SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended July 31, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File Number: 0-16787
INTERNATIONAL YOGURT COMPANY
(Exact name of registrant as specified in its charter)
Oregon 91-0989395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5858 N.E. 87th Avenue
Portland, Oregon 97220
(Address of Principal (Zip Code)
Executive Office)
(503) 256-3754
(Registrant's telephone number, including area code.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares outstanding of the registrant's common stock, as of
the latest practicable date is:
Class: Common stock outstanding at
July 31, 2,219,793 shares
INTERNATIONAL YOGURT COMPANY
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements 3 - 6
Balance Sheet as of July 31, 1997, 3
(unaudited) and October 31, 1996
Statements of Operations for the 4
Three Months ended July 31, 1997 and 1996
Nine months ended July 31, 1997 and 1996
(all unaudited)
Statements of Cash Flows for the 5
Nine Months ended July 31, 1997 and 1996
(all unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 7 - 8
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of 9
Security Holders
Item 5. Other Information 9-10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL YOGURT COMPANY
BALANCE SHEETS
July 31, October 31,
1997 1996
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 394,014 $ 511,787
Accounts receivable, net 1,019,498 748,683
Inventories 1,872,077 1,569,273
Equipment held for resale, net 28,083 28,083
Other current assets 347,785 209,918
Total current assets 3,661,457 3,067,744
Fixed assets, net 1,889,276 1,970,558
Deferred tax asset 125,000 125,000
Intangible and other long-term assets, net 202,612 190,320
$5,878,345 $5,353,622
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $1,276,000 $ 939,000
Current portion of long-term debt 67,144 108,717
Current obligations under capital lease 33,825 33,825
Accounts payable 1,071,251 1,095,399
Other accrued liabilities 110,195 131,228
Total current liabilities 2,558,415 2,308,169
Long-term debt payable to related parties
and others, less current portion 174,546 186,104
Long term obligations under
capital lease, less current portion 75,269 100,377
Total liabilities 2,808,230 2,594,650
Shareholders' equity
Common stock, nor par value,
30,000,000 shares authorized;
2,247,793 shares issued 4,695,450 4,695,450
Accumulated deficit (1,578,139) (1,911,282)
Less common stock in treasury, 28,000 shares (47,196) (25,196)
Net shareholders' equity 3,070,115 2,758,972
$5,878,345 $5,353,622
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
July 31, July 31,
1997 1996 1997 1996
Sales $2,681,957 $2,521,312 $6,466,883 $5,776,679
Cost of sales 1,841,221 1,951,645 4,374,370 4,162,692
Gross profit 840,736 569,667 2,092,513 1,613,987
Selling and marketing
expenses 360,561 285,067 920,445 801,258
General and administrative
expenses 263,538 254,512 760,504 703,969
Unusual expenses - - - 114,527
Income (loss) from
operations 216,637 30,088 411,564 (5,767)
Other income (expenses)
Interest expense (36,951) (35,308) (110,240) (99,458)
Interest income 4,168 3,278 12,143 9,065
Other income 19,676 9,169 19,676 9,169
Income (loss) before taxes 203,530 7,227 333,143 (86,991)
Provision for income taxes - - - -
Net income (loss) $ 203,530 $ 7,227 $ 333,143 $ (86,991)
Net income (loss)per share $.09 $0.00 $.15 $(.04)
Weighted average number
of shares outstanding 2,223,474 2,191,011 2,244,907 2,189,977
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF CASH FLOWS
For the nine months ended July 31, 1997 and 1996
(Unaudited)
1997 1996
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 333,143 $ (86,991)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Gain on sale of equipment (19,684) -
Depreciation 213,945 177,239
Change in assets and liabilities
Accounts receivable (270,815) (178,491)
Inventories (302,804) 74,398
Other current assets (137,867) (41,248)
Other assets (12,292) 1,283
Accounts payable (24,148) 75,619
Other accrued liabilities (21,033) 52,332
Net cash provided by (used in)
operating activities (241,555) 74,141
Cash flows from investing activities:
Proceeds from sale of equipment 29,000 -
Expenditures for plant and equipment (141,979) (203,013)
Net cash used in investing activities (112,979) (203,013)
Cash flows from financing activities:
Net increase in note payable to bank 337,000 98,009
Proceeds from issuance of long-term debt 15,000 45,983
Proceeds from issuance of stock - 93,975
Treasury stock purchased (22,000) (8,219)
Principal payments on long term debt
and capital leases (93,239) (78,973)
Net cash provided by financing activities 236,761 150,775
Net increase (decrease) in cash and equivalents (117,773) 21,903
Cash and equivalents, beginning of period 511,787 318,535
Cash and equivalents, end of period $ 394,014 $ 340,438
The accompanying notes are an integral part of the financial statement.
