UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


  [ x ]    ANNUAL REPORT UNDER SECTION 13 0R 15(D) OF THE SECURITIES EXCHANGE
           ACT OF 1934

                                       For the fiscal year ended  April 30, 2001
                                                                  --------------

  [   ]    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.
             -------------------------------------------------------
                 (Name of Small Business Issuer in its charter)

<TABLE>

<S>                                                                     <C>
          Incorporated in the State of Nevada                                       33-076348
--------------------------------------------------------------          ------------------------------------
(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)


10554 Progress Way, Unit K, Cypress, California                                      90603
-----------------------------------------------                                      -----
   (Address of principal executive offices)                                        (Zip Code)

</TABLE>


Issuer's telephone number  (714) 816-0150
                           --------------


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:


                        Common Stock - $0.001 par value
               -------------------------------------------------
                                (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 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 [ ]

Check if there is no 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. [ ]

State issuer's revenues for its most recent fiscal year.          $ 100,152

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 2 OF 19

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $3,115,500 AS OF AUGUST 10, 2001

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 JULY 31, 2001
                     -----                   ----------------------------

       Common Stock - $0.001 par value               29,734,004

Documents incorporated by reference:        NONE

Transitional Small Business Disclosure Format (Check one): YES   [x]   NO   [ ]



<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 3 OF 19

                    INFORMATION REQUIRED IN ANNUAL REPORTS OF
                       TRANSITIONAL SMALL BUSINESS ISSUERS

FORWARD LOOKING STATEMENTS

Management's discussion and analysis of the Company's financial condition and
the results of its operations and other sections of this report contain forward
looking statements that are based on the current beliefs and expectations of the
Company's management, as well as assumptions made by, and information currently
available to, the Company's management. These statements include those regarding
general economic and food industry trends. Because these statements involve
risks and uncertainties, actual actions and strategies and the timing and
expected results may differ materially from those expressed or implied by the
forward-looking statements, and the Company's future results, performance or
achievements could differ materially from those expressed in, or implied by, any
forward-looking statements. Future events and actual results could differ
materially from those set forth in or underlying the forward-looking statements.

This Annual Report on Form 10-KSB for the year ended April 30, 2001 contains
"forward-looking" statements within the meaning of the Federal securities laws.
These forward-looking statements involve a number of risks and uncertainties,
including the development and market acceptance of products, the ability to
secure additional sources of financing, the ability to reduce operating
expenses, acquisition of processing equipment to reduce cost of sales, and other
factors described in the Company's filing with the Securities and Exchange
Commission. The results that the Company achieves may differ materially from any
forward-looking statements due to these risks and uncertainties. The
forward-looking statements in this Annual Report on Form 10KSB for the fiscal
year ended April 30, 2001, are subject to risks and uncertainties that could
cause actual results to differ materially from this results expressed in or
implied by the statements contained in this report.

                                     PART I

ITEM 6.  DESCRIPTION OF BUSINESS.

(A)      BUSINESS DEVELOPMENT

Dippy Foods, Inc., a Nevada corporation,(the "Issuer") was originally
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 entering into an agreement to acquire all of the outstanding shares of
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. Dippy CA is a wholly owned subsidiary of the Issuer. The Issuer
and Dippy CA together are referred to as the "COMPANY" in this Form 10-KSB.

On May 25, 2001, the Issuer entered into a Stock Purchase and Share Exchange
Agreement with Americas Favorite Food Corp., a California corporation (AFFC) and
all of its shareholders to acquire all of the outstanding shares of AFFC (See
Exhibit 6.17 - Stock Purchase and Share Exchange Agreement). AFFC is a
California based food services Company that owns Korean distribution rights to
numerous US branded foods products. The Issuer acquired all the outstanding
shares of AFFC in exchange for 8,000,000 restricted shares of the Issuer to be
distributed to the shareholders of AFFC over a two-year period. AFFC is a wholly
owned subsidiary of the Issuer.

In connection with the acquisition of AFFC, the Issuer formed an Advisory Board
comprised of all seven of the AFFC shareholders, except Ira Hermann who was
elected to the Issuer's Board (See Item 8 (a) Directors, Officers, and
Significant Employees). According to the terms of the Stock Purchase and Share
Exchange Agreement, the Advisory Board shall advise the Issuer's Board of
Directors with respect to, among other things, (i) development of new business,
(ii) cultivation of domestic and international business opportunities, and (iii)
development of strategic plans including manufacturing opportunities.
Additionally, the Advisory Board Members shall use their business contacts,
whenever appropriate and as the opportunity arises to assist the Company in
forming strategic alliances and procuring sales and other business
opportunities. The Advisory Board Members, individually or collectively, do not
possess any voting power with respect to the Issuer's Board of Directors and do
not possess the power to act on behalf of or otherwise bind the Company in any
way. The Board of Directors of the Issuer may, in its sole discretion, accept or
reject any recommendations made by the Advisory Board.

Each shareholder of AFFC received 1,000,000 shares of the Issuer's Rule 144
Restricted common stock, 666,667 of which were pledged to the Issuer by each
AFFC shareholder, and 333,334 of which were issued to each AFFC shareholder free
and

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 4 OF 19

clear of all encumbrances at the closing of the acquisition. The pledged shares
will be held by the Issuer as security against each AFFC shareholder's
obligation to fulfill his duties as an Advisory Board Member, or otherwise as an
officer or director of the Issuer, for a period of two years. The Issuer will
return the pledged shares to each AFFC shareholder in two equal installments,
subject to satisfaction of the advisory obligation. Until or unless the Issuer
has cause to take permanent possession of the pledged shares, each AFFC
shareholder is entitled to exercise any and all voting and other consensual
rights pertaining to the pledged shares.

Neither the Issuer, Dippy CA nor AFFC have been involved in any bankruptcy,
receivership or similar proceedings, have undergone any material
reclassification, merger or consolidation, or have purchased or sold any
significant assets not in the ordinary course of its business other than as
described in this Form 10-KSB.

As of April 30, 2001, the Company had $ 77 in cash, and a working capital
deficit of $780,658. During the year ended April 30, 2001, cash decreased by
$4,558 and the Company used $259,358 in operations, primarily due to the
operating loss of the Company of $480,465 and a decrease in working capital
deficit of $148,873. This decrease in working capital was primarily due to
changes in maturity of convertible debt and a settlement of a payable. The
Company used $8,679 in investing activities, primarily due to the purchase of
equipment. The Company generated $263,479 in financing activities, primarily due
to net proceeds from issuance of notes payable, an increase in the line of
credit and repayment of related party loans. However, the Company has
accumulated a deficit of $1,834,239 since inception and has a stockholders'
deficit of $646,982 at April 30, 2001. Based on these factors, among others, the
Company's independent certified public accountants included an uncertainty
paragraph in their report indicating there is substantial doubt about the
Company's ability to continue as a going concern.

The Company anticipates funding its working capital needs for the next twelve
months through (1) the equity capital markets, (2) increased sales with the
addition of the breakfast line, (3) introduction of the new product line
consisting of bagels (plain, cinnamon/raisin, blueberry, whole wheat, bagel &
cream cheese), scones (chocolate chip, white chocolate chip, orange cranberry
blueberry), focacia breads (pesto/onion, tomato herb), bagel sandwiches (ham &
cheese, turkey & cheese, roast beef & cheese), bagel breakfast sandwiches
(sausage & egg, sausage & cheese, egg & cheese), and sandwiches (ham & cheese,
turkey & cheese, roast beef & cheese), and (4) further reductions in overhead
and cost of sales.

Although the foregoing actions are expected to cover the Companies anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months, no assurance can be given that the Company 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 new school districts, the military market, and developing a new retail
strategy with the new product line. The Company cannot ensure, however, that
these plans will be successful.


(B)      BUSINESS OF THE COMPANY

PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS

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 and nutritional information. 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 sauce; and three fruit flavored meals containing cinnamon and sugar
corn chips, peanut butter, and a specially blended fruit sauce. See Table 1
below for a list of these products.

In April 2001, the Company introduced its new line of breakfast fastbreaks(TM)
meals for sale to the school market. The breakfast fastbreaks(TM) contains a
breakfast muffin (two different flavors) and cereal (four different flavors) for
a variety of eight choices. The Company designed two meals to meet the
requirements for correctional facilities. The first meal will contain a peanut
butter and jelly spread, 1/2 cup of cereal, 3 slices of bread, and a spoon. The
second meal contains a nutrition bar, 2 hard-boiled eggs, 1 cup of cereal, and a
spoon. The Company has not been able to penetrate the correctional facilities
market, however, continues to meet with brokers and distributors for the
correctional facilities market. See "Other Markets" and "Status of Publicly
Announced New Product or Service" below for more information.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 5 OF 19

The food service directors of each school district must ensure that meals served
under the National School Lunch and Breakfast Programs meet each program's
requirements. Their principal reference for designing the meals is the Food
Buying Guide for Child Nutrition Programs published by the U.S. Department of
Agriculture. The Food Buying Guide is based on the latest federal regulations
and meal pattern requirements. The standards in the guide are based on
laboratory testing performed by the Human Nutrition Information Services and the
U.S. Department of Agriculture, and are consistent with the standards set by the
Food Safety and Inspection Service and the Food and Drug Administration.

Table 1.

Minimum Requirements - Lunch Program Grades 4 - 12

<TABLE>

------------------------------------------------------------------------------------------------------------
                  Food Buying          Pineapple        Cherry             Blueberry
Food Item         Guide*               Dive             Rapids             Surf             Santa Fe Nachos
------------------------------------------------------------------------------------------------------------
<S>               <C>                  <C>              <C>                <C>              <C>
                                       3 breads per     3 breads per       3 breads per     3 breads per
Bread             15 servings/ week    serving          serving            serving          serving
Protein/Meat,
Meat Alt.         2 oz./day            2 oz             2 oz               2 oz             2 oz
Fruit and
Vegetables        3/4 cup/day          3/8 cup          3/8 cup            3/8 cup          3/8 cup
Dairy+            1/2 pint/day         0                0                  0                0
------------------------------------------------------------------------------------------------------------
*These values are from the U.S. Department of Agriculture's Food Buying Guide for Child Nutrition Programs.
+The schools will provide the dairy minimum requirement.

</TABLE>


Each of the Company's lunch meals meets the nutritional requirements of the Food
and Drug Administration for three food groups: (1) bread, (2) protein, and (3)
fruits and vegetables. See Table 1 above. Combined with a single serving of
milk, supplied to all children daily as part of the federal program, the meals
are eligible for the National School Lunch Program. (See "Effect of Governmental
Regulation on the Company's Business" below for a detailed discussion of 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 hopes that its meals will be served at least once a month in this
program.

