows Information:
Cash paid for:
Interest $ - $ 13,354 $ -
Taxes $ - $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued for equipment $ - $ 280,000 $ -
Common stock issued for rent $ - $ 51,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 18
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION
Dry Dairy International, Inc. (the Company) was incorporated under the laws of
the State of Utah on March 6, 1987. The Company was organized for the purpose
of providing a vehicle which could be used to raise capital and seek business
opportunities believed to hold a potential for profit. The Company has been
reclassified as a development stage company per SFAS No. 7, as of January 1,
1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a calendar year end.
b. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
c. Loss Per Share
The computations of loss per share of common stock are based on the weighted
average number of shares outstanding during the period of the financial
statements.
d. Provision for Taxes on Income
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $3,800,000 that may be offset against future taxable income
through the year 2014. No tax benefit has been reported in the financial
statements, as the Company believes there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of
the loss carryforwards are offset by a valuation account of the same amount.
e. Principles of Consolidation
The accompanying financial statements include the accounts of Dry Dairy
International, Inc. and its wholly-owned subsidiaries Lombardo's Pastaria,
Inc., NGU Distribution, Inc. and Tulip Bakery, Inc. All significant
intercompany transactions have been eliminated.
f. 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.
<PAGE> 20
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Change in Accounting Principles
The Financial Accounting Standards Board has issued statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129, "Disclosures of Information About an
Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than was previously used in accordance with APB
Opinion No. 15, "Earnings Per Share." SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure. SFAS No. 128 and
SFAS No. 129 are effective for financial statements issued for periods ending
after December 15, 1997. In fiscal 1998, the Company adopted SFAS No. 128,
which did not have a material impact on the Company's financial statements.
The implementation of SFAS No. 129 did not have a material effect on the
Company's financial statements.
The Financial Accounting Standards Board has also issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all charges
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as
comprehensive income be reported in a financial statement that displays with
the same prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise." SFAS
No. 131 establishes standards on the way that public companies report
financial information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as components of a
company 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. SFAS No. 130 and 131 are
effective for financial statements for periods beginning after December 15,
1997 and requires comparative information for earlier years to be restated.
The implementation of SFAS No. 130 and 131 did not have a material impact on
the Company.
In February 1998, the Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standard ("SFAS") No. 132. Employers'
Disclosures about Pensions and other Postretirement Benefits" which
standardizes the disclosure requirements for pensions and other Postretirement
benefits and requires additional information on changes in the benefit
<PAGE>
<PAGE> 21
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
g. Change in Accounting Principles (Continued)
obligations and fair values of plan assets that will facilitate financial
analysis. SFAS No. 132 is effective for years beginning after December 15,
1997 and requires comparative information for earlier years to be restated,
unless such information is not readily available. The adoption of this
statement did not have a material impact on the Company.
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether is qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair market value or cash flows. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management believes
the adoption of this statement will have no material impact on the Company's
financial statements.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has little cash and has experienced losses
from inception. The Company has also discontinued the operations of its 3
operating subsidiaries.
Management intends to merge with an operating company and to complete
additional debt and equity offerings to meet the cash flow needs of the
Company.
NOTE 4 STOCK TRANSACTIONS
During the year ended 1997, the Company issued 6,600,000 shares for cash at
the average price of $0.07 per share for net proceeds of $475,800. The
Company also issued 500,000 shares for the payment of rent valued at $51,000.
In April 1997, the Company issued 2,800,000 shares of stock to acquire the
assets of Tulip Pita Bread Center II. The net assets were valued at $280,000,
which approximates the predecessor cost to the seller.
NOTE 5 - LINE OF CREDIT - RELATED PARTY
A shareholder of the Company has agreed to provide a line of credit to the
Company for the purpose of purchasing raw material inventory and to fund the
direct costs related thereto. The line of credit bears interest at 8% per
annum on the average monthly balance is due on demand and is unsecured. The
balance owed on the line of credit is $634,503 at December 31, 1998 which
includes accrued interest of $46,209.
<PAGE> 21
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 6 LOSS FROM DISCONTINUED OPERATIONS
On February 26, 1998, the Board of Directors of the Company decided to
discontinue the operations of Tulip and NGU and on May 29, 1998, the Company
decided to discontinue the operations of Lombardo's due to a lack of funding
and increased losses. The following is a summary of the loss of discontinued
operations.
