SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly period ended July 31, 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
July 31, 2,336,593 shares
<PAGE>
INTERNATIONAL YOGURT COMPANY
CONTENTS
Page
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements 3 - 7
Balance Sheet as of July 31, 1998, 3
(unaudited) and October 31, 1997
Statements of Earnings for the 4
Three Months ended July 31, 1998 and 1997
Nine Months ended July 31, 1998 and 1997
(all unaudited)
Statements of Cash Flows for the 5
Nine Months ended July 31, 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
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL YOGURT COMPANY
BALANCE SHEETS
July 31, October 31,
1998 1997
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 274,543 $ 414,194
Accounts receivable, net 1,132,618 828,860
Inventories 2,006,086 1,808,201
Equipment held for resale, net 23,083 23,083
Other current assets 294,340 306,269
Total current assets 3,730,670 3,380,607
Fixed assets, net 2,030,475 1,918,956
Deferred tax asset 409,000 284,000
Intangible and other long-term assets, net 246,538 227,030
$6,416,683 $5,810,593
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable to bank $1,158,800 $1,337,000
Current portion of long-term debt 45,097 38,329
Current obligations under capital lease 36,862 36,862
Accounts payable 849,193 928,942
Other accrued liabilities 158,499 60,567
Total current liabilities 2,248,451 2,401,700
Long-term debt, less current portion 163,917 159,549
Long term obligations under
capital lease, less current portion 37,136 63,426
Total liabilities 2,449,504 2,624,675
Shareholders' equity
Common stock, no par value,
30,000,000 shares authorized;
2,336,593 shares issued 5,015,889 4,710,850
Accumulated deficit (978,261) (1,477,736)
Less common stock in treasury,
28,000 shares (70,449) (47,196)
Net shareholders' equity 3,967,179 3,185,918
$6,416,683 $5,810,593
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF EARNINGS
(unaudited)
Three months ended Nine months ended
July 31, July 31,
1998 1997 1998 1997
Sales $3,245,886 $2,681,957 $7,078,116 $6,466,883
Cost of sales 2,328,030 1,841,221 4,865,701 4,374,370
Gross profit 917,856 840,736 2,212,415 2,092,513
Selling and marketing
expenses 334,102 360,561 899,982 920,445
General and administrative
expenses 314,607 263,538 848,724 760,504
Income from operations 269,147 216,637 463,709 411,564
Other income (expenses)
Interest income 2,715 4,168 10,201 12,143
Interest expense (33,401) (36,951) (107,463) (110,240)
Other, net - 19,676 8,028 19,676
Income before taxes 238,461 203,530 374,475 333,143
Deferred benefit (75,000) - (125,000) -
Net income $ 313,461 $ 203,530 $ 499,475 $333,143
Basic net income per share $.13 $.09 $.22 $.15
Diluted net income per share $.13 $.09 $.21 $.15
The accompanying notes are an integral part of the financial statements.
INTERNATIONAL YOGURT COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine months ended July 31, 1998 and 1997
1998 1997
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 499,475 $ 333,143
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Depreciation 182,950 213,945
Gain on sale of assets (8,028) (19,684)
Deferred income taxes (125,000) -
Change in assets and liabilities
Accounts receivable (303,758) (270,815)
Inventories (197,885) (302,804)
Other current assets 11,929 (137,867)
Other assets (19,508) (12,292)
Accounts payable (79,749) (24,148)
Other accrued liabilities 97,932 (21,033)
Net cash provided (used)
by operating activities 58,358 (241,555)
Cash flows from investing activities:
Proceeds from sale of equipment - 29,000
Expenditures for plant and equipment (286,441) (141,979)
Net cash used in investing activities (286,441) (112,979)
Cash flows from financing activities:
Net increase (decrease) in line of credit (178,200) 337,000
Proceeds from issuance of stock 305,039 -
Proceeds from bank equipment financing 42,179 15,000
Payments for treasury stock purchases (23,253) (22,000)
Principal payments on long term debt
and capital leases (57,333) (93,239)
Net cash provided by
financing activities 88,432 236,761
Net decrease in cash and equivalents (139,651) (117,773)
Cash and equivalents, beginning of period 414,194 511,787
Cash and equivalents, end of period $ 274,543 $ 394,014
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. 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:
July 31, October 31,
1998 1997
Finished goods $1,409,526 $1,451,729
Raw materials 416,706 171,893
Packaging materials and supplies 179,854 184,579
$2,006,086 $1,808,201
Note C - Earnings per share
Earnings per share are calculated as follows for the three months ended July
31, 1998 and 1997:
Three Months Ended July 31, 1998
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $313,461 2,332,594 $.13
Effect of dilutive securities - 83,230 -
Diluted income per share $313,461 2,415,82 $.13
Three Months Ended July 31, 1997
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $203,530 2,229,793 $.09
Effect of dilutive securities - 33,133 -
Diluted income per share $203,530 2,262,926 $.09
Earnings per share are calculated as follows for the nine months ended July
31, 1998 and 1997:
Nine Months Ended July 31, 1998
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $499,475 2,278,505 $.22
Effect of dilutive securities - 52,301 (.01)
Diluted income per share $499,475 2,330,806 $.21
Nine Months Ended July 31, 1997
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per share:
Net income $333,143 2,231,231 $.15
Effect of dilutive securities - 17,575 -
Diluted income per share $333,143 2,248,806 $.15
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 nine
months ended July 31, 1998, options were exercised to purchase 106,800
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 increased 21% to $3,245,866 for the third quarter, and
increased 9.5% to $7,078,116 for the nine months ended July 31, 1998,
compared to the corresponding periods in 1997. The increase in sales is
primarily due to the growing success of the Company's smoothie products.
