SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 31, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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)
(Registrant's telephone number, including area code): (503)256-3754
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K, or any
amendment to this Form 10-K. [X ]
<PAGE>
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $3,647,437 at January 22, 1997, based upon the
average bid and asked prices of the common stock on that date.
At January 22, 1997 there were 2,233,793 shares of the registrant's common
stock outstanding.
Documents incorporated by reference:
Part of Form 10-K into
Document which Incorporated
Portions of Proxy Statement for
1997 Annual Meeting of Shareholders Part III
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1. BUSINESS......................................4
Item 2. PROPERTIES...................................14
Item 3. LEGAL PROCEEDINGS............................14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS......................................14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS.................15
Item 6. SELECTED FINANCIAL DATA......................16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...............................17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.........................................19
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......19
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT...................................19
Item 11. EXECUTIVE COMPENSATION.......................19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................19
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K......................19
SIGNATURES...................................................22
<PAGE>
PART I
Item 1: BUSINESS.
General.
International Yogurt Company (the "Company") is a corporation
organized under the laws of the state of Oregon in 1977 originally under the
name the Yogurt Stand, Inc. The Company changed its name later that year to
its present name. The Company makes, markets and sells frozen yogurt,
sorbet, and ice cream products in a variety of premium, low-fat, and nonfat
flavors in either non-organic or organic formulations. The Company markets
and sells these products to and through a variety of businesses and outlets,
including super-markets, grocery stores, convenience stores, restaurants,
hospitals, school district food services, military installations, yogurt
shops, fast food chains, discount club warehouses, and other types of
outlets. The Company's primary product is YO CREAM frozen yogurt, which is
distributed and sold nationwide. The Company also produces SORBET by YO
CREAM , and premium, lowfat, or nonfat ice creams. The Company's general
marketing strategy is to offer a broad selection of its products at a price
suitable for the relevant markets.
The Industry.
The YO CREAM brand frozen yogurt and sorbet products produced by the
Company constitute only a portion of the relevant frozen dessert industry.
The industry produces a diverse range of products, many of which compete
directly with the Company's YO CREAM frozen yogurt and sorbet products.
Many types of retail outlets make available to the public the Company's Yo
Cream frozen yogurt and sorbet products as well as other manufacturers'
frozen yogurt products and frozen dessert items, with many outlets offering
competing products of several manufacturers. The retail consumer may obtain
the Company's products or competing products from narrowly oriented outlets
such as small yogurt shops or stands, many of which provide only a single
product, to supermarkets and discount club warehouse types of facilities, as
well as from many medium-sized businesses. Food service outlets or
institutions, such as restaurants, hospitals, and school districts, typically
offer frozen yogurt or frozen desserts of one manufacturer. Larger
institutional businesses with their own distribution systems may obtain their
products directly from the Company, whereas most businesses will obtain their
products from national or regional food distributors. Frozen yogurt and
certain other frozen desserts are often viewed as premium products, and are
somewhat resistant to finely-tuned price competition. However, larger
institutional customers for frozen dessert products often enter into
contracts on the basis of price. Smaller businesses such as restaurants and
yogurt shops will often enter into agreements on the basis of brand
identification, reputation or other preferences.
Customers are motivated to purchase frozen desert products on the basis
of taste, reputation, quality and price. Premium products tend to be less
sensitive to price. Some consumers will choose one frozen dessert product
over another for health related reasons such as ingredients, calories and
additives. Manufacturers of frozen dessert products may make claims relating
to the healthfulness of their products, including soy-based frozen dessert
products, as well as other non-fat or synthetic fat products. Frozen dessert
products also compete with many other varieties of food and dessert items.
Frozen yogurt products have gained wider acceptance and identification
by a greater variety of demographic groups than when first introduced into
the frozen dessert marketplace. The Company believes that frozen dessert
products appeal to and are purchased by persons of all age groups and both
sexes. The claims of certain manufacturers related to the healthfulness of
their products may also increase the acceptance of those frozen dessert
products.
Overall Company Mission.
International Yogurt Company operates within the health oriented frozen
dessert, snack, and novelty business. Focus is placed on manufacturing
superior quality soft serve and hardpack products (e.g. frozen yogurt,
organic, sorbet, etc.) for regional, national, and worldwide foodservice and
retail markets. International Yogurt Company's expertise in nationwide
distribution, foodservice sales/marketing, R&D (e.g. new product development)
and manufacturing is enhanced through leveraging strategic alliances and/or
joint ventures (e.g. combined efforts with Norpac's nationwide distribution
system, Cascadian Farm, etc.). These relationships are developed to increase
volume growth and profitability within those markets served by the company.
International Yogurt Company's foodservice YO CREAM branded presence
receives emphasis in selected geographic areas of the U.S. where sales and
marketing resources are focused on branded product expansion. For companies
for which International Yogurt Company manufactures (e.g. Price Costco,
Cascadian Farm, Western Family, SYSCO, Weight Watchers, etc.), International
Yogurt Company is committed to providing outstanding price/value products
that meet their stringent quality standards.
Marketing Strategy.
The Company's marketing strategy is to build customer brand awareness
and loyalty, as well as developing and expanding YO CREAM consumer brand
identification, by offering a broad selection of premium frozen yogurt and
sorbet products. The Company believes it can achieve greater brand
identification and loyalty through advertising the features and benefits of
its products, including the successes it has enjoyed in certain competitive
taste tests of its frozen yogurt products. The Company also considers the
broad distribution of its product critical to sales growth, with its products
now available in 49 states. The Company will continue to strive for greater
distribution penetration within each of those states.
On September 8, 1987 the Company entered into a 10-year exclusive
marketing agreement with Norpac Foods, Inc. ("Norpac") based in Stayton,
Oregon. Under this agreement, as amended, Norpac is the Company's exclusive
sales agent, subject to certain exceptions, for the sale of the Company's
frozen yogurt and sorbet products to the restaurant and foodservice
institutional industry. Norpac is a large food processing and agricultural
marketing organization with 40 owned and contractually related plants, a
distribution system using 22 warehouses, a private truck fleet and a network
of 75 independent food brokers across the United States. The Company expects
the contract with Norpac to be renewed, with modifications, during the
current fiscal year.
By August, 1989, the Company ceased the direct sale of its products
through Company-owned restaurants. The management of the Company decided
that the capital and other resources of the Company should be devoted
exclusively to the manufacturing and wholesale business.
The Company's management also believes that its ability to respond
innovatively to and take advantage of changes in the retail, foodservice, and
packaging industries will permit greater availability and acceptance of its
products. For example, single serving containers are popular with some
consumers and sales channels.
In 1993, the Company began a concerted effort to obtain copacking and
private label business. As a result, in July, 1993 the Company announced
that it had been approved as a copacker of frozen dairy products for Weight
Watchers Food Company, an affiliate of H. J. Heinz Company. Production of
the products began in December 1993. The Company was also successful in
obtaining a contract to copack the organically grown, All Fruit Sorbet
produced for Cascadian Farm, a majority owned subsidiary of Trefoil Natural
Foods. In November 1994, Cascadian Farm added to its contract with the
Company its organic frozen yogurt and ice cream lines as well. The Company
continues to enjoy the above alliances and is currently pursuing additional
strategic alliance opportunities for expanding sales and profits.
In February, 1994, the Company contracted with Western Family Foods,
Inc. to distribute and market International Yogurt products in the
retail-grocery trade, with products being sold under a Western Family/Yo
Cream cobrand. Management believes this entry into the retail grocery trade
was a strategic event for the Company. In September 1996, the Company
entered into a new agreement with Western Family for co-packing Western
Family's own brand of nonfat frozen yogurt hardpack in 1/2 gallon containers.