During 2001 the Company introduced several new products as a result of its
acquisition of AFFC. The new line of products includes bagels (plain,
cinnamon/raisin, blueberry, whole wheat, bagel & cream cheese), scones
(chocolate chip, white chocolate chip, orange cranberry blueberry), focaccia
breads (pesto/onion, tomato herb), bagel sandwiches (ham & cheese, turkey &
cheese, roast beef & cheese), bagel breakfast sandwiches (sausage & egg, sausage
& cheese, egg & cheese), and sandwiches (ham & cheese, turkey & cheese, roast
beef & cheese). For the school lunch program, the sandwiches must be made
pursuant to the Food Buying Guide for Child Nutrition Programs as specified in
Table 1above. ( See "Status of Publicly Announced New Product or Service" under
this same item below for more information).

The Company purchases the separate ingredients for the production of its dippers
from a variety of different suppliers. The ingredients (fruit blends, peanut
butter, chips, salsa and cheese sauce) and packaging supplies (trays, film,
labels, boxes and dividers) are delivered to the co-packer. The co-packer packs
the meals pursuant to the Food Buying Guide for Child Nutrition Programs. The
co-packer packages and boxes the meals (40 meals per case for Lunches and 50
meals for Breakfasts, 16 cases per pallet) and shrink-wraps the pallets for
delivery. The Company sends the co-packer packing slips that identify each
pallet and order and a bill of lading to be signed by whoever picks up the
order. The Company buys the ingredients and supplies. The co-packer maintains
the inventory. The Company and the co-packer count inventory at each month end.
See "Sources, Raw Materials and Principal Suppliers" for more information.

Co-packers prepare the Company's new product lines, consisting primarily of
sandwiches, bagel breakfast sandwiches, bagels, bagel sandwiches, scones, and
focacia breads. The co-packers are responsible for acquiring the separate
ingredients (meats, eggs, cheeses, breads and accoutrements) and packaging
supplies (trays, film, boxes, and dividers). The co-packers make the sandwiches
according to customer specifications. For the school lunch program, the
sandwiches must be made pursuant to the Food Buying Guide for Child Nutrition
Programs. For the military the sandwiches will be made according to
specifications depending on the needs and requirements of the branch of the
military acquiring the sandwiches. Each branch of the military has its own
guidelines and product specifications that must be adhered to in this market.
For the retail market the sandwiches are made to compete in the market place
with the nutritional being disclosed. The co-packer packages and boxes the
sandwiches (72 case count for sandwiches, 48 case count for bagel sandwich, and
100 case count for bagels) and shrink-wraps the pallets for delivery. The
Company sends the co-packer a purchase order. The co-packer sends the Company
the bill of lading acknowledging that the product was picked-up and signed for
by the customer. Distributors pick up the product.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 6 OF 19

DISTRIBUTION METHODS

The Company has an oral distribution agreement with U.S. Foodservice to
distribute Dippers. Either party can terminate this agreement at any time. 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.
The working agreement includes the following provisions:

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 2000 for the
     remainder of California.

o    The Company will charge U.S. Foodservice $0.85 for the fruit meals and
     $1.05 for the nachos delivered. 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 1% 10 net 30 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 delicatessens and similar
     institutions.

U.S. Foodservice has begun to sell and distribute the Company's new products.

The Company distributes through ASR Food Service Distributors, Joseph Webb (a
wholly owned subsidiary of US Foodservice), Goldstar, Pinco, and Leabo, all of
whom specialize in food distribution to schools in Southern, Central, and
Northern 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.

The customers choose their distributors and advise the Company of their choice.
The Company then arranges the shipment. The percentage shipped through each
distributor varies each month depending on how often each school district serves
Dippers on its menu. Table 2 sets out the percentages of product shipped through
each distributor for the twelve months ended April 30, 2001.


  Table 2.
  Percentages Shipped
  ------------------------------------------------
  Distributor                      Percentage
  ------------------------------------------------
  ------------------------------------------------

  ASR                                  37
  Self                                  4
  Pinco                                 8
  Gold Star                            38

  Joseph Webb                           9
  Leabo's                               4

                                   ---------------
  Total                               100
  ------------------------------------------------

The Company recommends that its customers use distributors, but will handle the
distribution of some smaller orders by having the Company's co-packer ship the
orders directly to the customer. The Company bills these shipping costs to the
customer.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 7 OF 19

STATUS OF PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE

The acquisition of AFFC during 2001 has resulted in the Company publicly
introducing new products. The new line of products include bagels (plain,
cinnamon/raisin, blueberry, whole wheat, bagel & cream cheese), scones
(chocolate chip, white chocolate chip, orange cranberry blueberry), focacia
breads (pesto/onion, tomato herb), bagel sandwiches (ham & cheese, turkey &
cheese, roast beef & cheese), bagel breakfast sandwiches (sausage & egg, sausage
& cheese, egg & cheese), and sandwiches (ham & cheese, turkey & cheese, roast
beef & cheese).

The Company has developed three new products for the After School Snack Program,
(1) animal crackers and fruit dip, (2) chips and salsa (no cheese), (3) peanut
butter and graham crackers. See "Effect of Governmental Regulations on the
Company's Business" for more information on these programs. The Company will not
accept purchase orders for the After School Snack Program until the packaging is
complete. The Company has successfully completed its research and development,
taste test, and customer acceptance. The Company expects to begin production of
the after school snack meals in January 2002.

EXPENDITURES ON RESEARCH AND DEVELOPMENT DURING THE LAST TWO FISCAL YEARS

The Company spent approximately $2,387 and $10,078 on research and development
in the fiscal years ended April 30, 2001 and 2000, respectively.

NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES

The Company has a total of four full-time employees.

REQUIREMENT FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

The Company is not required to obtain any direct government approval of its
products. However, pursuant to the National School Lunch Program, all meals
served under the program must meet minimum standards. It is the sole
responsibility of the school districts to ascertain and determine that the meals
they elect to serve meet the minimum standards set forth by the National School
Lunch Program. The Company's products have been developed and produced to meet
these minimum standards. Using the guidelines set forth in the Food Buying
Guide, the Company produces its products to surpass the minimum standards. The
only minimum standard that the Company does not meet is the dairy requirement,
which the school provides by serving milk. See Table 1 above and "Principal
Products" for more information.

EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON DIPPY FOOD'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.

The National School Lunch Program began in 1946 after military officials noticed
that some World War II recruits were undernourished. The goal was to make sure
children received one good meal at least once a day. Section 2 of the National
School Lunch Act states:

         "It is declared to be the policy of Congress, as a measure of
         national security, to safeguard the health and well-being of
         the Nation's children and to encourage the domestic
         consumption of nutritious agricultural commodities and other
         food, by assisting the States, through grants-in-aid and
         other means, in providing an adequate supply of food and
         other facilities for the establishment, maintenance,
         operation and expansion of nonprofit school lunch programs."

The National School Lunch Program is a program under which participating schools
operate a nonprofit lunch program in accordance with the Code of Federal
Regulations. The Commodity School Program is a program under which a school
operates the same lunch program, but receives donated food assistance in lieu of
general cash assistance. Part 210 of the Code of Federal Regulations sets forth
the requirements for participation in these two programs, specifying
responsibilities of state and local officials in the areas of program
administration, preparation and service of nutritious lunches, payments of
funds, use of program funds, program monitoring, and reporting and record
keeping requirements.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 8 OF 19

In order to qualify for reimbursement under either program, all lunches offered
by participating schools and served to children two and older must meet the
minimum nutrition standards with respect to the appropriate level of calories
and nutrients as provided in the Code of Federal Regulations. The requirements
and recommendations are designed so that the nutrients of the lunch, averaged
over a period of time, approximate one-third of the Recommended Dietary
Allowance for children.

The Commodity School Program is another federal program whereby the U.S.
Department of Agriculture purchases raw ingredients such as grains, dairy
products, poultry, beef and row crops from farmers in order to maintain price
points and stabilize markets for the producers of such products. The U.S.
Department of Agriculture inventories and warehouses these products at various
locations throughout the country. The school districts submit a request to the
U.S. Department of Agriculture for these raw ingredients based upon prior year
usage. The U.S. Department of Agriculture will distribute the products based on
availability of raw ingredients to school districts according to student
population. School districts can exchange these commodity foods for credits on
finished products. The school districts and companies that participate in the
program both benefit. The school districts receive agricultural commodities for
the cost of the shipping and deliver them to the manufacturer at no cost to the
distributor. The manufacturer sells the finished product back to the school at a
price that is reduced by the amount saved. 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.

The Food and Nutrition Service administers these programs for the Department of
Agriculture. Within each state, the state's educational agency administers these
programs. The state may withhold program payments under any of the programs if
the participating school has failed to comply with all applicable provisions of
the Code of Federal Regulations.

The School Breakfast Program is another federal program that provides states
with cash assistance for non-profit breakfast programs in schools and
residential child care institutions. The School Breakfast Program was
established in 1966 as a two-year pilot project designed to provide categorical
grants to assist schools serving breakfasts to nutritionally needy children. The
School Breakfast Program received permanent authorization in 1975 to carry out
the provisions of Section 4 of the Child Nutrition Act of 1966. The U.S.
Department of Agriculture reports that during the first year of operation, the
School Breakfast Program served approximately 80,000 children at a federal cost
of $573,000. In 1975, approximately two million children participated in the
School Lunch Program on a given day and over the following two decades,
participation increased to seven million.

Under the School Breakfast Program, the objective is to provide one breakfast
per child per day. A school will receive breakfast assistance payments from the
state, if funds are available, for breakfasts served to children. To be eligible
for federal cash reimbursement, a breakfast must contain, at minimum, (i) one
serving of milk, (ii) one serving of fruit or vegetable or both, or full
strength fruit or vegetable juice, and (iii) two servings of bread, bread
alternates, meat or meat alternates, in the quantities specified for each age
group as set out in the Code of Federal Regulations.

The After School Snack Program is a new program under which schools offer an
after school snack in accordance with the Code of Federal Regulations. This
program has been available for quite some time but not until September 1999 did
the federal government begin promoting this program and have approved $3 billion
of funding for this program. The snack to be offered under the program must meet
two out of the four food groups as set out in the Food Buying Guide. For every
student who participates in this program the school receives a $0.52
reimbursement. The Company's products offered in this program will have the same
60-day shelf life, but will be produced at a reduced cost as a result of less
product being put into the snack as compared to the products in the School
Breakfast Program and the National School Lunch Program.

SOURCES, RAW MATERIALS AND PRINCIPAL SUPPLIERS

The Company has agreements with several food suppliers to provide high-quality,
specially blended ingredients 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, Knott's Berry Farm, and Rosarita. See "Patents, Trade
Marks, Licences and other Agreements or Labor Contracts" under this item and
Exhibit 6.4 - License Agreement for more information.

In addition to Hunt-Wesson, the Company's major suppliers include La Tapatia for
corn and cinnamon chips, Gage Industries for trays, Acorn for boxes and
dividers, Multi-Pak for film, Best Labels for labels and Real Fresh for cheese
sauce. To date, these have been the primary suppliers. However, the Company has
used other suppliers, including Pioneer Packing for boxes and dividers,
Ampersand for labels, Associated Bag Company for film, and Warnock Tortillas for
chips. The Company has been using its current suppliers because they provide the
best price and terms. The Company will periodically seek new suppliers in order
to receive competitive prices and terms.



