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 April 30, 1998.
[ ] 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
April 30, 2,308,293 shares
INTERNATIONAL YOGURT COMPANY
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements 3 - 6
Balance Sheet as of April 30, 1998, 3
(unaudited) and October 31, 1997
Statements of Earnings for the 4
Three Months ended April 30, 1998 and 1997
Six Months ended April 30, 1998 and 1997
(all unaudited)
Statements of Cash Flows for the 5
Six Months ended April 30, 1998 and 1997
(all unaudited)
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of 8 - 10
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL YOGURT COMPANY
BALANCE SHEETS
April 30, October 31,
1998 1997
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 274,608 $ 414,194
Accounts receivable, net 740,268 828,860
Inventories 2,008,196 1,808,201
Equipment held for resale, net 23,083 23,083
Other current assets 299,347 306,269
Total current assets 3,345,502 3,380,607
Fixed assets, net 1,925,314 1,918,956
Deferred tax asset 334,000 284,000
Intangible and other long-term assets, net 235,169 227,030
$5,839,985 $5,810,593
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $1,069,800 $1,337,000
Current portion of long-term debt 45,097 38,329
Current obligations under capital lease 36,862 36,862
Accounts payable 812,207 928,942
Other accrued liabilities 83,629 60,567
Total current liabilities 2,047,595 2,401,700
Long-term debt, less current portion 175,434 159,549
Long term obligations under
capital lease, less current portion 45,044 63,426
Total liabilities 2,268,073 2,624,675
Shareholders' equity
Common stock, no par value,
30,000,000 shares authorized;
2,336,293 shares issued 4,934,084 4,710,850
Accumulated deficit (1,291,722) (1,477,736)
Less common stock in treasury, 28,000 shares (70,450) (47,196)
Net shareholders' equity 3,571,912 3,185,918
$5,839,985 $5,810,593
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF EARNINGS
(unaudited)
Three months ended Six months ended
April 30, April 30,
1998 1997 1998 1997
Sales $2,218,294 $2,276,813 $3,832,229 $3,784,926
Cost of sales 1,418,753 1,432,596 2,537,667 2,533,159
Gross profit 799,541 844,217 1,294,562 1,251,767
Selling and marketing
expenses 294,328 327,887 565,879 559,862
General and administrative
expenses 281,325 253,741 534,114 496,967
Income from operations 223,888 262,589 194,569 194,938
Other income (expenses)
Interest income 3,014 3,766 7,487 7,964
Interest expense (36,460) (38,087) (74,062) (73,280)
Other, net - - 8,020 -
(33,446) (34,321) (58,555) (65,316)
Income before taxes 190,442 228,268 136,014 129,622
Deferred benefit (50,000) - (50,000) -
Net income $ 240,442 $ 228,268 $ 186,014 $129,622
Basic net income per share $.11 $.10 $.08 $.06
Diluted net income per share $.10 $.10 $.08 $.06
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended April 30, 1998 and 1997
(Unaudited)
1998 1997
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 186,014 $ 129,622
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation 122,138 142,990
Gain on sale of assets (8,028) -
Deferred income taxes (50,000) -
Change in assets and liabilities
Accounts receivable 88,592 (76,112)
Inventories (199,995) (270,179)
Other current assets 6,923 (41,415)
Other assets (8,139) (11,971)
Accounts payable (116,735) (151,141)
Other accrued liabilities 23,062 (8,425)
Net cash provided (used)
by operating activities 43,832 (286,631)
Cash flows from investing activities:
Expenditures for plant and equipment (120,468) (103,877)
Net cash used in investing activities (120,468) (103,877)
Cash flows from financing activities:
Net increase (decrease) in line of credit (267,200) 331,000
Proceeds from issuance of stock 223,233 -
Proceeds from bank equipment financing 42,179 15,000
Payments for treasury stock purchases (23,253) (12,000)
Principal payments on long term debt
and capital leases (37,909) (60,970)
Net cash provided by (used in)
financing activities (62,950) 273,030
Net decrease in cash and equivalents (139,586) (117,478)
Cash and equivalents, beginning of period 414,194 511,787
Cash and equivalents, end of period $ 274,608 $ 394,309
The accompanying notes are an integral part of the financial statement.