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 YO CREAM the SMOOTHIE
WAY, which allows the operator to develop their own unique recipes utilizing
either YO CREAM nonfat frozen yogurt, Sorbet by YO CREAM , or YO CREAM 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.
Costco, a long term customer of the Company's yogurt products, is continuing
to expand the number of its smoothie machines to facilitate the exceptional
customer demand for the unique smoothie that the Company developed for their
operations. 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 concept. Other chains serving the Company's new smoothies
include Burgerville USA, Coffee People, Cool Temptations, Taco Del Mar, and
Cinnamonster. The Company is also in the process of working with other
chains and marketing companies to further expand the distribution of its
products.
YOCREAM Smoothies were launched in the spring of 1998. As expected, the
number of locations utilizing these products reached a level in the third
quarter, that resulted in a significant improvement in operating results.
Retail servings, nationally, are already in excess of one million. They are
currently being served at the rate of approximately one-half million per
month.
The Company's gross profit margin decreased slightly for the third quarter
from 31.3% to 28.3%, and for the nine months from 32.4% to 31.3%. The lower
margin in the third quarter is primarily due to higher warehouse and
distribution expenses associated with the higher sales volume, and higher
unabsorbed production overhead due to planned lower production levels to
reduce finished goods inventory levels. Finished goods inventory at July
1998 is lower than in the prior year. The lower margin for the nine months
is primarily due to higher warehouse and distribution expenses.
Selling and marketing expenses in the third quarter decreased from 13.4% to
10.3%, and for the nine months decreased from 14.2% to 12.7% of sales. The
decrease in selling expenses is primarily is the result of reduced expenses
since the Company assumed full responsibility for the marketing and sales of
its products to the food service segment in the fourth quarter of last year.
General and administrative expenses, as a percentage of sales, remained
relatively constant in the third quarter at approximately 9.7%, and 12% for
the nine months. Such expenses increased in total over the corresponding
period in 1997 primarily due to increases in travel, rent, professional
fees, and payroll related expenses, including 401k contributions and stock
option expenses.
Income from operations increased to 8.3% of sales for the quarter, and 6.6%
of sales for the nine months, primarily due to the higher sales volume and
reduced food service marketing expenses.
As the result of the continued improvement in operating results, the Company
has evaluated the future benefit of its net operating losses. This resulted
in an increase in the carrying value of its net noncurrent deferred tax
asset by $75,000 in the third quarter and $125,000 for the nine months of
1998. In the prior year the evaluation was reflected in the fourth quarter.
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 nine months ended July 31, 1998, the Company received $305,039 from
the exercise of 106,800 in stock options.
As of July 31, 1998, the Company's total borrowings under its bank line of
credit were $1,158,800. At July 31, 1998 the Company had cash funds
available aggregating $274,543 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, and the higher level of income from operations. Borrowings at July
31, 1997 amounted to $1,276,000. Interest is at 1% over the bank's basic
commercial lending rate. Under the terms of the secured bank line of credit,
the Company may borrow up to the $1,700,000 limit subject to maintaining
certain ratio requirements. The bank has also approved a $300,000 credit
facility for equipment financing.
Accounts receivable at July 31, 1998 were $1,132,618, compared to $1,019,498
at July 31, 1997, and $828,860 at October 31, 1997. The increase in
receivables relates to the increase in sales.
Inventories at July 31, 1998 were $2,006,086, compared to $1,872,077 at July
31, 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 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.
The Company has begun the process of making its assessment of its Year 2000
issues. Management has determined that its accounting software is Year 2000
compliant, and the Company is currently in the process of making a planned
upgrade to its network operating system, and replacing certain computers.
Arrangements are in process to work with a computer consultant to review all
of its hardware and systems. Contact has also been made with certain
business partners, and in the next few months the Company plans further
contact with customers and suppliers, and plans to evaluate risks, and
formulate contingency plans. At this time, management is not aware of any
issues that would have a material impact on its financial statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceedings, other
than non-material legal proceedings occurring in the ordinary course of
business.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
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: September 14, 1998 By /s/ John N. Hanna
John N. Hanna, Chairman of the
Board, and Chief Executive Officer
Date: September 14, 1998 By: /s/ W. Douglas Caudell
W. Douglas Caudell,
Chief Financial Officer
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<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 274,543
<SECURITIES> 0
<RECEIVABLES> 1,132,618
<ALLOWANCES> 0
<INVENTORY> 2,006,086
<CURRENT-ASSETS> 3,730,670
<PP&E> 2,030,475
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,416,683
<CURRENT-LIABILITIES> 2,248,451
<BONDS> 0
0
0
<COMMON> 5,015,889
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<SALES> 7,078,116
<TOTAL-REVENUES> 7,078,116
<CGS> 4,865,701
<TOTAL-COSTS> 6,614,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,463
<INCOME-PRETAX> 374,475
<INCOME-TAX> (125,000)
<INCOME-CONTINUING> 499,475
<DISCONTINUED> 0
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