<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                     PAGE 9 OF 19

With the exception of Hunt-Wesson, the Company has no written agreements or
licensing agreements with any of its suppliers. The Company is currently on a
normal industry standard 30-day account.

On October 13, 2000, the Issuer entered into a month-to-month co-packing
arrangement with Global Food Management Group, LLC ("GLOBAL") for the packaging
of the Company's Dippers products. A 30 day notice by either party is required
to terminate the arrangement. The original agreement expired on September 1,
2000. The Company intends to continue to furnish Global with all of the
equipment, raw materials and supplies to pack its Dippers products. Under the
terms of the month-to-month arrangement, the Company will pay Global $2,000.00
per month plus labor costs to produce the Dippers products. The Company uses an
automatic tray heat sealer to seal its products. The assembly process requires
10 people and produces 20 units per minute. As a result, the cost of labor
averages $0.16 per unit. See Exhibit 6.5 - Co-Packing Agreement and Exhibit 6.6
- Amendment to Co-Packing Agreement for further details.

The Company is using two different co-packers to produce its new line of
products. These co-packers are producing product on a job-to-job basis. The
product is produced on a cost per case basis. The cost per case will vary
depending on the product and ingredients used. It is the Company's intent to
enter into long-term arrangements with both co-packers. The production of the
new food lines will not require the Company to obtain any type of specialty
equipment. (See Item 6 (b) Principal Products or Services for more information).

The Company's new product line has allowed it to expand the products it offers
to its existing customers, primarily the school food market, and opened
opportunities in new markets such as the military. With the new and expanded
product line, the Company is not solely dependent upon the dipper product line.
The dippers are a unique, creative, and specialized product the Company will
continue to promote, produce, and market in the school food market. The Company
is re-evaluating the production process of its dipper product line.

The Company has been attempting to complete the purchase of a custom-built
horizontal form fill and seal tray line machine which would require no more than
5 persons to operate it and would produce 80 units per minute or approximately
1.5 million units a month, assuming a 16-hour production day. According to the
manufacturer, after certain delays, the machine has been completed. The
manufacturer was to deliver the machine 90 days after the Company made the down
payment. Upon testing the finished machine, the machine failed to perform to the
Company's satisfaction in conformity with its specifications. In addition, the
Company has been unable to obtain favorable financing to complete the purchase
of the machine, and, as a result, the manufacturer is presently unwilling to
make additional corrections to conform the machine to the Company's
specifications. The manufacturer has advised the Company of its intent to sell
the machine. The Company has demanded that the manufacturer return the Company's
deposit. The Company is waiting to hear from the manufacturer.

The Company has submitted its application to the California Department of
Education requesting approval as a Donated Food Processor for the 2001-2002
school year. This will enable the Company to participate in the U.S. Department
of Agriculture's Commodity School Program, which donates agricultural
commodities to schools participating in the National School Lunch Program. See
"Effect of Governmental Regulations on the Company" for more information on the
National School Lunch Program.

If 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 these major
co-packers would be interested in production contracts once the Company's
production reaches two to three million units per month. There is no guarantee
that the Company can expand into the national arena.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

The Company had three major customers in the fiscal year ended April 30, 2001.
These were the Oxnard Unified School District, Azuza Unified School District,
and Community Preparatory Schools Summer Lunch Program, which generated 14.8%,
10.6% and 9.6% of the Company's sales revenue respectively, for a total of
35.4%, similar to three major customers in he prior period. These were Azuza
Unified School District, Bakersfield City Schools and Covina Unified School
District, which generated 34.5% of the Company's sales revenue. The Company has
sold its product to more than 55 customers and is increasing this number and
lessening its dependence on a few major customers. While the addition of new
product lines will further lessen dependence on a few major customers, the loss
of these major clients could have a materially adverse affect on the Company's
business and results of operations.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 10 OF 19

PATENTS/TRADE MARKS/LICENCES/FRANCHISES/CONCESSIONS/ROYALTY AGREEMENTS OR
LABOUR CONTRACTS

 The Company has a licence agreement with ConAgra Brands, Inc. and Hunt-Wesson,
Inc. dated May 19, 1999. See Exhibit #6.4 - License Agreement for more details.
Under the agreement, Hunt-Wesson and ConAgra granted the Company a
non-exclusive, royalty-free licence to use the trademarks PETER PAN(R) and
KNOTT'S BERRY FARMS(R) until December 31, 2008. The Company annually must buy
certain minimum quantities of the licensor's fruit fillings and peanut butter as
set out in Table 3 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.

Table 3.
Minimum Quantities under Licence
--------------------------------------------------------
Calendar year       Fruit             Peanut butter
--------------------------------------------------------
1999                400,000 lbs       200,000 lbs
2000                600,000 lbs       400,000 lbs
2001                800,000 lbs       500,000 lbs
--------------------------------------------------------

The minimum annual quantity for fruit filling and peanut butter increases 10%
over the previous year in each calendar year after 2001.

If the Company fails to purchase the minimum quantities specified by the
licensing agreement then ConAgra / Hunt-Wesson could terminate the licensing
agreement and not permit the Company to use their logos on its products. The
Company has not purchased the minimum quantities specified by the licensing
agreement for 1999, 2000, and 2001. The Company orders only what is required to
fill its orders and maintain a small inventory of finished product. To date Con
Agra / Hunt-Wesson has not terminated the licensing agreement. However, even
though the Company has not fulfilled its obligations under the licensing
agreement, Con Agra / Hunt Wesson will continue to sell the necessary fruit
filling and the peanut butter to the Company. The Company has an outstanding
balance of $6,072 due. See "Results of Operations - Cost of Goods" for more
information.

Jon Stevenson registered copyrights to the cover art that the Company uses on
its packaged meals. Mr. Stevenson, a director and the president of both the
Issuer and of Dippy CA, has assigned his interest in the copyright to the Issuer
under a written agreement dated September 18, 1998, and transferred the
registered copyright into the name of the Issuer in consideration of 850,000
shares in the Issuer's common stock. Currently, the copyright is registered in
the name of Jon Stevenson, who is holding the legal interest in the copyright in
trust for the Issuer. See Exhibit 6.2- Assignment of Copyright.

The Company has no other copyrights; patents or trade marks and is not a party
to any other licence or franchise agreements, concessions, or royalty
agreements.

ITEM 7.  DESCRIPTION OF PROPERTY.

KNOLLWOOD PROPERTY

The Company sub-let its warehouse at 1161 Knollwood Circle, Anaheim, California,
from August 1, 2000, to the end of the lease. The Company moved its
administrative office to 10554 Progress Way, Unit K, Cypress, California. The
Knollwood property consists of a concrete tilt-up building of approximately
10,524 square feet located in a light industrial area. The rent is $5,893 per
month and escalates annually to $5,999 in the final year. The sub-tenant pays
$6,314 per month to the end of the lease, all of which the Company pays to its
landlord under its lease agreement. The lease and the sub-lease expire on
December 31, 2001.

CYPRESS PROPERTY

The Company leases office space at 10554 Progress Way, Unit K, Cypress,
California. The Cypress property is approximately 1,360 square foot portion of a
larger multi-tenant business park. The rent is $1,101.60 per month and escalates
annually to $1,183.20 in the final year. The lease expires on September 30,
2003.


<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 11 OF 19

ITEM 8.  DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

(A)      IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS

Jon Stevenson, Munjit Johal, and Ira Hermann are the directors of the Issuer.
Jon Stevenson and Erin Stevenson are the directors of Dippy CA. Jon Stevenson,
Munjit Johal, and Ira Hermann are the directors of AFFC. The Company's
management and development teams are listed in Table 4.

Table 4.

Officers
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                                       Office
                      --------------------------------------------------------------------------------------------------------------
  Officers                   The Issuer                               Dippy, CA                            AFFC
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                                      <C>                                <C>
Jon Stevenson         CEO, President, Chairman                 CEO, President, Chairman           CEO, President, Chairman

Munjit Johal          Chief Financial Officer, Treasurer,      Chief Financial Officer            Chief Financial Officer, Treasurer
                      Corporate Secretary                                                         Corporate Secretary

Erin Stevenson                                                 Corporate Secretary, Executive VP
                                                               Director of Trade Shows

Ira Hermann           Executive Vice President, COO                                               Executive Vice President, COO

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

</TABLE>


A director holds office until (i) the next annual meeting of the stockholders,
(ii) his successor is elected and qualified, (iii) he resigns, or (iv) is
otherwise duly removed from office.

Jon Stevenson, 39, 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 , one of the largest
broadline distribution companies in the world. Jon left U.S. Foodservice in
November 1997, to focus his full energies on Dippy CA.

Munjit Johal, 46, 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; an executive 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.

Ira Hermann, 54, has been with the Company since May 25, 2001, and oversees all
aspects of the Company's product line being produced. He interfaces with the
co-packers and is responsible for the procurement of ingredients and maintaining
inventory of raw and finished products. He has a Master of Science and a
Bachelor of Science degree in Food Technology and Microbiology from Ohio State
University. Mr. Hermann was the vice president of west coast
operations/technical services for Silverado Foods, Inc, Tulsa, Oklahoma, from
1996 to 2000; vice president of operations for Appletree Companies, Miami,
Florida, from 1991-1996.

Erin Stevenson, 37, has been with the Company since inception. 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.

(B)      IDENTIFY SIGNIFICANT EMPLOYEES

Other than described in Item 8 (a) no other employees are expected to make
significant contributions to the business of the Company.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 12 OF 19

(C)      FAMILY RELATIONSHIPS

 Erin Stevenson is Jon Stevenson's sister.

(D)      INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

None of the Company's directors, officers, promoters or control persons, during
the past five years:

1.       were 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.       were convicted in a criminal proceeding or been subject to a pending
         criminal proceeding (excluding traffic violations and other minor
         offenses);

3.       were 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, except for (1) Erin Stevenson who voluntarily petitioned
         into bankruptcy in February 1998 and was discharged in April 1998; or


4.       were 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 9.  REMUNERATION OF DIRECTORS AND OFFICERS.

The Company's remuneration of Directors and Officers for the past fiscal year is
listed in Table 5.