In January 1996, the Company entered into a signage/sponsorship
agreement with the Oregon Arena Corporation, owner of the Rose Garden Arena
in Portland, Oregon. The Rose Garden is the principal home arena for the
National Basketball Association franchise for the Portland Trail Blazers
professional basketball team. Certain advertising rights are granted under
the agreement as well as exclusivity regarding the sale of frozen yogurt,
sorbet, and soft serve ice creams within the Arena. The Company has
developed a special product called Blazers Swirl, a nonfat combination of
non-dairy sorbet and nonfat frozen yogurt that is being featured in the
Arena, and will be marketed elsewhere in conjunction with the Company's Yo
Cream branded sales through independent retailers.
In 1996, the Company began a nationwide introduction of 4 oz. single
serve cups of nonfat frozen yogurt and non-dairy sorbet products. These
products were introduced under the Company's own brand of "Soft Scoop by Yo
Cream" and under SYSCO's nationwide "Cool N' Classy " brand. The Company is
the only supplier to SYSCO for this product.
In order to further leverage its distinction as the "Frozen yogurt
choice of the Portland Trail Blazers," the Company developed the Blazer Swirl
by YO CREAM , a unique hard pack swirl of nonfat vanilla frozen yogurt and
sorbet. Packaged in an 8 oz. single-serve cup, sales began in January 1997,
and the product is slated for launch in January of 1997 both at the Rose
Garden Arena and Texaco Star Marts. Advertising support will include a radio
campaign.
The Company,through its research and development efforts and its
marketing strategies, will continue to make known its ability to produce
unique high quality and good-for-you products.
Merchandise.
The Company makes, markets and sells frozen yogurt in premium, lowfat,
and nonfat flavors, and non-dairy sorbet in a variety of flavors, as well as
ice cream and other frozen desserts. These frozen products are available in
both soft serve liquid mix and hard pack forms. As of January 22, 1997,
the Company had available for sale the following products and flavors under
its own YO CREAM brand name:
<PAGE>
YO CREAM YO CREAM YO CREAM
Premium Soft Serve Mix Low-fat Soft Serve Hard Pack Single Serve
5 ounce cups
Cheesecake Supreme Chocolate Boysenberry
Dutch Chocolate Strawberry Strawberry
French Vanilla Vanilla Praline
Milk Chocolate French Vanilla
Peanut Butter YO CREAM Free Milk Chocolate
Praline 'n Cream Sugar Free Chocolate
Strawberry Peach
Vanilla Chocolate Raspberry
Strawberry Blueberry
Vanilla Cafe' au Lait
YO CREAM YOGURT STAND SORBET . . .
Nonfat Soft Serve Mix Nonfat Soft Serve BY YO CREAM
Apple Spice Chocolate Very Berry
Blueberry Burst Strawberry Kiwi Strawberry Splash
Butter Brickle Vanilla Lemony Lime
Cable Car Chocolate Mango Tango
Cappuccino Specialty Products Orange Burst
Cherry Almond
Chocolate Classic Ice Milk Soft Serve
Country Vanilla Vanilla Shake Base
Egg Nog
French Vanilla YO CREAM
Georgia Peach SOFT SCOOP - 4 Ounce YO CREAM
"Holiday" Chocolate Mint 3 Gal SOFT SCOOP
Irish Mint Chocolate Nonfat -Premium
Island Banana Strawberry Nonfat (with condiments)
Kahlua Vanilla Nonfat
Luscious Lemon Very Berry Sorbet Chunky Cherry Almond
New York Cheesecake Very Berry Sorbet/ Choc. Chip Chocolate
Outrageous Orange Nonfat Vanilla Frozen Chocolate Java Swirl
Peanut Butter Yogurt Swirl Peaches 'n Cream
Pecan Praline Rocky Road
Peppermint Stick Pecan Praline
Pumpkin WESTERN FAMILY
Very Strawberry half gallon
Very Boysenberry YO CREAM
Very Raspberry Chocolate 3 Gal SOFT SCOOP
White Chocolate Macadamia Vanilla - Standard
Raspberry (without condiments)
Cherry Cheesecake
Strawberry Mountain Boysenberry
Yo Caffe Latte Peach Raspberry Royal
Cappuccino Strawberry Sensation
Regular Vanilla/Chocolate Swiss Chocolate
Decaffeinated Strawberry/Banana Alpine Vanilla
BLAZER SWIRL . . . BY YO CREAM
8 ounce cup
Very Berry Sorbet/Vanilla Frozen Yogurt
The Company sells the soft serve liquid mix form to food service
customers who dispense it through a soft serve frozen dessert machine. This
form is also available in an unflavored natural form which permits the
customer to add desired flavors. In fiscal year 1996, the soft serve liquid
mix product accounted for approximately 62% of the Company's case sales.
Hard pack products are available in pint and 1/2 gallon containers to
supermarkets, which price them competitively with ice cream and other related
products. The Company also markets and sells its hard pack frozen dessert
products in 4 oz., 8 oz., and three gallon containers to food service
customers. Such hard pack products are also produced under private label for
Western Family , Weight Watchers , and Cascadian Farm. In fiscal year 1996,
hard pack products of all type containers accounted for approximately 38% of
the Company's case sales.
Two new lines of hard pack frozen yogurt products were introduced in
late 1994, a premium pint line and a half gallon line. Presently, half
gallon hard pack products are being produced for Western Family in the
following flavors: Chocolate, Vanilla, Raspberry, Cherry Cheesecake,
Strawberry, Peach, Cappuccino, Vanilla/Chocolate, and Strawberry/Banana.
The Company is also selling frozen yogurt products with no sugar added,
which are sweetened with aspartame. This product was introduced to the
market place in the spring of 1991, and in 1996 it accounted for
approximately 3% of total case sales.
The Company has developed a lower cost line of products under the label
YOGURT STAND designed to compete in that part of the institutional market
where price is the most significant competitive factor. That line of the
Company's products includes ten flavors and a plain mix that can be flavored
by the end user with flavor packets bearing the YOGURT STAND label.
The Company has also developed a product identified by the trademark
SOFT SCOOP. This product, introduced to the market place in fiscal year
1992, can be stored and distributed at a higher temperature than standard
hard pack frozen desserts. It is currently being marketed to the food
service industry under the brand name Soft Scoop by YO CREAM, and it is
packaged in single serve four ounce and three gallon containers.
In May of 1993, the Company introduced a yogurt-coffee beverage called
YO CREAM Caffe' Latte' . It is a ready to serve product that is being sold
nationally.
SORBET by YO CREAM is a new product developed by the Company in 1995.
It is a high quality non-dairy product produced in several flavors in
hardpack and soft serve form.
Other products manufactured by the Company include organic sorbets and
ice creams that are packed under a customer's private label brand and a soft
serve ice milk mix sold to the Rose Garden Arena in Portland, Oregon.
Manufacturing Process.
All of the manufacturing and packaging of the Company's products for
domestic sales occurs at its plant in Portland, Oregon. The Company utilizes
a Canadian dairy as a copacker for production of its products for the
Canadian market. All other products for international sales are produced in
Portland and then containerized to be shipped out of the Port of Portland.
While the manufacturing plant is capable of producing a full range of
dairy products and other fluid items, it primarily is utilized to produce
yogurt, ice cream, and sorbet. The facility is a fully licensed dairy and
pasteurizes its products under U.S.D.A. certification and inspection. One
unique feature of the facility is its ability to produce under Organic
certification, organic ice creams, yogurts, and sorbets. Throughout the
facility, both organic and non-organic products can be processed and packaged
simultaneously while maintaining separation.
The manufacturing plant has two distinct packaging operations that are
operated simultaneously. One operation is for the filling of packages for
soft serve products and the other operation is for the production of ready to
serve frozen products. Within these two operations are a multitude of
packaging sizes, styles, and finished casing capabilities in addition to a
full range of condiments that can be added to the finished products.