INTERNATIONAL YOGURT COMPANY
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments, which consist of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results
for the nine months ended July 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending October 31, 1997. For
further information, refer to the financial statements, and footnotes
thereto, included in the Corporation's annual report on Form 10-K for the
year ended October 31, 1996.
Note B - Inventories
Inventories consist of the following: July 31, October 31,
1997 1996
Finished goods $1,547,588 $1,175,303
Raw materials 139,829 168,334
Packaging materials and supplies 184,660 225,636
$1,872,077 $1,569,273
Note C - Income per share
Income per share is computed based on the weighted average number of shares
of common stock outstanding, including common stock equivalents, during the
period presented.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
The Company's sales increased 6.4% to $2,681,957 for the third quarter, and
increased 11.9% to $6,466,883 for the nine months ended July 31, 1997,
compared to the corresponding periods in 1996. The increased sales during
1997 were primarily the result of sales gains in warehouse clubs and
international segments, as well as the introduction of new products.
The Company's main line products continue to enjoy demand because of the
outstanding quality. Furthermore, there has been a positive response to
the introduction of a number of new products. New products include SOFT
SCOOP(R)...by YO CREAM(R), a 4 oz. single serve cup of high quality frozen
yogurt or sorbet specifically developed in fiscal 1996 to facilitate
national distribution. This product can be distributed at zero degrees
compared to minus 20 degrees for most frozen dairy dessert products.
The Company is committed to remaining on the cutting edge of new product
development. At the National Restaurant Association Food Show, earlier
this year, the Company introduced YO CREAM(R) PURE. This is the Company's
new line of nonfat soft serve frozen yogurt and low fat ice cream cups made
from 100% organic milk. Pure Pleasure, Pure Food, Pure Environment!
(Trademark) describes the positioning of YO CREAM(R) PURE developed in
response to today's increasingly health and environmentally conscious
consumer. The Company has also developed a new line of nonfat and nondairy
smoothies which include ready-to-serve products and premixes for blender
operation. The response to these products has been exceptional, opening a
new vista of opportunity for branded and private branded sales.
Two new international markets have been obtained this quarter, Mexico and
Indonesia. Shipments to Panama and the Philippines are expected to begin
by December.
The Company's gross profit margin for the third quarter increased to 31.3%,
compared to 22.6% in the corresponding quarter in 1996, and the gross
profit margin for the nine months increased to 32.4%, compared to 27.9% in
the corresponding period in 1996. The improvement in gross profit was
primarily due to an increase in sales volume, a change in the sales mix to
higher margin products, and economies from increased production. Since
this time last year, the Company has also implemented a price increase to
respond to increases in certain operating costs.
Selling and marketing expenses in the third quarter increased to 13.4%
compared to 11.3% in 1996. These expenses for the nine months increased
slightly from 13.9% to 14.2% of sales. Such expenses were up in total due
to the increase in sales and continued expansion of the Company's product
specialist program, which has contributed to the increase in sales.
General and administrative expenses in the second quarter remained at
approximately 10% of sales. Expenses for the nine months remained at
approximately 12% of sales.
During the second quarter of 1996, the Company made a provision for certain
unusual expenses. The provision was primarily for a reserve against
receivables recognized in prior years for recovery of certain marketing
costs, and a reserve for disputed packaging and freight costs related to
prior years. The provision has been reported separately as an other
expense in order to avoid distorting normal operating results. The
provision reduced net income in 1996 by $114,527, or $.05 per share for the
nine months ended July 31, 1996.