From
Inception of the
Development Stage
On January 1,
For the Years Ended 1998 Through
December 31, December 31,
------------------------------------------------
1997 1996 1998
----------- ------------ --------------
REVENUES $ 601,722 $ 1,426,482 $ 601,722
COST OF PRODUCT SOLD 377,150 1,114,573 377,150
------------ ------------ -------------
Gross Profit 224,572 311,901 224,572
------------ ------------ -------------
EXPENSES
Selling, general and
Administrative 1,343,030 1,013,425 1,343,030
Depreciation 84,000 71,145 84,000
----------- ------------ ------------
Total Expenses 1,427,030 1,084,570 1,427,030
----------- ------------ ------------
LOSS FROM OPERATIONS (1,202,458) (772,661) (1,202,458)
OTHER INCOME (EXPENSE) (145,058) (282,747) (145,058)
INCOME TAX EXPENSE - - -
------------ ------------ -------------
NET (LOSS) $(1,347,516) $ (1,055,408) $ (1,347,516)
============ ============ ============
BASIC (LOSS)PER SHARE
OF COMMON STOCK $ (0.03) $ (0.02)
============ ============
The Company had liabilities of $594,336 which are associated with the
discontinued operations. No income tax benefit has been attributed to the loss
from discontinued operations. There was no gain or loss on the disposition of
the discontinued operations as the Company did not sell its assets but simply
ceased operations.
<PAGE> 23
DRY DAIRY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 7 - NOTE PAYABLE- SHAREHOLDER
The Company had the following debt obligation at December 31, 1998:
Note payable to shareholder,
bearing interest at 8.00%,
Unsecured, due on demand. $ 50,000
---------
Future maturities of note payable shareholder is as follows:
1999 $ 50,000
---------
NOTE 8 - SUBSEQUENT EVENT
On June 11, 1999, the Company amended its Articles of Incorporation to change
its name to Dryden Industries, Inc. and to increase the authorized number of
share of common stock from 50,000,000 to 150,000,000 shares.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 161
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 1,281,506
<BONDS> 0
0
0
<COMMON> 2,657,893
<OTHER-SE> (3,939,238)
<TOTAL-LIABILITY-AND-EQUITY> 161
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (1,347,516)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,347,516)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
<PAGE> 1
EXHIBIT 3(i)
AMENDMENTS TO THE ARTICLES OF INCORPORATION
OF
DRY DAIRY INTERNATIONAL, INC.
Pursuant to the provisions of Section 16-10a-1001 et. seq. of the Utah Revised
Business Corporation Act, the undersigned corporation, hereinafter referred to
as the "Corporation," hereby adopts the following Amendments to the Articles
of
Incorporation:
FIRST: The name of the Corporation is: Dry Dairy International, Inc.
SECOND: The following Amendments to the Articles of Incorporation were duly
adopted by the board of directors and the shareholders of the corporation in
accordance with Section 16-10a-1003 of the Utah Revised Business Corporation
Act, at a Special Meeting of Shareholders held on March 30, 1998.
ARTICLE I
NAME
The name of the Corporation shall be: DRYDEN INDUSTRIES, INC.
ARTICLE IV
AUTHORIZED SHARES
The Corporation is authorized to issue a total of 150,000,000 shares of common
stock having a par value $0.001 per share (hereinafter referred to as "Common
Stock").
The number of issued and outstanding shares entitled to vote on these
Amendments
to the Articles of Incorporation was 45,995,688 of which number 25,000,000
shares voted in favor and none opposed.
IN WITNESS WHEREOF, the foregoing Amendments to the Articles of Incorporation
have been executed this 24th day of May, 1999.
ATTEST: DRY DAIRY INTERNATIONAL, INC.
/S/ Jerry Busiere, Secretary /S/ R. L. Matzig, President
State of Utah)
:ss
County of Salt Lake)
On this 24th day of May, 1999, personally appeared before me, the undersigned,
a notary public, Robert L. Matzig and Jerry Busiere , who being by me duly
sworn
did state, each for himself, that he Robert L. Matzig is the President, and
that
he Jerry Busiere is the Secretary of Dry Dairy International, Inc., a Utah
corporation, that they signed the foregoing Amendments to the Articles of
Incorporation on behalf of the corporation by authority of its board of
directors and that the statements contained therein are true.
/S/ Notary Public