Fiscal 1996 has seen both a leveling out of production fluctuation and
an increase in overall plant utilization. Plant utilization has risen from
approximately 30% to approximately 40%. Management expects to see plant
utilization increase further in the 1997 fiscal year, primarily from the
Company's specialty products in individual serving sizes and through
copacking and private label business.
Inventory and Backlog.
The Company does not have a significant production backlog. Because of
the relatively short time period required to produce a finished product from
the receipt of an order by the Company, the Company strives to maintain a low
level of raw materials and work-in-process inventory. Inventory of finished
goods is maintained at levels to accommodate wide distribution of the
Company's products throughout the United States. Although the Company tries
to estimate demand and production schedules for its products, its customers
generally place orders when they require the Company's products, and
customers expect delivery within a short period of time.
Distribution and Significant Customers.
The Company's products are distributed in 49 states. Distributors ship
the Company's product on refrigerated trucks to all domestic locations.
On September 8, 1987, the Company entered into a 10-year exclusive
marketing agreement with Norpac Foods, Inc. ("Norpac") based in Stayton,
Oregon. Under this agreement, as amended, Norpac is the Company's exclusive
sales agent, subject to certain exceptions, for the sale of the Company's
frozen yogurt and sorbet products to the restaurant and foodservice
institutional industry (see page 5, "Marketing Strategy"). Norpac sold and
arranged distribution of approximately 53% (based on revenues)of the
Company's products in fiscal year 1996, which is lower by approximately 33%
compared to 1995, as the Company began selling the warehouse club business
direct (outside Norpac) in September, 1995. The Company expects the contract
with Norpac to be renewed, with modifications, within the current fiscal
year.
Norpac does not have the responsibility for foreign markets or warehouse
clubs. Presently, the Company makes its own arrangements for shipments by
truck to Canada and by ship to European and Pacific Rim countries.
In 1996, the Company became an approved manufacturer of SYSCO
Corporation's Cool N'Classy brand for 4 oz. cups of nonfat frozen yogurt and
non-dairy sorbet. Norpac is responsible for selling the cups to SYSCO's 60
nationwide foodservice distributor locations.
The portion of the Company's sales to U.S. Government agencies or
institutions, such as sales to the Army, would not be material to the Company
in the event of a cancellation of those contracts.
During the year ended October 31, 1996 case volume to the Company's two
largest customers were 33% (Cascadian Farm) and 23% (Price Costco, Inc.) of
total case volume for the year.
Research and Development.
The Company's research and development related activities include the
development of new flavors, the improvement of existing flavors, refinement
of manufacturing processes and the development of new products. This process
has also occurred on a regular basis with respect to ingredients such as
stabilizers and emulsifiers. Furthermore, the Company has conducted
activities regarding non-fat and no sugar added frozen products and various
novelty items. The Company has also developed a line of yogurt beverages
including yogurt-juice and yogurt-coffee combinations. The Company's
development activities occur at the Portland, Oregon facility. Although a
precise separation of accounts is not available, the Company estimates total
research and development expenditures for the years ended October 31, 1996,
to have been $104,000, compared with $82,000 and $302,000 for the years ended
October 31, 1995 and 1994.
Advertising and Promotion.
During the year ended October 31, 1996 such expenses totalled
approximately $452,000 representing 5.7% of net sales. This compares to
$231,000, or 3.1% of net sales for the year ended in October 1995 and
$307,000, or 4.4% of net sales in the year ended October 31, 1994.
Seasonality.
The Company's sales and earnings are somewhat seasonal with a greater
percentage occurring in the second and third calendar quarters or spring and
summer months and, to some extent, holiday periods. Management expects that
the seasonality of sales will continue to become less significant as a result
of the copacking and private brand business the Company has obtained.
Suppliers.
Suppliers of the primary ingredient of the Company's products, raw milk,
are mostly based in the Pacific Northwest and obtain that raw milk from dairy
farms in northern Oregon and southern Washington. Because freshness and
timeliness of delivery are critical to the Company's products, the Company
prefers local suppliers. The Company's largest supplier of raw milk
supplied approximately 78% of the Company's needs in fiscal year 1996 and
the second largest supplier provided approximately 22%.
All supplies used by the Company are readily available from a variety of
suppliers. The Company has never experienced any form of supply shortage.
Competition.
The Company's products constitute a portion of a greater market which
includes all forms of yogurt-based frozen desserts, ice cream products and
non-dairy frozen desserts. The market for the Company's products is very
competitive both because of the number of alternative products available and
because of the number of businesses producing competitive products.
Competition in the frozen dessert and ice cream industry has increased over
the last several years as a result of substantial increases in the number and
kind of frozen dessert products. Many of the companies that produce products
which compete with those of the Company are substantially larger and have
significantly greater resources. In addition, increased competition from the
established manufacturers and distributors of frozen desserts and ice cream
products can be expected in the future as a result of their increased
involvement in the frozen yogurt and sorbet business.
The Company competes against different manufacturers with its soft serve
products and with its hard pack products. The Company's principal
competitors for soft serve products are Colombo, acquired by General Mills
Inc. in 1993, The Dannon Company, Inc., and Honey Hill Farms, recently
acquired by Greater Pacific Food Holdings. The Company's competitors for
hard pack frozen yogurt products include Dryers, Haagen Dazs, and Ben and
Jerry's Homemade, Inc. In addition to the large primary competitors
identified, the Company competes against numerous small local and regional
competitors.
The Company's products are recognized in the marketplace for their high
quality and have competed well in this regard. For example, on July 27,
1989, the Chicago Tribune listed YO CREAM as the best tasting of 13 national
brands of frozen yogurt on the basis of a test by seven independent judges.
Through the Company's national system of Norpac brokers and distributors the
Company believes it can compete effectively from the standpoint of service.
Price competition, however, has become intense in certain geographical areas
as regional dairies endeavor to introduce a limited line of frozen yogurt.
The Company has responded to price competition from regional dairies with its
lower-priced products under the YOGURT STAND label and to competition on
quality with its YO CREAM brand products. While the company has experienced
competitive success in the past, no assurance can be given that the Company
will continue to compete successfully against other available products.
Other than direct competition for specific soft serve or hard pack
frozen yogurt products, the Company's products compete against certain other
frozen dessert items, such as ice cream. Specific competition comes from
premium ice cream makers such as Haagen-Dazs, Ben and Jerry's Homemade, Inc.,
Steve's Ice Cream and other national and regional ice cream brands.
Trademarks and Trade Names.
The Company registered as a trademark the name of its primary product,
YO CREAM, with the United States Patent and Trademark Office. This trademark
is renewable and, therefore, is of an indefinite term. That trademark is
also registered in Canada and may be renewed there upon expiration. Some of
the Company's products use that basic trade name with other words or
designations, such as YO CREAM LITE. In addition, the Company uses the
trademarks "JUST SAY YO ," "PURE PLEASURE ," "YOGURT STAND", "THE GOURMET
YOGURT FOR ICE CREAM LOVERS ," "SOFT SCOOP " and "YO CAFFE' ". The Company
has registered or intends to register those trademarks in the United States
and may register the trademark YO CREAM in other foreign countries.
Employees.
The Company employed 40 persons at October 31, 1996, all of whom were
full-time (35 hours per week or more.) None of the Company's employees are
covered by collective bargaining agreements, and management believes its
employee relations are good. The Company's sales representatives of
approximately 250 persons are mostly independent and paid by commissions on
sales. The Company has never experienced a labor strike or work stoppage.
Item 2: PROPERTIES.