The increased income from operations in fiscal 1997 primarily relates to
the increase in sales, and improved margins. Management is anticipating
continued growth, and is preparing for it by increasing its plant freezing
and storage capacity. The facility improvements are expected to improve
productivity and reduce outside storage costs. The estimated cost of this
project and certain other plant improvements is $340,000 with financing to
be provided by an operating lease.
Liquidity and Capital Resources.
The Company has financed its operations and expansion from bank loans,
capital leases, capital investment by its founders, private and public
securities offerings and internally generated funds.
As of July 31, 1997, the Company's total borrowings under its bank line of
credit were $1,276,000, against a collateral base of approximately
$1,626,000. At July 31, 1997 the Company had cash funds available
aggregating $394,014 which were available to reduce bank borrowings. The
current level of borrowings is consistent with the season of the year and
compares with $1,188,000 at July 31, 1996. Interest is at 1% over the
bank's basic commercial lending rate. Total borrowings under this line are
payable upon demand and limited to 65% of eligible accounts receivable and
30% of eligible inventory, plus loan insurance provided by a governmental
agency, up to an aggregate maximum of $1,700,000. The bank line of credit
matures March 1, 1998.
Accounts receivable at July 31, 1997 were $1,019,498, compared to
$1,052,000 at July 31, 1996, and $748,683 at October 31, 1996. The
increase over the level at year end is primarily due to the seasonal nature
of the Company's business.
Inventories at July 31, 1997 were $1,872,077, compared to $1,480,000 at
July 31, 1996, and $1,569,273 at October 31, 1996. The higher level of
inventories in 1997, compared to the same time last year, primarily relates
to an increase in finished goods inventory necessitated by the increase in
customer demand for product.
The Company believes its existing assets, bank lines, and revenues from
operations will be sufficient to fund the Company's operations for at least
the next twelve months.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceedings,
other than non-material legal proceedings occurring in the ordinary
course of business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
International Yogurt Company Unveils New Marketing Strategy
On September 12, 1997, the Company announced that in keeping with the
development of the business and management's commitment to focus on
broadened market opportunities, the Company, Norpac Foods, Inc, and
Norpac Food Sales decided to terminate their ten-year Marketing
Contract. Since 1987, Norpac has been the Company's marketing agent
for its food service sales. Norpac also provided certain distribution
services.
In recent years, the Company has assumed more direct responsibility
for its sales, marketing and distribution activities. This has
included expanding its staff of trained product specialists who, under
the new marketing strategy will make direct contact with customers, in
cooperation with independent broker representatives. The new
marketing strategy will also allow the Company to establish a closer
relationship with the existing nationwide network of independent food
brokers, who sell its products to the food service segment. In recent
years, the Company has also expanded its activities in the area of
product distribution. Currently, over ninety percent of the
distribution of its products are handled by either buyer pickup or
through transportation arranged by the Company.
The Company has also entered into a non-exclusive Distribution
Agreement with Norpac, which provides that the Company may continue to
use Norpac's distribution system, and certain other services
previously provided to the Company by Norpac, as requested from time
to time by the Company. The Distribution Agreement runs through
December 31, 1998, unless extended by mutual agreement of the parties.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
10.2 Distribution Agreement, dated as of September 1, 1997, between
the Company, Norpac Foods, Inc., and Robert Arneson, Sales
Agent, Inc., dba Norpac Food Sales, is filed herewith.