Table 5.
------------------------------------------------------------
Name and capacity                    Aggregate remuneration
------------------------------------------------------------
Jon Stevenson, President, CEO        $48,000
------------------------------------------------------------

The Company entered into employment agreements with Jon Stevenson, Munjit Johal,
and Erin Stevenson effective May 2, 2001. See Exhibits 6.21, 6.22 and 6.23 for
more information. Mr. Stevenson's agreement provides (i) annual base salary of
$48,000 which may be paid in cash or with shares of the Issuer's common stock,
at officer's election; (ii) the receipt of 500,000 shares of the Issuer's common
stock each year the Company increases gross sales by at least 20%; (iii) option
to purchase 1,000,000 shares of the Issuer's common stock and (iv) a bonus based
on performance and goals mutually determined. Mr. Johal's agreement provides (i)
annual base salary of $36,000 which may be paid in cash or with shares of the
Issuer's common stock, at officer's election; (ii) receipt of 250,000 shares of
the Issuer's common stock as inducement to continue with the Company; (iii)
option to purchase 500,000 shares of the Issuer's common stock; and (iv) a bonus
based on performance and goals. Ms. Stevenson's agreement provides (i) annual
base salary of $41,200 which may be paid in cash or with shares of the Issuer's
common stock, at officer's election; (ii) receipt of 250,000 shares of the
Issuer's common stock as inducement to continue with the Company; (iii) option
to purchase 500,000 shares of the Issuer's common stock; and (iv) a bonus based
on performance standards and goals mutually determined.

The employment agreements provide that if the officer's employment is terminated
before the expiration of the term, and such termination is attributable to (i) a
change in control, (ii) a termination by executive for good reason, or (iii) the
Company's election to terminate, then the Company will pay to the officer, in a
lump sum and without discount to present value, (1) an amount equal to the
annual salary due to the officer for the balance of the term, but in no event
will such amount total less than an amount equal to two years of salary, and (2)
any declared but unpaid annual bonus, or if not declared, the officer's average
annual bonus earned for the two prior fiscal years.

The Issuer has not yet issued Mr. Johal and Ms. Stevenson their
respective 250,000 shares of common stock. The options to be granted to Mr.
Stevenson, Mr. Johal and Ms. Stevenson will vest in equal increments for a
period of four years. Each option shall expire ten (10) years from the effective
date. The exercise price for each share of common stock is $0.15. While these
officers have been granted the right to receive the above-mentioned options, the
Company's stock option plan has not yet been formally adopted.

The Company has no arrangements with any of its directors to compensate them for
their services as directors.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 13 OF 19

ITEM 10.   SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS.

Table 6
Security Ownership of Management and Certain Securityholders

<TABLE>

-------------------------------------------------------------------------------------------------------------
              (1)                             (2)                            (3)                    (4)
                                                                     Number and Nature of         Percent
        Title of Class             Name and Address of Owner         Beneficial Ownership        of Class*
-------------------------------------------------------------------------------------------------------------
<S>                              <C>                                      <C>                      <C>
Common Stock                     Jon Stevenson                            3,810,000                12.81
                                 379 Newport Avenue #9
                                 Long Beach, California 90814
Common Stock                     Munjit Johal                                 0                    0.00
                                 42 Rockwood
                                 Irvine, California 92614
Common stock                     Erin Stevenson                               0                    0.00
                                 1948 Lave Avenue
                                 Long Beach, California 90815
Common Stock                     Ira Hermann                             1,000,000**               3.36
                                 3412 East Barrington
                                 Orange, California 92069
Common Stock                     All Directors and Officers               4,810,000              16.17***
                                 as a Group
-------------------------------------------------------------------------------------------------------------

</TABLE>


*The listed beneficial owner has no right to acquire any shares within 60 days
of the date of this Form 10-KSB from options, warrants, rights, conversion
privileges or similar obligations.
**Received 333,333 shares free and clear of all encumbrances at closing of AFFC
acquisition. The remaining 666,667 are held in pledge to the Issuer to be
distributed in two equal installments over two years, pending satisfaction of
certain conditions. Until or unless the Issuer has cause to take permanent
possession of the pledged shares, Mr. Hermann is entitled to exercise any and
all voting and other consensual rights pertaining to the pledged shares.
*** Represents percentage of 29,734,004 shares outstanding at July 31, 2001.

NON-VOTING SECURITIES

The Issuer has not issued any non-voting securities.

OPTIONS, WARRANTS AND RIGHTS

Since Issuer's incorporation, no stock options, stock appreciation rights, or
long-term incentive plans have been granted, exercised or repriced. The Company
has entered into employment agreements, providing stock options, with three of
its officers. While certain officers have been granted the right to receive
options, the stock option plan has not yet been finalized and no stock options
have been granted.

ITEM 11.   INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.

(A)      RELATIONSHIPS WITH INSIDERS

One of the Issuer's stockholders immediate family is a member of the Company's
outside legal firm. The Company incurred legal fees to that law firm totaling
$66,544 during fiscal 2000 and 2001. In April 2000, the law firm elected to
convert $71,788 of accrued amounts due from the Company into 478,585 shares of
the Company's stock.

During the last fiscal year the Issuer incurred $72,485 of convertible debt from
a firm owned by a family member of the Company's Chief Financial Officer and
$162,000 of convertible debt from current stockholders. The convertible debt
bears interest at 10% to 12%, payable monthly, is unsecured, due at various
dates between May 2001 and January 2002, and is convertible at the option of the
payee into shares of the Issuer's common stock at a per share price equal to the
average closing price of the Issuer's stock from the date of the note to the
date of conversion.


(B)     TRANSACTIONS WITH PROMOTERS

Mr. Jon Stevenson is the only promoter of the Company. Mr. Stevenson has not
received anything of value from the Company nor is he entitled to receive
anything of value from the Company for services provided as a promoter of the
Company.


<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 14 OF 19

                                     PART II

ITEM 1.  MARKET PRICE OF DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
         SHAREHOLDER MATTERS.

(A)      MARKET INFORMATION

The Issuer's common stock has been quoted on the NASD OTC Bulletin Board since
October 1999, under the symbol "DPPI". Table 7 gives the high and low bid
information for each fiscal quarter since the Issuer's common stock has been
quoted. The bid information was obtained from mytrack.com, and StockWatch.com,
the Internet site of Track Data Corporation, and reflects inter-dealer prices,
without retail mark-up, markdown or commission, and may not represent actual
transactions.

-----------------------------------------------------------------------------
           Table 7.
           High & Low Bids
          -------------------------------------------------------------------
           Period ended          High          Low         Source
          -------------------------------------------------------------------




          31 October 1999        0.68          0.26        StockWatch.com
          31 January 2000        1.22          0.44        StockWatch.com
          30 April 2000          1.07          0.44        StockWatch.com
          30 July 2000           0.62          0.45        StockWatch.com
          31 October 2000        0.30          0.16        Nasdaq.com
          31 January 2001        0.40          0.07        Nasdaq.com
          30 April 2001          0.22          0.15        Nasdaq.com
          31 July 2001           0.135         0.12        Nasdaq.com
          10 August 2001         0.135         0.125       Nasdaq.com
          -------------------------------------------------------------------

(B)      HOLDERS

The Issuer has approximately 1,200 registered holders of shares of common stock.

(C)      DIVIDENDS

The Issuer has declared no dividends on its common stock and is not subject to
any restrictions that limit its ability to pay dividends on its Shares of common
stock.

ITEM 2.  LEGAL PROCEEDINGS.

The Company is not a party to any pending legal proceedings and, to the best of
the Company's knowledge, none of the Company's property or assets are the
subject of any pending legal proceedings, except for the following:

FEEDBACK FOUNDATION, INC.

A dispute has arisen between the Company and its former co-packer, Feedback
Foundation, Inc., regarding two invoices totaling $49,620. The dispute arises
from the spoilage of salsa used in the production of Nacho Dippers. The
Company's investigation revealed that the spoilage occurred while the salsa was
being prepared for production. As a result of the quality control standards of
the Company, there was no consumption of the defective product. In the opinion
of management, the preparation of the ingredients and the production of product
is within the scope of the co-packer's control and responsibility. On March 16,
2001, the Company reached a settlement agreement with Feedback at no financial
cost to the Company. As a result, the Company reversed $48,562 of accrued
expenses related to this litigation.

AL DIAMOND

The Company believes Mr. Diamond failed to perform his obligations under the
Settlement and has taken the position that the Settlement Agreement with Mr.
Diamond is null and void. Management has advised Mr. Diamond that no further
payments will be forthcoming. Management is awaiting a response from Mr.
Diamond.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 15 OF 19

SOCOPAC, INC.

On April 19, 2001, SOCOPAC filed a lawsuit for non-payment of the remaining
balance of two invoices totaling $23,770.75. The outstanding balance is
$11,885.38. The invoices are for the acquisition of roll stock. The Company paid
a 50% down payment and took delivery of half the stock. The remaining stock is
warehoused at SOCOPAC. Management believes that it will be able to amicably
resolve the matter.

PAYROLL LIABILITIES

Dippy owes payroll taxes in the amount of $9,264 including $712 in penalties and
$81 in interest for the first and second quarter of 2001. The Internal Revenue
Service has granted the Company an extension through August 31, 2001, to pay the
back taxes.

ITEM 3.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

Not Applicable

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 fourth quarter of the fiscal year covered by
this report.

ITEM 5. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The Company is not aware of any failures to file a required Form during the
period covered by this report. All reports were filed with the SEC on a timely
basis, except for Jon Stevenson's filing of Form 5 (Annual Statement of Changes
in Beneficial Ownership and Ira Hermann's filing of Form 3 (Initial Statement of
Beneficial Ownership of Securities).

ITEM 6.  REPORTS ON FORM 8-K.

There were no reports on Form 8-K filed by the Company during the quarter ended
April 30, 2001.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

Management's discussion and analysis of the Company's financial condition and
the results of its operations and other sections of this report contain forward
looking statements that are based on the current beliefs and expectations of the
Company's management, as well as assumptions made by, and information currently
available to, the Company's management. These statements include those regarding
general economic and food industry trends. Because these statements involve
risks and uncertainties, actual actions and strategies and the timing and
expected results may differ materially from those expressed or implied by the
forward-looking statements, and the Company's future results, performance or
achievements could differ materially from those expressed in, or implied by, any
forward-looking statements. Future events and actual results could differ
materially from those set forth in or underlying the forward-looking statements.

This Annual Report on Form 10-KSB for the year ended April 30, 2001contains
"forward-looking" statements within the meaning of the Federal securities laws.
These forward-looking statements involve a number of risks and uncertainties,
including the development and market acceptance of products, the ability to
secure additional sources of financing, the ability to reduce operating
expenses, acquisition of processing equipment to reduce cost of sales, and other
factors described in the Company's filing with the Securities and Exchange
Commission. The results that the Company achieves may differ materially from any
forward-looking statements due to these risks and uncertainties. The
forward-looking statements in this annual report on Form 10KSB for the fiscal
year ended April 30, 2001, are subject to risks and uncertainties that could
cause actual results to differ materially from this results expressed in or
implied by the statements contained in this report.

THE FOLLOWING PRESENTATION OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF DIPPY
FOODS, INC. SHOULD BE READ IN CONJUNCTION WITH DIPPY FOODS CONSOLIDATED
FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED HEREIN.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 16 OF 19

Dippy 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 Company is intending to expand into the National
School Breakfast and After School Snack Programs.