The Company is located in a 30,000 square foot facility at 5858 NE 87th
Avenue, Portland, Oregon 97220. Of this total space, the Company uses
approximately 6,800 square feet for production, approximately 9,000 square
feet for freezer and refrigeration purposes, and approximately 2,300 for
office space. The Company has designated the remaining 11,900 square feet
for warehouse purposes and expansion of the Company's freezer and production
facilities.
The lease of the Company's production and office facilities expired on May
14, 1994 and the Company exercised its option to purchase the property. In
order to preserve capital, the Board of Directors decided that the
Corporation should allow certain of its officers and directors to purchase
the property, with the Corporation then leasing it from them. Thereafter,
John N. Hanna, David J. Hanna and James S. Hanna, together with others,
formed Pente Investments for the purpose of purchasing the property and
leasing it to the Corporation. The new lease is for a 15 year term and
provides for a base rent of $8,600 per month for the first three years and
then increasing approximately 3% per year thereafter.
Other materially important property of the Company includes certain
equipment which it utilizes to manufacture its frozen yogurt products,
including standard dairy equipment, holding tanks and refrigeration units.
In addition, the company leases trucks and other equipment under capital
leases.
Item 3: LEGAL PROCEEDINGS.
As of the date of this Annual Report on Form 10-K, the Company had no
material litigation pending against it.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders
during the final quarter of fiscal year 1996.
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The common stock of the Company is traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol YOCM. As of January 22, 1997,
there were 2,233,793 shares of the common stock outstanding and there were
217 shareholders of record estimated to represent approximately 800
beneficial holders based on the number of individual participants in security
position listings. On January 22, 1997 the closing bid and asked prices were
$1-1/2 and $1-7/8, respectively.
The following table sets forth the high and low closing bid quotations
for quarterly periods in the two twelve month periods ended October 31, 1996
and October 31, 1995. Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Twelve months Ended October 31, 1996 High Low
<S> <C> <C>
August 1, 1996 - October 31, 1996 $ 2 1/4 $2
May 1, 1996 - July 31, 1996 2 1/4 2
February 1, 1996 - April 30, 1996 1 15/16 1 9/16
November 1, 1995 - January 31, 1996 2 1 3/8
<CAPTION>
Twelve months Ended October 31, 1995 High Low
<S> <C> <C>
August 1, 1995 - October 31, 1995 $ 2 1/4 $ 1 1/2
May 1, 1995 - July 31, 1995 2 3/8 2 1/4
February 1, 1995 - April 30, 1995 2 13/16 2 3/4
November 1, 1994 - January 31, 1995 3 1/4 3 1/8
</TABLE>
The Company has not paid dividends on its common stock since the stock
began public trading on November 17, 1987. The Company does not expect to
pay cash dividends on its common stock in the foreseeable future. The
Company intends to invest funds otherwise available for dividends, if any, on
improving the Company's capital resources.
<PAGE>
Item 6: SELECTED FINANCIAL DATA.
The following selected financial data set forth below as of, and for the
fiscal years ended October 31, 1996, 1995 and 1994 are derived from the
audited financial statements included elsewhere in this report and are
qualified by reference to such financial statements. The balance sheet data
as of October 31, 1994, 1993, and 1992 as well as the Statement of Operations
data for the fiscal years ended October 31, 1993 and 1992, are derived from
financial statements not included herein.
<TABLE>
<CAPTION>
October 31
Balance Sheets 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total Current Assets $3,067,744 $2,876,583 $2,924,075 $2,333,968 $2,294,887
Total Assets 5,353,622 5,036,716 4,953,187 4,076,507 4,022,658
Long-term Debt 286,481 278,498 294,822 273,466 730,966
Shareholder's Equity 2,758,972 2,679,443 2,315,075 1,882,739 1,238,986
<CAPTION>
Statements of For the Years Ended October 31,
Operations
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Yogurt Sales $7,922,144 $7,348,531 6,911,252 $6,387,989 $6,526,893
Income from
Operations (1) 104,729 312,820 187,952 292,718 234,396
Net Income 6,773 304,884 61,888 175,101 105,017
Net Income per
Common Share - .14 .03 .07 .06
<FN>
<F1>
(1) Income from operations in 1996 is after deduction of unusual expenses amounting to $143,527.
</FN>
</TABLE>
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations.
The Company's revenues from yogurt sales were $7,922,144, $7,348,531,
and $6,911,252 for the years ended October 31, 1996, 1995 and 1994,
respectively. The 7.8% increase in revenues in 1996 was primarily due to
increased sales from private label, and copacking business, as well as
increased revenues from certain new products and expanded business activity
in Canada.
The increase in revenues primarily occurred during the last five months
of the year. During this period the Company realized a steadily increasing
gain in revenues. This culminated in a fourth quarter increase of 26.4%,
compared to the same period in 1995. Early in the fiscal year, revenues were
adversely impacted by the unusually severe weather conditions experienced
throughout most of the United States resulting in a temporary decrease in
demand for frozen yogurt products.
With an established national distribution system, the Company and
its management believe that future increases in sales will occur from the
competitive success of the Company's products rather than enlargement of the
national system of distributors. Furthermore, management expects the trend
of increased sales to continue as it executes its aggressive growth plan,
which includes expanded alliances with other national companies, intensified
direct sales activity, and the introduction of new products. The new
products include a 4 oz single serve hard pack cup branded as Soft Scoop by
YO CREAM containing nonfat yogurt and a high quality non-dairy sorbet.
Another new product is a unique swirl of nonfat vanilla frozen yogurt and
sorbet packed in an 8 oz single serve cup which has been developed by the
Company and branded as Blazer Swirl by YO CREAM . Customers for this
product include the Rose Garden Arena, home of the Portland Trail Blazers and
Texaco Star Marts.
The cost of yogurt sales, as a percentage of revenues, were 71.1%, 69.3%
and 69.2% in 1996, 1995 and 1994 respectively, with corresponding gross
profit margins of 28.9%, 30.7% and 30.8% for the same periods. During fiscal
1996 margins decreased as a result of aggressive pricing earlier in the year
to gain market share, and additional costs associated with business
expansion. Increases were also experienced in the cost of ingredients,
transportation, and warehousing. However, as a result of the Company's
analysis of both market conditions and its costs, the Company increased
prices during the fourth quarter in the food service and certain other
segments of its business. The increase in the gross margin for 1995, as
compared to 1994, was primarily the result of increased production
efficiencies.
Production is below plant capacity. Therefore, in the absence of
increases in direct costs, management expects that the economies of scale
from increased sales and production should result in improvements in gross
profit margin and net income in the future.
Selling and marketing expenses, as a percentage of revenues, for the
years ended October 31, 1996, 1995 and 1994 were 14.1%, 12.4% and 13.6%
respectively. While such expenses are a direct function of sales and will
vary in dollar amount in relation to the level of sales, management has
exercised care in controlling these costs. The increase in such expenses in
1996 reflects the Company's expanded marketing and sales activity. As a
result, for example, the Company in June was approved by the SYSCO
Corporation of Houston, Texas to begin producing single serve four ounce cups
of non-fat frozen yogurt and non-dairy sorbet products under SYSCO's Cool N'
Classy label. These products, in five flavors, are available through SYSCO
nationwide. The Company is the only supplier of this product for SYSCO. The
arrangement does not commit SYSCO to specific quantities. International
Yogurt Company began making shipments to SYSCO late in the third quarter.
General and administrative expenses for the years ended October 31,
1996, 1995 and 1994, as a percentage of revenues, were 11.6%, 14.0%, and
14.4% respectively. Management has exercised careful control over these
costs. Furthermore, management believes that the relatively fixed nature of
these costs are such that net income will be favorably effected as expected
higher sales levels are achieved.
During 1996, the Company made a provision for certain unusual expenses
aggregating $143,527. 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 in order to readily
identify amounts. The provision reduced net earnings by $143,527, or $.07
per share.