INTERNATIONAL YOGURT COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 six months ended April 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1998. 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, 1997.
Note B - Inventories
Inventories consist of the following: April 30, October 31,
1998 1997
Finished goods $1,595,298 $1,451,729
Raw materials 233,357 171,893
Packaging materials and supplies 179,541 184,579
$2,008,196 $1,808,201
Note C - Earnings per share
Earnings per share are calculated as follows for the three months ended
April 30, 1998 and 1997:
Three Months Ended April 30, 1998
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $240,442 2,272,074 $.11
Effect of dilutive securities - 74,348 (.01)
Diluted income per share $240,442 2,346,422 $.10
Three Months Ended April 30, 1997
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $228,268 2,230,228 $.10
Effect of dilutive securities - 19,612 -
Diluted income per share $228,268 2,249,840 $.10
Earnings per share are calculated as follows for the six months ended April
30, 1998 and 1997:
Six Months Ended April 30, 1998
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $186,014 2,256,786 $.08
Effect of dilutive securities - 37,174 -
Diluted income per share $186,014 2,293,960 $.08
Six Months Ended April 30, 1997
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $129,622 2,232,010 $.06
Effect of dilutive securities - 9,806 -
Diluted income per share $129,622 2,241,816 $.06
In the above calculations, dilutive securities consist of stock options at
prices ranging from $1.75 to $4.44, net of tax benefits. During the six
months ended April 30, 1998, options were exercised to purchase 78,500
shares.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations.
The following discussion includes forward-looking statements within the
meaning of the "safe-harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based on the beliefs
of the Company's management and on assumptions made by and information
currently available to management. All statements other than statements of
historical fact, regarding the Company's financial position, business
strategy and plans and objectives of management for future operations of the
Company are forward-looking statements. When used herein, the words
"anticipate," "believe," "estimate," "expect," and "intend" and words or
phrases of similar meaning, as they relate to the Company or management, are
intended to identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Forward-looking statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially from
those indicated by the forward-looking statements. These risks and
uncertainties include the Company's ability to maintain or expand its
distribution abilities, including the risk of disruptions in the
transportation system and relationships with brokers and distributors.
Further, actual results may be affected by the Company's ability to compete
on price and other factors with other manufacturers and distributors of
frozen dessert products; customer acceptance of new products; general trends
in the food business as they relate to customer preferences for the Company's
products; and the Company's ability to obtain raw materials and produce
finished products in a timely manner, as well as its ability to develop and
maintain its co-packing relationships and strategic alliances. In addition,
there are risks inherent in dependence on key customers, the loss of which
could materially adversely affect the Company's operations. The reader is
advised that this list of risks is not exhaustive and should not be construed
as any prediction by the Company as to which risks would cause actual results
to differ materially from those indicated by the forward-looking statements.
The Company's sales decreased 2.6% to $2,218,294 for the second quarter,
and increased 1.2% to $3,832,229 for the six months ended April 30, 1998,
compared to the corresponding periods in 1997. The slight drop in sales was
primarily due to the unusually poor weather patterns in the United States,
and Canada during the second quarter, resulting in delayed orders and
shipments.
The Company is a leading innovator of frozen dessert, snack and beverage
products. The hottest category in foodservice today is smoothies. In
response to this trend, the Company has developed two lines of superior
products that are adaptable to both blender or dispenser operation. For
dispenser machines, the Company has introduced the COMPLETE FRUIT SMOOTHIE.