The Company'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. The Company has
designed three new types of dippers to meet the standards of the National School
Breakfast program.

The acquisition of AFFC during 2001 has resulted in the Company publicly
introducing new products. The new line of products include bagels (plain,
cinnamon/raisin, blueberry, whole wheat, bagel & cream cheese), scones
(chocolate chip, white chocolate chip, orange cranberry blueberry), focacia
breads (pesto/onion, tomato herb), bagel sandwiches (ham & cheese, turkey &
cheese, roast beef & cheese), bagel breakfast sandwiches (sausage & egg, sausage
& cheese, egg & cheese), and sandwiches (ham & cheese, turkey & cheese, roast
beef & cheese).

The Company has developed three new products for the After School Snack Program,
(1) animal crackers and fruit dip, (2) chips and salsa (no cheese), (3) peanut
butter and graham crackers. See "Effect of Governmental Regulations on the
Company's Business" for more information on these programs. The Company will not
accept purchase orders for the After School Snack Program until the packaging is
complete. The Company has successfully completed its research and development,
taste test, and customer acceptance. The Company expects to begin production of
the after school snack meals in January 2002.

The Company has four full-time employees.

Dippy has incurred significant losses since inception, and as of April 30, 2001
had accumulated net losses of $ 1,814,239. Included in this accumulated deficit
is $472,000 in non-cash expenses related to the recording the fair value of a
director's uncompensated services of $100,000 and a $372,000 settlement payable
to a former director.

CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 2001 AND 2000


Table 8.
Actual Results For Fiscal 2001 Compared to Fiscal 2000

--------------------------------------------------------------------------------
                                           Fiscal 2001   Fiscal 2000  Percentage
                                                $             $         change
--------------------------------------------------------------------------------
Revenues                                        100,152      320,581     (69) %
Costs of goods sold                              83,651      247,239     (66)
Gross Profit                                     16,501       73,342     (77)
Selling, general, & administrative expenses     482,171      503,455      (9)
Interest expense                                 64,524       49,129      31
Net loss                                      (480,465)    (479,242)      (4)
--------------------------------------------------------------------------------

REVENUES

Revenue decreased $220,429 69% from $320,581 in fiscal 2000 to $100,152 fiscal
2001 primarily due to (1) the school food service industry underwent a major
re-evaluation of the use of peanut butter which resulted in several district
discontinuing peanut butter products, (2) the Company was not able to complete
the acquisition of the form, fill, and seal machine, and (3) the temporary
equipment was not able to meet capacity.

Revenue is expected to increase during fiscal 2002 due to the production of the
new breakfast line and the introduction of the new product line resulting from
the acquisition of AFFC. The Company's new product line will allowed it to
expand the products it offers to its existing customers, primarily the school
food market, and opened opportunities in new markets such as the military. With
the new and expanded product line, the Company is not solely dependent upon the
dipper product line. The dippers are a unique, creative, and specialized product
the Company will continue to promote, produce, and market in the school food
market. The Company is re-evaluating the production process of its dipper
product line.

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 17 OF 19

COST OF SALES

Cost of sales decreased $ 163,588 or 66% from $247,239 in fiscal 2000 to $83,651
in fiscal 2001. As a percent of revenue, the gross margin decreased from
23% in fiscal 2000 to 16% in fiscal 2001. These changes were primarily due to
the decrease in sales, which required the purchase of fewer ingredients.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased in fiscal 2001 from
fiscal 2000 by $21,284 due primarily to a decrease in rent of $24,290, and legal
fees of $26,840. With the exception of an increase in advertising expense for
the launch of the new product line, the Company 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

The Company has deferred tax assets of approximately $555,000 at April 30, 2001,
and $361,000 at April 30, 2000. Management has established a valuation allowance
equal to the full amount of the deferred tax assets because the Company's
ability to use these losses is uncertain.

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 fiscal 2000 to fiscal 2001 by $15,395 or 31% due
primarily to interest accrued on notes payable.

LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 2001, the Company had $ 77 in cash, and a working capital
deficit of $780,658. During the year ended April 30, 2001, cash decreased by
$4,558 and the Company used $259,358 in operations, primarily due to the
operating loss of the Company of $480,465 and a decrease in working capital
deficit of $148,873. This decrease in working capital was primarily due to
changes in maturity of convertible debt and a settlement of a payable. The
Company used $8,679 in investing activities, primarily due to the purchase of
equipment. The Company generated $263,479 in financing activities, primarily due
to net proceeds from issuance of notes payable, an increase in the line of
credit and repayment of related party loans. However, the Company has
accumulated a deficit of $1,834,239 since inception and has a stockholders'
deficit of $646,982 at April 30,2001. Based on these factors, among others, the
Company's independent certified public accountants included an uncertainty
paragraph in their report indicating there is substantial doubt about the
Company's ability to continue as a going concern.

The Company anticipates funding its working capital needs for the next twelve
months through (1) the equity capital markets, (2) increased sales with the
addition of the breakfast line, (3) introduction of the new product line
consisting of bagels (plain, cinnamon/raisin, blueberry, whole wheat, bagel &
cream cheese), scones (chocolate chip, white chocolate chip, orange cranberry
blueberry), focacia breads (pesto/onion, tomato herb), bagel sandwiches (ham &
cheese, turkey & cheese, roast beef & cheese), bagel breakfast sandwiches
(sausage & egg, sausage & cheese, egg & cheese), and sandwiches (ham & cheese,
turkey & cheese, roast beef & cheese), and (4) further reductions in overhead
and cost of sales.

Although the foregoing actions are expected to cover the Companies anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months, no assurance can be given that the Company 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 new school districts, the military market, and developing a new retail
strategy with the new product line. The Company cannot ensure, however, that
these plans will be successful.


<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 18 OF 19

The Company has entered into employment agreements with three of its full-time
employees that doubles payroll. However, these employees are still being
compensated under their old pay structure.

INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY

The Company has funded its operations principally from borrowings secured by
notes payable.

DEBT INSTRUMENTS

The Company borrowed $278,425 from the lenders set out in the table 9.

Table 9.
Promissory Notes
Lender                            Date                   Principal Sum
-----------------------------------------------------------------------
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
LeafPro Technology, Inc.          August 17, 2000             12,500.00
LeafPro Technology, Inc.          September 19, 2000          14,985.00
LeafPro Technology, Inc.          October 2, 2000             20,000.00
LeafPro Technology, Inc.          November 17, 2000           25,000.00
Silverado Farms, Inc.             November 24,2000            25,000.00
Silverado Farms, Inc.             December 22, 2000            6,000.00
Silverado Farms, Inc.             January 12,2001              5,000.00
Silverado Farms, Inc.             January 24, 2001             8,000.00
Silverado Farms, Inc.             January 31, 2001             8,000.00
Advance ResourceTechnologies      March 27, 2001              24,980.00
Advance ResourceTechnologies      May 7, 2001                 10,980.00
Advance ResourceTechnologies      May 17, 2001                 7,980.00
                                                            -----------
                                                            $278,425.00
-----------------------------------------------------------------------

The Company 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 with the exception of the notes to LeafPro Technology, Inc., and
Advance Resource Technologies, Inc., which bear interest at a rate of 10% per
annum. The Company 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. The Company 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 the Company 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 the Company at a price per share that is equal to the average
closing price of the Company's common stock from the date of the promissory note
to the date of conversion.

The following debt has been converted into restricted shares of the Company's
common stock:

Lender                               Amount     Accrued Interest      Shares
------------------------------------------------------------------------------
Bellevue Investments Ltd.           $200,000        $25,385          360,615
Silverado Farms, Inc                $283,381        $47,950          710,631
Money Layer Ltd.                    $100,000        $12,621          270,074


Jon Stevenson advanced the Company $30,423 by selling his personal shares for
working capital purposes as follows:

                      Date                  Amount
                  -----------------------------------
                   04/17/01                 $ 2,977
                   05/01/01                 $ 1,614
                   05/03/01                 $ 1,524
                   05/17/01                 $ 7,608
                   05/30/01                 $ 6,700
                   06/11/01                 $10,000

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 19 OF 19

The Company will repay Mr. Stevenson by issuing him shares in an amount equal to
the number of shares he sold in order to provide the Company with working
capital.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes account and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measure of those instruments at fair value. SFAS 133, as amended, by SFAS 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company currently does not engage in derivative or hedging activities,
and accordingly, there will be no impact to its consolidated financial
statements upon implementation in the Company's fiscal year 2002.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB
101 summarizes certain areas of the Staff's views in applying accepted
accounting principles to revenue recognition in financial statements. The
Company believes that its current revenue recognition policies comply with SAB
101.

In March 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations", which eliminates the pooling method of accounting for business
combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a business
combination. This portion of SFAS 141 is effective for business combinations
completed after June 30, 2001. The Company does not expect SFAS will have a
material impact on the Company's financial position or results of operations.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for purchased goodwill and intangible assets. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized and will be
tested for impairment annually. SFAS 142 is effective for fiscal years beginning
after December 15, 2001, with earlier adoption permitted. The Company has not
yet determined the impact on the Company's financial position or results of
operations as a result of the future adoption of SFAS 142.

INFLATION

The Company believes that inflation will have a material impact on the Company's
future operations particularly with respect to ingredients such as meats,
cheese, cream cheese, and eggs, for the new product line.

                                    PART F/S

See Index to Financial Statements on page F-1.

                                    PART III

ITEMS 1 AND 2.    INDEX TO AND DESCRIPTION OF EXHIBITS.

<TABLE>

EXHIBIT      DESCRIPTION                                                                                          STATUS
<S>          <C>                                                                                                   <C>

2.1          Corporate Charter filed as an Exhibit to Dippy Food's registration                                    Filed
             statement on Form 10-SB filed on April 17, 2000, and incorporated
             herein by reference.

2.2          Articles of Incorporation filed as an Exhibit to Dippy Food's                                         Filed
             registration statement on Form 10-SB filed on April 17, 2000, and
             incorporated herein by reference.

2.3          Certificate of Amendment to Articles of Incorporation changing the                                    Filed
             Issuer's name to Dippy Foods, Inc. filed as an Exhibit to Dippy
             Foods Inc.'s registration statement on Form 10-SB filed on April 17,
             2000, and incorporated herein by reference.

2.4          Bylaws filed as an Exhibit to Dippy Foods Inc.'s registration                                         Filed
             statement on Form 10-SB filed on April 17, 2000, and incorporated
             herein by reference.

</TABLE>

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 20 OF 19

<TABLE>


EXHIBIT      DESCRIPTION                                                                                          STATUS
<S>          <C>                                                                                                   <C>


3            Instruments defining the rights of security holders                                                   None

5            Voting Trust Agreement                                                                                None

6.1          Amended Exchange Agreement dated September 17, 1998, among Dippy Foods, Inc. (Neveda), Dippy          Filed
             Foods, Inc. (California) and the shareholders of Dippy Foods, Inc. (California) for the Issuer's
             acquisition of Dippy Foods, Inc.,  (California) filed as an Exhibit to Dippy Foods Inc.'s
             registration statement on Form 10-SB filed April 17, 2000, and incorporated herein by reference.