Income from operations for the years ended October 31, 1996, 1995 and
1994 was $104,729, $312,820 and $187,952 respectively. As a percentage of
revenues, income from operations was 1.3%, 4.2% and 2,7% respectively. The
results for 1996 decreased in comparison to 1995 primarily due to the
decrease in gross profit, and the provision for unusual expenses described
above. Were it not for the provision for unusual expenses, the income from
operations in 1996 would have been 3.1%. The results for 1995 were up over
1994 due to the improved gross profit margins in 1995. Expenses in 1994 also
included additional costs associated with the introduction of certain retail
hard pack products and the exercise of employee stock options which resulted
in additional expense for payroll taxes.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 - Accounting for Income Taxes (FAS
109). This standard requires, among other things, the recognition of future
tax benefits for net operating loss carryforwards (NOL's), to the extent that
realization of such benefits is more likely than not. During 1995, as a
result of an evaluation of the future benefit of the Company's NOL's, the
Company increased the carrying value of its net noncurrent deferred tax asset
by $125,000, which resulted in a corresponding increase in net income. At
October 31, 1996, the Company had NOL's aggregating approximately $3,300,000
which may be used to offset taxable income in future years. The Company has
not recognized the full expected benefit of these NOL's. In future years,
as earnings are realized, the Company will be recognizing the remaining tax
benefit of such NOL's.
Net income for the years ended October 31, 1996, 1995 and 1994 was
$6,773, $304,884 and $61,888 respectively. Net income for 1996 was less than
1995 due to the provision for unusual expenses in 1996, as well as the
decrease in gross profit margin and increase in selling and marketing
expenses in 1996, and the tax benefit of NOL's recognized in 1995. The
increase in net income in 1995, compared to 1994, primarily resulted from the
improved margins in 1995 and recognition of the NOL tax benefit, and the
additional production costs and expenses associated with employee stock
options in 1994.
Capital Resources and Liquidity.
During the past three years, the Company has financed its operations and
expansion with stock sales, bank loans, capital leases, and internally
generated funds.
During 1996, the Company received $105,500 from subscriptions for 52,750
shares of unregistered common stock through a private placement. The related
expenses were $11,526.
At October 31, 1996, the Company's total borrowings under its bank line
of credit were $939,000, while the total amount available under the line was
$1,316,000. Interest is at 1 percent over that bank's basic commercial
lending rate. Total borrowings under this line are payable upon demand and
limited to 65 percent of eligible accounts receivable and 30 percent of
eligible inventory, plus loan insurance provided by a governmental agency, up
to an aggregate maximum of $1,500,000. The line of credit is subject to
renewal by April 1, 1997. Although management expects the bank to renew its
line of credit, there can be no guarantee of that renewal.
Accounts receivable at October 31, 1996 and 1995 were $748,683 and
$873,191, respectively, which management considers to be in the normal course
of business.
At October 31, 1996, the Company had working capital of $759,575. The
Company believes its existing assets, bank lines of credit, along with
revenues from operations, will be sufficient to fund the Company's operations
through the end of fiscal year 1997. The Company believes that the impact of
inflation on net income has been minimal for fiscal years 1996, 1995 and
1994.
The Company leases its offices and production facilities. The lease has
a remaining term of 13 years with renewal provisions and provides for a base
rent of $8,600 per month for the first three years and then increasing at
approximately 3% per year thereafter.
The Company is in the process of evaluating its capital expenditure
plans for fiscal 1997. The Company's current plans calls for expenditures of
approximately $300,000. The major portion of this consists of the
construction of a freeze tunnel that is expected to result in significant
cost savings. The Company expects to finance the capital expenditures under
an existing equipment financing facility with its lender.
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item 8 is submitted as Appendix A to this report.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The response to this item is incorporated herein by reference from Form
8-K, filed on October 24, 1995.
<PAGE>
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this item is incorporated herein by reference from the
sections entitled "ELECTION OF DIRECTORS" and "INFORMATION REGARDING
MANAGEMENT AND DIRECTORS" in the Company's Proxy Statement for its Annual
Meeting of Shareholders.
Item 11: EXECUTIVE COMPENSATION.
The response to this item is incorporated herein by reference from the
section entitled "EXECUTIVE COMPENSATION" in the Company's Proxy Statement
for its Annual Meeting of Shareholders.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The response to this item is incorporated herein by reference from the
section entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the Company's Proxy Statement for its Annual Meeting of
Shareholders.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is incorporated herein by reference from the
section entitled "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the
Company's Proxy Statement for its Annual Meeting of Shareholders.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements. The response to this portion of Item 14
is submitted as Appendix A to this report.
(a) (2) Financial Statement Schedules. The response to this portion of
Item 14 is submitted as Appendix A to this report.
<PAGE>
(a) (3) Exhibits. The following exhibits are filed as part of this
annual Report on Form 10-K and this list constitutes the Exhibit Index.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
<S> <C> <C>
3.1 Restated Articles of Incorporation i
of the Company.
3.2 Articles of Amendment, dated ii
October 29, 1991.
3.3 Amended Bylaws of Company. i
3.4 Amendment to Amended Bylaws, dated iii
March 14, 1990.
3.5 Amendment to Amended Bylaws, dated iii
April 10, 1991.
10.1 Agreement, dated as of September 8, 1987, i
between the Company, Norpac Foods,
Inc., and Robert Arneson, Sales
Agent, Inc., dba Norpac Food Sales
and related Stock purchase Agreements.
10.20 1990 Non-Discretionary Stock Option iv
Plan for Non-Employee Directors.
10.21 Agreement, dated as of April 1, 1991, iii
by and between Norpac Foods, Inc. and
International Yogurt Company, Inc.
10.22 Amendment to Marketing Agreement, iii
dated as of April 1, 1991, by and
among the company, Norpac foods, Inc.
and Robert Arneson, Sales Agent Inc.,
dba Norpac Foods Sales.
10.23 Commercial lease and assignment lease v
by and between John N. Hanna, David J.
Hanna, James S. Hanna, Harry M. Hanna
and Joseph J. Hanna Jr; landlord and
International Yogurt.
27.1 Financial Data Schedule
</TABLE>
____________________________________________
i Incorporated herein by reference from the
Company's Registration Statement on Form
S-18, dated November 17, 1987.
ii Incorporated herein by reference from the Company's
Annual Report on Form 10-K for fiscal year ended
October 31, 1991.
iii Incorporated herein by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.
iv Incorporated herein by reference from the Company's
Report on Form 8-K, dated as of December 6, 1990.
v Incorporated herein by reference from the Company's
Quarterly report form 10-Q for the quarter ended
July 31, 1994.
(b) Reports on Form 8-K:
None
(c) See (a)(3) above for all exhibits filed herewith and
the Exhibit Index above.
(d) No financial statements required by Regulation S-X
were excluded from materials delivered to shareholder.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTERNATIONAL YOGURT COMPANY Dated: January __, 1997
By:
John N. Hanna
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the dates indicated.
By: ____________________ Dated: January __, 1997
John N. Hanna
Chief Executive Officer and
Chairman of the Board of Directors
By: ____________________ Dated: January __, 1997
David J. Hanna
Director
By: ____________________ Dated: January __, 1997
James S. Hanna
Director
By: ____________________ Dated: January __, 1997
Carl G. Behnke
Director
By: ____________________ Dated: January __, 1997
William J. Rush
Director
By: ____________________ Dated: January __, 1997
W. Douglas Caudell
Chief Financial Officer
No annual report or proxy material has been sent to security holders as
of the date hereof. Such annual report and proxy material will be furnished
to security holders subsequent to the filing of this report on Form 10-K.