27.1 Financial Data Schedule is filed herewith
B. Reports on Form 8-K - not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant:
INTERNATIONAL YOGURT COMPANY
Date: September 15, 1997 By /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive Officer
Date: September 15, 1997 By: /s/ W. Douglas Caudell
W. Douglas Caudell, Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 394,014
<SECURITIES> 0
<RECEIVABLES> 1,019,498
<ALLOWANCES> 0
<INVENTORY> 1,872,077
<CURRENT-ASSETS> 3,661,457
<PP&E> 1,889,276
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,878,345
<CURRENT-LIABILITIES> 2,558,415
<BONDS> 0
0
0
<COMMON> 4,695,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,878,345
<SALES> 6,466,883
<TOTAL-REVENUES> 6,466,883
<CGS> 4,374,370
<TOTAL-COSTS> 6,055,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,240
<INCOME-PRETAX> 333,143
<INCOME-TAX> 0
<INCOME-CONTINUING> 333,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,143
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0
</TABLE>
DISTRIBUTION AGREEMENT
This Agreement ("Agreement") is made effective September 1, 1997, by and
between NORPAC FOODS, INC., an Oregon cooperative corporation, Robert
Arneson Sales Agent, Inc., dba NORPAC Food Sales, an Oregon corporation
(both collectively referred to as ("NORPAC"), and INTERNATIONAL YOGURT
COMPANY, an Oregon corporation ("IYC").
R E C I T A L S
A. NORPAC and IYC have been parties to a Marketing Agreement dated
September 8, 1987, which expires September 8, 1997, and which provided for
the distribution, marketing and sales of IYC's frozen dessert and snack
products ("Products").
B. It is the purpose of this Agreement to provide for the invoicing,
pooling and distribution of IYC's Products of the type and with the
characteristics of the products which are currently handled through the
NORPAC system as requested from time to time by IYC; and to serve as a
transition period as the parties cooperate during the term of this
Agreement to promote and encourage the establishment of direct
relationships between IYC and the brokers in the Brokerage Marketing Areas
described in Exhibit A and the establishment of its own marketing and
distribution and invoicing systems.
T E R M S
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, the parties hereby agree as follows:
I. SERVICES PROVIDED BY NORPAC. During the term of this Agreement, IYC
may utilize NORPAC's system for the invoicing, pooling, selling and
delivery of its Products in the Brokerage Marketing Areas listed on Exhibit
A and in such other areas as are currently and serviced by the NORPAC
marketing and distribution system, and in any other NORPAC system areas as
are mutually agreeable.
II. IYC'S RESPONSIBILITIES. IYC shall assume and fulfill the following
responsibilities:
A. Guaranty and Indemnity. IYC will execute NORPAC's form of
Guaranty and Indemnity, its assurance of compliance with California
Proposition 65, and will provide to NORPAC a certificate of insurance
certifying that NORPAC is an additional insured under IYC's commercial
general liability and umbrella excess liability policies. IYC agrees
that said guaranty, assurance and certificate shall remain in full
force and effect for the benefit of NORPAC under and during the term
of this Agreement.
B. IYC shall continue to stock Products as necessary in its and
NORPAC's system storage facilities, which are used for customer pick
up and NORPAC pool truck deliveries. Consistent with current
practice, IYC agrees to report periodically to NORPAC in writing, at
such times and in such forms as NORPAC may reasonably request, as to
the quantity of products in the storage facilities.
III. ACCOUNTING AND PAYMENT PROVISIONS. When requested by IYC, NORPAC
agrees to provide, the following accounting activities for all services and
product sales under this Agreement:
A. Accurate and timely invoicing of Product sales; customer charge
backs or disputed items shall be for IYC's account, unless due to the
act of NORPAC;
B. Accurate and timely invoicing for transportation charges incurred
by IYC;
C. Freight payments on behalf of IYC to be billed back to IYC;
D. Claims filing and collection for Product distributed through the
NORPAC system which is damaged or destroyed by freight suppliers.
E. Its reasonable best efforts to assist IYC with IYC's reasonable
accounting requirements as reasonably requested from time to time by
IYC.
IYC agrees to timely remit payment in response to NORPAC's invoices.
During the first six (6) months of this Agreement said payment shall be
remitted by IYC on or before sixty (60) days after receipt of NORPAC's
invoice. For the ensuing five (5) month period, said payment shall be
remitted within forty-five (45) days of receipt of NORPAC's invoice.