6.2          Assignment of Copyright dated September 18, 1998 between Jon Stevenson, as assignor, and Dippy       Filed
             Foods, Inc. (Nevada), as assignee filed as an Exhibit to Dippy Foods Inc.'s registration
             statement on Form 10-SB filed on April 17, 2000, and incorporated herein by reference.

6.3          Standard Industrial/Commercial Single-tenant Lease--Gross dated December 16, 1998, between Ae Sil     Filed
             Park as lessor and Dippy Foods, Inc. as lessee for the lease of the Knollwood Circle property
             filed as an Exhibit to Dippy Foods Inc.'s Form 10-SB filed on April 17, 2000, and incorporated
             herein by reference.

6.4          License Agreement dated May 19, 1999, between ConAgra Brands, Inc. and Hunt-Wesson, Inc. as          Filed
             licensor and Dippy Foods, Inc. as licensee filed as an Exhibit to Dippy Foods Inc.'s Form 10-SB
             filed on April 17, 2000, and incorporated herein be reference.

6.5          Co-Packing Agreement dated October 4, 1999, between Dippy Foods, Inc. (Nevada) and Global Food       Filed
             Management Group, LLC filed as an Exhibit to Dippy Foods Inc.'s Form 10-SB filed on April 17,
             2000, and incorporated herein by reference.

6.6          Amendment to Co-Packing Agreement dated January 24, 2000, between Dippy Foods, Inc. (Nevada) and     Filed
             Global Food Management Group, LLC filed as an Exhibit to Dippy Foods Inc.'s registration
             statement on Form 10-SBA filed on April 17, 2000, and incorporated herein by reference.

6.7          Form of Subscription Agreement used in March 7, 1998 Reg D Rule 504 private placement of             Filed
             6,000,000 shares at $0.003 per share filed as an Exhibit to Dippy Foods Inc.'s registration on
             Form 10-SB filed on April 17, 2000, and incorporated herein by reference.

6.8          Form of Subscription Agreement used in April 16, 1998 Reg D Rule 504 private placement of 30,000     Filed
             shares at $0.01 per share filed as an Exhibit to Dippy Foods Inc.'s Form registration statement
             on Form 10-SB filed on April 17, 2000, and incorporated herein by reference.

6.9          Blank Form of Subscription Agreement used in March 31, 1999 Reg D Rule 504 private placement of      Filed
             4,980,000 shares at $0.05 per share filed as an Exhibit to Dippy Foods Inc.'s registration
             statement on Form 10-SB filed on April 17, 2000, and incorporated herein by reference.

6.10         Settlement Agreement dated February 1, 1999, between Dippy Foods, Inc. (California) and              Filed
             Alexander Diamond as an Exhibit to Dippy Foods Inc.'s registration statement on Form 10-SB filed on
             April 17, 2000, and incorporated herein by reference.

6.11         Blank Form of convertible promissory note given by Dippy Foods, Inc. (Nevada) payable in 12          Filed
             months and bearing interest at 12% per annum as an Exhibit to Dippy Foods Inc.'s registration
             statement on Form 10-SB filed on April 17, 2000, and incorporated herein by reference.

6.12         Distributorship Agreement dated July 8, 1999, between Dippy Foods, Inc. and International Foam       Filed
             Solutions, Inc. filed as an Exhibit to Dippy Foods Inc.'s registration statement on Form 10-SB
             filed on April 17, 2000, and incorporated herein by reference.

</TABLE>


<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 21 OF 19

<TABLE>


EXHIBIT      DESCRIPTION                                                                                          STATUS
<S>          <C>                                                                                                   <C>


6.13         Brokerage Agreement dated March 25, 1999, between Dippy Foods and Anderson Chamberlin, Inc.           Filed
             filed as an Exhibit to Dippy Foods Inc.'s registration statement on Form 10-SB filed on April 17,
             2000, and incorporated herein by reference.

6.14         Blank Form of Subscription Agreement for Dippy CA Shareholders filed as an Exhibit to Dippy          Filed
             Foods Inc.'s registration statement on Form 10-SB filed on April 17, 2000, and incorporated
             herein by reference.

6.15         1999 - 2000 Donated Food Distributor Agreement dated May 21, 1999, among ASR Food Distributors,      Filed
             Dippy Foods, Inc. and Feedback Foundation, Inc.'s filed as an Exhibit to Dippy Foods Inc.'s
             registration statement on Form 10-SB filed on April 17, 2000, and incorporated herein by reference.

6.16         Master Donated Food Processing Agreement dated June 30, 1999, between Dippy Foods, Inc.              Filed
             (California) and California Department of Education filed as an Exhibit to Dippy Foods, Inc.'s
             registration statement on Form 10-SB filed on April 17, 2000, and
             incorporated herein be reference.

             Stock Purchase and Share Exchange Agreement dated as of May 25, 2001, by and among Dippy Foods,
6.17         Inc., a Nevada corporation, Americas Favorite Food Corp., a California corporation (AFFC), and       Included
             the AFFC shareholders.

6.18         Articles of Exchange dated May 25, 2001 between Dippy Foods, Inc. (Nevada) and Americas Favorite     Included
             Food Corp.

6.19         Business Development Agreement dated May 25, 2001 between Americas Favorite Food Corp. and US Foods  Included
             International, LLC.

6.20         Pledge Agreement dated May 25, 2001 among Dippy Foods, Inc. (Nevada), each shareholder of Americas   Included
             Favorite Food Corp., and Pollet & Richardson.

6.21         Employment Agreement dated May 2, 2001 among Dippy Foods, Inc. (Nevada), Dippy Foods, Inc.           Included
             (California) and Jon Stevenson.

6.22         Employment Agreement dated May 2, 2001 among Dippy Foods, Inc. (Nevada), Dippy Foods, Inc.           Included
             (California) and Munjit S. Johal.

6.23         Employment Agreement dated May 2, 2001 among Dippy Foods, Inc. (Nevada), Dippy Foods, Inc.           Included
             (California) and Erin Stevenson

7            Material Foreign Patents                                                                             None

12           Additional Exhibits                                                                                  None

</TABLE>

<PAGE>

DIPPY FOODS, INC.                   FORM 10-KSB                    PAGE 22 OF 19

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
Dippy Foods, Inc. has caused this report to be signed on its behalf by the
undersigned, who is duly authorized.


                          DIPPY FOODS, INC.

                          By:      "Jon Stevenson"
                               -------------------------------------------------

                          Name and Title: Jon Stevenson - Director and President
                                          --------------------------------------

                          Dated:   August 13, 2001
                                 --------------------------

In accordance with the Securities Exchange Act of 1934, this report to be signed
below by the following persons on behalf of Dippy Foods, Inc. and in the
capacities and on the dates indicated.


                          By:      "Jon Stevenson"
                               -------------------------------------------------

                          Name and Title: Jon Stevenson - Director and President
                                          --------------------------------------

                          Dated:   August 13, 2001
                                 --------------------------

                          By:      "Munjit Johal"
                               -------------------------------------------------

<TABLE>
                         <S>               <C>

                          Name and Title:   Munjit Johal - Director, Secretary and Treasurer
                                           --------------------------------------------------

</TABLE>


                          Dated:   August 13, 2001
                                 --------------------------

<PAGE>
                                DIPPY FOODS, INC.



                        CONSOLIDATED FINANCIAL STATEMENTS


                       YEARS ENDED APRIL 30, 2001 AND 2000







<PAGE>


                                DIPPY FOODS, INC.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Certified Public Accountants                           F-2

Consolidated Balance Sheet                                                   F-3

Consolidated Statements of Operations                                        F-4

Consolidated Statements of Stockholders' Deficit                             F-5

Consolidated Statements of Cash Flows                                        F-6

Notes to Consolidated Financial Statements                                   F-8

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
Dippy Foods, Inc.


     We have audited the accompanying consolidated balance sheet of Dippy Foods,
Inc. (the "Company") as of April 30, 2001, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
years in the two-year period ended April 30, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the financial statements. 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 financial position of Dippy Foods,
Inc. as of April 30, 2001, and the results of its operations and its cash flows
for each of the years in the two-year period ended April 30, 2001, in conformity
with accounting principles generally accepted in the United States of America.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 of
the consolidated financial statements, the Company has had substantial operating
losses and limited operating history resulting in an accumulated deficit of
$1,834,239 since inception, negative working capital of $780,658, and a
stockholders' deficit of $646,982 at April 30, 2001. These conditions, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                BDO SEIDMAN, LLP


Costa Mesa, California
July 26, 2001
                                       F-2


<PAGE>

                                DIPPY FOODS, INC.


                           CONSOLIDATED BALANCE SHEET

                                                                      April 30,
                                                                     -----------
                                                                        2001
                                                                     -----------
ASSETS

Current assets:
   Cash                                                              $       77
   Restricted cash                                                       10,000
   Accounts receivable                                                    1,358
   Inventory                                                             56,687
   Prepaid expenses                                                       2,042
                                                                     ----------

       Total current assets                                              70,164
                                                                     ----------

Fixed assets, net                                                        38,883
Deposits                                                                 96,398
                                                                     ----------

                                                                     $  205,445
                                                                     ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT

 Current liabilities:
   Accounts payable                                                  $   98,173
   Accrued interest, related party                                       18,125
   Accrued expenses                                                     123,006
   Convertible notes payable, related parties                           234,485
   Convertible notes payable                                             24,980
   Current portion of long-term debt                                      4,053
   Settlement payable                                                   328,000
                                                                     ----------

Total current liabilities                                               830,822

Long-term debt, net of current portion                                   21,605
                                                                     ----------

Total liabilities                                                       852,427
                                                                     ----------

COMMITMENTS AND CONTINGENCIES

Stockholders' deficit:
   Common stock, authorized 200,000,000 shares, at $0.001 par value;
     21,399,171 common shares subscribed or issued and outstanding       20,650
   Additional paid-in capital                                         1,166,607
   Accumulated deficit                                               (1,834,239)
                                                                     ----------

Total stockholders' deficit                                            (646,982)
                                                                     ----------

                                                                     $  205,445
                                                                     ==========

           See report of independent certified public accountants, and
            accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>


                                DIPPY FOODS, INC.