Copies of the definitive version of such materials shall be furnished to the
Commission when they are sent to security holders.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the Registrant's articles of incorporation, or
otherwise, the Registrant has been advised that in opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) as asserted by such director,
officer or controlling person in connection with securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1993 and will be governed
by the final adjudication of such issue.
<PAGE>
International Yogurt Company
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
The following financial statements of International Yogurt Company and
related reports of independent accountants are included as Item 8 and Item
14(a)(1):
Page
Report of Independent Accountants - Grant Thornton LLP A-1
Report of Independent Accountants - Price Waterhouse LLP A-2
Balance Sheets at October 31, 1996 and 1995 A-3
Statements of Operations for the years ended October 31, 1996,
1995 and 1994 A-4
Statement of Shareholders' Equity for the years ended October 31,
1996, 1995 and 1994 A-5
Statements of Cash Flows for the years ended October 31, 1996,
1995 and 1994 A-6
Notes to the Financial Statements A-7 - A-17
No financial statement schedules are included in Item 14(a)(2) as no required
schedules are applicable to International Yogurt Company for the years ended
October 31, 1996, 1995 and 1994.
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
International Yogurt Company
We have audited the balance sheets of International Yogurt Company as of
October 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Yogurt Company
as of October 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Portland, Oregon
January 23, 1997
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
International Yogurt Company
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the results of operations and cash
flows of International Yogurt Company for the year ended October 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Portland, Oregon
January 13, 1995<PAGE>
International Yogurt Company
BALANCE SHEETS
October 31,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 511,787 $ 318,535
Trade accounts receivable,
net of allowance for doubtful accounts
of $106,238 in 1996 and $14,237 in 1995 748,683 873,191
Inventories 1,569,273 1,554,625
Equipment held for resale 28,083 28,220
Other current assets 209,918 102,012
Total current assets 3,067,744 2,876,583
Fixed assets, net 1,970,558 1,839,860
Deferred tax asset 125,000 125,000
Intangible and other long-term assets, net 190,320 195,273
$5,353,622 $5,036,716
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $ 939,000 $1,089,920
Current portion of long-term debt 108,717 68,879
Current obligations under capital leases 33,825 30,715
Accounts payable 1,095,399 813,309
Other accrued liabilities 131,228 75,952
Total current liabilities 2,308,169 2,078,775
Long-term debt payable to related parties
and others, less current portion 186,104 144,385
Long-term obligations under capital leases,
less current portion 100,377 134,113
Total liabilities 2,594,650 2,357,273
Commitments - -
Shareholders' equity
Preferred stock, no par value,
5,000,000 shares authorized,
none issued and outstanding - -
Common stock, no par value,
30,000,000 shares authorized 4,695,450 4,601,476
Accumulated deficit (1,911,282) (1,918,055)
2,784,168 2,683,421
Less common stock in treasury - at cost (25,196) (3,978)
Net shareholders' equity 2,758,972 2,679,443
$5,353,622 $5,036,716
The accompanying notes are an integral part of these statements.
International Yogurt Company
STATEMENTS OF OPERATIONS
For the year ended October 31,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Yogurt sales $7,922,144 $7,348,531 $6,911,252
Cost of sales 5,630,037 5,095,080 4,785,253
Gross profit 2,292,107 2,253,451 2,125,999
Selling and marketing expenses 1,120,942 913,873 940,279
General and
administrative expenses 922,909 1,026,758 997,768
Unusual expenses 143,527 - -
Income from operations 104,729 312,820 187,952
Other income (expense)
Interest income 12,605 8,769 7,918
Interest expense (131,573) (134,724) (119,901)
Other, net 21,012 (3,747) (14,081)
Income before income taxes 6,773 183,118 61,888
Provision for income taxes
Current expense - (3,234) -
Deferred benefit - 125,000 -
- 121,766 -
Net income $6,773 $304,884 $ 61,888
Net income per share $.00 $.14 $.03
Weighted average number
of shares outstanding 2,194,681 2,177,349 2,290,667
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
International Yogurt Company
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated Treasury
Stock Net Shareholders'
Shares Amount Deficit Shares
Amount Equity
<S> <C> <C> <C> <C>
<C> <C>
Balance, October 31, 1993 2,020,347 $4,137,794 $(2,284,827) 3,000
$ (3,978) $1,882,739
Net Income - - 61,888 -
- 61,888
Stock options exercised 128,700 309,714 - -
- 309,714
Debentures converted to
common stock 11,996 60,734 - -
- 60,734
Preferred stock converted to
common stock 9,000 33,750 - -
- -
Balance, October 31, 1994 2,170,043 4,541,992 (2,222,939) 3,000
(3,978) 2,315,075
Net income - - 304,884 -
- 304,884
Stock options exercised 25,000 59,484 -
59,484
Balance, October 31, 1995 2,195,043 4,601,476 (1,918,055) 3,000
(3,978) 2,679,443
Net income - - 6,773 -
- 6,773
Stock sold 52,750 93,974 - -
- 93,974
Treasury stock purchased 11,000
(21,218) (21,218)
Balance, October 31, 1996 2,247,793 $4,695,450 $(1,911,282) 14,000
$(25,196) $2,758,972
</TABLE>
The accompanying notes are an integral part of these statements.
International Yogurt Company
STATEMENTS OF CASH FLOWS
For the year ended October 31,
1996 1995 1994
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income $ 6,773 $304,884 $ 61,888
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 262,405 246,382 208,799
Loss on sale of equipment - 3,747 -
Deferred income taxes - (125,000) -
Change in assets and liabilities
Accounts receivable 124,508 35,112 (291,288)
Inventories (14,648) (120,291) (248,388)
Other current assets (107,770) 96,692 (23,615)
Other long-term assets (5,371) - (32,600)
Accounts payable 282,090 (120,730) 288,279
Other accrued liabilities 55,276 (43,778) 24,052
Net cash provided by (used in)
operating activities 603,263 277,018 (12,873)
Cash flows from investing activities
Proceeds from sale of equipment - 1,530 16,000
Expenditures for plant and equipment (382,780) (175,310) (332,871)
Net cash used in (382,780) (173,780) (316,871)
investing activities
Cash flows from financing activities
Net increase (decrease) in note
payable to bank (150,920) (56,617) 218,537
Proceeds from issuance of long-term debt 152,529 - 85,000
Principal payments on long-term debt
and capital lease obligations (101,596) (121,230) (238,071)
Treasury stock purchased (21,218) - -
Proceeds from issuance of stock 93,974 - -
Stock options exercised - 56,250 309,714
Net cash provided by (used in)
financing activities (27,231) (121,597) 375,180
Net increase (decrease) in
cash and cash equivalents 193,252 (18,359) 45,436
Cash and cash equivalents, beginning of year 318,535 336,894 291,458
Cash and cash equivalents, end of year $511,787 $318,535 $336,894
The accompanying notes are an integral part of these statements.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
International Yogurt Company (the Company) was incorporated on January 14,
1977 in the state of Oregon. The Company produces frozen yogurt products and
markets them primarily under the name "YO CREAM". The Company's products are
also marketed by Norpac Foods, Inc. and Norpac Foods Sales under the terms of
a marketing agreement. Sales are made throughout the United States to and
through a variety of outlets, including distributors, discount club
warehouses, supermarkets, grocery stores, convenience stores, restaurants,
hospitals, schools, military installations, yogurt shops and fast food
chains.
1. Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with an original
maturity of less than ninety days.
2. Inventories
Inventories are stated at the lower of cost or market. The Company
determines cost based on the first-in, first-out (FIFO) method for raw
materials, packaging materials and supplies, and based on standard costs for
finished goods.