This is a line of ready-to-serve products which are all natural, nonfat and
nondairy. All that is required is to shake and pour into your choice of
smoothie machine. The Company has also introduced the YO CREAM SMOOTHIE WAY,
which allows the operator to develope their own unique receipes utilizing
either YO CREAM(r) nonfat frozen yogurt, Sorbet by YO CREAM(r), or YO
CREAM(r) PURE base mixes. The response to these products has been
exceptional, and has led to the Company developing innovative smoothie
products for certain major chains.
In April 1998, the Company announced that it had developed an innovative line
of smoothies that Maui Tacos International, Inc., a majority owned subsidiary
of Blimpie International, Inc., will utilize for its Smoothie Island (TM)
concept. Costco, a long term customer of the Company's yogurt products, is
in the process of installing smoothie machines to facilitate the exceptional
customer demand for the unique smoothie that the Company developed for their
operations. Local chains serving the Company's new smoothies include
Burgerville USA, Coffee People, Cool Temptations, and Taco Del Mar.
The number of machines utilizing these products is growing, and is expected
to reach the level in the third quarter, where the Company will realize a
significant impact on its operations.
The Company's gross profit margin for the second quarter decreased slightly
from 37.1% to 36.0%, and the gross profit margin for the six months remained
relatively constant at approximately 33.8%. The fluctuation in gross profit
was primarily due to the changes in sales volume.
Selling and marketing expenses in the second quarter decreased slightly from
14.4% to 13.3%, and for the six months remained constant at approximately
14.8% of sales.
General and administrative expenses in the second quarter increased slightly
from 11.1% to 12.7% of sales, and for the six months remained relatively
constant at approximately 13.9% of sales. Such expenses increased over the
corresponding period in 1997 primarily due to increases in various expenses.
General and administrative expenses are relatively fixed due to management's
efforts to control such expenses.
Income from operations for the quarter decreased slightly due to lower sales
and related margins, and results for the six months are relatively constant.
Liquidity and Capital Resources.
Historically, the Company has financed its operations and expansion from bank
loans, leases, capital investment by its founders, private and public
securities offerings, stock option proceeds, and internally generated funds.
For the period ended April 30, 1998, the Company has received $223,233 from
the exercise of 78,500 in stock options.
As of April 30, 1998, the Company's total borrowings under its bank line of
credit were $1,069,800, against a collateral base of approximately
$1,462,000. At April 30, 1998 the Company had cash funds available
aggregating $274,608 which were available to reduce bank borrowings. The
current level of borrowings is lower than normal for the season of the year
due to the proceeds from the stock options mentioned above. Borrowings at
April 30, 1998 amounted to $1,337,000. Interest is at 1% over the bank's
basic commercial lending rate. Total borrowings under this line are payable
upon demand and currently 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. Under the terms of the
annual loan renewal, which is currently in process, the collateral
requirements will be eliminated and the Company will be able to borrow up to
the $1,700,000 limit subject to maintaining certain ratio requirements.
Under the terms of the loan renewal, the Company will also have a $300,000
credit facility for equipment financing.
Accounts receivable at April 30, 1998 were $740,268, compared to $824,795 at
April 30, 1997, and $828,860 at October 31, 1997. The decrease in
receivables relates to the decrease in sales.
Inventories at April 30, 1998 were $2,008,196, compared to $1,839,452 at
April 30, 1997, and $1,808,201 at October 31, 1997. The higher level of
inventories in 1998, compared to the same time last year, primarily relates
to an increase in raw materials and finished goods inventory necessitated by
the increase in customer demand for new products.
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
At the Annual Meeting of Shareholders, which was held on April 8, 1998, the
shareholders reelected John Hanna, Dave Hanna, James Hanna, Bill Rush, and
Carl Behnke as directors. Each of the five nominees received not less than
2,004,216 votes, or 99.9% of the shares in person or by proxy and voting.
The terms for each director is one year, or until their successor shall have
been elected and qualified.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27 - 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: June 15, 1998 By /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive Officer
Date: June 15, 1998 By: /s/ W. Douglas Caudell
W. Douglas Caudell, Chief
Financial Officer
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