                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                              Years Ended
                                                                                               April 30,
                                                                                   ----------------------------------
                                                                                       2001                2000
                                                                                   --------------      --------------
<S>                                                                               <C>                <C>
Revenues                                                                          $      100,152     $       320,581

Cost of goods sold                                                                        83,651             247,239
                                                                                  --------------     ---------------

   Gross profit                                                                           16,501              73,342

Selling, general and administrative expenses                                             482,171             503,455
                                                                                  --------------     ---------------

   Loss from operations                                                                 (465,670)           (430,113)

Other income and (expense)
   Interest expense                                                                      (64,524)            (49,129)
   Legal settlement                                                                       48,562                   -
   Gain on disposal of assets                                                              1,167                   -
                                                                                  --------------     ---------------

Net loss                                                                          $     (480,465)    $      (479,242)
                                                                                  ==============     ===============


Basic and diluted weighted average shares outstanding                                 20,246,719          19,579,266
                                                                                  ==============     ===============

Basic and diluted loss per share                                                   $        (.02)$              (.02)
                                                                                  ==============     ===============
</TABLE>

           See report of independent certified public accountants, and
            accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>


                                DIPPY FOODS, INC.


                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                       YEARS ENDED APRIL 30, 2001 AND 2000
<TABLE>
<CAPTION>
                                 Common Stock Issued                 Common Stock
                                                                     Subscription
                          -----------------------------------   -----------------------
                           Number                  Additional    Number                                      Total
                             of         Common      Paid-In        of                      Accumulated    Stockholders'
                           Shares        Stock      Capital      Shares        Amount        Deficit        Deficit
                          ----------    --------   ----------   ----------    ---------    ------------   ------------
    <S>                       <C>         <C>        <C>            <C>         <C>          <C>           <C>
BALANCES, May 1, 1999     14,599,266  $  14,599  $   182,534    4,980,000   $  249,000  $    (874,532)$     (428,399)

   Issuance of common
     stock                4,980,000       4,980      244,020   (4,980,000)    (249,000)             -              -

   Net loss                       -           -            -            -            -       (479,242)      (479,242)
                          ----------    --------   ----------   ----------    --------    -----------    -----------

BALANCES, April 30,
   2000                   19,579,266     19,579      426,554            -            -     (1,353,774)      (907,641)

Issuance of common
   stock from
   conversion of debt     1,071,246       1,071      555,645            -            -              -        556,716

Common stock
   subscribed from
   conversion of debt             -           -            -      270,074      112,621              -        112,621

Common stock
   subscribed as
   payment for accrued
   expenses                       -           -            -      478,585       71,787              -         71,787

Net loss                          -           -            -            -            -       (480,465)      (480,465)
                          ----------  ---------- ------------  -----------  ----------  -------------  -------------

BALANCES, April 30, 2001  20,650,512  $  20,650  $   982,199      748,659   $  184,408  $  (1,834,239) $    (646,982)
                          ==========  =========  ===========   ==========   ==========  =============  =============
</TABLE>


           See report of independent certified public accountants, and
            accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>


                                DIPPY FOODS, INC.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               Years Ended
                                                                                                April 30,
                                                                                     ---------------------------------
                                                                                         2001               2000
                                                                                     --------------     --------------
<S>                                                                                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                        $      (480,465)    $     (479,242)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                                           8,850              7,267
     Legal settlement                                                                      (48,562)                -
     Gain on disposal                                                                       (1,167)                -
   Increase (decrease) from changes in:
     Accounts receivable                                                                     7,922             39,572
     Inventory                                                                                (293)           (50,245)
     Prepaid expenses                                                                          311                219
     Deposits                                                                                5,713            (89,579)
     Accounts payable and accruals                                                         230,208             79,451
     Accrued interest, related party                                                        18,125                 -
                                                                                     -------------     --------------

Net cash used in operating activities                                                     (259,358)          (492,557)
                                                                                     -------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                       (8,679)            (2,248)
                                                                                     -------------     --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Restricted cash                                                                          50,000           (50,000)
   Bank overdraft                                                                                -            (9,229)
   Decrease (increase) in line of credit                                                   (44,500)           44,500
   Due to related parties                                                                        -           (30,698)
   Proceeds from issuance of notes payable to related party                                234,485                 -
   Proceeds from issuance of notes payable                                                  24,980           583,381
   Principal payments of notes payable                                                      (1,486)           (2,514)
   Settlement payments                                                                           -           (36,000)
                                                                                     -------------     -------------

Net cash provided by financing activities                                                  263,479           499,440
                                                                                     -------------     -------------

Decrease (increase) in cash                                                                 (4,558)            4,635

Cash, beginning of period                                                                    4,635                 -
                                                                                     -------------     --------------

Cash, end of period                                                                $            77   $         4,635
                                                                                   ===============   ===============

SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
 Cash paid during the year for:
     Interest                                                                      $         2,925    $        2,864
                                                                                   ===============    ===============
</TABLE>

                                      F-6
<PAGE>


                                DIPPY FOODS, INC.


                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED


   NON-CASH FINANCING ACTIVITIES:
   During fiscal 2000, the Company issued 4,980,000 previously subscribed
     shares.

   On February 6, 2001, the Company acquired a vehicle via the issuance of a
     note payable in the amount of $25,971 and $1,200 in cash, along with the
     trade-in of a vehicle with a historical value of $11,302 and a related note
     payable with an unpaid balance of $12,469. The Company recorded related a
     gain on disposal of $1,167.

   On various dates in fiscal 2001, the Company issued or agreed to issue a
     total of 1,341,320 shares of common stock in exchange for $583,381 of notes
     payable and $85,956 of accrued interest.

   In April 2001, the Company exchanged 478,585 shares of common stock as
     payment for $71,787 of accrued legal expenses to a related party (see Note
     4).

See report of independent  certified public accountants,  and accompanying notes
to consolidated financial statements.

                                      F-7

<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Dippy Foods, Inc. ("Dippy" or "Dippy-CA"), a California corporation, was
incorporated on May 30, 1997. Dippy is in the business of developing, processing
and distributing, packaged dipping foods and snacks, for school lunch programs,
sport complexes and disaster relief programs. Dippy commenced operations from
its California offices in January 1998. The Company currently distributes
products to customers in California.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include accounts of Dippy-CA
for all periods presented and the accounts of Dippy-NV. All significant
intercompany accounts and transactions have been eliminated in consolidation.

GOING CONCERN UNCERTAINTY

The accompanying consolidated financial statements have been prepared assuming
that the Company 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 financial statements do not purport to represent realizable or settlement
values. However, the Company has had substantial operating losses and limited
operating history resulting in an accumulated deficit of $1,834,239 since
inception, negative working capital of $780,658, and a stockholders' deficit of
$646,982 at April 30, 2001. These conditions, among others, raise substantial
doubt about the Company'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.

Management is planning to improve cash flow and operating results in two ways.
First, by raising additional capital through private placements of stock, which
will be used to fund its operations and for the purchase of the new equipment
(see Note 8). Second, by increasing sales arising from sales to a number of new
school districts, correctional facilities and the introduction of new products.
However, there is no assurance that such plans will be successful.

REVENUE RECOGNITION

Revenue is recorded when products are shipped to customers.

INCOME TAXES

The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". SFAS
109 requires a company to use the asset and liability method of accounting for
income taxes.

Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
A valuation allowance is provided when management cannot determine whether it is
more likely than not that the deferred tax asset will be realized.

                                   F-8

<PAGE>

                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1--ORGANIZATION,  DESCRIPTION  OF  BUSINESS  AND  BASIS  OF  PRESENTATION,
         CONTINUED

INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out) or market (net
realizable value).

FIXED ASSETS

Fixed assets are stated at cost. Depreciation is provided on the straight-line
method over the estimated useful lives, which are generally not greater than
five years. Fixed assets are reviewed each year to determine whether any events
or circumstances indicate that the carrying amount of the assets may not be
recoverable.

Maintenance and repairs are charged to expense as incurred. Major renewals and
improvements are capitalized. At the time of retirement or other disposition of
property and equipment the cost and accumulated depreciation are removed from
the accounts and any resulting gains or losses are reflected in income.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
contingent liabilities, revenues, and expenses at the date of the consolidated
financial statements and for the periods that the consolidated financial
statements are prepared. Actual results could differ from those estimates and
may have a material impact on the financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes account and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measure of those instruments at fair value. SFAS No. 133, as amended by SFAS No.
137, is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company currently does not engage in derivative or hedging
activities, and accordingly, there will be no impact to its consolidated
financial statements upon implementation in the Company's fiscal year 2002.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB
101 summarizes certain areas of the Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company believes that its current revenue recognition policies comply with SAB
101.

In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving
Stock Compensation." The adoption of this Interpretation did not have a material
impact on the consolidated results of operations or financial position of the
Company.

                                      F-9
<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1--ORGANIZATION,  DESCRIPTION  OF  BUSINESS  AND  BASIS  OF  PRESENTATION,
         CONTINUED

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
which eliminates the pooling method of accounting for business combinations
initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting
for intangible assets and goodwill acquired in a business combination. This
portion of SFAS 141 is effective for business combinations completed after June
30, 2001. The Company does not expect SFAS 141 will have a material impact on
the Company's financial position or results of operations.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for purchased goodwill and intangible assets. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized and will be
tested for impairment annually. SFAS 142 is effective for fiscal years beginning
after December 15, 2001, with earlier adoption permitted. The Company has not
yet determined the impact on the Company's financial position or results of
operations as a result of the future adoption of SFAS 142.

CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK

The Company primarily sells to school districts. See Note 9, Major Customers and
Suppliers. These school districts are located throughout California. The Company
conducts business based on periodic evaluations of its customers' financial
condition and generally does not require deposits. The Company does not believe
a significant risk of loss from concentration of credit exists because these
customers are funded by the State of California or one of its counties.

The Company primarily deals with a few suppliers for purchases of its products
and supplies. The Company does not believe a significant risk of loss exists
because it can obtain these products and supplies from other sources at
comparable prices.

The Company's products meet the standards of the National School Lunch Program
and the Company has been approved for participation in the Commodity School
Program. 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 effect on the Company's operations.

NET LOSS PER SHARE

Basic loss per share includes no dilution and is computed by dividing net loss
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 occur if securities or other contracts (such
as stock options and warrants) to issue common stock were exercised or converted
into common stock. The Company has no outstanding stock options or warrants.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations in the year incurred.
During fiscal 2001 and 2000, $2,387 and $10,078 in research and development
costs were charged to operations.

                                      F-10

<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2--RESTRICTED CASH

Based on a sales agreement, the Company has invested $10,000 in a certificate of
deposit, that has a maturity date of less than one year, as security in the
event of the loss of inventory supplied by the Company to the customer.

The Company also invested $50,000 in a certificate of deposit which matured July
2, 2000 and was used as security against the revolving line of credit, and
subsequently used to pay off the line of credit (Note 6).

NOTE 3--FIXED ASSETS

Fixed assets are summarized as follows:

                                                            April 30,
                                                            ---------
                                                               2001
                                                            ---------

Vehicles                                                    $ 27,171
Equipment                                                     25,813
                                                            ----------

                                                              52,984
Less accumulated depreciation and amortization               (14,101
                                                            ----------

                                                            $ 38,883
                                                            ----------

During the years ending April 30, 2001 and 2000, the Company recorded
depreciation expense of $8,850 and $7,267, respectively.