3. Fixed Assets
Fixed asset are stated at cost. Expenditures for replacements and
improvements are capitalized, and expenditures for repairs and maintenance
and routine replacements are charged to operating expense as incurred. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss
is included in operations. Depreciation is provided for in amounts to relate
the cost of depreciable assets to operations over their estimated service
lives, principally on a straight-line basis. Leasehold improvements are
amortized over the life of the lease or the service life of the improvement,
whichever is shorter. The estimated lives used in calculating depreciation
and amortization are:
Plant equipment 25 years
Office equipment and furnishings 10 years
Leasehold improvements 5-10 years
<PAGE>
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE A - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
4. Statement of Cash Flows
The Company made cash interest payments of $125,025, $124,802, and $138,269
for the years ended October 31, 1996, 1995 and 1994, respectively. No income
taxes have been paid during these periods.
During 1994, debentures aggregating $60,734, net of related deferred bond
costs, and preferred stock aggregating $33,750 were converted into common
stock. In 1995, the Company acquired $61,516, of plant and improvements by
entering into additional capital lease obligations. All of these noncash
transactions have been excluded from the accompanying statement of cash
flows.
5. Significant Estimates
In preparing financial statements in conformity with Generally Accepted
Accounting Principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6. 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 of computation.
7. Reclassifications
Certain balances in the 1995 financial statements have been reclassified to
conform with the current year presentation. These reclassifications do not
affect the previously reported results of operations or shareholders' equity.
NOTE B - INVENTORIES
Inventories consist of the following at October 31,:
1996 1995
Finished goods $1,175,303 $1,169,073
Raw materials 168,334 149,824
Packaging materials and supplies 225,636 235,728
$1,569,273 $1,554,625
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE C - FIXED ASSETS
Fixed assets consist of the following at October 31,:
1996 1995
Machinery and equipment $2,604,238 $2,248,502
Office equipment and furnishings 138,217 132,280
Leasehold improvements 609,763 597,556
Construction in process 39,211 30,312
3,391,429 3,008,650
Less accumulated depreciation
and amortization 1,420,871 1,168,790
$1,970,558 $1,839,860
Fixed assets at October 31, 1996 and 1995 include assets held under capital
leases aggregating approximately $193,000, with related accumulated
amortization of approximately $37,000 and $17,000, respectively.
Depreciation and amortization of the Company's fixed assets aggregated
$252,081, $200,991, and $198,058, for the years ended October 31, 1996, 1995,
and 1994.
NOTE D - INTANGIBLE AND OTHER LONG-TERM ASSETS
Intangible assets consist of the following at October 31,:
Period of
Amortization 1996 1995
Trademarks (principally "YO CREAM") 25 years $250,026 $250,026
Less accumulated amortization (97,677) (87,353)
$152,349 $162,673
As of October 31, 1996 and 1995, the Company had made a $32,600 deposit
related to the lease of its production and office facility which is included
in intangibles and other long-term assets in the accompanying balance sheet.
NOTE E - NOTE PAYABLE TO BANK
The Company has a demand bank line of credit which permits borrowing of up to
$1,500,000, subject to collateral limitations and third party loan insurance.
Borrowings are collateralized by qualified accounts receivable, inventories,
and the loan insurance provided by the Oregon Economic Development
Department(OEDD). The OEDD has guaranteed, through loan insurance, 33% of
the outstanding balance up to a maximum of $500,000. At October 31, 1996,
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
the maximum available was $1,316,000 based upon collateral limitations and
the loan insurance. The line bears interest at the bank's commercial lending
rate plus 1% (9.25% at October 31, 1996 and 9.75% at October 31, 1995).
Borrowings under the line aggregated $939,000 and $1,089,920 at October 31,
1996 and 1995, respectively. The line is subject to renewal by April 1,
1997.
Under the terms of the line of credit, the Company is required to maintain
certain financial parameters including minimum working capital, minimum
tangible net worth and minimum debt-to-worth ratio. In addition, the Company
is required to retain 40% of net earnings after tax from inception of loan,
which approximates $153,000 at October 31, 1996.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at October 31,:
1996 1995
Note payable to Norpac, payable in monthly
principal only installments of $5,000 with
the balance due August 1997, plus accrued
interest at 8%, collateralized by accounts
receivable and inventory, subordinated to
bank line of credit $ 80,000 $140,000
Industrial development loan, payable in
monthly installments of $1,202 through
April 2002, including interest at 8%,
collateralized by certain equipment 64,385 73,264
Notes payable to a bank in monthly
installments of $1,461 through
September 2003, including interest at
8.5%, collateralized by certain equipment 89,874 -
Notes payable to a bank in monthly
installments of $1,272 through November 2001,
including interest at a U.S. Treasury index
plus 3% (9.31% at October 31, 1996),
collateralized by certain equipment 60,562 -
294,821 213,264
Less portion due within one year (108,717) (68,879)
$186,104 $144,385
<PAGE>
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE F - LONG-TERM DEBT - Continued
The principal portion of long-term debt is payable as follows:
Year ending
October 31,
1997 $108,717
1998 33,336
1999 35,427
2000 38,605
2001 42,094
Thereafter 36,642
$294,821
NOTE G - CAPITAL LEASE OBLIGATIONS
The Company leases various equipment under capital lease agreements.
Future minimum lease payments as of October 31, 1996 are:
Year ending
October 31,
1997 $45,367
1998 44,980
1999 52,203
2000 15,874
Total minimum lease payments 158,424
Less amount representing interest 24,222
Present value of minimum lease payments 134,202
Less current portion 33,825
Long-term portion $100,377
<PAGE>
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Employee Savings Plan and Trust which allows the
Company to make contributions to the Plan on behalf of eligible employees.
The Company's contributions to the Plan were approximately $8,500, $7,500 and
$8,900 during the years ended October 31, 1996, 1995 and 1994, respectively.
Additionally, the Company has a profit-sharing plan for eligible employees.
Under the provisions of the Plan, the Company may, at its discretion, make
contributions of a sum not in excess of the amount permitted under the
Internal Revenue Code as a deductible expense. The Company has not made any
contributions to this Plan.
NOTE I - STOCK OPTION PLANS
The Company reserved 400,000 shares of its common stock pursuant to a
nonqualified Stock Option Plan (the Plan) for key employees. The Plan
provides for the granting of options to purchase shares of common stock at a
price not less than 85% or more than 100% of the fair market value per share
as of the date of the grant. Options are exercisable in such amounts and at
such times as authorized by a Stock Option Agreement applicable to each
option. Options expire no later than five years from the date of grant
unless employment is terminated prior to that time. In the case of
termination of employment for any reason other than death or disability, the
option must be exercised within 90 days of termination or be forfeited.
All options have been granted with an exercise price equal to the fair market
value of the Company's common stock on the effective grant date. A summary
of option transactions relating to the Stock Option Plan for key employees
follows:
Exercise price
Shares per share of
under Common
option Stock
Balance, October 31, 1993 278,500 $2.25-5.00
Granted 41,500 4.00
Exercised (103,700) 2.25-3.37
Expired (4,000) 3.37
Balance, October 31, 1994 212,300 2.25-4.44
Exercised (5,000) 2.25
Expired (34,500) 2.25
Balance, October 31, 1995 172,800 2.50-4.44
Exercised -
Expired -
Balance, October 31, 1996 (exercisable) 172,800 2.50-4.44
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE I - STOCK OPTION PLANS - Continued
In October 1990, the Company's Board of Directors adopted a nonqualified
Stock Option Plan for directors who are nonemployees and reserved 150,000
shares of common stock for issuance pursuant to this Plan. Based on the
terms of the Plan, options are to be granted to each director at the fair
market value of common stock on the grant date in October of each year.
Options are exercisable in such amounts and at such times as authorized by a
Stock Option Agreement applicable to each option.