Thereafter IYC's payment shall be remitted within thirty (30) days of
receipt of NORPAC's invoice. IYC agrees to advise NORPAC in writing by the
applicable due date of the receipt of invoice if it disputes any invoiced
item. The parties agree to cooperate to resolve any disputes. Absent this
written notice the invoice shall be payable in full in accordance with
applicable terms. NORPAC may deduct any undisputed charges which are past
due from IYC from any amounts otherwise due IYC. In the event that related
to this Agreement it becomes necessary by mutual agreement for IYC to
invoice NORPAC for services rendered by IYC to NORPAC, IYC may deduct any
undisputed charges which are past due from NORPAC from any amounts
otherwise due NORPAC. The payment remittance and disputed item notice
provisions in this paragraph which apply to IYC shall apply as well to
NORPAC.
NORPAC will charge IYC and IYC will pay NORPAC the actual charges for
freight, and related services. For NORPAC's invoicing services and costs
that NORPAC incurs in making its distribution system available to IYC, IYC
agrees to pay NORPAC one and one-half percent (12%) of the Brokerage Base
Price of IYC's Product invoiced through the NORPAC system. In addition,
IYC agrees to pay NORPAC an additional one and one-half percent (12%) of
the Brokerage Base Price of IYC's Product for all orders placed and
generated through the NORPAC Food Sales customer service system (which may
be necessary where IYC is not able to establish a broker-direct
relationship). For the purposes of this Agreement, Brokerage Base Price is
defined as paid invoice price, less off-invoice discounts, less cash
discounts, less freight charges (in the case of delivered pricing), and
less marketing development plan charges of $1.90 per case, any change in
which shall be subject to the mutual agreement of the parties.
NORPAC agrees to pay the sum of $25,000 to IYC as follows (1) if IYC has
paid NORPAC on a current basis each month all amounts due NORPAC under the
terms of this Agreement, then NORPAC agrees effective October 31, 1998,
that the $25,000 amount shall be paid as a credit against amounts due
NORPAC through October 31, 1998 and the balance, if any, paid by check to
IYC on such date; or (2) if IYC has not paid NORPAC on a current basis each
month all amounts due NORPAC under the terms of this Agreement then NORPAC
agrees effective December 31, 1998, that the $25,000 amount shall be paid
as a credit against amounts due NORPAC through December 31, 1998 and the
balance, if any, paid by check to IYC on such date; or (3) if IYC waives
all rights under this Agreement to utilize the services being provided by
NORPAC, NORPAC agrees, effective the day the waiver is effective, that the
$25,000 shall be credited against amounts then due NORPAC and the balance,
if any, shall be paid by check to IYC on such date.
IV. TERM. Subject to the Termination provisions hereinafter set forth,
this Agreement commences September 1, 1997, and terminates December 31,
1998, unless sooner terminated according to the terms hereof or extended by
mutual agreement of the parties.
V. TERMINATION. Material breach of this Agreement by any party and
failure promptly to remedy that breach after written notice from any other
party of such breach shall be cause for immediate termination of this
Agreement by any other party. Insolvency of any party or petition for or
adjudication of bankruptcy, or the appointment of a receiver, or a
composition with or assignment for the benefit of creditors, by or as to
any party, shall be cause for immediate termination of this Agreement by
the other parties upon written notice to all parties.
VI. ASSIGNMENT. This agreement may not be assigned or transferred by
either IYC or NORPAC without the prior written consent of the other party.
VII. ATTORNEYS FEES. In the event of litigation arising under this
Agreement, the prevailing party or parties shall be entitled to recover
their reasonable attorneys fees and costs as set by the court at trial or
on appeal.
VIII. BINDING EFFECT. This agreement is binding on the parties, their
successors and assigns.
IX. APPLICABLE LAW. This Agreement shall be construed pursuant to the
laws of the State of Oregon. Jurisdiction and venue for resolution of any
disputes arising hereunder shall be in the Circuit Court for Multnomah
County, Oregon.
X. ENTIRE AGREEMENT. This and the Agreement between the parties
executed on the effective date herewith is the entire agreement of the
parties. It supersedes any prior agreements among the parties.
EXECUTED September 11, 1997, in duplicate original effective the date
first above-written.
INTERNATIONAL YOGURT COMPANY NORPAC FOODS, INC.
By By
Title Title
ROBERT ARNESON SALES AGENT, INC., DBA NORPAC
FOOD SALES
By
Title