NOTE 4--RELATED PARTY TRANSACTIONS

On February 1, 1999, the Company entered into a settlement agreement with a
former director whereby the Company agreed to pay the director $96,000 at $4,000
per month for 24 months, plus interest at 5% payable on the final payment. The
Company also agreed to issue 400,000 shares to the former director at 100,000
shares per year for four years. None of these shares have been issued. In
respect of this stock award, the Company recorded a liability and compensation
expense of $276,000, based on the then current fair value of the promised stock.
During fiscal 2000, the Company paid $36,000 of such settlement, however, has
ceased making payments due to management's belief that a violation of the
settlement agreement by the former director.

During fiscal 2000, the Company repaid $30,698 of loans to four shareholders.


One of the Company's stockholders immediate family is a member of the Company's
outside legal firm. The Company incurred legal fees to that law firm during
fiscal 2001 and 2000 totaling approximately $10,000 and $57,000, respectively.
In April 2001, the outside law firm elected to convert approximately $72,000 of
accrued amounts due from the Company into 478,585 shares of the Company's common
stock.

                                      F-11

<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4--RELATED PARTY TRANSACTIONS, CONTINUED

During fiscal 2001, the Company incurred $72,485 of convertible debt from a firm
owned by a family member of an officer of the Company and $162,000 of
convertible debt from current stockholders. The convertible debt bears interest
at 10% to 12%, payable monthly, is unsecured, due at various dates between May
2001 and January 2002, and is convertible at the option of the payee into shares
of the Company's 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. The debt holders of the convertible debt maturing in May 2001 have
informed the Company that they plan on converting the debt to common stock.

The Company has reflected as a fixed asset the financed purchase of a vehicle
(see Notes 3 and 6) that is not held in the Company's name. The Company has
agreed with the owner to assume the obligation therewith.


NOTE 5--CONVERTIBLE NOTES PAYABLE

Convertible notes payable consists of $24,980 in notes payable bearing interest
at 10%, payable monthly, and are unsecured, due in March 2002, and convertible
at the option of the payee into shares of the Company's 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. The debt holder of convertible notes
payable maturing in May 2001 have informed the Company that they plan on
converting the debt to common stock of the Company.

On various dates in fiscal 2001, the Company issued or agreed to issue a total
of 1,341,320 shares of common stock in exchange for $583,381 of notes payable
and $85,956 of accrued interest.

NOTE 6--LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                                                April 30,
                                                                                                ---------
                                                                                                  2001
                                                                                                ---------
<S>                                                                                           <C>
Note payable to bank, interest at 13%, secured by vehicle, payable in sixty
   monthly payments of $593, including principal and interest.                                $ 25,658

Less:  current portion                                                                          (4,053)
                                                                                              ---------

Long-term                                                                                     $ 21,605
                                                                                              ========

Annual future minimum payments under note payable consist of:

                                                                                                Amount
                                                                                              ---------

     2002                                                                                     $  4,053
     2003                                                                                        4,611
     2004                                                                                        5,244
     2005                                                                                        5,965
     2006                                                                                        5,785
                                                                                               --------

                                                                                              $ 25,658
                                                                                              ========
</TABLE>

                                      F-12
<PAGE>

                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company had a line of credit with a bank for borrowings up to $44,500. The
line of credit bore interest at 6.6% per annum. The line of credit was
collateralized by a $50,000 certificate of deposit (Note 2). The line of credit
expired on July 2, 2000 and was paid off with the certificate of deposit.

NOTE 7--INCOME TAXES

As of April 30, 2001 and 2000, deferred tax assets consist of the following:

                                                  April 30,
                                     -----------------------------
                                        2001             2000
                                     ------------     ------------

Federal loss carryforwards         $     474,000    $     308,000
State loss carryforwards                  81,000           53,000
                                     ------------     ------------

                                         555,000          361,000
Less:  valuation allowance              (555,000)        (361,000)
                                     ------------     ------------

                                   $           -    $           -
                                     ------------     ------------

At April 30, 2001 and 2000, the Company has net operating loss carryforwards
(NOL's) of approximately $1,387,000 and $907,000, respectively, for both federal
and state tax purposes.


At April 30, 2001 and 2000, the Company has deferred tax assets of approximately
$555,000 and $361,000, respectively, which primarily relate to net operating
losses. A 100% valuation allowance has been established as management believes
it is more likely than not that the deferred tax assets will not be realized.

The federal and state NOL's expire through April 30, 2021 and April 30, 2011,
respectively.

The Company's valuation allowance increased during 2001 and 2000 by $206,000 and
$178,000, respectively.

NOL incurred prior to September 19, 1998 are subject to an annual limitation due
to the ownership change (as defined under Section 382 of the Internal Revenue
Code of 1986) which occurred as a result of the merger. Unused annual
limitations may be carried over to future years until the net operating losses
expire. Utilization of net operating losses may also be limited in any one year
by alternative minimum tax rules.

NOTE 8--COMMITMENTS

LEASE OBLIGATIONS

The Company leases premises for $5,999 per month through December 31, 2001. In
August 2000, the Company subleased its building for the remaining term of the
lease for a monthly amount equal to the Company's lease.

In September 2000, the Company leased premises for $1,102 per month. The lease
escalates annually to $1,183 in the final year and expires September 30, 2003.

The Company leases a vehicle for $525 per month through October 2002.

                                      F-13
<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8--COMMITMENTS, CONTINUED

Annual future minimum lease payments under operating lease commitments, net of
the building sublease, as of April 30, 2001 are as follows:

  Fiscal Year                                                   Amount
  -----------
                                                              -----------

     2002                                                   $     19,783
     2003                                                         17,126
     2004                                                          5,915
                                                              -----------

     Total minimum lease payments                           $     42,824
                                                              -----------

Rent expense was $39,146 and $69,876 for the years ended April 30, 2001 and
2000, respectively.

LICENSE AGREEMENT

On May 19, 1999, the Company entered into a license agreement with a supplier.
The Company was granted a non-exclusive, royalty-free license to use certain
trademarks until December 31, 2008. The Company annually must buy a minimum of
400,000 pounds of fruit and 200,000 pounds of peanut butter during 1999; 600,000
pounds of fruit and 400,000 pounds of peanut butter during 2000; and 800,000
pounds of fruit and 500,000 pounds of peanut butter during 2001. Purchases of
fruit and peanut butter are to increase by 10% per year between 2002 and 2008,
and the Company must 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 not fulfilled its obligations under
the licensing agreement. However, the licensor has continued to sell to the
Company and has allowed the Company to continue with its trademarks.

EQUIPMENT PURCHASE OBLIGATION

On August 24, 1999, the Company entered into an agreement to purchase a form
fill and seal machine for $161,000. At April 30, 2001 and 2000, the Company had
$81,300 and $75,600 on deposit, respectively. The machines have not been
completed to the Company's satisfaction and a refund of the deposit has been
requested. The Company's management believes it will successfully recover the
deposit.

                                      F-14

<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9--MAJOR CUSTOMERS AND SUPPLIERS

The following table is a listing of all customer with sales exceeding 10% of
total revenue.

                                   Year Ended               Year Ended
          Customer                April 30, 2001          April 30, 2000
  -----------------------------------------------------------------------------

              A                      10.6 %                    13.0 %
              B                         -                      11.2
              C                         -                      10.3
              D                      14.8                         -


The following table is a listing of all vendors with purchases exceeding 10% of
total cost of goods sold.

                                  Year Ended                 Year Ended
         Vendor                 April 30, 2001             April 30, 2000
 -------------------------------------------------------------------------------

            A                      12.7 %                       30.6 %
            B                      14.6                         19.4
            C                      22.7                         17.2
            D                         -                         12.8
            E                      36.5                            -

NOTE 10--STOCK OPTIONS

During fiscal 2001, the Company adopted an Equity Incentive Plan (the "Plan")
under which employees and non-employee directors may be granted options to
purchase shares of the Company's authorized but unissued common stock. Other
awards, such as stock bonuses, may be granted to employees, non-employee
directors, and independent consultants. The exercise price and vesting
provisions are to be determined by the Board of Directors within the limitations
of the Plan. The Board of Directors have reserved 6,000,000 shares of the
Company's common stock available for issuance under the Plan. The Plan must
receive approval from shareholders prior to December 15, 2001. The Company did
not grant any options or awards during fiscal 2001. See options and awards
granted subsequent to fiscal year end (see Note 12).

NOTE 11--LEGAL SETTLEMENT

A dispute had arisen between the Company and its former co-packer. The dispute
arose from the spoilage of salsa used in the production of Nacho Dippers. On
March 16, 2001, the Company reached a settlement agreement with Feedback at no
financial cost to the Company. As a result, the Company reversed $48,562 of
accrued expenses related to this litigation.

                                      F-15

<PAGE>


                                DIPPY FOODS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12--SUBSEQUENT EVENTS

EMPLOYMENT AGREEMENTS

On May 2, 2001, the Company entered into employment agreements with three of its
employees. The employment agreements include, among other things, minimum annual
salaries, which may be paid in cash or common stock at the election of the
Company, with annual cost of living increases, agreement to issue common stock
and immediate grants for options to purchase the Company's common stock at the
then current market price. Additionally, the Company has agreed to issue 500,000
shares of common stock annually to the president and CEO if the Company
increases gross sales by 20% from the previous year. The term of the employment
agreements are three years before automatic one year renewals unless cancelled
by either party. The options granted will vest in equal increments over a
four-year period. Each option shall expire ten years from the grant date. The
exercise price for each share of common stock is $0.15.

The annual future minimum compensation, common stock and stock options granted
and vesting under the employment agreements are as follows:

<TABLE>
<CAPTION>

                                                                                            Stock Options
                                                                                  ----------------------------------
Fiscal year                                  Salaries          Common Stock          Granted            Vesting
-----------
                                          ---------------     ---------------     ---------------    ---------------
<S>                                     <C>                          <C>               <C>                  <C>
   2002                                 $        248,000             500,000           2,000,000            500,000
   2003                                          248,000                   -                   -            500,000
   2004                                          248,000                   -                   -            500,000
   2005                                                -                   -                   -            500,000
                                          ---------------     ---------------     ---------------    ---------------

                                        $        744,000             500,000           2,000,000          2,000,000
                                        ================      ==============           =========          =========
</TABLE>


AFFC STOCK PURCHASE

On May 25, 2001, the Company entered into a stock purchase agreement whereby the
Company received all outstanding common stock of Americas Favorite Foods Corp
("AFFC") in exchange for 8,000,000 shares of the Company's common stock. The
8,000,000 shares are restricted and vest one third immediately and the remainder
over two years based on service requirements of AFFC shareholders. AFFC, a
California corporation, is a shell company owned equally by eight individuals.

SHARES ISSUED FOR ACCRUED EXPENSES

In May 2001, the Company issued 334,833 shares of its common stock to a law firm
for $54,000 of legal services accrued, of which $37,000 was incurred subsequent
to fiscal year end.

                                      F-16