A summary of option transactions relating to the Stock Option Plan for
directors who are nonemployees follows:
Exercise price
Shares per share of
under Common
option Stock
Balance, October 31, 1993 75,000 1.54-8.00
Granted 30,000 3.75
Exercised (25,000) 1.54-2.25
Balance, October 31, 1994 80,000 1.54-8.00
Granted 15,000 2.31
Exercised (20,000) 2.25
Balance, October 31, 1995 75,000 1.54-8.00
Granted 15,000 1.88
Exercised - -
Expired (25,000) 3.75-8.00
Balance, October 31, 1996 (exercisable) 65,000 1.54-8.00
<PAGE>
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE I - STOCK OPTION PLANS - Continued
In January 1994, the Company's Board of Directors adopted a Combined
Incentive and Nonqualified Stock Option Plan and reserved 200,000 shares of
common stock for issuance pursuant to this Plan. Options are exercisable in
such amounts and at such times as authorized by a Stock Option Agreement
applicable to each option.
A summary of option transactions relating to the Combined Incentive and
Nonqualified Stock Option Plan is as follows:
Exercise price
Shares per share of
under Common
option Stock
Balance, October 31, 1993 -
Granted 30,000 $8.12
Balance, October 31, 1994 30,000 8.12
Granted 61,000 2.12
Balance, October 31, 1995 91,000 2.12-8.12
Granted 42,000 1.75
Balance, October 31, 1996 (exercisable) 133,000 1.75-8.12
NOTE J - FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments consisting of
cash, accounts receivable and payable, notes payable and long-term debt
approximate fair values.
NOTE K - UNUSUAL EXPENSES
During 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 in order to readily identify the amount. The provision
reduced net earnings by $143,527, or $.07 per share in fiscal 1996.
NOTE L - ADVERTISING
Advertising costs are charged to operations in the year incurred, and for the
years ended October 31, 1996, 1995 and 1994 aggregated approximately
$452,000, $231,000 and $307,000, respectively.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE M - INCOME TAXES
Under the provisions of FAS 109, the utilization of the Company's net
operating loss carryforwards substantially eliminated the provision for
income taxes for the years ended October 31, 1996 and 1995.
The effective tax rate differed from the statutory federal tax rate due to
the following:
Year ended October 31,
1996 1995 1994
Statutory federal tax rate (graduated) 15.0% 29.9% 16.9%
State taxes, net of federal benefit 5.6 4.6 6.0
Utilization of net operating
loss carryforwards (20.6) (32.7) (22.9)
Change in valuation allowance - (68.3) -
0.0% (66.5)% 0.0%
Deferred tax assets (liabilities) consist of the following at October 31,:
1996 1995
Allowance for doubtful accounts $ 35,000 $ 5,000
Inventory 22,000 24,000
Net operating loss carryforwards 1,024,000 1,200,000
Gross deferred tax assets 1,081,000 1,229,000
Deferred tax asset valuation allowance (864,000) (997,000)
Net deferred tax asset 217,000 232,000
Property, plant and equipment (92,000) (107,000)
Gross deferred tax liabilities (92,000) (107,000)
Net noncurrent deferred tax asset $ 125,000 $ 125,000
At October 31, 1996, the Company had net operating loss carryforwards
aggregating approximately $3,300,000, which may be used to offset taxable
income, if any, in future years. The net operating loss carryforwards expire
from 2001 through 2008. The annual utilization of these carryforwards may be
limited if the Company undergoes an ownership change as defined by the
Internal Revenue Code.
The net operating loss carryforwards include deductions aggregating
approximately $960,000 resulting from the exercise of certain employee stock
options. For financial reporting purposes, any future reduction in income
tax obligations realized from utilizing these deductions will be credited to
common stock.
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
NOTE N - OPERATING LEASE COMMITMENTS INCLUDING THOSE WITH RELATED PARTIES
During fiscal 1994, the Company entered into a 15 year operating lease
agreement for its production and office facilities with a company owned by
the Company's chief operating officer and its president (both of whom are
also shareholders of the Company) and other shareholders of the Company.
Minimum lease payments required under the related party and several equipment
operating leases are as follows:
Year ending
October 31,
1997 $ 117,000
1998 121,100
1999 119,700
2000 119,200
2001 127,200
Thereafter 956,000
$ 1,560,200
Operating lease expense under the related party lease for the years ended
October 31, 1996, 1995 and 1994 approximated $103,000, $103,000 and $34,400,
respectively. Lease expense, exclusive of related parties, was approximately
$34,700, $21,000 and $58,600 for the years ended October 31, 1996, 1995, and
1994. Operating lease expenses are allocated between manufacturing costs and
general and administrative expenses in the accompanying statement of
operations.
NOTE O - COMMITMENTS AND RELATED PARTY TRANSACTIONS
In September 1987, the Company entered into a marketing agreement with Norpac
Foods, Inc. and Norpac Foods Sales (collectively referred to as Norpac).
Under the terms of the agreement, Norpac serves as the Company's broker and
exclusive sales agent for selling "YO CREAM" to institutional food service
customers, subject to certain exceptions, in the United States. The Company
has access to Norpac's customer list and uses Norpac's brokers, warehouses
and truck fleet to distribute its products. Norpac fulfills the functions of
order taking, invoicing, credit qualifying and collecting for the Company's
sales of "YO CREAM" to institutional food service customers, subject to
certain exceptions. Norpac's brokerage fees and commissions are based on a
percentage of sales as stated in the agreement. Such brokerage fees and
commissions total approximately $287,000, $426,000 and $482,000 for the years
ended October 31, 1996, 1995 and 1994, respectively. Additionally, prior to
1995, Norpac was responsible for essentially all of the Company's marketing
and advertising. For the years ended October 31, 1996, 1995 and 1994,
advertising expense through Norpac aggregated approximately $231,000,
$183,000 and $381,000, respectively. All brokerage fees, commissions and
International Yogurt Company
NOTES TO FINANCIAL STATEMENTS
advertising expenses are included in selling and marketing expenses in the
accompanying statements of operations. The marketing agreement may be
terminated by the Company if Norpac fails to meet certain agreed upon sales
goals established annually by mutual consent. At October 31, 1996 and 1995,
Norpac held approximately 5% and 3%, respectively, of the Company's
outstanding shares of common stock and has a note receivable of $80,000 and
$140,000, respectively, due from the Company. At October 31, 1996, accounts
receivable, exclusive of any allowance, include approximately $150,000
receivable from Norpac, and accounts payable include approximately $290,000
payable to Norpac; at October 31, 1995, such amounts were $189,000 and
$192,000, respectively.
NOTE P - MAJOR CUSTOMERS
Revenues derived from the Company's two largest customers are presented as
percentages of total annual revenues as follows:
Year ended October 31,
1996 1995 1994
Customer A 35% 32% 29%
Customer B 10 10 12
45% 42% 41%
NOTE Q - RECENT ACCOUNTING STANDARD
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. Upon future adoption
of this statement, the Company anticipates electing to continue to apply the
accounting provision of APB Opinion 25 with disclosure of the required
proforma amounts. Accordingly, the only impact expected by management on the
Company's future financial statements will be additional disclosures required
by the new standard.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 511,787
<SECURITIES> 0
<RECEIVABLES> 748,683
<ALLOWANCES> 0
<INVENTORY> 1,569,273
<CURRENT-ASSETS> 3,067,744
<PP&E> 1,970,558
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,353,622
<CURRENT-LIABILITIES> 2,308,169
<BONDS> 0
0
0
<COMMON> 4,695,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,353,622
<SALES> 7,922,144
<TOTAL-REVENUES> 7,922,144
<CGS> 5,630,037
<TOTAL-COSTS> 5,630,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,573
<INCOME-PRETAX> 6,773
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,773
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
